Vol. 79 Friday, No. 234 December 5, 2014

Pages 72107–72538

OFFICE OF THE FEDERAL REGISTER

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Contents Federal Register Vol. 79, No. 234

Friday, December 5, 2014

Agriculture Department Comptroller of the Currency NOTICES NOTICES Agency Information Collection Activities; Proposals, Agency Information Collection Activities; Proposals, Submissions, and Approvals, 72164–72165 Submissions, and Approvals: Company-Run Annual Stress Test Reporting Template Antitrust Division and Documentation for Covered Institutions with NOTICES Total Consolidated Assets of $50 Billion or More, Final Judgments and Competitive Impact Statements: 72245–72247 United States v. Nexstar Broadcasting Group, Inc., et al., 72203–72213 Employment and Training Administration NOTICES Meetings: Antitrust Workforce Investment Act; Native American Employment See Antitrust Division and Training Council, 72214

Arts and Humanities, National Foundation Environmental Protection Agency See National Foundation on the Arts and the Humanities RULES Pesticide Tolerances: Blind or Severely Disabled, Committee for Purchase From 2,5–Furandione, polymer with methoxyethene, butyl People Who Are ethyl ester, sodium salt; Exemption, 72140–72143 See Committee for Purchase From People Who Are Blind or PROPOSED RULES Severely Disabled National Emission Standards for Hazardous Air Pollutants: Ferroalloys Production; Extension of Comment Period, 72160 Centers for Medicare & Medicaid Services NOTICES RULES Environmental Impact Statements; Weekly Receipts, 72172 Medicare Program: Requirements for the Medicare Incentive Reward Program Executive Office of the President and Provider Enrollment, 72500–72533 See Presidential Documents NOTICES See Science and Technology Policy Office Medicare, Medicaid, and Children’s Health Insurance Programs: Export-Import Bank Provider Enrollment Application Fee Amount for NOTICES Calendar Year 2015, 72183–72185 Meetings; Sunshine Act, 72172–72173

Civil Rights Commission Farm Credit Administration NOTICES NOTICES Meetings; Sunshine Act, 72165 Meetings; Sunshine Act, 72173

Coast Guard Federal Aviation Administration RULES RULES Drawbridge Operations: Air Traffic Service Routes: Gulf Intracoastal Waterway, Belle Chasse, LA, 72140 North Central and Northeast United States; Amendment, PROPOSED RULES 72135–72139 Drawbridge Operations: Airworthiness Directives: Illinois Waterway, Joliet, IL; Public Meeting, 72154– Airbus Airplanes, 72124–72132 72155 Robinson Helicopter Company Helicopters, 72132–72135 Port Access Route Study: The Boeing Company Airplanes, 72121–72123 In the Chukchi Sea, Bering Strait and Bering Sea, 72157– NOTICES 72159 Airport Property Releases: Safety Zones: Eufaula Municipal Airport; Eufaula Municipal Airport, Gallant Channel, Beaufort, NC, 72155–72157 72239–72240 Waivers of Aeronautical Land-Use Assurance: Office of Commercial Space Transportation; Launch and Commerce Department Mission Risk; Amendment, 72240–72241 See Foreign-Trade Zones Board See International Trade Administration Federal Communications Commission RULES Committee for Purchase From People Who Are Blind or Cellular Service, Including Changes in Licensing of Severely Disabled Unserved Area, 72143–72153 NOTICES Radio Broadcasting Services: Procurement List; Additions and Deletions, 72171–72172 Rough Rock, AZ, 72153

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NOTICES Foreign Claims Settlement Commission Agency Information Collection Activities; Proposals, NOTICES Submissions, and Approvals, 72173–72174 Meetings; Sunshine Act, 72213 Radio Broadcasting Services: AM or FM Proposals to Change the Community of Foreign-Trade Zones Board License, 72175 NOTICES Authorization of Production Activities: Federal Housing Finance Agency Apple Inc./GTAT Corp., et al., Foreign-Trade Zone 221, RULES Mesa, AZ, 72165 Reporting by Regulated Entities of Stress Testing Results as of September 30, 2014, 72120–72121 Health and Human Services Department See Centers for Medicare & Medicaid Services Federal Maritime Commission See Food and Drug Administration NOTICES See Health Resources and Services Administration Complaints: See Indian Health Service Baltic Auto Shipping, Inc. v. Michael Hitrinov a/k/a See National Institutes of Health Michael Khitrinov, Empire United Lines Co., Inc., 72175 Health Resources and Services Administration Ngobros and Co. Nigeria, Ltd. v. Oceane Cargo Link, LLC, NOTICES and Kingston Ansah, Individually, 72175 Agency Information Collection Activities; Proposals, Meetings; Sunshine Act, 72175–72176 Submissions, and Approvals, 72188–72190 Federal Railroad Administration Homeland Security Department NOTICES Agency Information Collection Activities; Proposals, See Coast Guard Submissions, and Approvals, 72241–72242 See U.S. Immigration and Customs Enforcement Petitions for Waiver of Compliance, 72242–72243 Housing and Urban Development Department Federal Reserve System NOTICES RULES Agency Information Collection Activities; Proposals, Collection of Checks and Other Items by Federal Reserve Submissions, and Approvals: Banks and Funds Transfers through Fedwire: Application for Energy Innovation Fund; Multifamily Time of Settlement by a Paying Bank for an Item Pilot Program, 72194 Received from a Reserve Bank, 72107–72112 Multifamily Insurance Benefits Claims Package, 72194– Policy Statements: 72195 Payment System Risk; Procedures for Measuring Daylight Survey Questions for Small Contractor Marketplace, Overdrafts, 72112–72120 72192–72193 Use Restriction Agreement Monitoring and Compliance, Federal Trade Commission 72193–72194 NOTICES Federal Properties Suitable as Facilities to Assist the Agency Information Collection Activities; Proposals, Homeless, 72195–72199 Submissions, and Approvals, 72176–72178 Proposed Consent Agreements: Indian Affairs Bureau GlaxoSmithKline, PLC and Novartis AG, 72178–72181 NOTICES Medtronic, Inc. and Covidien plc, 72181–72183 Indian Gaming, 72200 Fish and Wildlife Service Indian Health Service PROPOSED RULES See Indian Health Service Endangered and Threatened Wildlife and Plants: PROPOSED RULES Review of Native Species that are Candidates for Listing Payment for Physician and Other Health Care Professional as Endangered or Threatened; Annual Notice of Services Purchased: Findings on Resubmitted Petitions; Annual Indian Health Programs and Medical Charges Associated Description of Progress on Listing Actions, 72450– with Non-Hospital-Based Care, 72160–72163 72497 Interior Department Food and Drug Administration See Fish and Wildlife Service NOTICES See Indian Affairs Bureau Guidance for Industry and Staff: See National Park Service How to Obtain a Letter from the Food and Drug See Reclamation Bureau Administration Stating that Bioequivalence Study NOTICES Protocols Contain Safety Protections Comparable to Senior Executive Service Performance Review Board Applicable Risk Evaluation, etc., 72185–72186 Appointments, 72199–72200 Withdrawal of Approval of New Drug Applications and Abbreviated New Drug Applications: International Trade Administration Mallinckrodt Inc. et al., 72186–72188 NOTICES Agency Information Collection Activities; Proposals, Foreign Assets Control Office Submissions, and Approvals: NOTICES Certain Activated Carbon from the People’s Republic of Blocking or Unblocking of Persons and Properties, 72248 China, 72165–72166

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Antidumping or Countervailing Duty Investigations, Orders, Nuclear Regulatory Commission or Reviews: NOTICES Certain Frozen Fish Fillets from the Socialist Republic of Hearings: Vietnam, 72170–72171 DTE Electric Co., Combined License for Enrico Fermi Circular Welded Non-Alloy Steel Pipe from the Republic Unit 3, 72215–72217 of Korea, 72168–72170 Polyethylene Terephthalate Film, Sheet, and Strip from Presidential Documents the People’s Republic of China, 72166–72168 PROCLAMATIONS Special Observances: International Trade Commission International Day of Persons With Disabilities (Proc. NOTICES 9217), 72535–72538 Antidumping or Countervailing Duty Investigations, Orders, or Reviews: Reclamation Bureau Barium Carbonate from China, 72202 NOTICES Investigations; Determinations, Modifications, and Rulings, Fee Sites: etc.: Stony Gorge Reservoir, Elk Creek, CA, 72201–72202 Certain Welded Line Pipe from Korea and Turkey, 72202–72203 Science and Technology Policy Office NOTICES Justice Department Meetings: See Antitrust Division National Science and Technology Council, 72217 See Foreign Claims Settlement Commission Securities and Exchange Commission RULES Labor Department Regulation Systems Compliance and Integrity, 72252–72447 See Employment and Training Administration NOTICES See Federal Contract Compliance Programs Office Agency Information Collection Activities; Proposals, NOTICES Submissions, and Approvals, 72218–72219 Agency Information Collection Activities; Proposals, Options Price Reporting Authority: Submissions, and Approvals: Reporting of Consolidated Options Last Sale Reports and Focus Groups for Evaluating the Effectiveness of Quotation Information, 72219–72221 Employee Retirement Income Security Act Disclosure Self-Regulatory Organizations; Proposed Rule Changes: Requirements, 72213–72214 Municipal Securities Rulemaking Board, 72225–72235 NASDAQ Stock Market, LLC, 72221–72223 National Foundation on the Arts and the Humanities NYSE Arca, Inc., 72223–72225 NOTICES Options Clearing Corp., 72225 Agency Information Collection Activities; Proposals, The NASDAQ Stock Market LLC, 72235–72236 Submissions, and Approvals: Let’s Move Museums, Let’s Move Gardens, 72214–72215 Small Business Administration NOTICES National Highway Traffic Safety Administration Agency Information Collection Activities; Proposals, NOTICES Submissions, and Approvals, 72236–72237 Agency Information Collection Activities; Proposals, Disaster Declarations: Submissions, and Approvals: Colorado; Amendment 1, 72237 Qualitative Feedback on Agency Service Delivery, 72243– 72244 Social Security Administration NOTICES Agency Information Collection Activities; Proposals, National Institutes of Health Submissions, and Approvals, 72237–72239 NOTICES Meetings: Surface Transportation Board Center for Scientific Review, 72191–72192 NOTICES Clinical Center, 72191 Control Exemptions: National Cancer Institute, 72190 Genesee and Wyoming, Inc.; Arkansas Midland Railroad National Human Genome Research Institute, 72190– Co., Inc., The Prescott and Northwestern Railroad 72191 Co., and Warren and Saline River Railroad Co., 72244–72245 National Park Service NOTICES Transportation Department National Register of Historic Places: See Federal Aviation Administration Pending Nominations and Related Actions, 72200–72201 See Federal Railroad Administration See National Highway Traffic Safety Administration National Science Foundation See Surface Transportation Board NOTICES Antarctic Conservation Act Permits, 72215 Treasury Department Meetings: See Comptroller of the Currency Astronomy and Astrophysics Advisory Committee, 72215 See Foreign Assets Control Office

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U.S. Immigration and Customs Enforcement Part III NOTICES Interior Department, Fish and Wildlife Service, 72450– Agency Information Collection Activities; Proposals, 72497 Submissions, and Approvals, 72192 Part IV Veterans Affairs Department Health and Human Services Department, Centers for NOTICES Medicare & Medicaid Services, 72500–72533 Agency Information Collection Activities; Proposals, Submissions, and Approvals: Part V Application for United States Flag for Burial Purposes, Presidential Documents, 72535–72538 72248 PACT Evaluating Peer Notifications to Improve Statin Medication Adherence among Patients with Coronary Artery Disease, 72248–72249 Reader Aids Using Peer Mentors to Support Patient Aligned Care Consult the Reader Aids section at the end of this page for Team Efforts to Improve Diabetes, 72249–72250 phone numbers, online resources, finding aids, reminders, and notice of recently enacted public laws. To subscribe to the Federal Register Table of Contents Separate Parts In This Issue LISTSERV electronic mailing list, go to http:// listserv.access.gpo.gov and select Online mailing list Part II archives, FEDREGTOC-L, Join or leave the list (or change Securities and Exchange Commission, 72252–72447 settings); then follow the instructions.

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CFR PARTS AFFECTED IN THIS ISSUE

A cumulative list of the parts affected this month can be found in the Reader Aids section at the end of this issue.

3 CFR Proclamations: 9217...... 72537 12 CFR 210 (2 documents) ...... 72107, 72112 1238...... 72120 14 CFR 39 (4 documents) ...... 72121, 72124, 72127, 72132 71...... 72135 17 CFR 240...... 72252 242...... 72252 249...... 72252 33 CFR 117...... 72140 Proposed Rules: 117...... 72154 165...... 72155 167...... 72157 40 CFR 180...... 72140 Proposed Rules: 63...... 72160 42 CFR 405...... 72500 424...... 72500 498...... 72500 Proposed Rules: 136...... 72160 47 CFR 1...... 72143 22...... 72143 73...... 72153 50 CFR Proposed Rules: 17...... 72450

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Rules and Regulations Federal Register Vol. 79, No. 234

Friday, December 5, 2014

This section of the FEDERAL REGISTER scheduled to settle on July 23, 2015, and commercial check transactions. At the contains regulatory documents having general after will post according to the new same time, the Board requested applicability and legal effect, most of which posting rule procedures for these comment on proposed changes to are keyed to and codified in the Code of transactions, regardless of date of Regulation J that would conform to the Federal Regulations, which is published under deposit. proposed changes to the PSR policy.4 50 titles pursuant to 44 U.S.C. 1510. Currently, § 210.9(b)(2)(i) of FOR FURTHER INFORMATION CONTACT: Regulation J provides that the proceeds The Code of Federal Regulations is sold by Susan V. Foley, Senior Associate of a paying bank’s settlement must be the Superintendent of Documents. Prices of Director (202/452–3596), Samantha J. made available to its Administrative new books are listed in the first FEDERAL Pelosi, Manager (202/530–6292), Scott J. REGISTER issue of each week. Reserve Bank by the latest of (1) the next Anchin, Senior Financial Services clock hour that is at least one hour after Analyst (202/452–3638), Division of the paying bank receives the check; (2) Reserve Bank Operations and Payment FEDERAL RESERVE SYSTEM 9:30 a.m. eastern time; or (3) such later Systems; or Evan Winerman, Senior time as provided in the Reserve Banks’ 12 CFR Part 210 Attorney (202/872–7578), Legal operating circulars.5 Under this section, Division; for users of [Regulation J; Docket No. R–1473] 9:30 a.m. is the earliest time a paying Telecommunication Devices for the Deaf bank is required to settle for an item, RIN 7100–AE06 (TDD) only, contact 202/263–4869. and there has to be at least one hour SUPPLEMENTARY INFORMATION: between the time the item was Collection of Checks and Other Items presented to the paying bank and the by Federal Reserve Banks and Funds I. Background time the paying bank settles for the Transfers Through Fedwire: Time of Subpart A of Regulation J, Collection item. The same rules apply to the Settlement by a Paying Bank for an of Checks and Other Items by Federal settlement of returned items under Item Received From a Reserve Bank Reserve Banks, governs the collection of § 210.12(i).6 checks and the handling of returned AGENCY: Board of Governors of the Section 12.2 of the Reserve Banks’ checks by the Reserve Banks. The Federal Reserve System. Operating Circular 3 currently sets 11:00 purpose of the subpart is to provide a.m. as the earliest settlement time (later ACTION: Final rule. rules for collecting and returning items than 9:30 a.m. set forth in Regulation J). and settling balances. Among other SUMMARY: The Board of Governors Under section 12.2, the proceeds of a things, the subpart specifies the time (Board) is adopting amendments to paying bank’s settlement must be and manner in which paying banks subpart A of its Regulation J, Collection available to its Administrative Reserve must settle for items presented to them of Checks and Other Items by Federal Bank by the later of 11:00 a.m. or the by the Reserve Banks. Reserve Banks and Funds Transfers next clock hour that is at least one hour In accordance with Subpart A, the through Fedwire, to permit the Federal after the paying bank receives the item, Reserve Banks have issued Operating Reserve Banks (Reserve Banks) to but no later than 3:00 p.m. local time of Circular 3 (OC 3), Collection of Cash require paying banks that receive the paying bank. Items and Returned Checks, which presentment of checks from the Reserve Consistent with the proposed PSR provides specific terms and conditions Banks to make the proceeds of policy changes, the Board proposed that under which the Reserve Banks will settlement for those checks available to § 210.9(b)(2)(i) of Regulation J be revised handle checks.1 The Board’s Regulation the Reserve Banks as soon as one half- to state that the paying bank shall settle CC, Availability of Funds and Collection hour after receipt of the checks. The for an item by the latest of (1) the next of Checks, and provisions of the amendments will also permit the clock hour or clock half-hour that is at Uniform Commercial Code (UCC), as Reserve Banks to obtain settlement from least one half-hour after the paying bank adopted in a state, also govern the paying banks by as early as 8:30 a.m. receives the item; (2) 8:30 a.m.; or (3) collection, presentment, and return of eastern time for checks that the Reserve such later time as provided in the checks, to the extent those provisions Reserve Banks’ operating circulars. For Banks present. These amendments to are not inconsistent with Regulation J.2 example, if a Reserve Bank presents an Regulation J are consistent with the On December 10, 2013, the Board item by 8:00 a.m., the paying bank revised method for posting debits and requested comment on proposed would be required to settle for the item credits to banks’ Federal Reserve changes to the PSR policy.3 The changes at 8:30 a.m., unless a later settlement accounts to measure daylight overdrafts related to the Board’s procedures for time were provided for in the Reserve under amendments to the Federal posting debit and credit entries to Reserve Policy on Payment System Risk depository institutions’ Federal Reserve 4 78 FR 74041 (Dec.10, 2013). (PSR policy) that the Board is accounts for automated clearinghouse 5 All times are eastern time unless otherwise concurrently adopting. The Board is (ACH) debit transactions and specified. Section 210.9(b)(3)(i) sets forth similar also adopting a technical amendment to times of day if the paying bank closes voluntarily the definition of ‘‘Administrative on a Reserve Bank banking day. Section 1 Operating Circular 3 is available at 210.9(b)(4)(i) sets forth analogous times if the Reserve Bank.’’ www.frbservices.org/regulations/operating_ paying bank receives an item on a banking day on DATES: Effective Date: The technical circulars.html. which the Reserve Bank is closed, i.e., a business amendment to § 210.2(c) is effective on 2 12 CFR part 229; UCC Article 4. day that is not a banking day for the Reserve Bank. 3 78 FR 74130 (Dec. 10, 2013). The Federal 6 Section 210.12(i) of Regulation J provides that December 5, 2014. All other Reserve’s current policy on payment system risk is recipients of returned items must settle with amendments are effective on July 23, available at www.federalreserve.gov/ Reserve Banks in the same manner and by the same 2015. Applicability Date: All items paymentsystems/psr_policy.htm. time as items presented for payment.

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Banks’ operating circulars. The Board within a reasonable margin of error the Two commenters, the American proposed similar changes in approximate dollar value of the checks Bankers Association and the §§ 210.9(b)(3)(i) and (b)(4)(i). it expects the Reserve Banks to present Independent Community Bankers of The Board also proposed to define and should be able to hold balances America, supported the proposal to ‘‘clock half-hour,’’ a new term in sufficient to cover that amount. The allow the Reserve Banks to obtain § 210.2(p)(2), to mean a time that is on Reserve Banks now pay interest on most settlement from a paying bank for a the half-hour (for example, 1:30 or 2:30). institutions’ Federal Reserve account check by as early as 8:30 a.m., noting Section 210.2(p), which the Board balances, reducing institutions’ that the rules that allow the Reserve proposed to redesignate as § 210.2(p)(1), opportunity cost (that is, loss of interest) Banks to pay interest on account currently defines the term ‘‘clock hour’’ associated with holding higher account balances held by institutions reduces as a time that is on the hour (for balances overnight.8 In addition, the the cost that institutions might incur to example, 1:00 or 2:00). PSR policy allows eligible institutions hold funds overnight to cover any to collateralize their daylight overdrafts checks presented early the next II. Summary of Public Comments and to avoid paying a fee. For each two- morning. One commenter, the American Analysis week reserve maintenance period, Bankers Association, did not support The Board received six comments depository institutions also receive a the proposal to move the settlement submitted by depository institution $150 fee waiver, reducing the burden on time earlier than 8:30 a.m. but did not trade organizations on the proposed institutions that might incur small provide a specific reason. Four amendments to Regulation J.7 The Board amounts of uncollateralized daylight commenters, the Credit Union National considered these comments in overdrafts.9 Association, the Georgia Credit Union developing its final rule as discussed For these reasons, the Board is League, the Missouri Credit Union below. adopting as proposed the amendments Association, and the National shortening the minimum time period Association of Federal Credit Unions, A. One Half-Hour Window Between expressed concern that some smaller Presentment and Settlement between receipt of checks by a paying bank and the paying bank’s settlement institutions might be negatively affected The Board requested comment on to one half-hour. The Board did not by the proposed change and might have whether one half-hour between receipt receive any comments on the proposal to increase their Federal Reserve of items by a paying bank and the to define ‘‘clock half-hour’’ as a new account balances to settle presented paying bank’s settlement is sufficient for term in § 210.2(p)(2) and is adopting the checks by holding higher balances a paying bank to perform a limited new term as proposed. overnight, arranging for additional verification of cash letters and funding before settlement time, or determine whether to settle for or return B. Earliest Settlement Time at 8:30 a.m. incurring daylight overdrafts. the cash letter. The Board also requested The Board requested comment on The Board recognizes that some comment on whether a shorter period whether to permit the Reserve Banks to depository institutions will need to fund between presentment and settlement obtain settlement from a paying bank for their accounts earlier in order to settle would be appropriate (for example, a check by as early as 8:30 a.m. The for checks by as early as 8:30 a.m. or fifteen minutes). Board also requested comment on the incur daylight overdrafts. The Board Two commenters, the American feasibility of settlement earlier than 8:30 believes, however, that sufficient tools Bankers Association and the a.m., given the current almost all- are available to depository institutions Independent Community Bankers of electronic check processing to mitigate any adverse effect that a America, supported the Board’s environment, and whether an earlier change to 8:30 a.m. may present. As proposal to reduce the settlement settlement time would even better align discussed earlier, the Reserve Banks window to one half-hour, agreeing that presentment to settlement.10 now pay interest on most institutions’ advances in check processing allow for Federal Reserve account balances, a shorter period between check 8 12 CFR 204.10. eligible institutions can collateralize presentment and settlement. One 9 The Board notes that Federal Home Loan Banks their daylight overdrafts to avoid paying commenter, the American Bankers (FHLBs) are not eligible to earn interest on balances a fee, and depository institutions receive Association, did not support shortening in Federal Reserve accounts, but can act as pass- a $150 fee waiver for each two-week through correspondents. Per § 204.10 of Regulation reserve maintenance period. The the period further to 15 minutes but did D, in cases of balances maintained by pass-through not provide a specific reason. correspondents that are not interest-eligible changes to the posting rules of the PSR The Board believes that the almost all- institutions, Reserve Banks shall pay interest only policy and to Regulation J better align electronic nature of check processing on the balances maintained to satisfy a reserve the policy and regulation with today’s balance requirement of one or more respondents, electronic check processing that currently exists makes one half- and the correspondents shall pass back to its hour between presentment and respondents interest paid on balances in the environment, in which over 90 percent settlement sufficient because of the correspondent’s account (12 CFR 204.10). The of checks are available to be presented reduced time required to verify cash Board notes also that voluntary collateralization of by 8:00 a.m. and prompt settlement is daylight overdrafts and the $150 fee waiver are not letters in an electronic environment. possible for the majority of the value of available to Edge and agreement corporations, 11 The Board also believes that sufficient bankers’ banks that have not waived their check activity. Accordingly, the Board tools are available to depository exemption from reserve requirements, limited- institutions to mitigate any adverse purpose trust companies, government-sponsored unchanged when the scheduled opening of Fedwire enterprises (including FHLBs), and international moved from 8:30 a.m. to an earlier hour. 62 FR effect that movement to a one half-hour organizations. These types of institutions do not 48166, 48169 (Sept. 15, 1997). In December 1997, settlement window would have on an have regular access to the discount window and, the scheduled opening of Fedwire was moved from institution’s Federal Reserve account therefore, are expected not to incur daylight 8:30 a.m.to 12:30 a.m., and in May 2004, it moved balance. Past trends indicate that an overdrafts in their Federal Reserve accounts. to 9:00 p.m. on the preceding calendar day. For 10 In September 1997, the Board revised § 210.9(b) example, for the Reserve Banks’ banking day of institution should be able to predict to explicitly refer to 9:30 a.m. (rather than one hour Tuesday, Fedwire opens at 9:00 p.m. on Monday. after the opening of Fedwire) as the earliest time a 11 In addition, the proposed posting rules would 7 The comment letters are available at http:// paying bank could be required to settle for an item. give earlier availability for items deposited with the www.federalreserve.gov/apps/foia/ This revision to § 210.9(b) was intended to ensure Reserve Banks and for credit adjustments and proposedregs.aspx. the earliest settlement time for checks remained corrections.

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is adopting the amendments to amendment conforms § 210.2(c) to private-sector collecting banks and, in Regulation J, § 210.9(b) as proposed. The reorganized Regulation D. For the same turn, may pass credits for deposited Reserve Banks plan to amend OC 3 to reasons, the Board finds that there is checks earlier in the day without conform to the changes in Regulation J. good cause for the technical amendment incurring significant intraday float. to be effective immediately, rather than In March 1998, the Board requested C. Effective date thirty days after its publication date.15 comment on whether these legal The Board proposed that the changes differences between the rights of the to the PSR policy and these conforming IV. Competitive Impact Analysis Reserve Banks and private-sector changes to Regulation J would become The Board conducts a competitive presenting banks provided the Reserve effective six months after publication in impact analysis when it considers a rule Banks with a competitive advantage and the Federal Register. The Board or policy change that may have a whether the Board should take action to requested comment on whether six substantial effect on payment system reduce the differences.19 Commenters months provided paying banks with participants. Specifically, the Board generally concluded that the costs of sufficient time to make any necessary determines whether there would be a further changes outweighed any operational changes. direct and material adverse effect on the advantage of the Reserve Banks. In Five commenters, the American ability of other service providers to particular, commenters noted the Bankers Association, the Credit Union compete with the Federal Reserve due efficiency of the Reserve Bank’s auto- National Association, the Georgia Credit to legal differences or due to the Federal charge process for paying banks, and Union League, the Independent Reserve’s dominant market position stated that moving the private-sector Community Bankers of America, the deriving from such legal differences.16 If presentment deadline to later in the day Missouri Credit Union Association, such legal differences exist, the Board or eliminating the direct debit of Federal believed that a six-month lead time will assess whether the same objectives Reserve accounts for check would allow enough time to make any could be achieved by a modified presentments would result in higher necessary operational changes. One proposal with lesser competitive impact costs to paying banks and their business commenter, the National Association of or, if not, whether the benefits of the customers in terms of account Federal Credit Unions, requested that proposal outweigh the effect on management, settlement funds transfer the Board allow a one-year competition. fees, and shortened processing implementation period, stating that the The Board believes that the windows, and that those costs would proposed six-month implementation amendments to Regulation J do not have outweigh the benefits gained by period would not allow institutions a direct and material adverse effect on presenting banks. Based on an analysis enough time to adjust their policies and the ability of other service providers to of the comments, the Board took no procedures to reduce the chances of compete effectively with the Reserve further action. incurring daylight overdraft fees. The Banks in providing similar services. Currently, institutions may determine, Board is adopting an effective date of Under Regulation J, the Reserve Banks as part of the agreement between a July 23, 2015. All items scheduled to have the legal ability to obtain same-day presenting bank and a paying bank, the settle on this date and after will post settlement for checks they present time at which settlement for electronic according to the new posting rule before the paying bank’s cut-off hour checks is required to be funded. A procedures for these transactions, (typically 2:00 p.m. local time) through presenting bank and a paying bank regardless of date of deposit. ‘‘auto-charge,’’ that is, a direct debit to could agree, for example, to a minimum the Federal Reserve account of the time between presentment and III. Technical Amendment paying bank or its correspondent settlement. For presenting banks and The Board is also adopting a technical settlement agent.17 Under amended paying banks that opt to use a check amendment to the definition of Regulation J, the Reserve Banks could clearinghouse rather than directly ‘‘Administrative Reserve Bank.’’ 12 present a check at any time before the exchange checks, private-sector Section 210.2(c) states that an paying bank’s cut-off hour and debit the clearinghouses have the option to use ‘‘Administrative Reserve Bank’’ is the account of the paying bank or its the Reserve Banks’ National Settlement Reserve Bank in whose District the correspondent settlement agent on the Service (NSS) to effect settlement of entity is located, as determined under next clock hour or half-hour that is at checks or may settle by directing their the procedure described in § 204.3(b)(2) least one half-hour after presentment. members to initiate funds transfers over of the chapter (Regulation D). The Board In contrast, the latest that a private- the Reserve Banks’ Fedwire Funds has relocated § 204.3(b)(2) of Regulation sector bank may present a paper check Service.20 Beginning in January 2015, D to § 204.3(g).13 Accordingly, the Board for same-day settlement is 8:00 a.m. the NSS file submission window will be is amending the definition of local time. Section 229.36(f) of 7:30 a.m. to 5:30 p.m. Fedwire Funds ‘‘Administrative Reserve Bank’’ in Regulation CC requires the paying bank operating hours begin at 9:00 p.m. the § 210.2(c) to cross-reference § 204.3(g) to settle for the check by credit to a rather than § 204.3(b)(2). Reserve Bank account designated by the 19 The request for comment and the subsequent The Board did not provide public notice of the Board’s decision can be found, presenting bank by the close of Fedwire respectively, at 63 FR 12700 (March 16, 1998) and notice or request comment regarding (currently 6:30 p.m.) or by another 63 FR 68701 (December 14, 1998). this technical amendment. Pursuant to agreed-upon method and time.18 Thus, 20 NSS is a multilateral settlement service owned section 553(b)(3)(B) of the the Reserve Banks may present checks and operated by the Reserve Banks. The service is Administrative Procedure Act,14 the later in the day for same-day settlement offered to depository institutions that settle for participants in clearinghouses, financial exchanges, Board finds that public notice and than private-sector banks. In addition, and other clearing and settlement groups. comment is unnecessary because the the Reserve Banks may obtain Settlement agents, acting on behalf of depository technical amendment does not effect a settlement earlier in the day than institutions in a settlement arrangement, substantive change; rather, the technical electronically submit settlement files to the Reserve Banks. Files are processed upon receipt, and entries 15 5 U.S.C. 553(d)(3). are automatically posted to the depository 12 12 CFR 210.2(c). 16 Federal Reserve Regulatory Service, 7–145.2. institutions’ Reserve Bank accounts. The NSS file 13 See 74 FR 25629, 25633–34 (May 29, 2009). 17 12 CFR 210.9(b)(1) and (b)(5). submission window is currently 8:30 a.m. to 5:00 14 5 U.S.C. 553(b)(3)(B). 18 12 CFR 229.36(f)(2). p.m.

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previous calendar day and end at 6:30 would not have a significant economic adverse effects on depository p.m. impact on a substantial number of small institutions. Under the final amendments to entities (5 U.S.C. 605(b)). Nonetheless, a Small Entities Affected by the Rule Regulation J and the recently adopted Final Regulatory Flexibility Analysis changes to the PSR policy posting rules, has been prepared in accordance with 5 The final rule affects all institutions the bulk of the Reserve Banks’ postings U.S.C. 604, after consideration of that receive checks or returned checks of credits to senders and debits to comments received during the public handled by the Reserve Banks. The paying banks for commercial check comment period. Board believes that virtually all transactions will shift to earlier in the depository institutions receive checks or day. The value of checks a bank sends Statement of the Need for, and returned checks handled by the Reserve to the Reserve Banks could be higher or Objectives of the Final Rule Banks on at least an occasional basis. Pursuant to regulations issued by the lower than the value it receives from the These final amendments to Regulation Small Business Administration (SBA) Reserve Banks. As a result, the earlier J are necessary to conform the required (13 CFR 121.201), a ‘‘small banking posting of commercial check settlement times for checks presented by transactions may be viewed as more or organization’’ includes a depository the Reserve Banks to the method for less attractive, depending on whether institution with $550 million or less in posting debits and credits to the value of an institution’s check total assets. Based on data reported as of institutions’ Federal Reserve accounts to credits is higher or lower than the value June 30, 2014, the Board believes that measure daylight overdrafts under of its check debits. Further, private- there are approximately 11,750 small recent revisions to the PSR policy. The sector institutions can achieve depository institutions. Board believes that the Regulation J improvements in earlier settlement revisions and the PSR policy posting Projected Reporting, Recordkeeping, similar to those provided by the rule rules better align the settlement for and Other Compliance Requirements and the PSR policy changes through checks with actual deposit and private agreements among participants, The final rule would permit the as well as the use of NSS. presentment times, reflecting the Reserve Banks to require a paying bank More recently, the Board requested industry’s almost complete shift from to settle for an item by as early as 8:30 comment on the continued utility of the paper to electronic check processing. a.m., instead of 9:30 a.m., and as soon Regulation CC same-day settlement rule Public Comments as one half-hour, instead of one hour, for paper checks and whether the rule after it receives the item from the should be applied to electronic check The Board requested information and Reserve Banks. Paying banks may presentments by private-sector banks. comment on any costs that would arise choose to fund their accounts to The Board also noted that if, in the from the application of the proposed accommodate the earlier settlement time future, it proposes to eliminate the rule. Four institutions expressed by holding sufficient balances overnight same-day settlement rule, it could also concern that some smaller institutions or arranging for funding before the propose to retain the proscription might be negatively affected by the settlement time. Otherwise, paying against paying banks’ assessment of proposed change and might have to banks would incur daylight overdrafts presentment fees in order to maintain increase their Federal Reserve account in their Federal Reserve account. The the current balance of bargaining power, balances to settle presented checks by rule contains no other reporting, as well as reduce the competitive holding higher balances overnight, recordkeeping, or compliance disparities in presentment abilities arranging for additional funding before requirements. between the Reserve Banks and private- settlement time, or incurring daylight 21 Steps Taken To Minimize Impact of, sector banks. The Board is in the overdrafts. As discussed earlier, the and Significant Alternatives to, the process of analyzing these comments Board believes that sufficient tools are Final Rule and will discuss these issues, as available to depository institutions to appropriate, at a later date in the context mitigate any adverse effect. For As noted earlier, four commenters, the of the final amendments to Regulation example, the Reserve Banks now pay Credit Union National Association, the CC. In the meantime, the Board does not interest on most institutions’ Federal Georgia Credit Union League, the believe that the changes to Regulation J Reserve account balances, eligible Missouri Credit Union Association, and reducing the minimum time between institutions can collateralize their the National Association of Federal presentment and settlement to 30 from daylight overdrafts to avoid paying a Credit Unions, suggested that some 60 minutes, and moving the earliest fee, and depository institutions receive smaller institutions might be negatively settlement time to 8:30 a.m. from 9:30 a $150 fee waiver for each two-week affected by the proposed change and a.m., changes the Reserve Banks’ reserve maintenance period.22 As might have to increase their Federal competitive position versus private- further discussed earlier, under the PSR Reserve account balances to settle sector presenting banks in a material policy posting rules, the bulk of the presented checks by holding higher way. Reserve Banks’ postings of debits to balances overnight or arranging for additional funding before settlement V. Final Regulatory Flexibility Analysis paying institutions for commercial check transactions will shift to earlier in time. Otherwise, paying banks would The Board has reviewed the final the day, allowing the Reserve Banks to incur daylight overdrafts. As discussed regulation in accordance with section provide credits to depositing earlier, the Board believes that sufficient 3(a) of the Regulatory Flexibility Act institutions earlier, thus mitigating tools are available to depository (RFA) (5 U.S.C. 601 et seq.). The rule institutions to mitigate any adverse would apply to all depository 22 A small number of institutions could be effect on an institution’s Federal institutions that receive presentment or ineligible to receive intraday credit and would Reserve account balance (including return of checks from the Reserve incur overdrafts. To avoid violating the PSR policy interest on Federal Reserve account Banks. Based on current information, and incurring fees, these institutions would need to balances, collateralization of daylight increase funding either overnight or early in the the Board believes that the final rule morning. Some of these institutions could be overdrafts to avoid paying a fee, and a eligible to receive interest on Federal Reserve $150 fee waiver for each two-week 21 79 FR 6674 (Feb. 14, 2014). account balances. reserve maintenance period). As further

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discussed earlier, under the PSR policy List of Subjects in 12 CFR Part 210 that it does not receive a cash item on posting rules, the bulk of the Reserve Banks, Banking, Federal Reserve a day that is a banking day for a Reserve Banks’ postings of debits to paying System. Bank, and the Reserve Bank makes a institutions for commercial check cash item available to the paying bank transactions will shift to earlier in the Authority and Issuance on that day, the paying bank shall day, allowing the Reserve Banks to For the reasons set forth in the either— provide credits to depositing preamble, the Board amends Regulation (A) On that day, settle for the item so institutions earlier, thus mitigating J, 12 CFR part 210, as follows: that the proceeds of the settlement are adverse effects on depository available to its administrative Reserve institutions. PART 210—COLLECTION OF CHECKS Bank, or return the item, by the latest of AND OTHER ITEMS BY FEDERAL the next clock hour or clock half-hour Alternatively, the Board could have that is at least one half-hour after it adopted a rule that permits the Reserve RESERVE BANKS AND FUNDS TRANSFERS THROUGH FEDWIRE ordinarily would have received the Banks to require a paying bank to settle (REGULATION J) item, 8:30 a.m. eastern time, or such for an item at a time earlier than 8:30 later time as provided in the Reserve a.m. or leave the earliest possible ■ 1. The authority citation for part 210 Banks’ operating circulars; or settlement time at 9:30 a.m. The Board is revised to read as follows: (B) On the next day that is a banking believes the proposed time of 8:30 a.m. day for both the paying bank and the better achieves the Board’s goal of Authority: 12 U.S.C. 248(i), (j), and 248–1, 342, 360, 464, 4001–4010, and 5001–5018. Reserve Bank, settle for the item so that aligning presentment to settlement, and the proceeds of the settlement are better aligns with today’s electronic ■ 2. In § 210.2, revise paragraphs (c) and available to its administrative Reserve check processing environment, than the (p) to read as follows: Bank by 8:30 a.m. eastern time on that existing 9:30 a.m. settlement time under § 210.2 Definitions. day or such later time as provided in the Regulation J. In addition, the Board Reserve Banks’ operating circulars; and * * * * * believe that the proposed settlement compensate the Reserve Bank for the (c) Administrative Reserve Bank with time of 8:30 a.m. will impose minimal value of the float associated with the respect to an entity means the Reserve costs on paying banks. The Board item in accordance with procedures Bank in whose District the entity is sought comment on (1) whether provided in the Reserve Bank’s located, as determined under the permitting the Reserve Banks to obtain operating circular. procedure described in § 204.3(g) of this settlement from a paying bank for a (ii) If a paying bank closes voluntarily chapter (Regulation D), even if the entity check by as early as 8:30 a.m. was so that it does not receive a cash item is not otherwise subject to that section. appropriate and (2) the feasibility of on a day that is a banking day for a settlement prior to 8:30 a.m. and * * * * * Reserve Bank, and the Reserve Bank whether an earlier posting time would (p) Clock hour and clock half-hour. makes a cash item available to the even better align presentment to (1) Clock hour means a time that is on paying bank on that day, the paying settlement. (See discussion earlier in the hour, such as 1:00, 2:00, etc. bank is not considered to have received section II.B.) (2) Clock half-hour means a time that the item until its next banking day, but is on the half-hour, such as 1:30, 2:30, it shall be subject to any applicable In addition, in lieu of proposing to etc. overdraft charges if it fails to settle for permit the Reserve Banks to require a * * * * * or return the item in accordance with paying bank to settle as soon as one ■ paragraph (b)(3)(i) of this section. The half-hour after it receives the item from 3. In § 210.9, revise paragraphs (b)(2), settlement requirements of paragraphs the Reserve Banks, the Board could have (3), and (4) to read as follows: (b)(1) and (2) of this section do not proposed a shorter or longer period. The § 210.9 Settlement and payment. apply to a paying bank that settles in Board believes the final time period of * * * * * accordance with paragraph (b)(3)(i) of one half-hour promotes the Board’s (b) * * * this section. objective of minimizing the window (2) Time of settlement. (i) On the day (4) Reserve Bank closed. (i) If a paying between presentment and settlement to a paying bank receives a cash item from bank receives a cash item from a reflect technological and operational a Reserve Bank, it shall settle for the Reserve Bank on a banking day that is developments while continuing to item so that the proceeds of the not a banking day for the Reserve Bank, provide paying banks with sufficient settlement are available to its the paying bank shall— time to perform a limited verification of administrative Reserve Bank, or return (A) Settle for the item so that the cash letters. The Board requested the item, by the latest of— proceeds of the settlement are available comment on whether one half-hour (A) The next clock hour or clock half- to its administrative Reserve Bank by between presentment and settlement is hour that is at least one half-hour after the close of Fedwire on the Reserve appropriate or if a shorter window the paying bank receives the item; Bank’s next banking day, or return the would be sufficient. (See discussion (B) 8:30 a.m. eastern time; or item by midnight of the day it receives earlier in section II.A.) (C) Such later time as provided in the the item (if the paying bank fails to VI. Paperwork Reduction Act Analysis Reserve Banks’ operating circulars. settle for or return a cash item in (ii) If the paying bank fails to settle for accordance with this paragraph In accordance with the Paperwork or return a cash item in accordance with (b)(4)(i)(A), it shall become accountable Reduction Act (PRA) of 1995 (44 U.S.C. paragraph (b)(2)(i) of this section, it for the amount of the item as of the 3506; 5 CFR part 1320, appendix A.1), shall be subject to any applicable close of its banking day on the day it the Board reviewed the final rule under overdraft charges. Settlement under receives the item); and the authority delegated to the Board by paragraph (b)(2)(i) of this section (B) Settle for the item so that the the Office of Management and Budget satisfies the settlement requirements of proceeds of the settlement are available (OMB). No collections of information paragraph (b)(1) of this section. to its administrative Reserve Bank by pursuant to the PRA are contained in (3) Paying bank closes voluntarily. (i) 8:30 a.m. eastern time on the Reserve the final rule. If a paying bank closes voluntarily so Bank’s next banking day or such later

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time as provided in the Reserve Bank’s orders, local Federal Reserve Bank processed overnight to 8:30 a.m. from operating circular, or return the item by checks, and savings bond redemptions 11:00 a.m. eastern time (ET) to coincide midnight of the day it receives the item. in separately sorted deposits. with the posting time for ACH credit If the paying bank fails to settle for or DATES: Effective Dates: The policy transactions processed overnight.2 return a cash item in accordance with changes related to the set of principles Under the proposal, other types of ACH this paragraph (b)(4)(i)(B), it shall be for establishing future posting transactions, including same-day ACH subject to any applicable overdraft procedures for the Reserve Banks’ same- and certain ACH return items, would charges. Settlement under this day ACH service, the Reserve Banks’ not be affected and would continue to paragraph (b)(4)(i)(B) satisfies the administration of the policy for U.S. post at 5:00 p.m. settlement requirements of paragraph branches and agencies of foreign The Board outlined four potential (b)(4)(i)(A) of this section. banking organizations, and the technical benefits to shifting earlier the posting (ii) [Reserved] revisions to the posting procedures for for ACH debit transactions. First, * * * * * Treasury checks, postal money orders, posting ACH debit transactions local Federal Reserve Bank checks, and according to the proposed posting rules By order of the Board of Governors of the would simplify account management by Federal Reserve System, December 1, 2014. savings bond redemptions will take effect on December 5, 2014. The policy allowing institutions to fund the net of Robert deV. Frierson, changes to the Board’s procedures for all ACH activity at a single posting time, Secretary of the Board. posting debit and credit entries to rather than funding debit and credit [FR Doc. 2014–28516 Filed 12–4–14; 8:45 am] institutions’ Federal Reserve accounts transactions separately. Second, the BILLING CODE 6210–01–P for ACH debit and commercial check change would increase liquidity early in transactions will take effect on July 23, the day both for institutions that 2015. All items scheduled to settle on originate ACH debit transactions over FEDERAL RESERVE SYSTEM this date and after will post according the FedACH network and for those to the new posting rule procedures for institutions that originate ACH debit 12 CFR Part 210 these transactions, regardless of date of transactions over the Electronic [Docket No. OP–1472] deposit. Payments Network (EPN), the other FOR FURTHER INFORMATION CONTACT: ACH operator, but have transactions Federal Reserve Policy on Payment Susan V. Foley, Senior Associate delivered to receiving institutions over System Risk; Procedures for Director (202/452–3596), Jeffrey D. the FedACH network (interoperator 3 Measuring Daylight Overdrafts Walker, Assistant Director (202/721– transactions). Third, moving the 4559), or Michelle D. Olivier, Senior posting time for ACH debit transactions AGENCY: Board of Governors of the to 8:30 a.m. would align the Reserve Federal Reserve System. Financial Services Analyst (202/452– 2404), Division of Reserve Bank Banks’ FedACH settlement times with ACTION: Policy statement. Operations and Payment Systems, Board those of EPN. The Board believes that this change would remove any potential SUMMARY: The Board of Governors of the of Governors of the Federal Reserve System; for users of competitive disparities between the two Federal Reserve System (Board) has ACH operators and their participants adopted revisions to part II of the Telecommunications Device for the Deaf (TDD) only, contact 202/263–4869. arising from the different settlement Federal Reserve Policy on Payment times for ACH debit transactions. SUPPLEMENTARY INFORMATION: System Risk (PSR policy) related to the Fourth, the earlier posting of ACH debit procedures for measuring balances I. Background transactions would increase the intraday in institutions’ accounts at the On December 10, 2013, the Board efficiency of the ACH network by Federal Reserve Banks (Reserve Banks). aligning better the settlement of ACH The changes relate to the Board’s requested comment on several changes to part II of the PSR policy intended to debit transactions with their processing. procedures for posting debit and credit Additionally, posting ACH debit entries to institutions’ Federal Reserve enhance the efficiency of the payment 1 transfers at 8:30 a.m. would better accounts for automated clearinghouse system. Technology and processing improvements have enabled payment conform to the Board’s principles for (ACH) debit transactions and measuring daylight overdrafts, commercial check transactions. systems and depository institutions to achieve significant efficiencies since the specifically the principle that Elsewhere in the Federal Register under encourages posting times to be as close Docket No. R–1473, the Board has Board first established the procedures, referred to as posting rules, to measure as possible to the delivery of payments adopted related changes to the Board’s to the receiving institution.4 Regulation J that affect when paying depository institutions’ intraday Federal Reserve account balances. The proposed banks settle for check transactions 2 changes to these posting rules are All times are eastern time unless otherwise presented to them by the Reserve Banks. specified. Additionally, in this document, the intended to align them with current In 2008, the Board requested comment on moving Board has adopted a set of principles for operations and processing times and to the posting time of ACH debit transactions from establishing future posting procedures strategically position the rules for future 11:00 a.m. to 8:30 a.m. to coincide with the posting advancements in the speed of clearing of ACH credit transactions but decided not to for the Reserve Banks’ same-day ACH pursue the change because of economic conditions service. The Board has also adopted a and settlement. at the time and the additional costs and liquidity change in language of the PSR policy Commercial and Government ACH pressures that could be placed on some institutions. The request for comment and the subsequent notice intended to clarify the Reserve Banks’ Debit Transactions of the Board’s decision not to pursue the proposed administration of the policy for U.S. The Board proposed moving the changes can be found, respectively, at 73 FR 12443 branches and agencies of foreign (Mar. 7, 2008) and 73 FR 79127 (Dec. 24, 2008). posting times for commercial and banking organizations. Finally, the 3 Liquidity refers to balances in Federal Reserve government ACH debit transactions Board has adopted two technical accounts to make payments. An increase in liquidity involves higher account balances, which revisions to the posting procedures to 1 78 FR 74130 (Dec. 10, 2013). The Board’s PSR could result in fewer daylight overdrafts. reflect deposit deadlines already in policy is available at www.federalreserve.gov/ 4 The Board’s four principles for measuring effect for Treasury checks, postal money paymentsystems/psr_policy.htm. daylight overdrafts are as follows: (1) The

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Commercial Check Transactions posting time of 5:30 p.m. on the day the proposed to post large-value debit The Board proposed several revisions paper check is presented to the paying corrections after the close of the 7 to its posting rules for commercial check bank. Fedwire Funds Service, the same time transactions to reflect today’s nearly 100 Under the current posting rules and as large-value debit adjustments are percent electronic check-processing Regulation J, at least one hour must posted.12 environment. Specifically, the Board elapse between presentment and posting The Board outlined four potential proposed to post commercial check to allow limited verification of cash benefits from the proposed changes to transactions, both credits and debits, at letters. The Board proposed reducing its commercial check posting rules. 8:30 a.m., 1:00 p.m., and 5:30 p.m., with this requirement from one hour to 30 First, the proposed posting rules would the specific posting time depending on minutes. As a result of the widespread give earlier availability for items when a check is deposited with the use of electronic check-handling deposited with the Reserve Banks based Reserve Banks (for credit) or presented methods and the extremely small value on an institution’s deposit behavior and by the Reserve Banks (for debit).5 of paper presentments, the Board would provide earlier availability for Credits associated with any commercial believes 30 minutes is now sufficient for credit adjustments and corrections. 8 checks received by the Reserve Banks’ institutions to verify cash letters. Second, these changes would simplify deposit deadlines would post on a Additionally, as part of the proposed the posting rule structure and, as a rolling basis at the next available posting rules, the Reserve Banks would result, reduce the administrative burden posting time at least 30 minutes after present multiple electronic cash letters on institutions and Reserve Banks. receipt by the Reserve Banks.6 per day to institutions that receive Third, the proposed rules would reduce Similarly, debits associated with electronic presentments, with the first the amount of intraday float currently electronic check transactions would presentment by 8:00 a.m. for settlement provided by the Reserve Banks as a post on a rolling basis at the next at 8:30 a.m.9 result of posting rules that do not available posting time that is at least 30 The Board also proposed to revise the adequately reflect current operations.13 minutes after presentment to the paying posting rules for large-value check Fourth, the proposals would align the bank. To accommodate the extra time corrections and adjustments amounting posting rules with the significant shift required to make paper presentments, to $1 million or more.10 In alignment over the past decade from paper to debits for the few remaining paper with the proposed posting times for electronic check clearing. The proposed commercial check transactions, which commercial check transactions, the commercial check posting rules would account for less than one-tenth of 1 Board proposed to move the settlement conform better to the Board’s principles percent of checks processed by the of large-value credit corrections and for measuring daylight overdrafts, Reserve Banks, would post at the final adjustments to begin at 8:30 a.m. and specifically the principles that hourly thereafter on the half-hour discourage providing intraday float and measurement procedures should not provide depending on when the discrepancy is encourage posting times to be as close intraday float to participants. (2) The measurement detected.11 Additionally, the Board as possible to the delivery of payments procedures should reflect the times at which payor to the receiving institution. institutions are obligated to pay for transactions. (3) 7 The posting of debits associated with electronic The users of payment services should be able to As part of its posting rule proposals, presentments earlier than the debits associated with control their use of intraday credit. (4) The Reserve paper check presentments may contribute the Board assessed the effect of the ACH Banks should not obtain any competitive advantage marginally to a given paying bank’s incentive to debit and commercial check transaction from the measurement procedures. The Board require that checks be presented to it in paper form. developed the principles in the early 1990s; for the posting rule changes on institutions’ Electronic check presentment is now pervasive, latest version, refer to 73 FR 12443 (Mar. 7, 2008). account balances and daylight overdraft however, and the Board does not believe that a 5 Under the current posting rules, commercial paying bank that receives presentments fees both separately and combined. The check credits post according to one of two options: electronically would be swayed by the later posting Board recognized that the combined (1) All credits post at a single, float-weighted time to return to paper presentment. effect of the changes would, on average, posting time, or (2) fractional credits post between the hours of 11:00 a.m. and 6:00 p.m., depending Credits for checks presented in paper form would reduce institutions’ Federal Reserve on the institution’s preference. The second option not be delayed to accommodate the extra time account balances at 8:30 a.m. for the required for presentment and would post at the next lets the institution receive portions of its available majority of master accounts that settle check credits on the clock hours between 11:00 a.m. available posting time at least 30 minutes after and 6:00 p.m. The option selected applies to all receipt by the Reserve Banks. The Reserve Banks ACH and commercial check activity (94 check deposits posted to an institution’s account. will monitor the value of commercial checks percent of approximately 3,500 master Both crediting options are based on surveys of presented in paper form, and should it increase accounts) based on second-quarter 2013 materially, the Board may propose changes to the check presentment times and vary across time payment data.14 Less than 1 percent of zones. Commercial check debits are posted on the posting rules to reduce float. next clock hour at least one hour after presentment 8 The Board issued a companion document beginning at 11:00 a.m. for paper checks and 1:00 requesting comment on proposed changes to and hourly thereafter, coinciding with the current p.m. local time for electronic checks, and ending at Regulation J, under which a paying bank would be posting rules for commercial checks. 3:00 p.m. local time. required to settle for an item by as early as 8:30 a.m. 12 Currently, debit corrections amounting to $1 6 Immediate credit would not be passed for and as soon as one half-hour after it receives the million or more post at 11:00 a.m. and hourly deferred-availability deposit products. Customer item from the Reserve Banks. The request for thereafter. availability for files deposited for these services comment can be found at 78 FR 74041 (Dec. 10, 13 Under the current posting rules, check credits would be the same as if the file were received at 2013). Elsewhere in the Federal Register under and paper check debits begin posting at 11:00 a.m., a deposit deadline before 8:00 a.m. the next Docket No. R–1473, the Board adopted these whereas electronic check debits begin posting at business day. changes to Regulation J. 1:00 p.m. local time. As a result, the current Currently, the Reserve Banks’ electronic check 9 The timing and frequency of presentments is measurement procedures provide intraday float, deposit deadlines are 9:00 p.m. on the previous subject to change by the Reserve Banks to align which has increased over time as electronic business day, and 1:00 a.m., 5:00 a.m., and 10:00 better with processing advancements and product deposits and presentments have expanded. a.m. on the settlement day. The paper check deposit type. 14 Although most institutions that maintain deadline is 7:00 p.m. on the previous business day. 10 Corrections are account entries made to correct master accounts are involved in both ACH and As a result, depositing banks could expect credit for discrepancies detected by a Reserve Bank during commercial check activity, approximately half of all electronic items deposited for the 9:00 p.m., 1:00 the initial processing of checks. Adjustments are these institutions settle their activity through a a.m., and 5:00 a.m. deposit deadlines to post at 8:30 account entries made to correct discrepancies correspondent rather than their own master a.m., and credit for electronic items deposited for detected by an institution after entries have posted account. the 10:00 a.m. deadline to post at 1:00 p.m. Paper to Federal Reserve accounts. In connection with the 2013 proposal, analysis items deposited by 7:00 p.m. on the previous day 11 Currently, credit corrections and adjustments reflects activity at the master account level from the would post at 8:30 a.m. amounting to $1 million or more post at 11:00 a.m. Continued

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these institutions, only 33 institutions, Banks’ voluntary (opt-in) same-day ACH to explain more clearly the Reserve would incur overdraft fees in any of the service and to any future same-day ACH Banks’ administration of the PSR policy six two-week reserve maintenance service, such as a universal same-day as it relates to U.S. branches and periods within the quarter analyzed. ACH service covering all participants in agencies of foreign banking The low incidence of fees can be the ACH network.17 These principles, organizations (FBOs). The proposed attributed to the current levels of which would apply in addition to the language would clarify that U.S. pledged collateral and collateralized current four posting-rules principles, branches and agencies of the same daylight overdrafts receiving a zero fee, were proposed as follows:18 foreign bank (also referred to as an FBO the $150 fee waiver covering modest (1) For each same-day ACH family) are expected to manage their amounts of uncollateralized overdrafts, transmission deadline, the Reserve accounts so that the daylight overdraft and the high balances held in Federal Banks will establish expected position in each account does not Reserve accounts. Twenty-eight of the distribution times for the same-day ACH exceed the capacity allocated to that 33 institutions are eligible to incur files. account from the FBO family’s net debit daylight overdrafts and could avoid a. The Reserve Banks will post cap.20 In the past, the Reserve Banks paying higher fees by pledging settlement for same-day ACH debit monitored the master accounts of FBO (additional) collateral, holding higher transactions no earlier than 15 minutes families on a consolidated basis rather balances and receiving interest on their after the Reserve Banks’ expected than requiring an FBO family to allocate Federal Reserve balances, or arranging distribution times for the associated its net debit cap if it wanted to incur early-morning funding. The remaining 5 same-day ACH file. daylight overdrafts in more than one institutions are ineligible to receive b. The Reserve Banks will post account across the Federal Reserve. intraday credit and would need to settlement for ACH credit and debit The Board proposed that the language increase funding in their accounts either transactions associated with a particular change clarifying the Reserve Banks’ by holding higher balances (and in some same-day ACH file distribution time at administration of the policy for U.S. cases potentially receiving interest on the same time. branches and agencies of FBOs would their Federal Reserve balances) or by (2) The Reserve Banks will not post be effective on final approval. arranging early-morning funding.15 settlement for same-day ACH III. Summary of Public Comments and For both the ACH debit and transactions between 6:30 p.m. and 8:30 Analysis commercial check posting rule a.m. on the next processing day. proposals, the Board proposed an (3) The Reserve Banks will post The Board received thirteen comment effective date of no less than six months settlement for same-day ACH letters in response to its PSR policy proposals.21 Comments were submitted from the publication of the revised PSR transactions exchanged with another by seven depository institution trade policy to give institutions sufficient operator to support universal same-day organizations, one private-sector time to make any necessary changes. ACH during the operating hours for the Reserve Banks’ National Settlement clearing and settlement system, one Principles for Future Posting Rules for Service (NSS).19 commercial banking organization, one the Reserve Banks’ Same-Day ACH The Board proposed that the bankers’ bank, one government- Service principles for future posting rules for sponsored enterprise, and two Given the Board’s expectations that the Reserve Banks’ same-day ACH individuals. Most commenters the Reserve Banks’ same-day ACH service would be effective on final expressed support for the posting-rule service will evolve, with the potential approval. proposals’ intent to improve the speed establishment of additional processing and efficiency of the payment system Language Clarification in Section II.G.3 cycles that require new posting times for but also raised specific concerns. The settlement, the Board proposed The Board proposed a language Board considered these comments in establishing a set of principles that clarification to part II of the PSR policy finalizing its changes to the PSR policy, would be applied to any new same-day as discussed in more detail below. ACH posting rules.16 Under the 17 In 2011, NACHA, a not-for-profit association Effect on Credit Unions and Small proposal, the Board would generally that manages the development, administration, and Institutions governance of the ACH network for participating request public comment on changes to depository institutions, proposed amendments to its Five commenters, including four the posting rules only when the changes operating rules to enable ACH debit and credit depository institution trade deviate from the principles. Such transfers to be cleared and settled on the same day organizations and a bankers’ bank, principles would apply to the Reserve that they are originated. The expedited service would require the participation of all receiving expressed concerns regarding the effect institutions in the ACH network, going beyond the of the ACH debit and commercial check second quarter 2013 and is intended to be Reserve Banks’ voluntary service. Although the posting rule proposals on credit unions illustrative only. All institutions should consider majority of NACHA’s voting members were in favor 22 their own historical payment activity when of the proposal, NACHA did not receive the 75 and small institutions. The evaluating the effect of the posting rule changes. percent positive votes required for passage. NACHA The average balance calculation only includes is currently evaluating modifications to its earlier 20 The previous language in the PSR policy that days in the second quarter of 2013 for which proposal to address concerns expressed regarding it. related to the administration of multiple master institutions had ACH debit or commercial check 18 These four posting-rule principles are outlined accounts was somewhat ambiguous and could have payment activity. The simulation of balances in a footnote earlier in this document. been interpreted to allow the Federal Reserve to focused only on balances held at 8:30 a.m., while 19 NSS is a multilateral settlement service owned administer these accounts as is the current practice the analysis of fees and collateral took into account and operated by the Reserve Banks. The service is (separate administration for the multiple master balances held and collateral pledged over the entire offered to institutions that settle for participants in accounts) or the previous practice (consolidated 21.5-hour Fedwire operating day. clearinghouses, financial exchanges, and other administration). 15 These institutions include bankers’ banks and clearing and settlement groups. Settlement agents, 21 The comment letters are available at http:// Federal Home Loan Banks, and not all would be acting on behalf of those institutions in a settlement www.federalreserve.gov/apps/foia/ eligible to earn interest on their Federal Reserve arrangement, electronically submit settlement files proposedregs.aspx. balances. to the Reserve Banks. Files are processed upon 22 Commenters were the Credit Union National 16 The current processing schedule has a 2:00 receipt, and entries are automatically posted to the Association, Georgia Credit Union League, Missouri p.m. deadline for submitting same-day, forward institutions’ Federal Reserve accounts. The NSS file Credit Union Association, National Association of ACH transactions for settlement at 5:00 p.m. Return submission window is currently 8:30 a.m. to 5:00 Federal Credit Unions, and Midwest Independent same-day ACH transactions post at 5:30 p.m. p.m. Bank.

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commenters were supportive of the The Board recognizes that many customers and the fees associated with proposals’ intent but believed that credit institutions are holding higher balances ACH services. The Board acknowledges unions and smaller institutions might be in their Federal Reserve accounts today, that institutions ineligible for access to disproportionately affected and the and although second-quarter 2013 intraday credit may face additional proposals could lead to more-frequent payment data indicate that only a very challenges as a result of the proposed and larger daylight overdrafts and limited number of credit unions and posting rule for ACH debit transactions. associated fees. Given the concerns institutions with assets less than $10 Of the 26 institutions ineligible to incur raised by commenters related to these billion would incur higher fees under daylight overdrafts that participate in types of institutions, the Board the proposal, over time, more of these FedACH, 22 on average would performed additional analysis on the institutions may need to alter their experience lower balances at 8:30 a.m. effect of the combined ACH debit and account management in response to the under the proposed posting rule for commercial check proposals on these posting rule changes. Nevertheless, the ACH debit transactions. Only 4 of these institutions based on second-quarter Board believes that institutions have the 22 institutions, however, would incur 2013 payment data, consistent with the tools to mitigate any adverse impact. For daylight overdrafts according to the 2013 proposal. Of the approximately each two-week reserve maintenance Board’s analysis of second-quarter 2013 3,500 master accounts maintained by period, institutions receive a $150 fee payment data. The average maximum institutions that settle ACH and waiver, which is intended to reduce the overdrafts incurred by these 4 commercial check activity, almost 800 burden on institutions that incur a small institutions over the quarter analyzed (22 percent) are maintained by natural amount of uncollateralized daylight ranged from just under $100,000 to person credit unions. The combined overdrafts. Many institutions have slightly below $100 million, with an posting rule proposals would, on considerable room for additional average of $33 million across the 4 average, reduce account balances held daylight overdrafts under the waiver. In institutions. These institutions would in Federal Reserve accounts at 8:30 a.m. addition, institutions could post need to arrange early-morning funding for 94 percent of these institutions. Out (additional) collateral, hold higher or hold higher balances overnight based of those credit unions that would balances overnight, or arrange early on expected settlement of ACH experience lower balances, only 1 credit morning funding. Interest on balances in activity.26 The Board understands that union would incur higher daylight Federal Reserve accounts would help there may be costs associated with these overdraft fees as a result of the compensate those institutions that hold actions, and institutions would need to proposals, and this credit union was higher balances overnight in their weigh the costs and benefits of their already incurring fees under the current Federal Reserve accounts. account-management options. In posting rules. The average increase in Effect on Institutions Ineligible for addition, the Board acknowledges that fees over the quarter under the proposed Access to Intraday Credit some institutions that would experience posting rules would be $132 per reserve lower balances might also need to One commenter, representing the maintenance period.23 To avoid fee manage their Federal Reserve accounts interests of five Federal Home Loan increases, this credit union could pledge more closely to avoid daylight Banks without regular access to the on average $7 million of additional overdrafts under the proposed posting discount window and thus without collateral.24 rule for ACH debit transactions. access to intraday credit under the PSR Excluding natural person credit A limited number of institutions that policy because of their classification as are ineligible for access to intraday unions, an additional 2,500 master government-sponsored enterprises, accounts of the approximately 3,500 credit may need to manage their Federal expressed concern that the proposed Reserve accounts to avoid daylight master accounts maintained by posting rule for ACH debit transactions institutions that settle ACH and overdrafts as a result of the earlier would be excessively burdensome for posting time for ACH debit transfers. commercial check activity are institutions ineligible for access to The Board believes that these maintained by institutions with assets of intraday credit.25 The commenter institutions can reasonably manage their less than $10 billion. The combined believed that, in addition to account Federal Reserve accounts for activity posting rule proposals would reduce, on management changes necessary to avoid settling at 8:30 a.m. given the average, account balances held in incurring daylight overdrafts, such as availability of Fedwire Funds beginning Federal Reserve accounts at 8:30 a.m. holding higher balances overnight or at 9:00 p.m. the previous calendar day. for 95 percent of these institutions. Out finding alternative liquidity sources, the The Board believes that the associated of those small institutions that would proposal might require these burden of closer account management experience lower balances, institutions to reduce their income- by a small number of institutions is approximately 1 percent, only 25 generating investments of overnight outweighed by the benefits of the earlier institutions, would incur higher fees as funds. The commenter also believed a result of the proposals. More than one- that, if adopted, the new posting rule for posting time discussed earlier, third of the 25 institutions were already ACH debit transactions might cause including the long-run efficiency of the incurring fees under the current posting institutions ineligible for access to payment system. rules, and the average increase in fees intraday credit to re-evaluate the Competitive Disparity Between Reserve over the quarter under the proposed provision of ACH services to their Bank and Private-Sector Services posting rules would be $66 per reserve In response to the Board’s ACH debit maintenance period. To avoid fee 25 Edge and agreement corporations, bankers’ increases, these 25 institutions could banks that have not waived their exemption from and commercial check posting rule pledge on average $10 million of reserve requirements, limited-purpose trust proposals, The Clearing House (TCH), (additional) collateral. companies, government-sponsored enterprises which owns EPN, was supportive of the including Federal Home Loan Banks (FHLBs), and Board’s intent to align and modernize international organizations do not have regular 23 The average calculation includes all reserve access to the discount window and are not the posting rules but expressed several maintenance periods in the quarter. permitted to incur daylight overdrafts in their 24 The average calculation only includes reserve Federal Reserve accounts. Voluntary 26 Only one of the four institutions is eligible to maintenance periods for which the credit union collateralization of daylight overdrafts and the $150 earn interest on its Federal Reserve account required (additional) collateral. fee waiver are not available to these institutions. balance.

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short-term and long-term competitive competitive disparity between Reserve TCH encouraged the Board to ensure disparity concerns. Specifically, TCH Bank and private-sector service that, in the long run, all processes was concerned that the posting rules providers.27 related to the posting and settlement for might give the Reserve Banks an unfair Additionally, TCH was concerned Reserve Bank priced services more advantage over private-sector clearing that the Reserve Banks’ priced services broadly do not provide an advantage to and settlement systems as a result of personnel could view participants’ the Reserve Banks over the private- underlying legal differences and the Federal Reserve account balances, sector clearing and settlement systems limited settlement hours of NSS. TCH daylight overdraft capacity, and as a result of legal or settlement also stated that in the long run, the placement on the real-time monitor and differences between providers. In the Board should ensure that all processes use that information to restrict normal course, the Board will continue related to the posting and settlement of transactions or payment services as a to assess Reserve Bank priced service Reserve Bank priced services do not means of managing potential settlement proposals for new products, pricing, or provide an advantage to Reserve Bank failures.28 Although the Reserve Banks’ posting rules to determine if any priced services over those of other priced services personnel may have the competitive advantage is derived from clearing and settlement systems. TCH ability to view account balances in the legal differences. In the case of stated that, in the short-term, the normal course of business operations, settlement, the Board believes that posting rules should avoid disrupting they do not have access to daylight potential competitive disparities can be the settlement of clearing and settlement overdraft capacity or risk control addressed by expanding NSS operating systems, specifically EPN’s 8:30 a.m. information. The Reserve Banks, like hours to encompass more of the Fedwire settlement of ACH transactions over other clearing and settlement systems, Funds day. Private-sector clearing and NSS. Two additional commenters, U.S. use a range of risk-management tools settlement systems would then Bank and NACHA, endorsed and that may include requiring minimum generally have the ability if needed to emphasized the importance of balances and collateral to manage the settle transactions in participants’ addressing TCH’s concerns related to Federal Reserve accounts over similar inherent risk of providing services, but 30 the proposed posting rules for ACH Reserve Bank priced services personnel hours as Reserve Bank priced services. In the short run, TCH also requested debit and commercial check do not influence the application of these that the Board delay the posting of ACH transactions. controls to be able to affect the outcome debit transactions until after 8:30 a.m. to Reserve Bank priced services settle of settlement and do not have the ability 29 avoid potentially disrupting EPN’s 8:30 transactions in participants’ Federal to apply such controls. a.m. settlement over NSS.31 TCH Reserve accounts through direct entries believed that posting FedACH debit 27 In addition to debit corrections and to the Federal Reserve’s accounting transactions at 8:30 a.m. could lower system whereas private-sector clearing adjustments, small-dollar credit corrections and adjustments also post after the close of the Fedwire EPN participants’ Federal Reserve and settlement systems typically use Funds Service. account balances and increase the Fedwire Funds, ACH, or NSS to settle 28 For the limited number of institutions that may likelihood that a participant would have transactions in participants’ Federal expose the Federal Reserve and other payment insufficient funds to settle its activity system participants to risk of loss, the Reserve Reserve accounts. The Board has over EPN. The Board believes there are traditionally encouraged the use of NSS Banks have implemented tools, including the Account Balance Monitoring System (ABMS), several factors that minimize the for multilateral settlement arrangements which can monitor institutions’ payment activity in likelihood of such an outcome. The to mitigate counterparty credit risk. The real time. ABMS verifies that institutions have posting of ACH debit and credit establishment of posting rules outside of sufficient balances to fund their Fedwire Funds, NSS, and certain ACH credit transactions as these transactions simultaneously at 8:30 a.m. the NSS operating day could potentially payment files are submitted and processed. ABMS may result in an increase in balances create competitive disparities between may reject these transactions if there are insufficient held by institutions that are large Reserve Bank and private-sector clearing funds to cover the associated payments, regardless originators of ACH debit transactions; and settlement systems. The posting of whether the payment files are processed by the Reserve Banks or submitted by private-sector many of the largest ACH debit rules proposed for ACH debit and clearing and settlement systems through NSS. originators are EPN customers. The commercial check transactions occur Institutions that are monitored in real time must posting-rule change benefits not only within the NSS file submission window, fund the total amount of their commercial ACH FedACH participants that originate with the exception of the final posting credit originations in order for the transactions to debit transactions but also EPN time for commercial check transactions be processed. If the Federal Reserve receives commercial ACH credit transactions from at 5:30 p.m. and the posting of a limited institutions monitored in real time after the matters.’’ http://www.federalreserve.gov/ number of check debit and small-dollar scheduled close of the Fedwire Funds Service, paymentsystems/pfs_standards.htm. credit corrections and adjustments after these transactions are currently processed at 12:30 30 Commercial check debit and small-dollar credit the close of Fedwire. The Reserve Banks a.m. the next business day, or by the ACH deposit corrections and adjustments post after the close of deadline, whichever is earlier. ABMS provides Fedwire. Given the minimal occurrence of large- will extend the NSS file submission intraday account information to the Reserve Banks value check corrections and adjustments and the window until 5:30 p.m. beginning in and institutions and is used primarily to give low value of other check corrections and January 2015. In regard to the posting of authorized Reserve Bank personnel a mechanism to adjustments, the Board does not believe posting debit corrections and adjustments after control and monitor account activity for selected these transactions after the close of Fedwire institutions. For more information on ACH provides a competitive advantage to the Reserve the close of Fedwire Funds, such late transaction processing, refer to the ‘‘ACH Bank priced services. posting ensures that an institution could Settlement Day Finality Guide’’ available through 31 TCH also requested a clarification on how not receive a debit correction or the Federal Reserve Financial Services Web site at FedACH debit and credit transactions would post adjustment before the associated http://www.frbservices.org. simultaneously at 8:30 a.m. Under the proposed 29 The Federal Reserve’s ‘‘Standards Related to posting rules, both ACH debit and credit transaction posted. Given the minimal Priced-Service Activities of the Federal Reserve transactions would be assigned the same posting occurrence of large-value check Banks’’ states that ‘‘No Reserve Bank personnel time, 8:30 a.m., and post exactly at the same time corrections and adjustments and the low with responsibility for priced services, unless acting for purposes of measuring an institution’s daylight value of other check corrections and in the capacity of president or first vice president, overdraft balance. Debit and credit transactions will also be responsible for monetary policy, bank would not be netted before posting; however, adjustments, the Board does not believe supervision, or lending areas. Priced-service because all transactions would post exactly at the posting these transactions after the close personnel will not make policy decisions affecting same minute, the institution’s account balance of Fedwire creates a significant monetary policy, bank supervision, or lending would only change by the net of its activity.

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customers that originate debit publication of the final rule in the will not post settlement for same-day transactions destined to FedACH Federal Register would allow enough ACH transactions between the close of customers, which settle according to the time to make necessary operational the Reserve Banks’ National Settlement Board’s posting rules. Institutions changes.32 One commenter, the National Service and 8:30 a.m. the next currently hold high balances, and most Association of Federal Credit Unions, processing day.’’ The modified principle have access to daylight overdrafts, with requested a one-year implementation requires that settlement post within the total daylight overdraft capacity period to allow institutions additional NSS operating day before the close of calculated as multiples of capital for time to determine if they were affected Fedwire Funds. As a result of the healthy institutions, to ensure the by the proposed posting rules and, if so, modification, the third proposed posting smooth functioning of the payment to raise capital. Given commenters’ rule principle, which stated that the system. Although high balances may not feedback, the Board is adopting an Reserve Banks will post settlement for remain, balances are not likely to drop implementation period of no less than same-day ACH transactions exchanged precipitously in the near term, giving six months as proposed, and the posting with another operator to support institutions time to adjust account- rule changes for ACH debit and universal same-day ACH during the management activity, if needed, to commercial check transactions will take operating hours for the Reserve Banks’ ensure sufficient balances for all effect on July 23, 2015. All items NSS, is no longer needed. The Board payment activity settling at 8:30 a.m. In scheduled to settle on this date and after has removed the third principle from addition, the Reserve Banks debit funds will post according to the new posting the final principles for establishing to cover ACH credit transactions for any rule procedures, regardless of the date of future posting rules for the Reserve institution on the highest level of deposit. Banks’ same-day ACH service. The control under the real-time monitor at Elsewhere in the Federal Register revised principles are as follows: the time of file submission, not when under Docket No. R–1473, the Board (1) For each same-day ACH the payments settle under the posting also adopted necessary related changes transmission deadline, the Reserve rules. The Reserve Banks also will to the Board’s Regulation J (12 CFR part Banks will establish expected extend the NSS file submission window 210) regarding the timing of when distribution times for the same-day ACH from 7:30 a.m. to 5:30 p.m., beginning paying banks settle for check files. in January 2015, and are evaluating transactions presented to them by the a. The Reserve Banks will post potential further expansion of NSS Reserve Banks effective on July 23, settlement for same-day ACH debit hours in the future. Given these factors, 2015. transactions no earlier than 15 minutes the Board continues to believe that Principles for Future Posting Rules for after the Reserve Banks’ expected posting ACH debit transactions at 8:30 the Reserve Banks’ Same-Day ACH distribution times for the associated a.m. is the best option for the long-run Service same-day ACH file. safety and efficiency of the payment b. The Reserve Banks will post system. Two commenters, TCH and U.S. settlement for ACH credit and debit The Board acknowledges some of the Bank, raised account-management and transactions associated with a particular competitive concerns expressed by TCH competitive disparity concerns same-day ACH file distribution time at and agrees with the need to have regarding the second principle proposed the same time. settlement options available at the same by the Board for future posting rules for (2) Settlement will not post between time to avoid introducing potential the Reserve Banks’ same-day ACH the close of the Reserve Banks’ National competitive disparities. In the near service. The principle stated that the Settlement Service and 8:30 a.m. on the term, the Board believes that extending Reserve Banks would not post next processing day. the NSS file submission window from settlement for same-day ACH In addition, five commenters, 7:30 a.m. to 5:30 p.m. mitigates any transactions between 6:30 p.m. and 8:30 including one commercial banking adverse competitive effect of the ACH a.m. the next processing day. organization, one private-sector clearing debit and commercial check posting Commenters’ concerns related to the and settlement system, and three rule changes. In the long run, the Board Reserve Banks’ ability to settle same-day depository institution trade believes that any competitive disparity ACH transactions until 6:30 p.m. organizations indicated their preference concerns resulting more broadly from Specifically, the commenters were that the Board always request comment Reserve Banks’ ability to settle concerned that posting these on new same-day ACH posting rule transactions outside of NSS hours can transactions up to the close of the proposals, regardless of whether these be addressed by further expanding NSS Fedwire Funds Service would not allow rules conformed to the posting rule operating hours, and potentially sufficient time between the settlement principles.33 Commenters believed it functionality. of same-day ACH transactions and the was important to request comment, The Board has adopted the posting close of Fedwire Funds for institutions given that future material considerations rules for ACH debit and commercial to settle other positions amongst may emerge that may not be addressed check transactions as proposed. themselves, and that the period between by the principles and any alterations to 5:00 p.m. and 6:30 p.m. was outside of the current same-day ACH service may Effective Dates for Posting Rule current NSS operating hours, putting require institutions to make significant Proposals any future private-sector same-day ACH changes. The Board continues to believe As part of its posting rules proposals service providers at a potential that the principles provide a reasonable for ACH debit and commercial check disadvantage relative to the Reserve gating mechanism to enable flexibility transactions, the Board proposed a six- Banks’ service. To address this concern, in the evolution of same-day ACH while month implementation period before the Board has modified the second still constraining settlement to the NSS the new posting rules would become principle to read, ‘‘The Reserve Banks operating day during core business effective. Five commenters, including hours. The Board expects that four depository institution trade 32 Commenters were the American Bankers associations and one government- Association, Credit Union National Association, Georgia Credit Union league, Missouri Credit Union 33 Commenters were U.S. Bank, TCH, Credit sponsored enterprise, indicated that an Association, and a joint letter from five Federal Union National Association, Georgia Credit Union effective date six months after the Home Loan Banks. League, and Missouri Credit Union Association.

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institutions can reasonably manage their As the updated deposit deadlines are (or by another agreed upon method).39 Federal Reserve accounts during the already in effect for the transactions Thus, Reserve Banks may present core business day. The Board will assess described earlier, institutions’ Federal checks later in the day for same-day each future posting rule for same-day Reserve account balances are not settlement than private-sector banks. In ACH to determine if public comment affected by these updates to the addition, Reserve Banks may obtain may be warranted based on the specific incorrectly stated deposit deadlines in settlement earlier in the day than circumstances and the environment at the posting rules. These revisions are private-sector collecting banks and, in that time and in conformance with the effective on December 5, 2014. turn, may pass credits for deposited Board’s ‘‘Principles for Pricing of V. Competitive Impact Analysis checks earlier in the day without Federal Reserve Bank Services.’’ 34 incurring significant intraday float. Those principles provide that that the The Board conducts a competitive In March 1998, the Board requested Board will request comment on impact analysis when it considers a rule comment on whether the legal proposed fee or service changes that or policy change that may have a differences between rights of the would have significant longer-run substantial effect on payment system Reserve Banks and the private-sector effects on the nation’s payment system. participants, such as that being presenting banks provided the Reserve The Board has adopted the same-day proposed for the posting of ACH debit Banks with a competitive advantage and ACH principles as revised earlier, and commercial check transactions. whether the Board should take action to effective on December 5, 2014. Specifically, the Board determines reduce the differences. Commenters whether there would be a direct and generally concluded that the costs of Language Clarification to Section II.G.3 material adverse effect on the ability of further changes outweighed any The Board received no comments on other service providers to compete with advantage of the Reserve Banks.40 In its proposed language clarification to the Federal Reserve due to differing particular, commenters noted the part II of the PSR policy regarding legal powers or due to the Federal efficiency of the Reserve Bank’s auto- operational changes in the Reserve’s dominant market position 37 charge process for paying banks, and administration of the policy as it relates deriving from such legal differences. stated that moving the private-sector to U.S. branches and agencies of FBOs. The Board believes that there are no presentment deadline to later in the day The Board has adopted the proposed adverse effects resulting from the or eliminating the direct debit of Federal language changes to section II.G.3 of the changes due to legal differences. Reserve accounts for check Shifting the posting of ACH debit PSR policy as proposed effective on presentments would result in higher transactions to 8:30 a.m. brings the December 5, 2014. costs to paying banks and their business settlement of ACH debit transactions customers in terms of account IV. Additional Technical Revisions to processed by the Reserve Banks’ the Posting Rules FedACH service in line with the private- management, settlement funds transfer fees, and shortened processing The Board has revised the PSR sector ACH operator, EPN. The posting- rule change benefits not only FedACH windows, and that those costs would policy’s posting rules to conform to the outweigh the benefits gained by current deposit deadline for Treasury participants that originate debit transactions but also EPN customers presenting banks. Based on an analysis checks, postal money orders, local of the comments, the Board took no Federal Reserve Bank checks, and that originate debit transactions destined to FedACH customers, which further action. savings bond redemptions in separately For the vast majority of checks sorted deposits, which post at 8:30 a.m. settle according to the Board’s posting rules. The Board also believes that the presented by private-sector banks today, The posting rule currently reflects a which are presented in electronic form, previous deposit deadline for these implementation window will provide ample time for institutions to make settlement occurs as agreed between the items at 12:01 a.m. local time or the presenting bank and paying bank. Banks local deposit deadline, whichever is account-management changes, if any. Under Regulation J, the Reserve Banks may determine, as part of the agreement later.35 Additionally, the Board has have the legal ability to obtain same-day between the presenting bank and paying revised the posting rules to conform to settlement for checks they present bank, the time at which settlement for the current deposit deadline for before the paying bank’s banking day checks is required to be funded. Treasury checks, postal money orders, cutoff hour through ‘‘auto-charge,’’ that Furthermore, for collecting banks and and savings bond redemptions in is, a direct debit to the Federal Reserve paying banks that opt to use a check separately sorted deposits which post at account of the paying bank or its clearinghouse, the clearinghouses have 5:00 p.m. The posting rule currently correspondent settlement agent.38 the option to use NSS to effect reflects a previous deposit deadline for Under the amendments to Regulation J settlement of checks or may settle by these items at 4:00 p.m.36 The Board is explained elsewhere in this Federal directing their members to initiate funds removing these obsolete deposit Register, the Reserve Banks will have transfers over the Reserve Banks’ deadline references and, in both cases, the right to debit the account of the Fedwire Funds Service. Beginning in indicating that the posting time will paying bank or its correspondent January 2015, the NSS file submission apply to items deposited by the latest settlement agent on the next clock hour window will be 7:30 a.m. to 5:30 p.m. applicable deposit deadline preceding or half-hour that is at least one half-hour Fedwire Funds operating hours begin at the posting time. after presentment. In contrast, when a 9:00 p.m. the previous calendar day and private-sector bank presents a paper end at 6:30 p.m. As adopted in this 34 The Board’s ‘‘Principles for Pricing of Federal Federal Register document, effective on Reserve Bank Services’’ are available at http:// check by 8:00 a.m. for same-day www.federalreserve.gov/paymentsystems/pfs_ settlement, Regulation CC requires the July 23, 2015, the Reserve Banks will principles.htm. paying bank to settle for the check by settle commercial check transactions at 35 At this time, for posting at 8:30 a.m., the sending a Fedwire Funds transfer to the 39 electronic deposit deadline is 5:00 a.m. the same presenting bank by the close of Fedwire 12 CFR 229.36(f)(2). day and the paper check deposit deadline is 7:00 40 The request for comment and the subsequent p.m. on the previous business day. notice of the Board’s decision can be found, 36 At this time, the deposit deadline is 10:00 a.m. 37 Federal Reserve Regulatory Service, 7–145.2. respectively, at 63 FR 12700 (March 16, 1998) and for items posting at 5:00 p.m. 38 12 CFR 210.9(b)(1) and (b)(5). 63 FR 68701 (December 14, 1998).

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8:30 a.m., 1:00 p.m., and 5:30 p.m. and VII. Federal Reserve Policy on Payment Revisions to Section II.G.3 of the PSR debits from corrections and adjustments System Risk Policy amounting to $1 million or more will Technical Revisions to the Posting Rules settle after the close of Fedwire Funds Effective December 5, 2014, section Service. A limited number of Effective on December 5, 2014, the II.G.3 of the ‘‘Federal Reserve Policy on commercial check debit and small- ‘‘Federal Reserve Policy on Payment Payment System Risk’’ is amended to clarify the Reserve Banks’ dollar credit corrections and System Risk’’ section II.A. under the administration of the policy for U.S. adjustments post after the close of heading ‘‘Procedures for Measuring branches and agencies of foreign Fedwire. Such late posting ensures that Daylight Overdrafts’’ and the banking organizations as follows. institutions only benefit intraday from subheadings ‘‘Post at 8:30 a.m. eastern detected processing errors and that an time’’ and ‘‘Post at 5:00 p.m. eastern 3. Multi-District Institutions institution could not receive a debit time’’ is amended as follows. correction or adjustment before the Post at 8:30 a.m. eastern time: An institution maintaining merger- associated check transaction posted. +/¥ Term deposit maturities and transition accounts or an Edge or Given the minimal occurrence of large- accrued interest agreement corporation that accesses Fedwire through master accounts in value check corrections and adjustments +/¥ Government and commercial ACH more than one Federal Reserve District and the low value of other check credit transactions 42 is expected to manage its accounts so corrections and adjustments, the Board + Treasury checks, postal money orders, that the total daylight overdraft position does not believe posting these local Federal Reserve Bank checks, across all accounts does not exceed the transactions after the close of Fedwire and savings bond redemptions in institution’s net debit cap. One Reserve creates a direct and material competitive separately sorted deposits; these Bank will act as the administrative disparity between Reserve Bank and items must be deposited by the 41 Reserve Bank and will have overall risk- private-sector service providers. latest applicable deposit deadline management responsibilities for an Under the adopted posting rules, the preceding the posting time. institution maintaining master accounts bulk of the Reserve Banks’ postings of + Advance-notice Treasury investments in more than one Federal Reserve credits to depositing banks and debits to ¥ Penalty assessments for tax payments District. For domestic institutions that paying banks for commercial check from the Treasury Investment have branches in multiple Federal transactions will shift to earlier in the Program (TIP).43 Reserve Districts, the administrative day. The value of checks a bank sends Post at 5:00 p.m. eastern time: Reserve Bank generally will be the to the Reserve Banks could be higher or +/¥ FedACH SameDay Service Reserve Bank where the head office of lower than the value it receives from the transactions the bank is located. Reserve Banks. As a result, the earlier +/¥ Immediate settlement ACH U.S. branches and agencies of the posting of commercial check transactions; these transactions same foreign bank (also referred to as an transactions may be viewed as more or include ACH return items and FBO family) are assigned one net debit less attractive, depending on whether check-truncation items. cap per FBO family. FBO families that the value of an institution’s check + Treasury checks, postal money orders, access Fedwire through master accounts credits is higher or lower than the value and savings bond redemptions in in more than one Federal Reserve of its check debits. Further, private- separately sorted deposits; these District are expected to manage their sector banks can achieve improvements items must be deposited by the accounts so that the daylight overdraft similar to those provided by the latest applicable deposit deadline position in each account does not proposed changes through private preceding the posting time. exceed the capacity allocated to that agreements among participants, as well + Local Federal Reserve Bank checks; account from the FBO family’s net debit as the use of the NSS. these items must be presented cap. The administrative Reserve Bank Given the factors discussed earlier, before 3:00 p.m. eastern time generally is the Reserve Bank that the Board does not believe that the exercises the Federal Reserve’s oversight changes to the posting rules would have 42 Institutions that are monitored in real time responsibilities under the International a direct and material adverse effect on must fund the total amount of their commercial Banking Act.44 The administrative other service providers to compete ACH credit originations before the transactions are Reserve Bank, in consultation with the processed by the Reserve Banks. If the Federal effectively with Reserve Banks in Reserve receives commercial ACH credit management of the foreign bank’s U.S. providing similar services. transactions from institutions monitored in real operations and with Reserve Banks in time after the scheduled close of the Fedwire Funds whose territory other U.S. agencies or VI. Paperwork Reduction Act Service, these transactions are currently processed branches of the same foreign bank are at 12:30 a.m. the next business day, or by the ACH located, may recommend that these In accordance with the Paperwork deposit deadline, whichever is earlier. The Account agencies and branches not be permitted Reduction Act of 1995 (44 U.S.C. 3506; Balance Monitoring System provides intraday account information to the Reserve Banks and to incur overdrafts in Federal Reserve 5 CFR part 1320 appendix A.1), the institutions and is used primarily to give authorized accounts. Alternatively, the Board reviewed the PSR policy changes Reserve Bank personnel a mechanism to control administrative Reserve Bank, after it is considering under the authority and monitor account activity for selected similar consultation, may recommend delegated to the Board by the Office of institutions. For more information on ACH transaction processing, refer to the ACH Settlement that all or part of the foreign family’s net Management and Budget. No collection Day Finality Guide available through the Federal debit cap be allocated to the Federal of information pursuant to the Reserve Financial Services Web site at http:// Reserve accounts of agencies or Paperwork Reduction Act are contained www.frbservices.org. 43 branches that are located outside of the in the policy statement. The Reserve Banks will identify and notify institutions with Treasury-authorized penalties on administrative Reserve Bank’s District; Thursdays. In the event that Thursday is a holiday, in this case, the Reserve Bank in whose 41 In addition to debit corrections and the Reserve Banks will identify and notify Districts those agencies or branches are adjustments, small-dollar credit corrections and institutions with Treasury-authorized penalties on adjustments also post after the close of Fedwire the following business day. Penalties will then be Funds. posted on the business day following notification. 44 12 U.S.C. 3101–3108.

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located will be responsible for + Advance-notice Treasury investments may be repaid before it would administering all or part of this policy.45 ¥ Penalty assessments for tax otherwise become due. payments from the Treasury Equals: Changes to the Posting Rules for ACH Investment Program (TIP).49 Closing Balance. Debit and Commercial Check Post at 8:30 a.m. eastern time and Transactions * * * * * hourly, on the half-hour, thereafter: Dated: December 1, 2014. Effective on July 23, 2015, the +/¥ Main account administrative ‘‘Federal Reserve Policy on Payment investment or withdrawal from TIP By order of the Board of Governors of the Federal Reserve System, System Risk’’ section II.A. under the +/¥ Special Direct Investment (SDI) heading ‘‘Procedures for Measuring administrative investment or Robert deV. Frierson, Daylight Overdrafts’’ is amended as withdrawal from TIP Secretary of the Board. follows. + 31 CFR part 202 account deposits [FR Doc. 2014–28664 Filed 12–4–14; 8:45 am] Procedures for Measuring Daylight from TIP BILLING CODE 6210–01–P Overdrafts 46 + Credit corrections amounting to $1 million or more 50 Opening Balance (Previous Day’s + Credit adjustments amounting to $1 FEDERAL HOUSING FINANCE Closing Balance) million or more 51 AGENCY Post at 8:30 a.m. eastern time: ¥ Uninvested paper tax (PATAX) +/¥ Term deposit maturities and deposits from TIP 12 CFR Part 1238 ¥ accrued interest Main account balance limit [No. 2014–N–15] +/¥ Government and commercial ACH withdrawals from TIP transactions 47 ¥ Collateral deficiency withdrawals Orders: Reporting by Regulated +/¥ Commercial check transactions, from TIP Entities of Stress Testing Results as of including returned checks 48 ¥ 31 CFR part 202 deficiency September 30, 2014 + Treasury checks, postal money withdrawals from TIP orders, local Federal Reserve Bank Post at 11:00 a.m. eastern time and AGENCY: Federal Housing Finance checks, and savings bond hourly thereafter: Agency. redemptions in separately sorted + Currency and coin deposits ACTION: Orders. deposits; these items must be Post at 1:00 p.m. eastern time: deposited by the latest applicable +/¥ Commercial check transactions, SUMMARY: In this document, the Federal deposit deadline preceding the including returned checks Housing Finance Agency (FHFA) posting time. Post at 5:30 p.m. eastern time: provides notice that it issued Orders +/¥ FedACH SameDay Service return dated December 1, 2014, with respect to 45 As in the case of Edge and agreement transactions. reporting under section 165(i)(2) of the corporations and their branches, with the approval +/¥ Commercial check transactions, Dodd-Frank Wall Street Reform and of the designated administrative Reserve Bank, a Consumer Protection Act (Dodd-Frank second Reserve Bank may assume the responsibility including returned checks for administering this policy regarding particular Post after the close of Fedwire Funds Act). foreign branch and agency families. This would Service: DATES: Effective December 5, 2014. Each often be the case when the payments activity and ¥ national administrative office of the foreign branch +/ All other transactions. These Order is applicable on December 1, and agency family is located in one District, while transactions include the following: 2014. the oversight responsibility under the International currency and coin shipments; FOR FURTHER INFORMATION CONTACT: Naa Banking Act is in another District. If a second noncash collection; term-deposit Reserve Bank assumes management responsibility, Awaa Tagoe, Senior Associate Director, settlements; Federal Reserve Bank monitoring data will be forwarded to the designated Office of Financial Analysis, Modeling administrator for use in the supervisory process. checks presented after 3:00 p.m. and Simulations, (202) 649–3140, 46 This schedule of posting rules does not affect eastern time but before 3:00 p.m. [email protected]; Stefan the overdraft restrictions and overdraft- local time; foreign check measurement provisions for nonbank banks Szilagyi, Examination Manager, transactions; small-dollar credit established by the Competitive Equality Banking FHLBank Modeling, FHLBank Risk Act of 1987 and the Board’s Regulation Y (12 CFR corrections and adjustments; and all Modeling Branch, (202) 649–3515, 225.52). debit corrections and adjustments. 47 [email protected]; or Mark D. Institutions that are monitored in real time Discount-window loans and must fund the total amount of their commercial Laponsky, Deputy General Counsel, repayments are normally posted ACH credit originations in order for the transactions Office of General Counsel, (202) 649– to be processed. If the Federal Reserve receives after the close of Fedwire as well; 3054 (these are not toll-free numbers), commercial ACH credit transactions from however, in unusual circumstances institutions monitored in real time after the [email protected]. The telephone a discount window loan may be scheduled close of the Fedwire Funds Service, number for the Telecommunications posted earlier in the day with these transactions are currently processed at 12:30 Device for the Hearing Impaired is (800) a.m. the next business day, or by the ACH deposit repayment 24 hours later, or a loan deadline, whichever is earlier. The Account 877–8339. Balance Monitoring System provides intraday 49 SUPPLEMENTARY INFORMATION: account information to the Reserve Banks and The Reserve Banks will identify and notify institutions and is used primarily to give authorized institutions with Treasury-authorized penalties on I. Background Reserve Bank personnel a mechanism to control Thursdays. In the event that Thursday is a holiday, and monitor account activity for selected the Reserve Banks will identify and notify FHFA is responsible for ensuring that institutions. For more information on ACH institutions with Treasury-authorized penalties on the regulated entities operate in a safe transaction processing, refer to the ACH Settlement the following business day. Penalties will then be Day Finality Guide available through the Federal posted on the business day following notification. and sound manner, including the Reserve Financial Services Web site at http:// 50 Corrections are account entries made to correct maintenance of adequate capital and www.frbservices.org. discrepancies detected by a Reserve Bank during internal controls, that their operations 48 For the three commercial check transaction the initial processing of checks. and activities foster liquid, efficient, 51 posting times, the Reserve Banks will post credits Adjustments are account entries made to competitive, and resilient national and debits to institutions’ accounts for checks correct discrepancies detected by an institution deposited and presented, respectively, at least 30 after entries have posted to Federal Reserve housing finance markets, and that they minutes before the posting time. accounts. carry out their public policy missions

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through authorized activities. See 12 Whereas, the Director of FHFA ACTION: Final rule. U.S.C. 4513. These Orders are being considers it appropriate to Order each issued under 12 U.S.C. 4514(a), which regulated entity to report to FHFA SUMMARY: We are adopting a new authorizes the Director of FHFA to results of stress testing under 12 CFR airworthiness directive (AD) for certain require by Order that the regulated part 1238 using scenarios supplied by The Boeing Company Model 787–8 entities submit regular or special reports FHFA; airplanes. This AD was prompted by to FHFA and establishes remedies and Whereas, FHFA issued to each failure during testing of the anchor procedures for failing to make reports regulated entity the required scenarios attachment on the occupant restraint required by Order. The Orders are and reporting templates on November system on the standard attendant seat accompanied by Summary Instructions 14, 2014, fifteen calendar days following due to an understrength attachment and Guidance to which is appended the Federal Reserve Board’s release of fitting. This AD requires replacing the reporting templates and scenarios for global shock scenario elements for use existing restraint attachment fitting on stress testing. in its Dodd-Frank stress testing the standard attendant seat with a new, exercises; and improved attachment fitting. We are II. Orders Whereas, section 1314 of the Safety issuing this AD to prevent failure of the For the convenience of the affected and Soundness Act, 12 U.S.C. 4514(a) restraint attachment fitting of the parties, the text of the Orders, without authorizes the Director of FHFA to attendant seat during an emergency the accompanying Summary require regulated entities, by general or landing, which could cause injury to the Instructions and Guidance and specific order, to submit such reports on cabin crew and passengers and could appendices, follows below in its their management, activities, and impede a rapid evacuation. entirety. You may access these Orders operations as the Director considers DATES: This AD is effective January 9, with all of the accompanying material appropriate. 2015. from FHFA’s Web site at: http:// Now therefore, it is hereby Ordered as The Director of the Federal Register www.fhfa.gov/Media/PublicAffairs/ follows: approved the incorporation by reference Pages/FHFA-Issues-Scenarios-and- Each regulated entity shall conduct of certain publications listed in this AD Guidance-to-FannieMae,-Freddie-Mac- annual stress testing and report to FHFA as of January 9, 2015. and-the-Federal-Home-Loan-Banks- and to the Board of Governors of the ADDRESSES: For service information Regarding-Annual-Dodd-Frank-St.aspx. Federal Reserve System the results of identified in this AD, contact Boeing The Orders and Summary Instructions such stress testing as required by 12 Commercial Airplanes, Attention: Data and Guidance will be available for CFR part 1238, in the form and with the & Services Management, P.O. Box 3707, public inspection and copying at the content described therein and in the MC 2H–65, Seattle, WA 98124–2207; Federal Housing Finance Agency, Summary Instructions and Guidance telephone 206–544–5000, extension 1; Eighth Floor, 400 Seventh St. SW., accompanying this Order, using the fax 206–766–5680; Internet https:// Washington, DC 20024. To make an scenarios and assumptions issued on www.myboeingfleet.com. You may view appointment, call (202) 649–3804. November 14, 2014, and provided in this referenced service information at The text of the Orders is as follows: Appendices 4 through 11 to the the FAA, Transport Airplane Summary Instructions and Guidance Federal Housing Finance Agency Directorate, 1601 Lind Avenue SW., that accompanies this Order. Renton, WA. For information on the Order Nos. 2014–OR–B–3, 2014–OR– It is so ordered, this 1st day of availability of this material at the FAA, FNMA–2, and 2014–OR–FHLMC–2 December 2014. call 425–227–1221. This Order is effective immediately. ORDER ON REPORTING BY Examining the AD Docket REGULATED ENTITIES OF STRESS Signed at Washington, DC, this 1st day of You may examine the AD docket on TESTING RESULTS AS OF December, 2014. the Internet at http:// SEPTEMBER 30, 2014 Melvin L. Watt, Director, Federal Housing Finance Agency. www.regulations.gov by searching for Whereas, section 165(i)(2) of the and locating Docket No. FAA–2014– Dated: December 1, 2014. Dodd-Frank Wall Street Reform and 0168; or in person at the Docket Consumer Protection Act (‘‘Dodd-Frank Melvin L. Watt, Management Facility between 9 a.m. Act’’) requires certain financial Director, Federal Housing Finance Agency. and 5 p.m., Monday through Friday, companies with total consolidated [FR Doc. 2014–28593 Filed 12–4–14; 8:45 am] except Federal holidays. The AD docket assets of more than $10 billion, and contains this AD, the regulatory which are regulated by a primary evaluation, any comments received, and Federal financial regulatory agency, to other information. The address for the conduct annual stress tests to determine DEPARTMENT OF TRANSPORTATION Docket Office (phone: 800–647–5527) is whether the companies have the capital Docket Management Facility, U.S. necessary to absorb losses as a result of Federal Aviation Administration Department of Transportation, Docket adverse economic conditions; Operations, M–30, West Building Whereas, FHFA’s rule implementing 14 CFR Part 39 Ground Floor, Room W12–140, 1200 section 165(i)(2) of the Dodd-Frank Act [Docket No. FAA–2014–0168; Directorate New Jersey Avenue SE., Washington, is codified as 12 CFR part 1238 and Identifier 2013–NM–208–AD; Amendment DC 20590. requires that ‘‘[e]ach regulated entity 39–18039; AD 2014–24–06] FOR FURTHER INFORMATION CONTACT: Eric must file a report in the manner and M. Brown, Aerospace Engineer, Cabin form established by FHFA.’’ 12 CFR RIN 2120–AA64 Safety and Environmental Systems 1238.5(b); Airworthiness Directives; The Boeing Branch, ANM–150S, FAA, Seattle WHEREAS, 12 CFR 1238.3(b) requires Company Airplanes Aircraft Certification Office, 1601 Lind that FHFA issue to each regulated entity Avenue SW., Renton, WA 98057–3356; scenarios to be used in conducting AGENCY: Federal Aviation phone: 425–917–6746; fax: 425–917– annual stress testing; Administration (FAA), DOT. 6590; email: [email protected].

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SUPPLEMENTARY INFORMATION: Requests for Changes to the Unsafe crew. Our evaluation shows that an Condition injury to a flight attendant would Discussion Boeing asked that we clarify the increase the risk of injury to a passenger We issued a notice of proposed unsafe condition specified in the during an emergency evacuation. We rulemaking (NPRM) to amend 14 CFR SUMMARY and Discussion sections of the have clarified the SUMMARY and part 39 by adding an AD that would NPRM (79 FR 17455, March 28, 2014). Discussion sections, as well as apply to certain The Boeing Company The unsafe condition in the NPRM paragraph (e) of this final rule, to Model 787–8 airplanes. The NPRM specified that the AD is being issued to include the phrase ‘‘injury to the cabin published in the Federal Register on ‘‘prevent failure’’ of the restraint crew and passengers.’’ March 28, 2014 (79 FR 17455). The attachment fitting and consequent Request To Clarify the Applicability NPRM was prompted by failure during ‘‘detachment of the attendant Section testing of the anchor attachment on the seat. . . .’’ Boeing stated that the occupant restraint system on the language should be clarified to specify Boeing asked that we clarify the scope standard attendant seat due to an that only the restraint system, not the of the affected airplanes specified in the understrength attachment fitting. The attendant seat, will detach. Boeing SUMMARY section of the NPRM (79 FR NPRM proposed to require replacing the added that the undersized fitting is not 17455, March 28, 2014), by referring to existing restraint attachment fitting on the correct reason for the failure because the service information as follows: ‘‘. . . the standard attendant seat with a new, the geometry of the existing fitting certain The Boeing Company Model improved attachment fitting. We are increased the local internal loads 787–8 airplanes, certificated in any issuing this AD to prevent failure of the beyond the attachment capability, and category, as identified in Boeing Service restraint attachment fitting of the the new fitting is actually smaller than Bulletin B787–81205–SB250027–00, attendant seat during an emergency the existing fitting, yet reduces the Issue 001, dated January 14, 2014.’’ landing, which could cause injury to the internal loads that lead to failure. Boeing stated that the current language cabin crew and passengers and could We agree with the commenter that identifies the target airplanes only as impede a rapid evacuation. only the restraint system, not the ‘‘certain The Boeing Company 787–8 attendant seat, will detach. We have airplanes,’’ which is not specific. Comments clarified this language in the SUMMARY We disagree with the request to add We gave the public the opportunity to and Discussion sections, as well as details for the affected airplanes participate in developing this AD. The paragraph (e) of this final rule. specified in the SUMMARY section. The following presents the comments We agree that the failure is due to the SUMMARY section of this final rule received on the NPRM (79 FR 17455, excessive internal loads generated by provides an overview and does not March 28, 2014) and the FAA’s response the attachment fitting geometry; include detailed information. Paragraph to each comment. however, we note that the term (c) of this AD lists the full details for the ‘‘undersized’’ refers to the loading airplanes affected by this final rule. We Request To Change the Reason for the capability of the attachment fitting, not have, however, changed the Unsafe Condition the actual physical size. We have applicability section specified in clarified the SUMMARY and Discussion paragraph (c) of this AD to also refer to Boeing asked that we change the sections, as well as paragraph (e) of this the effectivity of Boeing Service Bulletin reason for the unsafe condition in the final rule, by changing the term B787–81205–SB250027–00, Issue 001, SUMMARY and Discussion sections of the ‘‘undersized’’ to ‘‘understrength.’’ dated January 14, 2014. NPRM (79 FR 17455, March 28, 2014). Boeing also asked that the end level The reason specifies that the AD was effect, which specifies in part, ‘‘. . . Conclusion prompted by failure of the anchor could cause injury to passengers and We reviewed the relevant data, attachment on the occupant restraint crew . . .’’ be changed to ‘‘. . . could considered the comments received, and system on the standard attendant seat cause injury to cabin crew and determined that air safety and the due to an undersized attachment fitting. passengers. . .’’ Boeing stated that the public interest require adopting this AD Boeing stated that the reason stated in language in the NPRM (79 FR 17455, with the changes described previously. the NPRM is ambiguous and may give March 28, 2014) could suggest that the We also determined that these changes an incorrect impression of the nature of equivalent or primary threat is to will not increase the economic burden the failure. Boeing asked that the reason passengers because they are identified on any operator or increase the scope of be changed to specify that the triggering first; however, the primary threat would this AD. failure occurred during testing, and not be to the cabin crew. Boeing noted that Costs of Compliance in service. unrestrained cabin crew may be injured We agree with the commenter that the by impact to the aircraft interior or other We estimate that this AD affects 1 failure of the anchor attachment cabin crew or passengers. airplane of U.S. registry. occurred during testing. We have We agree with the commenter that the We estimate the following costs to changed this final rule accordingly. primary threat would be to the cabin comply with this AD:

ESTIMATED COSTS

Cost per Cost on U.S. Action Labor cost Parts cost product operators

Replacement ...... 1 work-hour × $85 per hour = $85 ...... $0 $85 $85

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Authority for This Rulemaking § 39.13 [Amended] (3) An AMOC that provides an acceptable level of safety may be used for any repair ■ Title 49 of the United States Code 2. The FAA amends § 39.13 by adding required by this AD if it is approved by the specifies the FAA’s authority to issue the following new airworthiness Boeing Commercial Airplanes Organization rules on aviation safety. Subtitle I, directive (AD): Designation Authorization (ODA) that has section 106, describes the authority of 2014–24–06 The Boeing Company: been authorized by the Manager, Seattle the FAA Administrator. Subtitle VII: Amendment 39–18039; Docket No. ACO, to make those findings. For a repair Aviation Programs, describes in more FAA–2014–0168; Directorate Identifier method to be approved, the repair must meet detail the scope of the Agency’s 2013–NM–208–AD. the certification basis of the airplane. authority. (a) Effective Date (i) Related Information We are issuing this rulemaking under This AD is effective January 9, 2015. the authority described in Subtitle VII, For more information about this AD, Part A, Subpart III, Section 44701: (b) Affected ADs contact Eric M. Brown, Aerospace Engineer, ‘‘General requirements.’’ Under that None. Cabin Safety and Environmental Systems Branch, ANM–150S, FAA, Seattle Aircraft section, Congress charges the FAA with (c) Applicability promoting safe flight of civil aircraft in Certification Office, 1601 Lind Avenue SW., This AD applies to The Boeing Company air commerce by prescribing regulations Renton, WA 98057–3356; phone: 425–917– Model 787–8 airplanes, certificated in any 6476; fax: 425–917–6590; email: for practices, methods, and procedures category, with Goodrich Model 2787 seat [email protected]. the Administrator finds necessary for assemblies installed; as identified in Boeing safety in air commerce. This regulation Service Bulletin B787–81205–SB250027–00, (j) Material Incorporated by Reference is within the scope of that authority Issue 001, dated January 14, 2014. (1) The Director of the Federal Register because it addresses an unsafe condition (d) Subject approved the incorporation by reference that is likely to exist or develop on Air Transport Association (ATA) of (IBR) of the service information listed in this products identified in this rulemaking America Code 25, Equipment/furnishings. paragraph under 5 U.S.C. 552(a) and 1 CFR action. part 51. (e) Unsafe Condition Regulatory Findings (2) You must use this service information This AD was prompted by failure during as applicable to do the actions required by testing of the anchor attachment on the This AD will not have federalism this AD, unless the AD specifies otherwise. implications under Executive Order occupant restraint system on the standard attendant seat due to an understrength (i) Boeing Service Bulletin B787–81205– 13132. This AD will not have a SB250027–00, Issue 001, dated January 14, substantial direct effect on the States, on attachment fitting. We are issuing this AD to prevent failure of the restraint attachment 2014. the relationship between the national fitting of the attendant seat during an (ii) UTC Aerospace Systems Service government and the States, or on the emergency landing, which could cause injury Bulletin 2787–25–006, Revision B, dated July distribution of power and to the cabin crew and passengers and could 10, 2013. responsibilities among the various impede a rapid evacuation. (3) For service information identified in levels of government. (f) Compliance this AD, contact Boeing Commercial For the reasons discussed above, I Airplanes, Attention: Data & Services Comply with this AD within the certify that this AD: compliance times specified, unless already Management, P.O. Box 3707, MC 2H–65, (1) Is not a ‘‘significant regulatory done. Seattle, WA 98124–2207; telephone 206– action’’ under Executive Order 12866, 544–5000, extension 1; fax 206–766–5680; (g) Replacement (2) Is not a ‘‘significant rule’’ under Internet https://www.myboeingfleet.com. DOT Regulatory Policies and Procedures Within 24 months after the effective date (4) You may view this service information of this AD: Replace the existing restraint at FAA, Transport Airplane Directorate, 1601 (44 FR 11034, February 26, 1979), attachment fitting on the standard attendant (3) Will not affect intrastate aviation Lind Avenue SW., Renton, WA. For seat with a new, improved attachment fitting, information on the availability of this in Alaska, and in accordance with the Accomplishment material at the FAA, call 425–227–1221. (4) Will not have a significant Instructions of Boeing Service Bulletin B787– 81205–SB250027–00, Issue 001, dated (5) You may view this service information economic impact, positive or negative, that is incorporated by reference at the on a substantial number of small entities January 14, 2014; and UTC Aerospace Systems Service Bulletin 2787–25–006, National Archives and Records under the criteria of the Regulatory Revision B, dated July 10, 2013. Administration (NARA). For information on Flexibility Act. the availability of this material at NARA, call (h) Alternative Methods of Compliance List of Subjects in 14 CFR Part 39 (AMOCs) 202–741–6030, or go to: http:// www.archives.gov/federal-register/cfr/ibr- Air transportation, Aircraft, Aviation (1) The Manager, Seattle Aircraft locations.html. safety, Incorporation by reference, Certification Office (ACO), FAA, has the Safety. authority to approve AMOCs for this AD, if Issued in Renton, Washington, on requested using the procedures found in 14 November 19, 2014. Adoption of the Amendment CFR 39.19. In accordance with 14 CFR 39.19, Suzanne Masterson, send your request to your principal inspector Accordingly, under the authority or local Flight Standards District Office, as Acting Manager, Transport Airplane delegated to me by the Administrator, appropriate. If sending information directly Directorate, Aircraft Certification Service. the FAA amends 14 CFR part 39 as to the manager of the ACO, send it to the [FR Doc. 2014–28132 Filed 12–4–14; 8:45 am] follows: attention of the person identified in BILLING CODE 4910–13–P paragraph (i) of this AD. Information may be PART 39—AIRWORTHINESS emailed to: 9-ANM-Seattle-ACO-AMOC- DIRECTIVES [email protected]. (2) Before using any approved AMOC, ■ 1. The authority citation for part 39 notify your appropriate principal inspector, or lacking a principal inspector, the manager continues to read as follows: of the local flight standards district office/ Authority: 49 U.S.C. 106(g), 40113, 44701. certificate holding district office.

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DEPARTMENT OF TRANSPORTATION 1601 Lind Avenue SW., Renton, WA AD reference in repair approvals. The 98057–3356; telephone 425–227–1405; commenters have made this request Federal Aviation Administration fax 425–227–1149. because this proposed requirement is SUPPLEMENTARY INFORMATION: overly broad and would add significant 14 CFR Part 39 cost and complexity to their operations. Discussion [Docket No. FAA–2014–0193; Directorate The commenters were concerned that Identifier 2013–NM–234–AD; Amendment We issued a notice of proposed this proposed requirement would set a 39–18040; AD 2014–24–07] rulemaking (NPRM) to amend 14 CFR precedent for how repairs are approved, part 39 by adding an AD that would and could negatively affect all U.S. RIN 2120–AA64 apply to certain Airbus Model A318, operators of foreign-manufactured Airworthiness Directives; Airbus A319, A320, and A321 series airplanes. airplanes. We concur with the commenters’ Airplanes The NPRM published in the Federal Register on April 10, 2014 (79 FR request to remove from this AD the AGENCY: Federal Aviation 19846). requirement that repair approvals Administration (FAA), Department of The European Aviation Safety Agency specifically refer to this AD. Transportation (DOT). (EASA), which is the Technical Agent Since late 2006, we have included a ACTION: Final rule. for the Member States of the European standard paragraph titled ‘‘Airworthy Community, has issued EASA Product’’ in all MCAI ADs in which the SUMMARY: We are adopting a new Airworthiness Directive 2013–0261, FAA develops an AD based on a foreign airworthiness directive (AD) for certain dated October 28, 2013 (referred to after authority’s AD. The MCAI or referenced Airbus Model A318, A319, A320, and this as the Mandatory Continuing service information in an FAA AD often A321 series airplanes. This AD was Airworthiness Information, or ‘‘the directs the owner/operator to contact prompted by a report of a crack found MCAI’’), to correct an unsafe condition the manufacturer for corrective actions, in the fuselage during a fatigue test for certain Airbus Model A318, A319, such as a repair. Briefly, the Airworthy campaign. This AD requires repetitive A320, and A321 series airplanes. The Product paragraph allowed owners/ rototest inspections for cracking; MCAI states: operators to use corrective actions corrective actions if necessary; and provided by the manufacturer if those modification of the torsion box, which During the full scale fatigue test campaign actions were FAA-approved. In would terminate the repetitive of the A320 family type design, a crack was addition, the paragraph stated that any reported in the fuselage side box beam flange actions approved by the State of Design inspections. We are issuing this AD to at frame (FR) 43 level, both sides. prevent cracking in the side box beam This condition, if not detected and Authority (or its delegated agent) are flange of the fuselage, which could corrected, could affect the structural integrity considered to be FAA-approved. affect the structural integrity of the of the aeroplane. In the NPRM (79 FR 19846, April 10, airplane. For the reason describe above, this [EASA] 2014), we proposed to prevent the use AD requires repetitive inspections of the of repairs that were not specifically DATES: This AD becomes effective fuselage side box beam flange at FR43, and, developed to correct the unsafe January 9, 2015. depending on findings, corrective action(s) condition, by requiring that the repair The Director of the Federal Register [repair]. This [EASA] AD also requires a approval provided by the State of approved the incorporation by reference modification, which constitutes terminating Design Authority or its delegated agent of certain publications listed in this AD action for the repetitive inspections. specifically refer to this FAA AD. This as of January 9, 2015. The modification includes related change was intended to clarify the ADDRESSES: You may examine the AD investigative and corrective actions. The method of compliance and to provide docket on the Internet at http:// related investigative actions include a operators with better visibility of repairs www.regulations.gov/ rotoprobe inspection of the holes for that are specifically developed and #!docketDetail;D=FAA-2014-0193; or in cracks, and a high frequency eddy approved to correct the unsafe person at the Docket Management current (HFEC) inspection for cracks. condition. In addition, we proposed to Facility, U.S. Department of The corrective action includes repair. change the phrase ‘‘its delegated agent’’ Transportation, Docket Operations, M– You may examine the MCAI in the AD to include ‘‘the Design Approval Holder 30, West Building Ground Floor, Room docket on the Internet at http:// (DAH) with a State of Design W12–140, 1200 New Jersey Avenue SE., www.regulations.gov/ Authority’s design organization Washington, DC. #!documentDetail;D=FAA-2014-0193- approval (DOA)’’ to refer to a DAH For service information identified in 0002. authorized to approve required repairs this AD, contact Airbus, Airworthiness for the proposed AD. Office—EIAS, 1 Rond Point Maurice Comments Comments were provided to the Bellonte, 31707 Blagnac Cedex, France; We gave the public the opportunity to NPRM (79 FR 19846, April 10, 2014) telephone +33 5 61 93 36 96; fax +33 5 participate in developing this AD. The about these proposed changes. One 61 93 44 51; email account.airworth- following presents the comments commenter, UPS, stated the following: [email protected]; Internet http:// received on the NPRM (79 FR 19846, ‘‘The proposed wording, being specific www.airbus.com. You may view this April 10, 2014) and the FAA’s response to repairs, eliminates the interpretation referenced service information at the to each comment. that Airbus messages are acceptable for FAA, Transport Airplane Directorate, approving minor deviations (corrective Request To Remove Requirement To 1601 Lind Avenue SW., Renton, WA. actions) needed during accomplishment Refer to This AD in Repair Approvals For information on the availability of of an AD mandated Airbus service this material at the FAA, call 425–227– Airlines for America, Inc. (A4A), on bulletin.’’ 1221. behalf of several affected member This comment has made the FAA FOR FURTHER INFORMATION CONTACT: airlines, requested that we revise aware that some operators have Sanjay Ralhan, Aerospace Engineer, paragraphs (h), (i), and (l)(2) of the misunderstood or misinterpreted the International Branch, ANM 116, NPRM (79 FR 19846, April 10, 2014) to Airworthy Product paragraph to allow Transport Airplane Directorate, FAA, remove the requirement to include the the owner/operator to use messages

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provided by the manufacturer as some time before the FAA AD. We have received no definitive data approval of deviations during the Therefore, the DOA may have provided that would enable us to provide cost accomplishment of an AD-mandated U.S. operators with an approved repair, estimates for the on-condition actions action. The Airworthy Product developed with full awareness of the specified in this AD. paragraph does not approve messages or unsafe condition, before the FAA AD is Authority for This Rulemaking other information provided by the issued. Under these circumstances, to manufacturer for deviations to the comply with the FAA AD, the operator Title 49 of the United States Code requirements of the AD-mandated would be required to go back to the specifies the FAA’s authority to issue actions. The Airworthy Product manufacturer’s DOA and obtain a new rules on aviation safety. Subtitle I, paragraph only addresses the approval document, adding time and section 106, describes the authority of requirement to contact the manufacturer expense to the compliance process with the FAA Administrator. ‘‘Subtitle VII: for corrective actions for the identified no safety benefit. Aviation Programs,’’ describes in more unsafe condition and does not cover Based on these comments, we detail the scope of the Agency’s deviations from other AD requirements. removed the requirement from this AD authority. However, deviations to AD-required that the DAH-provided repair We are issuing this rulemaking under actions are addressed in 14 CFR 39.17, specifically refer to this AD. Before the authority described in ‘‘Subtitle VII, and anyone may request the approval adopting such a requirement in the Part A, Subpart III, Section 44701: for an alternative method of compliance future, the FAA will coordinate with General requirements.’’ Under that to the AD-required actions using the affected DAHs and verify they are section, Congress charges the FAA with procedures found in 14 CFR 39.19. prepared to implement means to ensure promoting safe flight of civil aircraft in To address this misunderstanding and that their repair approvals consider the air commerce by prescribing regulations misinterpretation of the Airworthy unsafe condition addressed in an AD. for practices, methods, and procedures Product paragraph, we have changed Any such requirements will be adopted the Administrator finds necessary for that paragraph and retitled it through the normal AD rulemaking safety in air commerce. This regulation ‘‘Contacting the Manufacturer.’’ This process, including notice-and-comment is within the scope of that authority paragraph now clarifies that for any procedures, when appropriate. because it addresses an unsafe condition requirement in this AD to obtain We have also decided not to include that is likely to exist or develop on corrective actions from a manufacturer, a generic reference to either the products identified in this rulemaking the actions must be accomplished using ‘‘delegated agent’’ or the ‘‘DAH with action. a method approved by the FAA, EASA, State of Design Authority design or Airbus’s EASA DOA. Regulatory Findings organization approval,’’ but instead we The Contacting the Manufacturer We determined that this AD will not paragraph also clarifies that, if approved will provide the specific delegation approval granted by the State of Design have federalism implications under by the DOA, the approval must include Executive Order 13132. This AD will the DOA-authorized signature. The DOA Authority for the DAH. not have a substantial direct effect on signature indicates that the data and Conclusion the States, on the relationship between information contained in the document the national government and the States, are EASA-approved, which is also FAA- We reviewed the relevant data, or on the distribution of power and approved. Messages and other considered the comments received, and responsibilities among the various information provided by the determined that air safety and the levels of government. manufacturer that do not contain the public interest require adopting this AD DOA-authorized signature approval are with the changes described previously For the reasons discussed above, I not EASA-approved, unless EASA and minor editorial changes. We have certify that this AD: determined that these minor changes: 1. Is not a ‘‘significant regulatory directly approves the manufacturer’s • message or other information. Are consistent with the intent that action’’ under Executive Order 12866; This clarification does not remove was proposed in the NPRM (79 FR 2. Is not a ‘‘significant rule’’ under the flexibility afforded previously by the 19846, April 10, 2014) for correcting the DOT Regulatory Policies and Procedures Airworthy Product paragraph. unsafe condition; and (44 FR 11034, February 26, 1979); Consistent with long-standing FAA • Do not add any additional burden 3. Will not affect intrastate aviation in policy, such flexibility was never upon the public than was already Alaska; and intended for required actions. This is proposed in the NPRM (79 FR 19846, 4. Will not have a significant also consistent with the April 10, 2014). economic impact, positive or negative, recommendation of the AD We also determined that these on a substantial number of small entities Implementation Aviation Rulemaking changes will not increase the economic under the criteria of the Regulatory Committee to increase flexibility in burden on any operator or increase the Flexibility Act. complying with ADs by identifying scope of this AD. Examining the AD Docket those actions in manufacturers’ service Costs of Compliance instructions that are ‘‘Required for You may examine the AD docket on Compliance’’ with ADs. We continue to We estimate that this AD affects 851 the Internet at http:// work with manufacturers to implement airplanes of U.S. registry. www.regulations.gov/ this recommendation. But once we We also estimate that it would take #!docketDetail;D=FAA-2014-0193; or in determine that an action is required, any about 178 work-hours per product to person at the Docket Management deviation from the requirement must be comply with the basic requirements of Facility between 9 a.m. and 5 p.m., approved as an alternative method of this AD. The average labor rate is $85 Monday through Friday, except Federal compliance. per work hour. Required parts would holidays. The AD docket contains this Other commenters pointed out that in cost about $31,334 per product. Based AD, the regulatory evaluation, any many cases the foreign manufacturer’s on these figures, we estimate the cost of comments received, and other service bulletin and the foreign this AD on U.S. operators to be information. The street address for the authority’s MCAI may have been issued $39,540,864, or $46,464 per product. Docket Operations office (telephone

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800–647–5527) is in the ADDRESSES Instructions of Airbus Service Bulletin A320– [email protected]. Before using section. 53–1258, dated October 18, 2012. Repeat the any approved AMOC, notify your appropriate inspection thereafter at intervals not to principal inspector, or lacking a principal List of Subjects in 14 CFR Part 39 exceed 7,500 flight cycles or 15,000 flight inspector, the manager of the local flight Air transportation, Aircraft, Aviation hours, whichever occurs first. standards district office/certificate holding (1) Before exceeding 24,000 flight cycles or district office. The AMOC approval letter safety, Incorporation by reference, 48,000 flight hours, whichever occurs first Safety. must specifically reference this AD. since the airplane’s first flight. (2) Contacting the Manufacturer: For any (2) Within 3,000 flight cycles or 6,000 Adoption of the Amendment requirement in this AD to obtain corrective flight hours, whichever occurs first after the Accordingly, under the authority effective date of this AD. actions from a manufacturer, the action must delegated to me by the Administrator, be accomplished using a method approved the FAA amends 14 CFR part 39 as (h) Corrective Action by the Manager, International Branch, ANM– follows: If any crack is found during any inspection 116, Transport Airplane Directorate, FAA; or required by paragraph (g) of this AD: Before EASA; or Airbus’s EASA DOA. If approved PART 39—AIRWORTHINESS further flight, repair using a method by the DOA, the approval must include the DIRECTIVES approved by the Manager, International DOA-authorized signature. Branch, ANM–116, Transport Airplane (m) Related Information ■ 1. The authority citation for part 39 Directorate, FAA; or the European Aviation continues to read as follows: Safety Agency (EASA); or Airbus’s EASA (1) Refer to Mandatory Continuing Design Organization Approval (DOA). Airworthiness Information (MCAI) EASA Authority: 49 U.S.C. 106(g), 40113, 44701. (i) Modification Airworthiness Directive 2013–0261, dated October 28, 2013, for related information. § 39.13 [Amended] Before exceeding 48,000 flight cycles or This MCAI may be found in the AD docket 96,000 flight hours, whichever occurs first ■ 2. The FAA amends § 39.13 by adding on the Internet at http:// the following new airworthiness since the airplane’s first flight: Modify the fittings on the left- and right-hand sides of www.regulations.gov/ directive (AD): the torsion box, including doing all #!documentDetail;D=FAA-2014-0193-0002. 2014–24–07 Airbus: Amendment 39–18040. applicable related investigative and (2) Service information identified in this Docket No. FAA–2014–0193; Directorate corrective actions, in accordance with the AD that is not incorporated by reference is Identifier 2013–NM–234–AD. Accomplishment Instructions of Airbus available at the addresses specified in Service Bulletin A320–53–1251, Revision 01, paragraphs (n)(3) and (n)(4) of this AD. (a) Effective Date dated October 18, 2013; except where Airbus This AD becomes effective January 9, 2015. Service Bulletin A320–53–1251, Revision 01, (n) Material Incorporated by Reference dated October 18, 2013, specifies to contact (1) The Director of the Federal Register (b) Affected ADs Airbus for repair, before further flight, repair approved the incorporation by reference None. using a method approved by the Manager, (IBR) of the service information listed in this International Branch, ANM–116, Transport (c) Applicability paragraph under 5 U.S.C. 552(a) and 1 CFR Airplane Directorate, FAA; or EASA; or part 51. This AD applies to Airbus Model A318– Airbus’s EASA DOA. (2) You must use this service information 111, –112, –121, and –122 airplanes; Model as applicable to do the actions required by A319–111, –112, –113, –114, –115, –131, (j) Terminating Action –132, and –133 airplanes; Model A320–111, Modification of the airplane as required by this AD, unless this AD specifies otherwise. –211, –212, –214, –231, –232, and –233 paragraph (i) of this AD constitutes (i) Airbus Service Bulletin A320–53–1251, airplanes; and Model A321–111, –112, –131, terminating action for the repetitive Revision 01, dated October 18, 2013. –211, –212, –213, –231, and –232 airplanes; inspections required by paragraph (g) of this (ii) Airbus Service Bulletin A320–53–1258, certificated in any category; all manufacturer AD. dated October 18, 2012. serial numbers on which Airbus Modification (3) For service information identified in (k) Credit for Previous Actions 21202 has been embodied in production, this AD, contact Airbus, Airworthiness except those on which Modification 152569 This paragraph provides credit for actions Office—EIAS, 1 Rond Point Maurice has been embodied in production. required by paragraph (i) of this AD, if those Bellonte, 31707 Blagnac Cedex, France; actions were performed before the effective telephone +33 5 61 93 36 96; fax +33 5 61 (d) Subject date of this AD using Airbus Service Bulletin 93 44 51; email account.airwortheas@ Air Transport Association (ATA) of A320–53–1251, dated November 16, 2012, airbus.com; Internet http://www.airbus.com. which is not incorporated by reference in this America Code 53, Fuselage. (4) You may view this service information AD. (e) Reason at the FAA, Transport Airplane Directorate, (l) Other FAA AD Provisions This AD was prompted by a report of a 1601 Lind Avenue SW., Renton, WA. For crack found in the side box beam flange of The following provisions also apply to this information on the availability of this the fuselage at the frame (FR) 43 level during AD: material at the FAA, call 425–227–1221. a fatigue test campaign. We are issuing this (1) Alternative Methods of Compliance (5) You may view this service information AD to prevent cracking in the side box beam (AMOCs): The Manager, International that is incorporated by reference at the flange of the fuselage, which could affect the Branch, ANM–116, Transport Airplane National Archives and Records structural integrity of the airplane. Directorate, FAA, has the authority to Administration (NARA). For information on approve AMOCs for this AD, if requested the availability of this material at NARA, call (f) Compliance using the procedures found in 14 CFR 39.19. 202–741–6030, or go to: http:// Comply with this AD within the In accordance with 14 CFR 39.19, send your www.archives.gov/federal-register/cfr/ibr- compliance times specified, unless already request to your principal inspector or local locations.html. done. Flight Standards District Office, as appropriate. If sending information directly Issued in Renton, Washington, on (g) Inspection to the International Branch, send it to ATTN: November 19, 2014. At the time specified in paragraph (g)(1) or Sanjay Ralhan, Aerospace Engineer, Suzanne Masterson, (g)(2) of this AD, whichever occurs later: Do International Branch, ANM–116, Transport Acting Manager, Transport Airplane a rototest inspection for cracking of the beam Airplane Directorate, FAA, 1601 Lind Directorate, Aircraft Certification Service. flange of the stiffener 15 side box on the left- Avenue SW., Renton, WA 98057–3356; and right-hand sides in the FR43 area, in telephone 425–227–1405; fax 425–227–1149. [FR Doc. 2014–28141 Filed 12–4–14; 8:45 am] accordance with the Accomplishment Information may be emailed to: 9-ANM-116- BILLING CODE 4910–13–P

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DEPARTMENT OF TRANSPORTATION Point Maurice Bellonte, 31707 Blagnac and intervals in the frame of the A310 Cedex, France; telephone +33 5 61 93 36 extended service goal exercise. Federal Aviation Administration 96; fax +33 5 61 93 44 51; email Some cracks, which were discovered after [email protected]; the implementation of the preventive 14 CFR Part 39 modification, prompted Airbus to perform a Internet http://www.airbus.com. You new Fatigue and Damage Tolerance analysis [Docket No. FAA–2013–1066; Directorate may view this referenced service with a refined model of the area with and Identifier 2013–NM–021–AD; Amendment information at the FAA, Transport without repair or preventive reinforcement 39–18029; AD 2014–23–13] Airplane Directorate, 1601 Lind Avenue before crack appearance. Based on the results SW., Renton, WA. For information on of this analysis, Airbus revised the related RIN 2120–AA64 the availability of this material at the Service Bulletins to introduce more FAA, call 425–227–1221. restrictive thresholds and intervals for Airworthiness Directives; Airbus curative and preventive repair configuration. FOR FURTHER INFORMATION CONTACT: Dan Airplanes EASA issued AD 2013–0014 [http:// Rodina, Aerospace Engineer, ad.easa.europa.eu/blob/easa_ad_2013_ AGENCY: Federal Aviation International Branch, ANM–116, 0214.pdf/AD_2013-0014_1], which Administration (FAA), Department of Transport Airplane Directorate, FAA, superseded DGAC France AD 1992–049– Transportation (DOT). 1601 Lind Avenue SW., Renton, WA 130(B) and EASA AD 2008–0008, to mandate ACTION: Final rule. 98057–3356; telephone 425–227–2125; a new inspection programme [including fax 425–227–1149. related investigative and corrective actions]. SUMMARY : We are superseding SUPPLEMENTARY INFORMATION: After EASA AD 2013–0014 was issued, Airworthiness Directive (AD) 2000–12– further analysis allowed to identify one A300 12, for certain Airbus Model A300, Discussion aeroplane model and one retrofitted A300 A300–600, and A310 series airplanes. We issued a notice of proposed MSN [manufacturer serial number] missing in the applicability chapter. AD 2000–12–12 required inspecting to rulemaking (NPRM) to amend 14 CFR detect cracks in the lower spar axis of For the reason described above, this part 39 to supersede AD 2000–12–12, [EASA] AD retains the requirements of EASA the nacelle pylon between ribs 9 and 10, Amendment 39–11790 (65 FR 39072, AD 2013–0014, which is superseded, and and repair if necessary. AD 2000–12–12 June 23, 2000). AD 2000–12–12 applied clarifies the Applicability section and adds also provided for optional modification to certain Airbus Model A300, A300– one A300 model and one A300 MSN. of the pylon, which terminated the 600, and A310 series airplanes. The The unsafe condition is fatigue inspections for Model A300 series NPRM published in the Federal cracking, which could result in reduced airplanes. This new AD reduces the Register on December 30, 2013 (78 FR structural integrity of the lower spar of initial and repetitive inspection 79333). the nacelle pylon. Related investigative compliance times. This AD was The European Aviation Safety Agency actions include additional eddy current prompted by reports of cracking of the (EASA), which is the Technical Agent and liquid penetrant inspections for lower pylon spar after accomplishing for the Member States of the European cracking. Corrective actions include the existing modification. We are Community, has issued EASA repairing cracking. For certain cracking issuing this AD to detect and correct Airworthiness Directive 2013–0016, lengths, repairs are described as fatigue cracking, which could result in dated September 17, 2013 (referred to reinforcing the lower spar with a reduced structural integrity of the lower after this as the Mandatory Continuing doubler. You may examine the MCAI in spar of the nacelle pylon. Airworthiness Information, or ‘‘the the AD docket on the Internet at DATES: This AD becomes effective MCAI’’), to correct an unsafe condition http://www.regulations.gov/ January 9, 2015. for certain Airbus Model A300, A300– #!documentDetail;D=FAA-2013-1066- The Director of the Federal Register 600, and A310 series airplanes. The 0002. approved the incorporation by reference MCAI states: of certain publications listed in this AD Cracks were found between ribs 9 and 10 Comments as of January 9, 2015. in the lower pylon spar of A310 aeroplanes We gave the public the opportunity to The Director of the Federal Register equipped with Pratt & Whitney (PW) engines. participate in developing this AD. The approved the incorporation by reference For A310, A300 and A300–600 aeroplanes following presents the comments and, in order to prevent crack initiation, the of a certain other publication listed in received on the NPRM (78 FR 79333, this AD as of July 28, 2000 (65 FR implementation of a first inspection programme of this area was required by December 30, 2013) and the FAA’s 39072, June 23, 2000). DGAC [Direction Ge´ne´rale de l’Aviation response to each comment. The Director of the Federal Register Civile] France AD 1992–049–130(B) [which approved the incorporation by reference corresponds to certain actions in FAA AD ‘‘Contacting the Manufacturer’’ of certain other publications listed in 2000–12–12, Amendment 39–11790 (65 FR Paragraph in This AD this AD as of June 12, 1995 (60 FR 39072, June 23, 2000)], currently at Revision United Parcel Service (UPS) requested 25604, May 12, 1995). 4. that we revise the NPRM (78 FR 79333, General Electric (GE) and PW pylons on ADDRESSES: December 30, 2013) to remove the You may examine the AD A300 aeroplanes are also affected, due to docket on the Internet at http:// similar design. requirement to include the AD reference www.regulations.gov/ After that [DGAC] AD was issued, in repair approvals. UPS noted its #!docketDetail;D=FAA-2013-1066; or in prompted by new findings, a specific concerns that the proposal would person at the Docket Management inspection programme for A310 aeroplanes require development of a unique Airbus Facility, U.S. Department of was introduced and required by DGAC process for U.S. operators; that it could Transportation, Docket Operations, M– France AD 1999–237–285(B) [which have significant financial and 30, West Building Ground Floor, Room corresponds to certain actions in FAA AD administrative impacts to existing 2000–12–12, Amendment 39–11790 (65 FR customer support agreements and W12–140, 1200 New Jersey Avenue SE., 39072, June 23, 2000)], which was Washington, DC. subsequently superseded by EASA AD 2008– different AD records requirements For service information identified in 0008 [http://ad.easa.europa.eu/blob/easa_ within an operator’s fleet; that it will this AD, contact Airbus SAS, ad_2008_0008_superseded.pdf/AD_2008- increase requests for approval of Airworthiness Office—EAW, 1 Rond 0008_1], which introduced new thresholds alternative methods of compliance

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(AMOC) and result in delayed return to actions. The Airworthy Product before the FAA AD is issued. Under service; and that it creates a new paragraph only addresses the these circumstances, to comply with the requirement that did not exist when the requirement to contact the manufacturer FAA AD, the operator would be superseded AD was written. for corrective actions for the identified required to go back to the We concur with the commenter’s unsafe condition and does not cover manufacturer’s DOA and obtain a new request to remove from this AD the deviations from other AD requirements. approval document, adding time and requirement that repair approvals must However, deviations to AD-required expense to the compliance process with specifically refer to this AD. actions are addressed in 14 CFR 39.17, no safety benefit. Since late 2006, we have included a and anyone may request the approval Based on these comments, we standard paragraph titled ‘‘Airworthy for an alternative method of compliance removed from this AD the requirement Product’’ in all MCAI ADs in which the to the AD-required actions using the that the DAH-provided repair FAA develops an AD based on a foreign procedures found in 14 CFR 39.19. specifically refer to this AD. Before authority’s AD. The MCAI or referenced To address this misunderstanding and adopting such a requirement, the FAA service information in an FAA AD often misinterpretation of the Airworthy will coordinate with affected DAHs and directs the owner/operator to contact Product paragraph, we have changed verify they are prepared to implement the manufacturer for corrective actions, that paragraph and retitled it means to ensure that their repair such as a repair. Briefly, the Airworthy ‘‘Contacting the Manufacturer.’’ This approvals consider the unsafe condition Product paragraph allowed owners/ paragraph now clarifies that for any addressed in the AD. Any such operators to use corrective actions requirement in this AD to obtain requirements will be adopted through provided by the manufacturer if those corrective actions from a manufacturer, the normal AD rulemaking process, actions were FAA-approved. In the actions must be accomplished using including notice-and-comment addition, the paragraph stated that any a method approved by the FAA, EASA, procedures, when appropriate. actions approved by the State of Design or Airbus’s EASA DOA. We also have decided to revise the Authority (or its delegated agent) are The Contacting the Manufacturer language in paragraphs (g)(3), (g)(4), considered to be FAA-approved. paragraph also clarifies that, if approved (h)(3), (h)(4), (i)(3), and (i)(4) of this AD In the NPRM (78 FR 79333, December by the DOA, the approval must include to retain references to repair approvals 30, 2013), we proposed to prevent the the DOA-authorized signature. The DOA done by the DGAC (or its delegated use of repairs that were not specifically signature indicates that the data and agent) from AD 2000–12–12, developed to correct the unsafe information contained in the document Amendment 39–11790 (65 FR 39072, condition, by requiring that the repair are EASA-approved, which is also FAA- June 23, 2000), as well as including approval provided by the State of approved. Messages and other references to EASA and the specific Design Authority or its delegated agent information provided by the delegation approval granted by EASA specifically refer to this FAA AD. This manufacturer that do not contain the for the DAH. Further, we revised change was intended to clarify the DOA-authorized signature approval are paragraphs (n)(2) and (n)(3) of this AD method of compliance and to provide not EASA-approved, unless EASA to remove references to the ‘‘delegated operators with better visibility of repairs directly approves the manufacturer’s agent’’ and the ‘‘DAH with State of that are specifically developed and message or other information. Design Authority design organization approved to correct the unsafe This clarification does not remove approval’’ and instead provided the condition. In addition, we proposed to flexibility afforded previously by the specific delegation approval granted by change the phrase ‘‘its delegated agent’’ Airworthy Product paragraph. the State of Design Authority for the to include a design approval holder Consistent with long-standing FAA DAH. (DAH) with State of Design Authority policy, such flexibility was never design organization approval (DOA), as intended for required actions. This is Conclusion applicable, to refer to a DAH authorized also consistent with the We reviewed the relevant data, to approve required repairs for the recommendation of the Airworthiness including the comments received, and proposed AD. Directive Implementation Aviation determined that air safety and the UPS specifically stated the following Rulemaking Committee to increase public interest require adopting this AD in its comments to the NPRM (78 FR flexibility in complying with ADs by with the changes described previously 79333, December 30, 2013): ‘‘The identifying those actions in and minor editorial changes. We have proposed wording, being specific to manufacturers’ service instructions that determined that these minor changes: repairs, eliminates the interpretation are ‘‘Required for Compliance’’ with • Are consistent with the intent that that Airbus messages are acceptable for ADs. We continue to work with was proposed in the NPRM (78 FR approving minor deviations (corrective manufacturers to implement this 79333, December 30, 2013) for actions) needed during accomplishment recommendation. But once we correcting the unsafe condition; and of an AD mandated Airbus service determine that an action is required, any • Do not add any additional burden bulletin.’’ deviation from the requirement must be upon the public than was already This comment has made the FAA approved as an alternative method of proposed in the NPRM (78 FR 79333, aware that some operators have compliance. December 30, 2013). misunderstood or misinterpreted the Commenters to an NPRM having We also determined that these Airworthy Product paragraph to allow Directorate Identifier 2012–NM–101–AD changes will not increase the economic the owner/operator to use messages (78 FR 78285, December 26, 2013) burden on any operator or increase the provided by the manufacturer as pointed out that in many cases the scope of this AD. approval of deviations during the foreign manufacturer’s service bulletin accomplishment of an AD-mandated and the foreign authority’s MCAI may Costs of Compliance action. The Airworthy Product have been issued some time before the We estimate that this AD affects 91 paragraph does not approve messages or FAA AD. Therefore, the DOA may have airplanes of U.S. registry. other information provided by the provided U.S. operators with an The actions required by AD 2000–12– manufacturer for deviations to the approved repair, developed with full 12, Amendment 39–11790 (65 FR requirements of the AD-mandated awareness of the unsafe condition, 39072, June 23, 2000), and retained in

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this AD take about 4 work-hours per under the criteria of the Regulatory (d) Subject product, at an average labor rate of $85 Flexibility Act. Air Transport Association (ATA) of per work-hour. Based on these figures, Examining the AD Docket America Code 54, Nacelles/pylons. the estimated cost of the actions (e) Reason required by AD 2000–12–12 is $340 per You may examine the AD docket on product. the Internet at http://www.regulations. This AD was prompted by reports of We also estimate that it would take gov/#!docketDetail;D=FAA-2013-1066; cracking of the lower pylon spar after about 12 work-hours per product to or in person at the Docket Management accomplishing an existing modification. We comply with the basic requirements of Facility between 9 a.m. and 5 p.m., are issuing this AD to detect and correct this AD. The average labor rate is $85 Monday through Friday, except Federal fatigue cracking, which could result in reduced structural integrity of the lower spar per work-hour. Based on these figures, holidays. The AD docket contains this of the nacelle pylon. we estimate the cost of this AD on U.S. AD, the regulatory evaluation, any operators to be $92,820, or $1,020 per comments received, and other (f) Compliance product. information. The street address for the Comply with this AD within the In addition, we estimate that any Docket Operations office (telephone compliance times specified, unless already necessary follow-on actions would take 800–647–5527) is in the ADDRESSES done. about 60 work-hours and require parts section. (g) Retained Inspection and Corrective costing $1,680, for a cost of $6,780 per List of Subjects in 14 CFR Part 39 Action for Certain Model A300 Series product. We have no way of Airplanes determining the number of aircraft that Air transportation, Aircraft, Aviation might need these actions. safety, Incorporation by reference, This paragraph restates the requirements of Safety. paragraph (a) of AD 2000–12–12, Authority for This Rulemaking Amendment 39–11790 (65 FR 39072, June Adoption of the Amendment Title 49 of the United States Code 23, 2000), with additional sources for repair approvals. For Model A300 B4–2C, B2K–3C, specifies the FAA’s authority to issue Accordingly, under the authority delegated to me by the Administrator, B2–203, B4–103, and B4–203 series rules on aviation safety. Subtitle I, airplanes: Prior to the accumulation of 9,000 section 106, describes the authority of the FAA amends 14 CFR part 39 as follows: total landings, or within 500 landings after the FAA Administrator. ‘‘Subtitle VII: June 12, 1995 (the effective date of AD 95– Aviation Programs,’’ describes in more PART 39—AIRWORTHINESS 10–03, Amendment 39–9220 (60 FR 25604, detail the scope of the Agency’s DIRECTIVES May 12, 1995)), whichever occurs later, authority. perform an internal eddy current inspection We are issuing this rulemaking under ■ 1. The authority citation for part 39 to detect cracks in the lower spar axis of the the authority described in ‘‘Subtitle VII, continues to read as follows: pylon between ribs 9 and 10, in accordance with Airbus Service Bulletin A300–54–071, Part A, Subpart III, Section 44701: Authority: 49 U.S.C. 106(g), 40113, 44701. General requirements.’’ Under that dated November 12, 1991; or Revision 1, section, Congress charges the FAA with § 39.13 [Amended] dated October 15, 1993. Accomplishment of promoting safe flight of civil aircraft in ■ 2. The FAA amends § 39.13 by an inspection required by paragraph (k), (l), air commerce by prescribing regulations removing Airworthiness Directive (AD) or (m) of this AD terminates the inspection for practices, methods, and procedures 2000–12–12, Amendment 39–11790 (65 requirements of this paragraph. the Administrator finds necessary for (1) If no crack is found, repeat the FR 39072, June 23, 2000), and adding inspection thereafter at intervals not to safety in air commerce. This regulation the following new AD: exceed 2,500 landings. is within the scope of that authority 2014–23–13 Airbus: Amendment 39–18029. (2) If any crack is found that is less than because it addresses an unsafe condition Docket No. FAA–2013–1066; Directorate or equal to 30 millimeters (mm): Perform that is likely to exist or develop on Identifier 2013–NM–021–AD. subsequent inspections and repair in products identified in this rulemaking (a) Effective Date accordance with the methods and times action. specified in Airbus Service Bulletin A300– This AD becomes effective January 9, 2015. Regulatory Findings 54–071, dated November 12, 1991; or (b) Affected ADs Revision 1, dated October 15, 1993. We determined that this AD will not This AD replaces AD 2000–12–12, (3) If any crack is found that is greater than have federalism implications under Amendment 39–11790 (65 FR 39072, June 30 mm, but less than 100 mm: Before further Executive Order 13132. This AD will 23, 2000). flight, repair using a method approved by the not have a substantial direct effect on Manager, International Branch, ANM–116, the States, on the relationship between (c) Applicability Transport Airplane Directorate, FAA; or the the national government and the States, This AD applies to the Airbus airplanes Direction Ge´ne´rale de l’Aviation Civile or on the distribution of power and identified in paragraphs (c)(1) through (c)(4) (DGAC) (or its delegated agent); or the of this AD, certificated in any category. European Aviation Safety Agency (EASA); or responsibilities among the various (1) Airbus Model A300 B2–203, B2K–3C, levels of government. Airbus’s EASA Design Organization B4–103, B4–203, and B4–2C airplanes on Approval (DOA). For the reasons discussed above, I which Airbus Modification 2434 has been certify that this AD: (4) If any crack is found that is greater than embodied in production. or equal to 100 mm: Before further flight, 1. Is not a ‘‘significant regulatory (2) Airbus Model A300 airplane having repair using a method approved by the action’’ under Executive Order 12866; manufacturer serial number 125, on the left hand side pylon only. Manager, International Branch, ANM–116, 2. Is not a ‘‘significant rule’’ under the Transport Airplane Directorate, FAA; or the DOT Regulatory Policies and Procedures (3) Airbus Model A300 B4–620, B4–622R, and B4–622 airplanes, except for airplanes on DGAC (or its delegated agent); or the EASA; (44 FR 11034, February 26, 1979); or Airbus’s EASA DOA. 3. Will not affect intrastate aviation in which Airbus Modification 10149 has been embodied in production. (5) Accomplishment of the modification Alaska; and (4) Airbus Model A310–221, –222, –322, specified in Airbus Service Bulletin A300– 4. Will not have a significant –324, and –325 airplanes, except for 54–0079, dated October 15, 1993, constitutes economic impact, positive or negative, airplanes on which Airbus Modification terminating action for the inspections on a substantial number of small entities 10149 has been embodied in production. required by paragraph (g) of this AD.

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(h) Retained Inspection and Corrective paragraph (j) of this AD. Accomplishment of 23, 2000)): Perform the inspection within 500 Action for Model A300–600 Series Airplanes an inspection required by paragraph (k), (l), landings after July 28, 2000. or (m) of this AD terminates the inspection This paragraph restates the requirements of (k) New Repetitive Inspections for Cracking paragraph (b) of AD 2000–12–12, requirements of this paragraph. Amendment 39–11790 (65 FR 39072, June (1) If no crack is found, repeat the (1) For airplanes identified in paragraph 23, 2000), with additional sources for repair inspection thereafter at intervals not to (k)(2) of this AD: Except as provided by approvals. For Model A300–600, B4–620, exceed 2,500 landings. paragraphs (n)(1) and (n)(4) of this AD, at the C4–620, B4–622R, and B4–622 series (2) If any crack is found that is less than applicable compliance time specified in airplanes: Except as provided by paragraph or equal to 30 mm: Perform subsequent paragraph 1.E.(2), ‘‘Compliance,’’ of the (h)(5) of this AD, prior to the accumulation inspections and repair in accordance with applicable service bulletin specified in of 4,000 total landings, or within 500 the methods and times specified in Airbus paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of landings after June 12, 1995 (the effective Service Bulletin A310–54–2016, dated this AD, or within 100 flight cycles after the date of AD 95–10–03, Amendment 39–9220 November 12, 1991; or Revision 1, dated effective date of this AD, whichever occurs (60 FR 25604, May 12, 1995)), whichever October 15, 1993; or Revision 02, dated June later, do an eddy current inspection or liquid occurs later, perform an internal eddy current 11, 1999. penetrant inspection for cracking of the lower inspection to detect cracks in the lower spar (3) If any crack is found that is greater than spar of the pylon between ribs 9 and 10; and axis of the pylon between ribs 9 and 10, in 30 mm, but less than 100 mm: Before further do all applicable related investigative and accordance with Airbus Service Bulletin flight, repair using a method approved by the corrective actions; in accordance with the A300–54–6011, dated November 12, 1991, as Manager, International Branch, ANM–116, Accomplishment Instructions of the amended by Airbus Service Bulletin Change Transport Airplane Directorate, FAA; or the applicable service bulletin specified in Notice O.A., dated July 10, 1992; or Revision DGAC (or its delegated agent); or the EASA; paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of 1, dated October 15, 1993. Accomplishment or Airbus’s EASA DOA. this AD, except as required by paragraphs of an inspection required by paragraph (k), (4) If any crack is found that is greater than (n)(2) and (n)(3) of this AD. Do all applicable (l), or (m) of this AD terminates the or equal to 100 mm: Before further flight, related investigative and corrective actions inspection requirements of this paragraph. repair using a method approved by the before further flight. Repeat the inspection of (1) If no crack is found, repeat the Manager, International Branch, ANM–116, the lower spar of the pylon between ribs 9 inspection thereafter at intervals not to Transport Airplane Directorate, FAA; or the and 10 thereafter at intervals not to exceed exceed 2,500 landings. DGAC (or its delegated agent); or the EASA; the applicable interval specified in paragraph (2) If any crack is found that is less than or Airbus’s EASA DOA. 1.E.(2), ‘‘Compliance,’’ of the applicable or equal to 30 mm: Perform subsequent (5) Accomplishment of the modification service bulletin specified in paragraph inspections and repair in accordance with specified in Airbus Service Bulletin A310– (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of this AD. the methods and times specified in Airbus 54–2022, dated October 15, 1993; or Revision Accomplishment of corrective actions Service Bulletin A300–54–6011, dated 01, dated March 16, 1999; increases the required by this paragraph terminates the November 12, 1991, as amended by Airbus threshold and repetitive interval of the repetitive inspections required by this Service Bulletin Change Notice O.A., dated inspections required by paragraph (i) of this paragraph. Accomplishment of an inspection July 10, 1992; or Revision 1, dated October AD to the threshold and interval specified in required by this paragraph terminates the 15, 1993. paragraph 2.D. of the Accomplishment inspection requirements of paragraphs (g), (3) If any crack is found that is greater than Instructions of Airbus Service Bulletin A310– (h), and (i) of this AD. Accomplishment of 30 mm, but less than 100 mm: Before further 54–2016, Revision 02, dated June 11, 1999. the optional modification specified in the flight, repair using a method approved by the applicable service bulletin specified in (j) Retained Compliance Time for Paragraph Manager, International Branch, ANM–116, paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of (i) of This AD Transport Airplane Directorate, FAA; or the this AD terminates the repetitive inspections DGAC (or its delegated agent); or the EASA; This paragraph restates the requirements of required by this paragraph. or Airbus’s EASA DOA. paragraph (d) of AD 2000–12–12, (i) Airbus Service Bulletin A300–54–0071, (4) If any crack is found that is greater than Amendment 39–11790 (65 FR 39072, June Revision 04, dated April 11, 2013 (for Model or equal to 100 mm: Before further flight, 23, 2000), with no changes. Perform the A300 B2–203, B2K–3C, B4–103, B4–203, and repair using a method approved by the initial inspection required by paragraph (i) of B4–2C airplanes). Manager, International Branch, ANM–116, this AD at the earlier of the times specified (ii) Airbus Service Bulletin A310–54–2016, Transport Airplane Directorate, FAA; or the by paragraphs (j)(1) and (j)(2) of this AD. Revision 06, dated January 16, 2013 (for DGAC (or its delegated agent); or the EASA; (1) Prior to the accumulation of 25,000 Model A310–221, –222, –322, –324, and –325 or Airbus’s EASA DOA. total landings, or within 500 landings after airplanes). (5) Accomplishment of the modification June 12, 1995 (the effective date of AD 95– (iii) Airbus Service Bulletin A300–54– specified in Airbus Service Bulletin A300– 10–03, Amendment 39–9220 (60 FR 25604, 6011, Revision 03, dated June 23, 2011 (for 54–6019, dated October 15, 1993, increases May 12, 1995), whichever occurs later. Model A300 B4–620, B4–622R, and B4–622 the threshold and repetitive interval of the (2) At the applicable time specified by airplanes). inspections required by paragraph (h) of this paragraph (j)(2)(i), (j)(2)(ii), or (j)(2)(iii) of this (2) For airplanes that have not been AD to the threshold and interval specified in AD. modified or repaired with a doubler as paragraph 2.D. of the Accomplishment (i) For airplanes that have accumulated specified in the applicable service bulletin Instructions of Airbus Service Bulletin A300– fewer than 10,000 landings as of July 28, specified in paragraph (k)(2)(i), (k)(2)(ii), or 54–6011, Revision 1, dated October 15, 1993. 2000 (the effective date of AD 2000–12–12, (k)(2)(iii) of this AD, do the inspections Amendment 39–11790 (65 FR 39072, June required by paragraph (k)(1) of this AD. (i) Retained Inspection and Corrective 23, 2000)): Perform the inspection prior to (i) Airbus Service Bulletin A300–54–0079 Action for Model A310 Series Airplanes the accumulation of 3,800 total landings, or (for Model A300 B2–203, B2K–3C, B4–103, This paragraph restates the requirements of within 1,500 landings after July 28, 2000, B4–203, and B4–2C airplanes). paragraph (c) of AD 2000–12–12, whichever occurs later. (ii) Airbus Service Bulletin A310–54–2022 Amendment 39–11790 (65 FR 39072, June (ii) For airplanes that have accumulated (for Model A310–221, –222, –322, –324, and 23, 2000), with additional sources for repair 10,000 total landings or more, but fewer than –325 airplanes). approvals. For Model A310–221, –222, –322, 20,000 total landings, as of July 28, 2000 (the (iii) Airbus Service Bulletin A300–54–6019 –324, and –325 series airplanes: Perform an effective date of AD 2000–12–12, (for Model A300 B4–620, B4–622R, and B4– internal eddy current inspection to detect Amendment 39–11790 (65 FR 39072, June 622 airplanes). cracks in the lower spar axis of the pylon 23, 2000)): Perform the inspection within between ribs 9 and 10, in accordance with 1,000 landings after July 28, 2000. (l) New Repetitive Inspections for Post- Airbus Service Bulletin A310–54–2016, (iii) For airplanes that have accumulated Repair Airplanes dated November 12, 1991; or Revision 1, 20,000 total landings or more as of July 28, For airplanes that have been repaired with dated October 15, 1993; or Revision 02, dated 2000 (the effective date of AD 2000–12–12, a doubler as specified in the applicable June 11, 1999; at the time specified in Amendment 39–11790 (65 FR 39072, June Airbus service bulletin specified in

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paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of Airplane Directorate, FAA; or the EASA; or (i) Before using any approved AMOC, this AD: At the applicable time specified in Airbus’s EASA DOA. If approved by the notify your appropriate principal inspector, paragraph 1.E.(2), ‘‘Compliance,’’ in the DOA, the approval must include the DOA- or lacking a principal inspector, the manager applicable service bulletin specified in authorized signature. of the local flight standards district office/ paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of (3) Where the service bulletins specified in certificate holding district office. The AMOC this AD, except as specified in paragraphs paragraphs (k)(1)(i), (k)(1)(ii), and (k)(1)(iii) of approval letter must specifically reference (n)(1) and (n)(4) of this AD, do an eddy this AD specify to contact the manufacturer this AD. current inspection or liquid penetrant for inspection requirements: Inspect using a (ii) AMOCs approved previously for AD inspection for cracking of the lower spar of method approved by the Manager, 2000–12–12, Amendment 39–11790 (65 FR the pylon between ribs 9 and 10, and do all International Branch, ANM–116, Transport 39072, June 23, 2000), are approved as applicable corrective actions, in accordance Airplane Directorate, FAA; or the EASA; or AMOCs for the corresponding provisions of with the Accomplishment Instructions of the Airbus’s EASA DOA. If approved by the this AD. applicable service bulletin specified in DOA, the approval must include the DOA- (2) Contacting the Manufacturer: As of the paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of authorized signature. effective date of this AD, for any requirement this AD, except as required by paragraph (4) Where the ‘‘Threshold’’ column in the in this AD to obtain corrective actions from (n)(2) of this AD. Do all applicable corrective tables in paragraph 1.E., ‘‘Compliance,’’ of a manufacturer, the action must be actions before further flight. Repeat the the service bulletins specified in paragraphs accomplished using a method approved by inspection of the lower spar of the pylon (k)(1)(i), (k)(1)(ii), and (k)(1)(iii) of this AD the Manager, International Branch, ANM– between ribs 9 and 10 thereafter at intervals specifies a compliance time in flight cycles/ 116, Transport Airplane Directorate, FAA; or not to exceed the applicable interval flight hours, this AD requires compliance the EASA; or Airbus’s EASA DOA. If specified in paragraph 1.E.(2), ‘‘Compliance,’’ within the corresponding time in total flight approved by the DOA, the approval must of the applicable service bulletin specified in cycles/total flight hours; except that for tables include the DOA-authorized signature. for post-repair and post-modification paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of (q) Related Information this AD. Accomplishment of an inspection airplanes, this AD requires compliance within the corresponding time after (1) Refer to Mandatory Continuing required by this paragraph terminates the accomplishing the repair or modification. Airworthiness Information (MCAI) European inspection requirements of paragraphs (g), Aviation Safety Agency Airworthiness (h), and (i) of this AD. (o) Credit for Previous Actions Directive 2013–0216, dated September 17, (m) New Repetitive Inspections for Post- This paragraph provides credit for actions 2013, for related information. You may Modification Airplanes required by paragraph (k) of this AD, if those examine the MCAI in the AD docket on the actions were performed before the effective Internet at http://www.regulations.gov/ For airplanes that have been modified as date of this AD using the applicable service #!documentDetail;D=FAA-2013-1066-0002. specified in the applicable Airbus service bulletin specified in paragraphs (o)(1) (2) Service information identified in this bulletin specified in paragraph (k)(1)(i), through (o)(4) of this AD. AD that is not incorporated by reference in (k)(1)(ii), or (k)(1)(iii) of this AD: At the (1) Airbus Service Bulletin A300–54–071, this AD is available at the addresses specified applicable time specified in paragraph Revision 02, dated August 25, 2000 (for in paragraphs (r)(6) and (r)(7) of this AD. 1.E.(2), ‘‘Compliance,’’ in the applicable Model A300 B2–203, B2K–3C, B4–103, B4– (r) Material Incorporated by Reference service bulletin specified in paragraph 203, and B4–2C airplanes), which is not (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of this AD, incorporated by reference in this AD. (1) The Director of the Federal Register except as specified in paragraph (n)(1) and (2) Airbus Service Bulletin A300–54–0071, approved the incorporation by reference (n)(4) of this AD: Do an eddy current Revision 03, dated October 5, 2012 (for (IBR) of the service information listed in this inspection or liquid penetrant inspection for Model A300 B2–203, B2K–3C, B4–103, B4– paragraph under 5 U.S.C. 552(a) and 1 CFR cracking of the lower spar of the pylon 203, and B4–2C airplanes), which is not part 51. between ribs 9 and 10; and do all applicable incorporated by reference in this AD. (2) You must use this service information corrective actions; in accordance with the (3) Airbus Service Bulletin A310–54–2016, as applicable to do the actions required by Accomplishment Instructions of the Revision 04, dated November 16, 2007; or this AD, unless this AD specifies otherwise. applicable service bulletin specified in Airbus Service Bulletin A310–54–2016, (3) The following service information was paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of Revision 05, dated October 5, 2012 (for approved for IBR on January 9, 2015. this AD, except as required by paragraph Model A310–221, –222, –322, –324, and –325 (i) Airbus Service Bulletin A300–54–0071, (n)(2) of this AD. Do all applicable corrective airplanes); which are not incorporated by Revision 04, dated April 11, 2013. actions before further flight. Repeat the reference in this AD. (ii) Airbus Service Bulletin A310–54–2016, inspection of the lower spar of the pylon (4) Airbus Service Bulletin A300–54–6011, Revision 06, dated January 16, 2013. between ribs 9 and 10 thereafter at intervals Revision 02, dated August 25, 2000 (for (iii) Airbus Service Bulletin A300–54– not to exceed the applicable interval Model A300 B4–620, B4–622R, and B4–622 6011, Revision 03, dated June 23, 2011. specified in paragraph 1.E.(2), ‘‘Compliance,’’ airplanes), which is not incorporated by (4) The following service information was of the applicable service bulletin specified in reference in this AD. approved for IBR on July 28, 2000 (65 FR paragraph (k)(1)(i), (k)(1)(ii), or (k)(1)(iii) of 39072, June 23, 2000). this AD. Accomplishment of an inspection (p) Other FAA AD Provisions (i) Airbus Service Bulletin A310–54–2016, required by this paragraph terminates the The following provisions also apply to this Revision 02, dated June 11, 1999. inspection requirements of paragraphs (g), AD: (ii) Reserved. (h), and (i) of this AD. (1) Alternative Methods of Compliance (5) The following service information was (AMOCs): The Manager, International approved for IBR on June 12, 1995 (60 FR (n) New Service Bulletin Exceptions Branch, FAA, has the authority to approve 25604, May 12, 1995). (1) Where the service bulletins specified in AMOCs for this AD, if requested using the (i) Airbus Service Bulletin A300–54–071, paragraphs (k)(1)(i), (k)(1)(ii), and (k)(1)(iii) of procedures found in 14 CFR 39.19. In dated November 12, 1991. this AD specify a compliance time ‘‘from the accordance with 14 CFR 39.19, send your (ii) Airbus Service Bulletin A300–54–071, publication date,’’ this AD requires request to your principal inspector or local Revision 1, dated October 15, 1993. compliance within the specified compliance Flight Standards District Office, as (iii) Airbus Service Bulletin A300–54– time after the effective date of this AD. appropriate. If sending information directly 6011, dated November 12, 1991. (2) If any crack is detected during any to the International Branch, send it to ATTN: (iv) Airbus Service Bulletin Change Notice inspection required by paragraph (k), (l), or Dan Rodina, Aerospace Engineer, O.A., A300–54–6011, dated July 10, 1992. (m) of this AD, and the service bulletin International Branch, ANM–116, Transport (v) Airbus Service Bulletin A300–54–6011, specified in paragraph (k)(1)(i), (k)(1)(ii), or Airplane Directorate, FAA, 1601 Lind Revision 1, dated October 15, 1993. (Pages 1 (k)(1)(iii) of this AD specifies to contact the Avenue SW., Renton, WA 98057–3356; through 10 and 12 through 19 of this manufacturer: Before further flight, repair telephone 425–227–2125; fax 425–227–1149. document are identified as Revision 1, dated using a method approved by the Manager, Information may be emailed to: 9–ANM–116– October 15, 1993; page 11 is dated November International Branch, ANM–116, Transport AMOC–[email protected]. 12, 1991.)

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(vi) Airbus Service Bulletin A300–54– The Director of the Federal Register repetitively inspecting each blade for 6019, dated October 15, 1993. approved the incorporation by reference corrosion, separation, a gap, or a dent, (6) For service information identified in of certain publications listed in this AD refinishing any bare metal before further this AD, contact Airbus SAS, Airworthiness flight, and replacing any damaged blade Office—EAW, 1 Rond Point Maurice as of January 9, 2015. Bellonte, 31707 Blagnac Cedex, France; The Director of the Federal Register with an airworthy blade. AD 2011–12– telephone +33 5 61 93 36 96; fax +33 5 61 approved the incorporation by reference 10 was prompted by a fatal accident due 93 44 51; email account.airworth-eas@ of certain other publications listed in to blade delamination. airbus.com; Internet http://www.airbus.com. this AD as of July 5, 2011 (76 FR 35330, At the time we issued AD 2011–12– (7) You may view this service information June 17, 2011); corrected March 5, 2012 10, Robinson had developed at the FAA, Transport Airplane Directorate, (77 FR 12991). replacement blades on the R22 and R44 1601 Lind Avenue SW., Renton, WA. For ADDRESSES: For service information model helicopters. AD 2011–12–10 was information on the availability of this issued as a Final rule; request for material at the FAA, call 425–227–1221. identified in this AD, contact Robinson (8) You may view this service information Helicopter Company, 2901 Airport comment; however, the amount of time that is incorporated by reference at the Drive, Torrance, CA 90505; telephone permitted to replace the blades required National Archives and Records (310) 539–0508; fax (310) 539–5198; or allowing the public an opportunity to Administration (NARA). For information on at http://www.robinsonheli.com/ comment. Thus, the NPRM proposed to the availability of this material at NARA, call servelib.htm. You may review a copy of retain the pilot check, recurring 202–741–6030, or go to: http:// the referenced service information at the inspection, and blade refinishing www.archives.gov/federal-register/cfr/ibr- requirements of AD 2011–12–10. An locations.html. FAA, Office of the Regional Counsel, Southwest Region, 2601 Meacham owner/operator (pilot) may perform the Issued in Renton, Washington, on visual check required by paragraph (f)(1) November 6, 2014. Blvd., Room 663, Fort Worth Texas, 76137. of this AD and must enter compliance Jeffrey E. Duven, with that paragraph into the helicopter Manager, Transport Airplane Directorate, Examining the AD Docket maintenance records in accordance with Aircraft Certification Service. You may examine the AD docket on 14 CFR 43.9(a)(1) through (4) and [FR Doc. 2014–28477 Filed 12–4–14; 8:45 am] the Internet at http:// 91.417(a)(2)(v). A pilot may perform this BILLING CODE 4910–13–P www.regulations.gov or in person at the check because it involves only looking Docket Operations Office between 9 at a visible area of the blades and can a.m. and 5 p.m., Monday through be performed equally well by a pilot or DEPARTMENT OF TRANSPORTATION Friday, except Federal holidays. The AD a mechanic. This check is an exception to our standard maintenance Federal Aviation Administration docket contains this AD, any incorporated-by-reference service regulations. The NPRM also proposed to add a part-numbered blade to its 14 CFR Part 39 information, the economic evaluation, any comments received, and other applicability for R22 model helicopters. [Docket No. FAA–2013–0159; Directorate information. The street address for the Lastly, the NPRM proposed to require, Identifier 2012–SW–010–AD; Amendment Docket Operations Office (phone: 800– within five years of the effective date, 39–18032; AD 2014–23–16] 647–5527) is U.S. Department of replacing both main rotor blades with RIN 2120–AA64 Transportation, Docket Operations the new part-numbered aluminum Office, M–30, West Building Ground blades, which would constitute Airworthiness Directives; Robinson Floor, Room W12–140, 1200 New Jersey terminating action of the recurring Helicopter Company Helicopters Avenue SE., Washington, DC 20590. inspection requirements. These actions are intended to detect and prevent FOR FURTHER INFORMATION CONTACT: AGENCY: Federal Aviation Fred debonding of the blade skin, which Administration (FAA), DOT. Guerin, Aviation Safety Engineer, Los could result in blade failure and ACTION: Final rule. Angeles Aircraft Certification Office, subsequent loss of control of the Transport Airplane Directorate, FAA, helicopter. SUMMARY: We are superseding 3960 Paramount Blvd., Lakewood, CA Airworthiness Directive (AD) 2011–12– 90712; telephone (562) 627–5232; email Comments 10 for Robinson Helicopter Company [email protected]. After our NPRM (78 FR 12648, (Robinson) Model R22, R22 Alpha, R22 SUPPLEMENTARY INFORMATION: February 25, 2013) was published, we Beta, R22 Mariner, R44, and R44 II Discussion received comments from 15 commenters helicopters with certain main rotor and have given due consideration to blades (blade) installed. AD 2011–12–10 On February 25, 2013, at 78 FR 12648, each one. We have identified five required inspecting each blade at the the Federal Register published our unique issues and addressed those skin-to-spar line for debonding, notice of proposed rulemaking (NPRM), issues as follows. corrosion, a separation, a gap, or a dent which proposed to amend 14 CFR part and replacing any damaged blade with 39 to supersede AD 2011–12–10, Requests an airworthy blade. This new AD also Amendment 39–16717 (76 FR 35330, Ten operators requested that we requires a terminating action for those June 17, 2011), corrected March 5, 2012 withdraw the NPRM and allow inspection requirements. These actions (77 FR 12991), that applied to Robinson continued repetitive inspections of the are intended to detect debonding of the Model R22, R22 Alpha, R22 Beta, and blades for all affected models, as there blade skin, which could result in blade R22 Mariner helicopters with blade, part is insufficient data justifying the failure and subsequent loss of control of number (P/N) A016–4; and Model R44 termination of the requirement for the helicopter, and to correct the unsafe and R44 II helicopters with blade, P/N repetitive inspections and for replacing condition by replacing the main rotor C016–2 or C–016–5, installed. AD 2011– the main rotor blades with new blades blades with new blades that do not 12–10 required a pilot check of the that do not require the AD inspection. require the AD inspection. blade skin-to-spar joint area for any bare One commenter noted that there have DATES: This AD is effective January 9, metal before the first flight of each day. been no blade failures since the 2015. AD 2011–12–10 also required procedures of AD 2011–12–10 have

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been implemented, and therefore the additional cost increase. One does not have the authority to require a NPRM increases the financial burden to commenter requested that we justify manufacturer to bear the cost of a repair. an operator without increasing safety. this requirement for the R44 Astro One commenter requested that we Another commenter requested that more helicopters by identifying the number of require blade replacement at the 2,200 data be obtained regarding the effect of reports of blade delamination on R44 hour overhaul or 12 years instead of the the operating environment and the Astros and explain the safety 5-year compliance time. The commenter inspection accordingly modified. Two improvement resulting from converting stated that as Robinson started the commenters stated that a salt air a helicopter to hydraulic assisted production of new blades about 3 years environment caused the debonding due controls. Finally, the commenters also ago, the 5-year replacement period to corrosion. Some commenters state stated that requiring replacement of the would require some owners to replace that inspections and routine blades (and thus, conversion) for R44 the blades long before reaching the 12- maintenance, if done correctly, will Astro helicopters significantly reduces year inspection, and this financial cost ensure continued operational safety. the resale value of these helicopters. was not taken into account with the We do not agree. Blade debonding We do not agree. The R44 Astro is proposed rule. continues to occur in service. The cause subject to the same unsafe condition as We do not agree. We determined a of the debonding was determined to be the other R22 and R44 helicopter replacement period of five years from erosion on unpainted blade tip bond models. The purpose of this AD is not the date of the AD by using a lines which allows the bond to weaken to require converting a helicopter to quantitative and qualitative risk and the skin to pull up. The erosion is hydraulic assisted controls; the purpose assessment methodology. The risk of mechanical and occurs in any is to correct this unsafe condition on the blade skin debonding results in a loss of environment regardless of salt or blades. Robinson’s decision whether to control of the helicopter and is beyond moisture in the air. This unsafe test the new blades with the non- acceptable risk guidelines when condition is sufficient to mandate hydraulic R44 Astro helicopter is a allowing the blades to continue in inspections due to the catastrophic business decision, and the FAA does service indefinitely. Although the risk consequences if the blade becomes not have the authority to mandate a assessment indicates that immediate delaminated. However, airworthiness different decision. Similarly, Robinson’s action is required to correct the unsafe cannot be assured long-term by reliance decision to discontinue blades designed condition, this risk is partially mitigated on continued repetitive inspections. for the non-hydraulic equipped by the improved inspection techniques, Although there have been no fatalities helicopters is a business decision that making it acceptable to allow a five year since we issued AD 2011–12–10, the FAA does not have the authority to period of time for blades to be replaced. Robinson continues to report instances change. Because the blades for the non- The added cost to retire the blades has of blade delamination found during hydraulic equipped R44 Astro been anticipated in the financial burden maintenance checks. Because blades helicopters are calendar life limited to justification of this AD. The FAA continue to have debond issues, and as 12 years and will no longer be acknowledges that in some situations using a safety-by-inspection approach produced, and as the manufacturer has the cost to the operator may be in excess for a critical component has been shown not pursued FAA approval for of the cost of the replacement blades, to have an inherent amount of risk, it is installation of the new blades on the but we have determined that the costs in the interest of safety to reduce the non-hydraulic R44 Astro, the owners of associated with the actions of this AD retirement of the blades from 12 years the Astro helicopter will need to install are reasonable given the safety issue. from the blade manufacturing date to an hydraulic assisted flight controls after Lastly, one commenter did not make earlier date. 12 years regardless of the AD a request but stated that bare metal can Five operators requested that we requirements. The FAA acknowledges be seen on areas of the helicopter and remove the requirement for replacing that the expense and downtime to that the helicopter manufacturer the blades for the R44 Astro models, accomplish the blade replacement is provides poor corrosion protection on because these models are not equipped greater for the R44 helicopters that are the helicopter. The commenter with hydraulic assisted controls and the not equipped with hydraulic assisted explained that metal-to-metal contact new blades cannot be installed on these controls. However, this greater cost due causes the corrosion that occurs on the models unless the helicopter is to an absence of hydraulic controls, blades. converted to hydraulic assisted controls, while unfortunate, does not change the We disagree. Metal-to-metal contact a costly conversion which is not blade safety issue or the need to require may be a mechanism that is causing the necessary for safe flight. These replacement of the blades prior to their corrosion in the rotor blade tip cap to commenters further stated that the retirement life. skin interface, but it has not been shown conversion is not only an additional Four operators stated that the FAA to be a mechanism for skin debonding expense but also can only be performed has not considered the cost of this AD in the area of the blade that has been at the Robinson factory. One commenter on operators and requested that found in the fleet. Skin debonding is the believed the new blades are compatible Robinson be responsible for the cost of unsafe condition the actions in this AD with the non-hydraulic airframe and the new blades. One commenter also are correcting. requested we require that Robinson test requested that Robinson be responsible the new blades on the non-hydraulic for the cost of converting the R44 Astro FAA’s Determination R44 Astro airframe, so that the new to hydraulic assisted flight controls, as We have reviewed the relevant blades can be installed on the R44 Astro this will be required for that model information, considered the comments without also having to convert the when the new blades are installed. received, and determined that an unsafe helicopter. The commenters also stated We do not agree. While we condition exists and is likely to exist or that Robinson then reserves the right to acknowledge that the costs associated develop on other products of these same upgrade any component on the with the actions of this AD are not type designs and that air safety and the helicopter to their latest revision even minimal, we have determined that these public interest require adopting the AD though there is no AD or SB stating the costs are reasonable given the unsafe requirements as proposed, except we are Robinson required change, and this condition. As far as request for allowing compliance with the revised Robinson requirement results in Robinson to bear these costs, the FAA service information as an optional

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action. We have also made clarifications • Replacing both blades on a Model (4) Will not have a significant in the economic analysis to reflect the R44 helicopter with hydraulically economic impact, positive or negative, correct cost of required parts and labor boosted flight controls installed on a substantial number of small entities for R–44 helicopters without (approximately 1,053 helicopters) will under the criteria of the Regulatory hydraulically boosted flight controls require about 20 work hours, and Flexibility Act. installed. The total estimated cost for required parts will cost $43,783, for a We prepared an economic evaluation these model helicopters has not total cost per helicopter of $45,483 and of the estimated costs to comply with changed. These changes are consistent a total cost to the U.S. R44 operator fleet this AD and placed it in the AD docket. with the intent of the proposals in the of $47,893,599 over a 5-year period. List of Subjects in 14 CFR Part 39 NPRM (78 FR 12648, February 25, 2013) • Replacing both blades on a Model and will not increase the economic R44 helicopter without hydraulically Air transportation, Aircraft, Aviation burden on any operator nor increase the boosted flight controls installed safety, Incorporation by reference, scope of the AD. (approximately 300 helicopters) will Safety. require modifying the aircraft with Related Service Information Adoption of the Amendment hydraulic flight controls, and adding the Accordingly, under the authority We have reviewed the following P/N C016–7 blades and the required delegated to me by the Administrator, Robinson service information: airframe provisions at a cost of 100 the FAA amends 14 CFR part 39 as • Letter titled ‘‘Additional work-hours for a total labor cost of follows: Information Regarding Main Rotor Blade $8,500. Parts will cost $103,747 for a Skin Debonding,’’ dated May 25, 2007, total cost per helicopters of $112,247, PART 39—AIRWORTHINESS discussing blade skin debonding; and a cost to U.S. operators of DIRECTIVES • Rotorcraft Flight Manual (RFM) $33,674,100 over 5 years. changes to the Normal Procedures ■ 1. The authority citation for part 39 Authority for This Rulemaking Section 4 and Systems Description continues to read as follows: Section 7, revised April 20, 2007, for Title 49 of the United States Code Authority: 49 U.S.C. 106(g), 40113, 44701. each applicable model helicopter specifies the FAA’s authority to issue containing a ‘‘caution’’ about skin-to- rules on aviation safety. Subtitle I, § 39.13 [Amended] section 106, describes the authority of spar bond line erosion; ■ 2. The FAA amends § 39.13 by • the FAA Administrator. Subtitle VII: One Service Letter with two removing Airworthiness Directive (AD) Aviation Programs, describes in more different Nos.: R22 SL–56B and R44 SL– 2011–12–10, Amendment 39–16717 (76 detail the scope of the Agency’s 32B, both revised April 30, 2010, FR 35330, June 17, 2011); corrected authority. specifying proper inspection and March 5, 2012 (77 FR 12991), and protection (refinishing) of bonded areas; We are issuing this rulemaking under adding the following new AD: and the authority described in Subtitle VII, • Service Bulletins SB–103 for the Part A, Subpart III, Section 44701: 2014–23–16 Robinson Helicopter Company: ‘‘General requirements.’’ Under that Amendment 39–18032; Docket No. Model R22 and SB–72 for the Model FAA–2013–0159; Directorate Identifier R44, both dated April 30, 2010, and SB– section, Congress charges the FAA with 2012–SW–010–AD. 103A and SB–72A, both dated July 19, promoting safe flight of civil aircraft in 2012, specifying proper inspection and air commerce by prescribing regulations (a) Applicability protection (refinishing) of bonded areas for practices, methods, and procedures This AD applies to Model R22, R22 Alpha, for certain affected blades. the Administrator finds necessary for R22 Beta, and R22 Mariner helicopters with • R44 Service Letter SL–37, dated safety in air commerce. This regulation main rotor blade (blade), part number (P/N) is within the scope of that authority A016–2 or A016–4; and Model R44 and R44 June 18, 2010, specifying the required II helicopters with blade, P/N C016–2 or C– modifications for a carbureted R–44 to because it addresses an unsafe condition 016–5, certificated in any category. install P/N C016–7 blades. that is likely to exist or develop on products identified in this rulemaking (b) Unsafe Condition Costs of Compliance action. This AD defines the unsafe condition as We estimate that this AD affects 1,290 blade skin debonding, which could result in Regulatory Findings Model R22 helicopters and 1,353 Model blade failure and subsequent loss of control R44 helicopters, for a total of 2,643 This AD will not have federalism of the helicopter. helicopters of U.S. Registry. At an implications under Executive Order (c) Affected ADs average labor rate of $85 per hour, we 13132. This AD will not have a This AD supersedes AD 2011–12–10, estimate that operators will incur the substantial direct effect on the States, on Amendment 39–16717 (76 FR 35330, June following costs in order to comply with the relationship between the national 17, 2011); corrected March 5, 2012 (77 FR this AD: government and the States, or on the 12991). • Time to perform the before flight distribution of power and (d) Effective Date check each day is negligible. responsibilities among the various This AD becomes effective January 9, 2015. • Inspecting both blades will require levels of government. about three work hours, for a total cost For the reasons discussed above, I (e) Compliance per helicopter of $255 and a total cost certify that this AD: You are responsible for performing each to the U.S. operator fleet of $673,965. (1) Is not a ‘‘significant regulatory action required by this AD within the • Replacing both blades on a Model action’’ under Executive Order 12866; specified compliance time unless it has R22 helicopter will require about 20 (2) Is not a ‘‘significant rule’’ under already been accomplished prior to that time. work hours, and required parts will cost DOT Regulatory Policies and Procedures (f) Required Actions $29,808, for a total cost per helicopter (44 FR 11034, February 26, 1979); (1) Before the first flight of each day, of $31,508 and a total cost to the U.S. (3) Will not affect intrastate aviation visually check for any exposed (bare metal) R22 operator fleet of $40,645,320 over a in Alaska to the extent that it justifies skin-to-spar joint area on the lower surface of 5-year period. making a regulatory distinction; and each blade. The actions required by this

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paragraph may be performed by the owner/ AMOCs for this AD. Send your proposal to: Southwest Region, 2601 Meacham Blvd., operator (pilot) holding at least a private pilot Fred Guerin, Aviation Safety Engineer, Los Room 663, Fort Worth, Texas 76137. For certificate and must be entered into the Angeles Aircraft Certification Office, information on the availability of this aircraft records showing compliance with Transport Airplane Directorate, FAA, 3960 material at the FAA, call (817) 222–5110. this AD in accordance with 14 CFR 43.9(a)(1) Paramount Blvd., Lakewood, CA 90712; (7) You may view this service information through (4) and 14 CFR 91.417(a)(2)(v). The telephone (562) 627–5232; email that is incorporated by reference at the record must be maintained as required by 14 [email protected]. National Archives and Records CFR 91.417, 121.380, or 135.439. (2) For operations conducted under a 14 Administration (NARA). For information on (2) If there is any bare metal in the area of CFR part 119 operating certificate or under the availability of this material at NARA, call the skin-to-spar bond line, before further 14 CFR part 91, subpart K, we suggest that (202) 741–6030, or go to: http:// flight, inspect the blade by following the you notify your principal inspector, or www.archives.gov/federal-register/cfr/ibr- requirements of paragraph (f)(3) of this AD. lacking a principal inspector, the manager of locations.html. (3) Within 10 hours time-in-service (TIS), the local flight standards district office or and at intervals not to exceed 100 hours TIS certificate holding district office before Issued in Fort Worth, Texas, on November or at each annual inspection, whichever operating any aircraft complying with this 4, 2014. occurs first, inspect each blade for corrosion, AD through an AMOC. Lance T. Gant, separation, a gap, or a dent by following the (3) AMOCs approved for AD 2011–12–10 Acting Directorate Manager, Rotorcraft Compliance Procedure, paragraphs 1 through (76 FR 35330, June 17, 2011); corrected Directorate, Aircraft Certification Service. 6 and 8, of Robinson R22 Service Bulletin March 5, 2012 (77 FR 12991), are approved [FR Doc. 2014–28478 Filed 12–4–14; 8:45 am] SB–103, dated April 30, 2010 (SB103), or as AMOCs for the corresponding Robinson Service Bulletin SB–72, dated requirements in paragraph (f) of this AD. BILLING CODE 4910–13–P April 30, 2010 (SB72), as appropriate for your model helicopter. Although the Robinson (i) Additional Information service information limits the magnification The Robinson letter titled ‘‘Additional DEPARTMENT OF TRANSPORTATION to 10X, a higher magnification is acceptable Information Regarding Main Rotor Blade for this inspection. Also, an appropriate tap Skin Debonding,’’ dated May 25, 2007, which Federal Aviation Administration test tool which provides similar performance, is not incorporated by reference, contains weight, and consistency of tone may be additional information about the subject of 14 CFR Part 71 substituted for the ‘‘1965 or later United this AD. For service information identified in States Quarter-dollar coin,’’ which is this AD, contact Robinson Helicopter [Docket No. FAA–2014–0986; Airspace specified in the Compliance Procedure, Company, 2901 Airport Drive, Torrance, CA Docket No. 14–AGL–14] paragraph 2, of SB72 and SB103. 90505; telephone (310) 539–0508; fax (310) RIN 2120–AA66 (4) Before further flight, refinish any 539–5198; or at http:// exposed area of a blade by following the www.robinsonheli.com/servelib.htm. You Amendment of Multiple Air Traffic Compliance Procedure, paragraphs 2 through may review a copy of this information at the Service (ATS) Routes; North Central 6, of Robinson R22 Service Letter SL–56B or FAA, Office of the Regional Counsel, R44 Service Letter SL–32B, both dated April Southwest Region, 2601 Meacham Blvd., and Northeast United States 30, 2010, as appropriate for your model Room 663, Fort Worth, Texas 76137. AGENCY: Federal Aviation helicopter. (j) Subject Administration (FAA), DOT. (5) Before further flight, replace any unairworthy blade with an airworthy blade. Joint Aircraft Service Component (JASC) ACTION: Final rule, technical (6) Within 5 years of the effective date of Code: 6210: Main Rotor Blades. amendment. this AD: (k) Material Incorporated by Reference (i) For Model R22 series helicopters, SUMMARY: This action amends multiple replace blade P/N A016–2 or A016–4 with a (1) The Director of the Federal Register high altitude Area Navigation (RNAV) blade, P/N A016–6. approved the incorporation by reference routes (Q-routes) in the north central (ii) For Model R44 series helicopters fitted (IBR) of the service information listed in this and northeast United States (U.S.) to with hydraulically boosted main rotor flight paragraph under 5 U.S.C. 552(a) and 1 CFR change 13 fixes identified in the Q- controls, replace blade P/N C016–2 or C016– part 51. (2) You must use this service information routes to match waypoint (WP) 5 with a blade, P/N C016–7. characterizations contained in the FAA (iii) For Model R44 series helicopters as applicable to do the actions required by without hydraulically boosted main rotor this AD, unless the AD specifies otherwise. and Canadian aeronautical database flight controls, replace blade P/N C016–2 or (3) The following service information was information establishing the WPs. This C016–5 with a blade, P/N C016–7. Prior to approved for IBR on January 9, 2015. action also amends the route installing a blade P/N C016–7, verify the (i) Robinson R44 Service Letter SL–37, termination point and geographic helicopter has been modified as required by dated June 18, 2010. latitude/longitude position in RNAV Robinson R44 Service Letter SL–37, dated (ii) Reserved. route Q–822 to reflect changes made by June 18, 2010, Compliance Procedures, (4) The following service information was previously approved for IBR on July 5, 2011 Canada as part of its Windsor-Toronto- paragraphs 1. through 10. Montreal (WTM) airspace redesign (iv) Installing blades, P/N A016–6 or P/N (76 FR 35330, June 17, 2011); corrected C016–7, is terminating action for the March 5, 2012 (77 FR 12991). effort. inspection requirements of paragraphs (f)(1) (i) Robinson R22 Service Bulletin SB–103, DATES: Effective date 0901 UTC, January through (f)(4) of this AD. dated April 30, 2010. 8, 2015. The Director of the Federal (7) As an option for complying with (ii) Robinson R44 Service Bulletin SB–72, dated April 30, 2010. Register approves this incorporation by paragraph (f)(3) of this AD, you may perform reference action under 1 CFR part 51, a blade inspection by following the (iii) Robinson R22 Service Letter SL–56B, corresponding provisions of SB–103A or SB– dated April 30, 2010. subject to the annual revision of FAA 72A, both dated July 19, 2012, as appropriate (iv) Robinson R44 Service Letter SL–32B, Order 7400.9 and publication of for your model helicopter. dated April 30, 2010. conforming amendments. (5) For Robinson service information ADDRESSES: (g) Special Flight Permits FAA Order 7400.9Y, identified in this AD, contact Robinson Airspace Designations and Reporting Special flight permits will not be issued. Helicopter Company, 2901 Airport Drive, Torrance, CA 90505; telephone (310) 539– Points, and subsequent amendments can (h) Alternative Methods of Compliance 0508; fax (310) 539–5198; or at http:// be viewed online at http://www.faa.gov/ (AMOCs) www.robinsonheli.com/servelib.htm. air_traffic/publications/. The Order is (1) The Manager, Los Angeles Aircraft (6) You may view this service information also available for inspection at the Certification Office, FAA, may approve at FAA, Office of the Regional Counsel, National Archives and Records

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Administration (NARA). For by modifying RNAV routes Q–29, Q–69, 71.1. The high altitude United States information on the availability of this Q–82, Q–84, Q–103, Q–140, Q–812, Q– and Canadian RNAV routes (Q-routes) material at NARA, call 202–741–6030, 818, Q–822, Q–907, Q–935, and Q–937. listed in this rule will be subsequently or go to http://www.archives.gov/ The RNAV route modifications correct published in the Order. federal_register/code_of_federal- fix characterizations to match FAA and The FAA has determined that this regulations/ibr_locations.html. Canadian aeronautical database regulation only involves an established FAA Order 7400.9, Airspace information and support Canadian body of technical regulations for which Designations and Reporting Points, is airspace redesign changes for routes into frequent and routine amendments are published yearly and effective on and out of the Winsor, Toronto, and necessary to keep them operationally September 15. For further information, Montreal areas within Canada to ensure current. Therefore, this regulation: (1) Is you can contact the Airspace Policy and safe and efficient across border not a ‘‘significant regulatory action’’ Regulations Group, Federal Aviation connectivity. under Executive Order 12866; (2) is not Administration, 800 Independence The RNAV route modifications a ‘‘significant rule’’ under Department of Avenue SW., Washington, DC 20591; accomplished by this action are Transportation (DOT) Regulatory telephone: 202–267–8783. outlined below. Policies and Procedures (44 FR 11034; FOR FURTHER INFORMATION CONTACT: Q–29: Change the ‘‘DUTSH, OH FIX’’ to February 26, 1979); and (3) does not Colby Abbott, Airspace Policy and read ‘‘DUTSH, OH WP.’’ warrant preparation of a regulatory Regulations Group, Office of Airspace Q–69: Change the ‘‘RICCS, WV FIX’’ to evaluation as the anticipated impact is Services, Federal Aviation read ‘‘RICCS, WV WP.’’ so minimal. Since this is a routine Administration, 800 Independence Q–82: Change the ‘‘WAYLA, NY FIX’’ to matter that only affects air traffic Avenue SW., Washington, DC 20591; read ‘‘WAYLA, NY WP.’’ procedures and air navigation, it is telephone: (202) 267–8783. Q–84: Change the ‘‘PUPPY, NY FIX’’ to certified that this rule, when SUPPLEMENTARY INFORMATION: read ‘‘PUPPY, NY WP.’’ promulgated, does not have a significant Q–103: Change the ‘‘RICCS, WV FIX’’ to economic impact on a substantial History read ‘‘RICCS, WV WP.’’ number of small entities under the On September 26, 2014, the FAA Q–140: Change the ‘‘ARKKK, NY FIX’’ criteria of the Regulatory Flexibility Act. published in the Federal Register a final to read ‘‘ARKKK, NY WP.’’ The FAA’s authority to issue rules rule (79 FR 57758) that amended, Q–812: Change the ‘‘FABEN, NY FIX’’ to regarding aviation safety is found in removed, and established multiple ATS read ‘‘FABEN, NY WP;’’ the ‘‘ARKKK, Title 49 of the United States Code. routes in the north central and northeast NY FIX’’ to read ‘‘ARKKK, NY WP;’’ Subtitle I, Section 106 describes the United States to reflect and and the ‘‘STOMP, NY FIX’’ to read authority of the FAA Administrator. accommodate route changes being made ‘‘STOMP, NY WP.’’ Subtitle VII, Aviation Programs, in Canadian airspace as part of Canada’s Q–818: Change the ‘‘STOMP, NY FIX’’ describes in more detail the scope of the WTM airspace redesign project, and to read ‘‘STOMP, NY WP.’’ agency’s authority. corrected a notice of proposed Q–822: Change the route title to read This rulemaking is promulgated rulemaking (NPRM) publishing error. ‘‘Q–822 ‘‘Flint, MI (FNT) to SINVI, under the authority described in The rule also made a number of changes Canada;’’ the ‘‘PUPPY, NY FIX’’ to Subtitle VII, Part A, Subpart I, Section or corrections deemed necessary read ‘‘PUPPY, NY WP;’’ and the 40103. Under that section, the FAA is following the NPRM public comment ‘‘TANGU, Canada WP (lat. charged with prescribing regulations to ° ′ ″ ° ′ ″ period. 44 50 58.00 N., long. 063 58 43.00 assign the use of the airspace necessary The FAA now has identified in the W.)’’ to read ‘‘SINVI, Canada WP (lat. to ensure the safety of aircraft and the ° ′ ″ ° ′ ″ rule that the following 13 fixes in 44 48 15.00 N., long. 064 19 27.00 efficient use of airspace. This regulation several route descriptions were W.).’’ is within the scope of that authority as established in the FAA and Canadian Q–907: Change the ‘‘POSTS, MI FIX’’ to it modifies the route structure as aeronautical databases as WPs: DUTSH, read ‘‘POSTS, MI WP;’’ the ‘‘AGNOB, necessary to preserve the safe and OH; RICCS, WV; WAYLA, NY; PUPPY, Canada FIX’’ to read ‘‘AGNOB, efficient flow of air traffic within the NY; ARKKK, NY; FABEN, NY; STOMP, Canada WP;’’ the ‘‘LORKA, Canada National Airspace System. In addition, NY; POSTS, MI; JOSSY, NY; KRAZZ, FIX’’ to read ‘‘LORKA, Canada WP;’’ as this rule is correcting errors in certain NY; AGNOB, Canada; LORKA, Canada; and the ‘‘ADVIK, Canada FIX’’ to read Q routes and updating RNAV route Q– and ADVIK, Canada. ‘‘ADVIK, Canada WP.’’ 822 to accommodate changes by Canada Additionally, the final route segment Q–935: Change the ‘‘JOSSY, NY FIX’’ to that affect these routes, I find that notice providing cross border connectivity read ‘‘JOSSY, NY WP;’’ and the and public procedure under 5 U.S.C. between the U.S. and Canada for the ‘‘FABEN, NY FIX’’ to read ‘‘FABEN, 553(b) are impractical, unnecessary and RNAV route Q–822 description was NY WP.’’ not in the public interest. Q–937: Change the ‘‘TULEG, Canada changed within Canadian airspace by Environmental Review NAV CANADA due to route realignment WP’’ to read ‘‘TULEG, Canada FIX;’’ requirements. Also in RNAV route Q– and the ‘‘KRAZZ, NY FIX’’ to read The FAA has determined that this 822, the TANGU, Canada, WP was ‘‘KRAZZ, NY WP.’’ action qualifies for categorical exclusion changed to the SINVI, Canada, WP Q–951: Change the ‘‘POSTS, MI FIX’’ to under the National Environmental located in a new geographic latitude/ read ‘‘POSTS, MI WP.’’ Policy Act in accordance with FAA longitude position. High altitude United States RNAV Order 1050.1E, ‘‘Environmental This rule makes the corrections to be routes (Q-routes) are published in Impacts: Policies and Procedures,’’ in concert with FAA and Canadian paragraph 2006 and high altitude paragraph 311a. This airspace action is aeronautical databases. Canadian RNAV routes (Q-routes) are not expected to cause any potentially published in paragraph 2007 of FAA significant environmental impacts, and The Rule Order 7400.9Y dated August 6, 2014, no extraordinary circumstances exist The FAA is amending Title 14, Code and effective September 15, 2014, which that warrant preparation of an of Federal Regulations (14 CFR) part 71 is incorporated by reference in 14 CFR environmental assessment.

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List of Subjects in 14 CFR Part 71 PART 71—DESIGNATION OF CLASS A, § 71.1 [Amended] B, C, D, AND E AIRSPACE AREAS; AIR ■ Airspace, Incorporation by reference, 2. The incorporation by reference in TRAFFIC SERVICE ROUTES; AND 14 CFR 71.1 of FAA Order 7400.9Y, Navigation (air). REPORTING POINTS Airspace Designations and Reporting Adoption of the Amendment Points, dated August 6, 2014, and ■ 1. The authority citation for part 71 effective September 15, 2014, is In consideration of the foregoing, the continues to read as follows: amended as follows: Federal Aviation Administration amends 14 CFR part 71 as follows: Authority: 49 U.S.C. 106(g), 40103, 40113, Paragraph 2006 United States Area 40120; E.O. 10854, 24 FR 9565, 3 CFR, 1959– Navigation Routes 1963 Comp., p. 389. * * * * *

Q–29 HARES, LA to DUVOK, Canada (Amended) HARES, LA WP (Lat. 33°00′00.00″ N., long. 091°44′00.00″ W.) BAKRE, MS WP (Lat. 33°53′45.85″ N., long. 090°58′04.75″ W.) Memphis, TN (MEM) VORTAC (Lat. 35°00′54.42″ N., long. 089°58′59.55″ W.) OMDUE, TN WP (Lat. 36°07′47.32″ N., long. 088°58′11.49″ W.) SIDAE, KY WP (Lat. 37°20′00.00″ N., long. 087°50′00.00″ W.) CREEP, OH FIX (Lat. 39°55′15.28″ N., long. 084°18′31.41″ W.) KLYNE, OH WP (Lat. 40°41′54.46″ N., long. 083°18′44.19″ W.) DUTSH, OH WP (Lat. 41°08′26.35″ N., long. 082°33′12.68″ W.) WWSHR, OH WP (Lat. 41°20′34.09″ N., long. 082°03′05.76″ W.) DORET, OH FIX (Lat. 41°48′05.90″ N., long. 080°35′04.64″ W.) Jamestown, NY (JHW) VOR/DME (Lat. 42°11′18.99″ N., long. 079°07′16.70″ W.) HANKK, NY FIX (Lat. 42°53′41.82″ N., long. 077°09′15.21″ W.) GONZZ, NY WP (Lat. 43°05′22.00″ N., long. 076°41′12.00″ W.) KRAZZ, NY WP (Lat. 43°25′00.00″ N., long. 074°18′00.00″ W.) NIPPY, NY FIX (Lat. 43°41′23.08″ N., long. 073°58′06.74″ W.) CABCI, VT WP (Lat. 44°49′19.94″ N., long. 071°42′55.14″ W.) EBONY, ME FIX (Lat. 44°54′08.68″ N., long. 067°09′23.65″ W.) DUNOM, ME WP (Lat. 44°54′06.95″ N., long. 067°00′00.00″ W.) DUVOK, Canada WP (Lat. 44°55′37.33″ N., long. 065°17′11.66″ W.) Excluding the portion within Canada.

******* Q–69 BLANN, SC to RICCS, WV (Amended) BLAAN, SC WP (Lat. 33°51′09.38″ N., long. 080°53′32.78″ W.) RYCKI, NC WP (Lat. 36°24′43.05″ N., long. 080°25′07.50″ W.) LUNDD, VA WP (Lat. 36°44′22.38″ N., long. 080°21′07.11″ W.) ILLSA, VA WP (Lat. 37°38′55.85″ N., long. 080°13′18.44″ W.) EWESS, WV WP (Lat. 38°21′50.31″ N., long. 080°06′52.03″ W.) RICCS, WV WP (Lat. 38°55′14.65″ N., long. 080°05′01.68″ W.)

******* Q–82 WWSHR, OH to PONCT, NY (Amended) WWSHR, OH WP (Lat. 41°20′34.09″ N., long. 082°03′05.76″ W.) DORET, OH FIX (Lat. 41°48′05.90″ N., long. 080°35′04.64″ W.) Jamestown, NY (JHW) VOR/DME (Lat. 42°11′18.99″ N., long. 079°07′16.70″ W.) WAYLA, NY WP (Lat. 42°20′58.54″ N., long. 077°48′57.18″ W.) VIEEW, NY FIX (Lat. 42°26′22.07″ N., long. 077°01′33.30″ W.) MEMMS, NY FIX (Lat. 42°30′59.71″ N., long. 076°18′15.43″ W.) LOXXE, NY FIX (Lat. 42°34′29.55″ N., long. 075°43′33.49″ W.) PONCT, NY WP (Lat. 42°44′48.83″ N., long. 073°48′48.07″ W.) Q–84 Jamestown, NY (JHW) to Cambridge, NY (CAM) (Amended) Jamestown, NY (JHW) VOR/DME (Lat. 42°11′18.99″ N., long. 079°07′16.70″ W.) AUDIL, NY FIX (Lat. 42°52′18.74″ N., long. 076°26′35.07″ W.) PUPPY, NY WP (Lat. 43°03′26.46″ N., long. 075°17′39.29″ W.) PAYGE, NY FIX (Lat. 43°00′50.48″ N., long. 074°15′12.76″ W.) Cambridge, NY (CAM) VOR/DME (Lat. 42°59′39.40″ N., long. 073°20′38.50″ W.) Q–103 Pulaski, VA (PSK) to AIRRA, PA (Amended) Pulaski, VA (PSK) VORTAC (Lat. 37°05′15.74″ N., long. 080°42′46.44″ W.) ASBUR, WV FIX (Lat. 37°49′24.41″ N., long. 080°27′51.44″ W.) OAKLE, WV FIX (Lat. 38°07′13.80″ N., long. 080°21′44.84″ W.) PERRI, WV FIX (Lat. 38°17′50.49″ N., long. 080°18′05.11″ W.) PERKS, WV FIX (Lat. 38°39′40.84″ N., long. 080°10′29.36″ W.) RICCS, WV WP (Lat. 38°55′14.65″ N., long. 080°05′01.68″ W.) EMNEM, WV WP (Lat. 39°31′27.12″ N., long. 080°04′28.21″ W.) AIRRA, PA WP (Lat. 41°06′16.48″ N., long. 080°03′48.73″ W.)

******* Q–140 WOBED, WA to YODAA, NY (Amended) WOBED, WA WP (Lat. 48°36′01.07″ N., long. 122°49′46.52″ W.) GETNG, WA WP (Lat. 48°25′30.57″ N., long. 119°31′38.98″ W.)

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CORDU, ID FIX (Lat. 48°10′46.41″ N., long. 116°40′21.84″ W.) PETIY, MT WP (Lat. 47°58′46.55″ N., long. 114°36′20.31″ W.) CHOTE, MT FIX (Lat. 47°39′56.68″ N., long. 112°09′38.13″ W.) LEWIT, MT WP (Lat. 47°23′00.21″ N., long. 110°08′44.78″ W.) SAYOR, MT FIX (Lat. 47°13′58.34″ N., long. 104°58′39.28″ W.) WILTN, ND FIX (Lat. 47°04′58.09″ N., long. 100°47′43.84″ W.) TTAIL, MN WP (Lat. 46°41′28.00″ N., long. 096°41′09.00″ W.) CESNA, WI WP (Lat. 45°52′14.00″ N., long. 092°10′59.00″ W.) WISCN, WI WP (Lat. 45°18′19.45″ N., long. 089°27′53.91″ W.) EEGEE, WI WP (Lat. 45°08′53.00″ N., long. 088°45′58.00″ W.) DAYYY, MI WP (Lat. 44°10′10.00″ N., long. 084°22′23.00″ W.) RUBKI, Canada WP (Lat. 44°14′56.00″ N., long. 082°15′25.99″ W.) PEPLA, Canada WP (Lat. 43°47′51.00″ N., long. 080°01′02.00″ W.) SIKBO, Canada WP (Lat. 43°39′13.00″ N., long. 079°20′57.00″ W.) MEDAV, Canada WP (Lat. 43°29′19.00″ N., long. 078°45′46.00″ W.) AHPAH, NY WP (Lat. 43°18′19.00″ N., long. 078°07′35.11″ W.) HANKK, NY FIX (Lat. 42°53′41.82″ N., long. 077°09′15.21″ W.) BEEPS, NY FIX (Lat. 42°49′13.26″ N., long. 076°59′04.84″ W.) EXTOL, NY FIX (Lat. 42°39′27.69″ N., long. 076°37′06.10″ W.) MEMMS, NY FIX (Lat. 42°30′59.71″ N., long. 076°18′15.43″ W.) KODEY, NY FIX (Lat. 42°16′47.53″ N., long. 075°47′04.00″ W.) ARKKK, NY WP (Lat. 42°03′48.52″ N., long. 075°19′00.41″ W.) RODYY, NY WP (Lat. 41°52′25.85″ N., long. 074°35′49.39″ W.) YODAA, NY FIX (Lat. 41°43′21.19″ N., long. 074°01′52.76″ W.) Excluding the airspace within Canada.

* * * * * Paragraph 2007 Canadian Area Navigation Routes (Amended)

Q–812 TIMMR, ND to GAYEL, NY (Amended) TIMMR, ND FIX (Lat. 46°22′49.49″ N., long. 100°54′29.80″ W.) WELOK, MN WP (Lat. 45°41′26.32″ N., long. 094°15′28.74″ W.) CEWDA, WI WP (Lat. 44°48′32.00″ N., long. 088°33′00.00″ W.) ZOHAN, MI WP (Lat. 43°55′57.00″ N., long. 084°23′09.00″ W.) NOSIK, Canada WP (Lat. 43°59′00.00″ N., long. 082°11′52.30″ W.) AGDOX, Canada WP (Lat. 43°17′01.71″ N., long. 079°05′29.29″ W.) KELTI, NY WP (Lat. 43°16′57.00″ N., long. 078°56′00.00″ W.) AHPAH, NY WP (Lat. 43°18′19.00″ N., long. 078°07′35.11″ W.) GOATR, NY WP (Lat. 43°17′26.08″ N., long. 076°39′07.75″ W.) Syracuse, NY (SYR) VORTAC (Lat. 43°09′37.87″ N., long. 076°12′16.41″ W.) FABEN, NY WP (Lat. 42°51′12.04″ N., long. 075°57′07.91″ W.) LOXXE, NY FIX (Lat. 42°34′29.55″ N., long. 075°43′33.49″ W.) ARKKK, NY WP (Lat. 42°03′48.52″ N., long. 075°19′00.41″ W.) STOMP, NY WP (Lat. 41°35′46.78″ N., long. 074°47′47.79″ W.) MSLIN, NY FIX (Lat. 41°29′30.82″ N., long. 074°33′14.28″ W.) GAYEL, NY FIX (Lat. 41°24′24.09″ N., long. 074°21′25.75″ W.) Excluding the airspace within Canada.

******* Q–818 Flint, MI (FNT) to GAYEL, NY (Amended) Flint, MI (FNT) VORTAC (Lat. 42°58′00.38″ N., long. 083°44′49.08″ W.) TANKO, Canada WP (Lat. 43°01′32.00″ N., long. 082°22′43.00″ W.) KITOK, Canada WP (Lat. 43°02′30.00″ N., long. 081°55′34.00″ W.) DERLO, Canada WP (Lat. 43°03′59.00″ N., long. 081°05′43.00″ W.) IKNAV, Canada WP (Lat. 42°57′43.00″ N., long. 078°59′04.00″ W.) WOZEE, NY WP (Lat. 42°56′01.65″ N., long. 078°44′19.64″ W.) KELIE, NY FIX (Lat. 42°39′37.32″ N., long. 077°44′41.05″ W.) VIEEW, NY FIX (Lat. 42°26′22.07″ N., long. 077°01′33.30″ W.) Binghampton, NY (CFB) VORTAC (Lat. 42°09′26.96″ N., long. 076°08′11.30″ W.) BUFFY, PA FIX (Lat. 41°56′27.98″ N., long. 075°36′45.35″ W.) STOMP, NY WP (Lat. 41°35′46.78″ N., long. 074°47′47.79″ W.) MSLIN, NY FIX (Lat. 41°29′30.82″ N., long. 074°33′14.28″ W.) GAYEL, NY FIX (Lat. 41°24′24.09″ N., long. 074°21′25.75″ W.) Excluding the airspace within Canada. Q–822 Flint, MI (FNT) to SINVI, Canada (Amended) Flint, MI (FNT) VORTAC (Lat. 42°58′00.38″ N., long. 083°44′49.08″ W.) TANKO, Canada WP (Lat. 43°01′32.00″ N., long. 082°22′43.00″ W.) KITOK, Canada WP (Lat. 43°02′30.00″ N., long. 081°55′34.00″ W.) DERLO, Canada WP (Lat. 43°03′59.00″ N., long. 081°05′43.00″ W.) HOZIR, NY WP (Lat. 43°06′03.59″ N., long. 079°02′05.27″ W.) GONZZ, NY WP (Lat. 43°05′22.00″ N., long. 076°41′12.00″ W.) PUPPY, NY WP (Lat. 43°03′26.46″ N., long. 075°17′39.29″ W.) PAYGE, NY FIX (Lat. 43°00′50.48″ N., long. 074°15′12.76″ W.) Cambridge, NY (CAM) VOR/DME (Lat. 42°59′39.44″ N., long. 073°20′38.47″ W.)

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Kennebunk, ME (ENE) VOR/DME (Lat. 43°25′32.42″ N., long. 070°36′48.69″ W.) AJJAY, ME WP (Lat. 43°43′40.55″ N., long. 069°36′08.22″ W.) ALLEX, ME WP (Lat. 44°25′00.00″ N., long. 067°00′00.00″ W.) SINVI, Canada WP (Lat. 44°48′15.00″ N., long. 064°19′27.00″ W.) Excluding the airspace within Canada.

******* Q–907 POSTS, MI to MIILS, Canada (Amended) POSTS, MI WP (Lat. 42°18′00.00″ N., long. 085°02′00.00″ W.) PADDE, MI WP (Lat. 42°17′09.00″ N., long. 084°28′28.00″ W.) Salem, MI (SVM) VORTAC (Lat. 42°24′31.09″ N., long. 083°35′38.05″ W.) DERLO, Canada WP (Lat. 43°03′59.00″ N., long. 081°05′43.00″ W.) SIKBO, Canada WP (Lat. 43°39′13.00″ N., long. 079°20′57.00″ W.) AGNOB, Canada WP (Lat. 44°12′03.30″ N., long. 077°30′07.20″ W.) LORKA, Canada WP (Lat. 44°46′08.70″ N., long. 076°12′59.90″ W.) ADVIK, Canada WP (Lat. 45°08′04.00″ N., long. 074°46′33.00″ W.) ATENE, Canada FIX (Lat. 46°14′04.20″ N., long. 070°16′21.00″ W.) MIILS, Canada WP (Lat. 46°52′42.00″ N., long. 067°02′09.00″ W.) Excluding the airspace within Canada.

******* Q–935 MONEE, MI to Boston, MA (BOS) (Amended) MONEE, MI FIX (Lat. 43°14′25.80″ N., long. 084°27′50.95″ W.) HOCKE, MI WP (Lat. 43°15′43.38″ N., long. 082°42′38.27″ W.) OMRAK, Canada WP (Lat. 43°16′06.00″ N., long. 082°16′25.00″ W.) DERLO, Canada WP (Lat. 43°03′59.00″ N., long. 081°05′43.00″ W.) IKNAV, Canada WP (Lat. 42°57′43.00″ N., long. 078°59′04.00″ W.) WOZEE, NY WP (Lat. 42°56′01.65″ N., long. 078°44′19.64″ W.) HANKK, NY FIX (Lat. 42°53′41.82″ N., long. 077°09′15.21″ W.) JOSSY, NY WP (Lat. 42°53′29.93″ N., long. 077°02′36.80″ W.) AUDIL, NY FIX (Lat. 42°52′18.74″ N., long. 076°26′35.07″ W.) FABEN, NY WP (Lat. 42°51′12.04″ N., long. 075°57′07.91″ W.) PONCT, NY WP (Lat. 42°44′48.83″ N., long. 073°48′48.07″ W.) Gardner, MA (GDM) VOR/DME (Lat. 42°32′45.32″ N., long. 072°03′29.48″ W.) Boston, MA (BOS) VOR/DME (Lat. 42°21′26.82″ N., long. 070°59′22.37″ W.) Excluding the airspace within Canada. Q–937 TULEG, Canada to KRAZZ, NY (Amended) TULEG, Canada WP (Lat. 43°43′54.84″ N., long. 076°43′09.82″ W.) WAYGO, NY WP (Lat. 43°25′00.00″ N., long. 075°55′00.00″ W.) KRAZZ, NY WP (Lat. 43°25′00.00″ N., long. 074°18′00.00″ W.) Excluding the airspace within Canada.

******* Q–951 POSTS, MI to PUXOP, Canada (Amended) POSTS, MI WP (Lat. 42°18′00.00″ N., long. 085°02′00.00″ W.) PADDE, MI WP (Lat. 42°17′09.00″ N., long. 084°28′28.00″ W.) Salem, MI (SVM) VORTAC (Lat. 42°24′31.09″ N., long. 083°35′38.05″ W.) DERLO, Canada WP (Lat. 43°03′59.00″ N., long. 081°05′43.00″ W.) SIKBO, Canada WP (Lat. 43°39′13.00″ N., long. 079°20′57.00″ W.) SANIN, Canada WP (Lat. 44°04′41.00″ N., long. 077°25′55.00″ W.) OLABA, Canada WP (Lat. 44°28′35.00″ N., long. 076°12′12.00″ W.) ALONI, Canada WP (Lat. 44°38′54.00″ N., long. 075°39′10.00″ W.) DAVDA, NY WP (Lat. 44°43′27.00″ N., long. 075°22′28.20″ W.) SAVAL, NY WP (Lat. 44°54′15.00″ N., long. 074°42′01.20″ W.) TALNO, NY WP (Lat. 45°00′02.00″ N., long. 074°19′52.00″ W.) RABIK, Canada WP (Lat. 45°17′56.00″ N., long. 072°36′37.00″ W.) ANTOV, Canada WP (Lat. 45°22′35.00″ N., long. 071°02′15.00″ W.) DANOL, ME FIX (Lat. 45°41′54.22″ N., long. 067°47′16.00″ W.) PUXOP, Canada WP (Lat. 45°56′41.00″ N., long. 066°26′24.00″ W.) Excluding the airspace within Canada.

Issued in Washington, DC, on December 1, 2014. Gary A. Norek, Manager, Airspace Policy & Regulations Group. [FR Doc. 2014–28618 Filed 12–4–14; 8:45 am] BILLING CODE 4910–13–P

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DEPARTMENT OF HOMELAND SUPPLEMENTARY INFORMATION: On mean high water in the open-to- SECURITY November 10, 2014, a Notice of navigation position. Navigation on the Temporary Deviation entitled, waterway consists primarily of tugs Coast Guard ‘‘Drawbridge Operation Regulation; Gulf with tows, commercial fishing vessels, Intracoastal Waterway, Belle Chasse, and occasional recreational craft. 33 CFR Part 117 LA’’ was published in the Federal Mariners may use the Gulf Intracoastal [Docket No. USCG–2014–1012] Register. 79 FR 66621. Waterway (Harvey Canal) to avoid That temporary deviation allowed for unnecessary delays. The Coast Guard Drawbridge Operation Regulation; Gulf the Louisiana State Route 23 (LA 23) has coordinated this closure with the Intracoastal Waterway, Belle Chasse, vertical lift span bridge, also known as Gulf Intracoastal Canal Association LA the Judge Perez Bridge, across the Gulf (GICA). The GICA representative Intracoastal Waterway (Algiers Alternate AGENCY: Coast Guard, DHS. indicated that the vessel operators will Route), mile 3.8, at Belle Chasse, be able to schedule transits through the ACTION: Notice of deviation from Plaquemines Parish, Louisiana, to bridge to avoid delays and significant drawbridge regulation. remain closed to navigation for an impacts on operations. Due to prior additional one hour in the evenings experience, as well as coordination with SUMMARY: The Coast Guard has issued a from 5:30 p.m. to 6:30 p.m. from temporary deviation from the operating December 26, 2014, through February waterway users, it has been determined schedule that governs the Louisiana 20, 2015. that this closure will not have a State Route 23 (LA 23) vertical lift span Subsequent to publication, the Sheriff significant effect on these vessels. bridge, also known as the Judge Perez of Plaquemines Parish requested by In accordance with 33 CFR 117.35, Bridge, across the Gulf Intracoastal letter dated November 18, 2014, that the the drawbridge must return to its regular Waterway (Algiers Alternate Route), additional one hour deviation operating schedule immediately at the mile 3.8, at Belle Chasse, Plaquemines commence immediately because of end of the effective period of this Parish, Louisiana. This deviation is major safety concerns with regard to temporary deviation. necessary to provide for the safe parish residents and the ability of This deviation from the operating movement of vehicular traffic during emergency vehicles to transit the area. regulations is authorized under 33 CFR major plant reconstruction on one side The Sheriff of Plaquemines Parish of the waterway and the resulting indicated that the area has experienced 117.35. change in work schedule and increase increased traffic during a construction Dated: November 24, 2014. in workforce transiting the bridge. This pre-shut down phase at the Phillips 66 deviation allows the bridge to remain David M. Frank, plant. temporarily closed to navigation for an Bridge Administrator, Eighth Coast Guard The deviation requested allows the additional one hour in the evening District. bridge to remain closed to navigation for during weekdays for five weeks. [FR Doc. 2014–28602 Filed 12–4–14; 8:45 am] an additional one hour in the evening, DATES: This deviation is effective Monday through Friday, effecting a total BILLING CODE 9110–04–P without actual notice from December 5, deviation period from Friday, November 2014 through 6:30 p.m. on December 25, 24, 2014, through Friday, February 20, 2014. For the purposes of enforcement, 2015. Coordination with local Coast actual notice will be used from 5:30 Guard and waterway users was ENVIRONMENTAL PROTECTION p.m. on November 24, 2014, until conducted, and immediate AGENCY December 5, 2014. commencement of the deviation will not 40 CFR Part 180 ADDRESSES: The docket for this have a significant impact on mariners. deviation, [USCG–2014–1012] is Presently, in accordance with 33 CFR available at http://www.regulations.gov. 117.451(b), the draw shall open on [EPA–HQ–OPP–2014–0668; FRL–9918–42] Type the docket number in the signal; except that, from 6 a.m. to 8:30 ‘‘SEARCH’’ box and click ‘‘SEARCH.’’ a.m. and from 3:30 p.m. to 5:30 p.m. 2,5-Furandione, Polymer With Click on Open Docket Folder on the line Monday through Friday, except Federal Methoxyethene, Butyl Ethyl Ester, associated with this deviation. You may holidays, the draw need not open for the Sodium Salt; Tolerance Exemption also visit the Docket Management passage of vessels. Facility in Room W12–140 on the This temporary deviation allows the AGENCY: Environmental Protection ground floor of the Department of vertical lift bridge to remain closed to Agency (EPA). Transportation West Building, 1200 navigation for one additional hour in ACTION: Final rule. New Jersey Avenue SE., Washington, the afternoon. This additional hour DC 20590, between 9 a.m. and 5 p.m., extends the afternoon curfew hours to Monday through Friday, except Federal 6:30 p.m. Monday through Friday SUMMARY: This regulation establishes an holidays. beginning November 24, 2014 through exemption from the requirement of a FOR FURTHER INFORMATION CONTACT: If December 25, 2014. In case of an tolerance for residues of 2,5-Furandione, you have questions on this temporary emergency, the bridge will be able to polymer with methoxyethene, butyl deviation, call or email David Frank, open for the passage of vessels. ethyl ester, sodium salt; when used as Bridge Administration Branch, Coast The State Route 23 vertical lift span an inert ingredient in a pesticide Guard; telephone 504–671–2128, email drawbridge across the Gulf Intracoastal chemical formulation. The firm Lewis & [email protected]. If you have Waterway (Algiers Alternate Route), Harrison, on behalf of International questions on viewing the docket, call mile 3.8, at Belle Chasse, Louisiana has Specialty Products submitted a petition Cheryl F. Collins, Program Manager, a vertical clearance of 40 feet above to EPA under the Federal Food, Drug, Docket Operations, telephone 202–366– mean high water in the closed-to- and Cosmetic Act (FFDCA), requesting 9826. navigation position and 100 feet above an exemption from the requirement of a

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tolerance. This regulation eliminates the B. How can I get electronic access to II. Background and Statutory Findings need to establish a maximum other related information? In the Federal Register of October 15, permissible level for residues of 2,5- You may access a frequently updated 2014 (79 FR 61844) (FRL–9917–24), Furandione, polymer with EPA issued a document pursuant to methoxyethene, butyl ethyl ester, electronic version of 40 CFR part 180 through the Government Printing FFDCA section 408, 21 U.S.C. 346a, sodium salt on food or feed announcing the receipt of a pesticide commodities. Office’s e-CFR site at http:// www.ecfr.gov/cgi-bin/text- petition (PP IN–10755) filed by the firm DATES: This regulation is effective idx?&c=ecfr&tpl=/ecfrbrowse/Title40/ Lewis & Harrison, 122 C Street NW., December 5, 2014. Objections and 40tab_02.tpl. Suite 505, Washington, DC 20001, on requests for hearings must be received behalf of International Specialty on or before February 3, 2015, and must C. Can I file an objection or hearing Products. The petition requested that 40 be filed in accordance with the request? CFR 180.960 be amended by establishing an exemption from the instructions provided in 40 CFR part Under FFDCA section 408(g), 21 requirement of a tolerance for residues 178 (see also Unit I.C. of the U.S.C. 346a, any person may file an of 2,5-Furandione, polymer with SUPPLEMENTARY INFORMATION). objection to any aspect of this regulation methoxyethene, butyl ethyl ester, and may also request a hearing on those ADDRESSES: The docket for this action, sodium salt (CAS Reg. No. 1471342–08– objections. You must file your objection identified by docket identification (ID) 1). That document included a summary or request a hearing on this regulation number EPA–HQ–OPP–2014–0668, is of the petition prepared by the in accordance with the instructions available at http://www.regulations.gov petitioner and solicited comments on provided in 40 CFR part 178. To ensure or at the Office of Pesticide Programs the petitioner’s request. A comment was proper receipt by EPA, you must Regulatory Public Docket (OPP Docket) received on the notice of filing. EPA’s identify docket ID number EPA–HQ– in the Environmental Protection Agency response to the comment is discussed in OPP–2014–0668 in the subject line on Docket Center (EPA/DC), West William Unit VIII.B. the first page of your submission. All Jefferson Clinton Bldg., Rm. 3334, 1301 Section 408(c)(2)(A)(i) of FFDCA objections and requests for a hearing Constitution Ave. NW., Washington, DC allows EPA to establish an exemption must be in writing, and must be 20460–0001. The Public Reading Room from the requirement for a tolerance (the received by the Hearing Clerk on or is open from 8:30 a.m. to 4:30 p.m., legal limit for a pesticide chemical before February 3, 2015. Addresses for Monday through Friday, excluding legal residue in or on a food) only if EPA mail and hand delivery of objections holidays. The telephone number for the determines that the exemption is ‘‘safe.’’ and hearing requests are provided in 40 Public Reading Room is (202) 566–1744, Section 408(c)(2)(A)(ii) of FFDCA CFR 178.25(b). and the telephone number for the OPP defines ‘‘safe’’ to mean that ‘‘there is a Docket is (703) 305–5805. Please review In addition to filing an objection or reasonable certainty that no harm will the visitor instructions and additional hearing request with the Hearing Clerk result from aggregate exposure to the information about the docket available as described in 40 CFR part 178, please pesticide chemical residue, including at http://www.epa.gov/dockets. submit a copy of the filing (excluding all anticipated dietary exposures and all FOR FURTHER INFORMATION CONTACT: any Confidential Business Information other exposures for which there is Susan Lewis, Registration Division (CBI)) for inclusion in the public docket. reliable information.’’ This includes (7505P), Office of Pesticide Programs, Information not marked confidential exposure through drinking water and Environmental Protection Agency, 1200 pursuant to 40 CFR part 2 may be use in residential settings, but does not Pennsylvania Ave. NW., Washington, disclosed publicly by EPA without prior include occupational exposure. Section DC 20460–0001; main telephone notice. Submit the non-CBI copy of your 408(b)(2)(C) of FFDCA requires EPA to number: (703) 305–7090; email address: objection or hearing request, identified give special consideration to exposure [email protected]. by docket ID number EPA–HQ–OPP– of infants and children to the pesticide 2014–0668, by one of the following chemical residue in establishing an SUPPLEMENTARY INFORMATION: methods. exemption from the requirement of a I. General Information • Federal eRulemaking Portal: http:// tolerance and to ‘‘ensure that there is a reasonable certainty that no harm will A. Does this action apply to me? www.regulations.gov. Follow the online instructions for submitting comments. result to infants and children from You may be potentially affected by Do not submit electronically any aggregate exposure to the pesticide this action if you are an agricultural information you consider to be CBI or chemical residue . . .’’ and specifies producer, food manufacturer, or other information whose disclosure is factors EPA is to consider in pesticide manufacturer. The following restricted by statute. establishing an exemption. list of North American Industrial • Mail: OPP Docket, Environmental III. Risk Assessment and Statutory Classification System (NAICS) codes is Protection Agency Docket Center (EPA/ Findings not intended to be exhaustive, but rather DC), (28221T), 1200 Pennsylvania Ave. EPA establishes exemptions from the provides a guide to help readers NW., Washington, DC 20460–0001. determine whether this document requirement of a tolerance only in those • Hand Delivery: To make special applies to them. Potentially affected cases where it can be shown that the arrangements for hand delivery or entities may include: risks from aggregate exposure to • delivery of boxed information, please pesticide chemical residues under Crop production (NAICS code 111). follow the instructions at http:// • reasonably foreseeable circumstances Animal production (NAICS code www.epa.gov/dockets/contacts.html. will pose no appreciable risks to human 112). Additional instructions on health. In order to determine the risks • Food manufacturing (NAICS code commenting or visiting the docket, from aggregate exposure to pesticide 311). along with more information about inert ingredients, the Agency considers • Pesticide manufacturing (NAICS dockets generally, is available at the toxicity of the inert in conjunction code 32532). http://www.epa.gov/dockets. with possible exposure to residues of

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the inert ingredient through food, 723.250(d)(6) and less than 5% EPA’s efforts to determine which drinking water, and through other oligomeric material below MW 1,000. chemicals have a common mechanism exposures that occur as a result of Thus, 2,5-Furandione, polymer with of toxicity and to evaluate the pesticide use in residential settings. If methoxyethene, butyl ethyl ester, cumulative effects of such chemicals, EPA is able to determine that a finite sodium salt meets the criteria for a see EPA’s Web site at http:// tolerance is not necessary to ensure that polymer to be considered low risk under www.epa.gov/pesticides/cumulative. there is a reasonable certainty that no 40 CFR 723.250. Based on its conformance to the criteria in this unit, VI. Additional Safety Factor for the harm will result from aggregate Protection of Infants and Children exposure to the inert ingredient, an no mammalian toxicity is anticipated exemption from the requirement of a from dietary, inhalation, or dermal Section 408(b)(2)(C) of FFDCA tolerance may be established. exposure to 2,5-Furandione, polymer provides that EPA shall apply an Consistent with FFDCA section with methoxyethene, butyl ethyl ester, additional tenfold margin of safety for 408(b)(2)(D), EPA has reviewed the sodium salt. infants and children in the case of threshold effects to account for prenatal available scientific data and other IV. Aggregate Exposures relevant information in support of this and postnatal toxicity and the action and considered its validity, For the purposes of assessing completeness of the data base unless completeness and reliability and the potential exposure under this EPA concludes that a different margin of relationship of this information to exemption, EPA considered that 2,5- safety will be safe for infants and Furandione, polymer with human risk. EPA has also considered children. Due to the expected low methoxyethene, butyl ethyl ester, available information concerning the toxicity of 2,5-Furandione, polymer sodium salt could be present in all raw variability of the sensitivities of major with methoxyethene, butyl ethyl ester, and processed agricultural commodities identifiable subgroups of consumers, sodium salt, EPA has not used a safety and drinking water, and that non- including infants and children. In the factor analysis to assess the risk. For the occupational non-dietary exposure was case of certain chemical substances that same reasons the additional tenfold possible. The number average MW of safety factor is unnecessary. are defined as polymers, the Agency has 2,5-Furandione, polymer with established a set of criteria to identify methoxyethene, butyl ethyl ester, VII. Determination of Safety categories of polymers expected to sodium salt is 18,200 daltons. Generally, Based on the conformance to the present minimal or no risk. The a polymer of this size would be poorly criteria used to identify a low-risk definition of a polymer is given in 40 absorbed through the intact polymer, EPA concludes that there is a CFR 723.250(b) and the exclusion gastrointestinal tract or through intact reasonable certainty of no harm to the criteria for identifying these low-risk human skin. Since 2,5-Furandione, U.S. population, including infants and polymers are described in 40 CFR polymer with methoxyethene, butyl children, from aggregate exposure to 723.250(d). 2,5-Furandione, polymer ethyl ester, sodium salt conform to the residues of 2,5-Furandione, polymer with methoxyethene, butyl ethyl ester, criteria that identify a low-risk polymer, with methoxyethene, butyl ethyl ester, sodium salt conforms to the definition there are no concerns for risks sodium salt. of a polymer given in 40 CFR 723.250(b) associated with any potential exposure VIII. Other Considerations and meets the following criteria that are scenarios that are reasonably used to identify low-risk polymers. foreseeable. The Agency has determined A. Analytical Enforcement Methodology 1. The polymer is not a cationic that a tolerance is not necessary to An analytical method is not required polymer nor is it reasonably anticipated protect the public health. for enforcement purposes since the to become a cationic polymer in a Agency is establishing an exemption natural aquatic environment. V. Cumulative Effects From Substances from the requirement of a tolerance 2. The polymer does contain as an With a Common Mechanism of Toxicity without any numerical limitation. integral part of its composition the Section 408(b)(2)(D)(v) of FFDCA atomic elements carbon, hydrogen, and requires that, when considering whether B. Response to Comments oxygen. to establish, modify, or revoke a One comment was received for a 3. The polymer does not contain as an tolerance, the Agency consider notice of filing from a private citizen integral part of its composition, except ‘‘available information’’ concerning the who opposed any pesticide product that as impurities, any element other than cumulative effects of a particular leaves a residue above 0.00. The Agency those listed in 40 CFR 723.250(d)(2)(ii). pesticide’s residues and ‘‘other understands the commenter’s concerns 4. The polymer is neither designed substances that have a common and recognizes that some individuals nor can it be reasonably anticipated to mechanism of toxicity.’’ believe that no residue of pesticides substantially degrade, decompose, or EPA has not found 2,5-Furandione, should be allowed. However, under the depolymerize. polymer with methoxyethene, butyl existing legal framework provided by 5. The polymer is manufactured or ethyl ester, sodium salt to share a FFDCA section 408, EPA is authorized imported from monomers and/or common mechanism of toxicity with to establish pesticide tolerances or reactants that are already included on any other substances, and 2,5- exemptions where persons seeking such the TSCA Chemical Substance Furandione, polymer with tolerances or exemptions have Inventory or manufactured under an methoxyethene, butyl ethyl ester, demonstrated that the pesticide meets applicable TSCA section 5 exemption. sodium salt does not appear to produce the safety standard imposed by the 6. The polymer is not a water a toxic metabolite produced by other statute. absorbing polymer with a number substances. For the purposes of this average molecular weight (MW) greater tolerance action, therefore, EPA has C. International Residue Limits than or equal to 10,000 daltons. assumed that 2,5-Furandione, polymer In making its tolerance decisions, EPA 7. The polymer does not contain with methoxyethene, butyl ethyl ester, seeks to harmonize U.S. tolerances with certain perfluoroalkyl moieties sodium salt does not have a common international standards whenever consisting of a CF3- or longer chain mechanism of toxicity with other possible, consistent with U.S. food length as specified in 40 CFR substances. For information regarding safety standards and agricultural

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practices. EPA considers the Flexibility Act (RFA) (5 U.S.C. 601 et General of the United States prior to international maximum residue limits seq.), do not apply. publication of the rule in the Federal (MRLs) established by the Codex This final rule directly regulates Register. This action is not a ‘‘major Alimentarius Commission (Codex), as growers, food processors, food handlers, rule’’ as defined by 5 U.S.C. 804(2). required by FFDCA section 408(b)(4). and food retailers, not States or tribes, List of Subjects in 40 CFR Part 180 The Codex Alimentarius is a joint nor does this action alter the United Nations Food and Agriculture relationships or distribution of power Environmental protection, Organization/World Health and responsibilities established by Administrative practice and procedure, Organization food standards program, Congress in the preemption provisions Agricultural commodities, Pesticides and it is recognized as an international of FFDCA section 408(n)(4). As such, and pests, Reporting and recordkeeping food safety standards-setting the Agency has determined that this requirements. organization in trade agreements to action will not have a substantial direct Dated: November 24, 2014. effect on States or tribal governments, which the United States is a party. EPA Susan Lewis, may establish a tolerance that is on the relationship between the national different from a Codex MRL; however, government and the States or tribal Director, Registration Division, Office of Pesticide Programs. FFDCA section 408(b)(4) requires that governments, or on the distribution of EPA explain the reasons for departing power and responsibilities among the Therefore, 40 CFR chapter I is from the Codex level. various levels of government or between amended as follows: The Codex has not established a MRL the Federal Government and Indian for 2,5-Furandione, polymer with Tribes, or otherwise have any unique PART 180—[AMENDED] methoxyethene, butyl ethyl ester, impacts on local governments. Thus, the sodium salt. Agency has determined that Executive ■ 1. The authority citation for part 180 Order 13132, entitled ‘‘Federalism’’ (64 continues to read as follows: IX. Conclusion FR 43255, August 10, 1999) and Authority: 21 U.S.C. 321(q), 346a and 371. Accordingly, EPA finds that Executive Order 13175, entitled ■ exempting residues of 2,5-Furandione, 2. In § 180.960, the table is amended ‘‘Consultation and Coordination with by alphabetically adding an entry for polymer with methoxyethene, butyl Indian Tribal Governments’’ (65 FR ethyl ester, sodium salt from the ‘‘2,5-Furandione, polymer with 67249, November 9, 2000) do not apply methoxyethene, butyl ethyl ester, requirement of a tolerance will be safe. to this final rule. In addition, this final sodium salt, minimum number average rule does not impose any enforceable X. Statutory and Executive Order molecular weight (in amu), 18,200’’ after duty or contain any unfunded mandate Reviews the entry for ‘‘2,5-Furandione, polymer as described under Title II of the with ethenylbenzene, reaction, products This final rule establishes a tolerance Unfunded Mandates Reform Act of 1995 with polyethylene-polypropylene glycol under FFDCA section 408(d) in (UMRA) (2 U.S.C. 1501 et seq.). response to a petition submitted to the Although this action does not require 2-aminopropyl Me ether; minimum Agency. The Office of Management and any special considerations under number average molecular weight (in Budget (OMB) has exempted these rules Executive Order 12898, entitled amu), 14,000’’ to read as follows: from review under Executive Order ‘‘Federal Actions to Address § 180.960 Polymers; exemptions from the 12866, entitled ‘‘Regulatory Planning Environmental Justice in Minority requirement of a tolerance. and Review’’ (58 FR 51735, October 4, Populations and Low-Income * * * * * 1993). Because this final rule has been Populations’’ (59 FR 7629, February 16, exempted from review under Executive 1994), EPA seeks to achieve Polymer CAS No. Order 12866, this final rule is not environmental justice, the fair treatment subject to Executive Order 13211, and meaningful involvement of any entitled ‘‘Actions Concerning group, including minority and/or low- ***** Regulations That Significantly Affect income populations, in the 2,5-Furandione, polymer with Energy Supply, Distribution, or Use’’ (66 development, implementation, and methoxyethene, butyl ethyl FR 28355, May 22, 2001) or Executive enforcement of environmental laws, ester, sodium salt, min- Order 13045, entitled ‘‘Protection of imum number average mo- regulations, and policies. As such, to the lecular weight (in amu), Children from Environmental Health extent that information is publicly 18,200 ...... 1471342–08–1 Risks and Safety Risks’’ (62 FR 19885, available or was submitted in comments April 23, 1997). This final rule does not to EPA, the Agency considered whether ***** contain any information collections groups or segments of the population, as subject to OMB approval under the a result of their location, cultural [FR Doc. 2014–28603 Filed 12–4–14; 8:45 am] Paperwork Reduction Act (PRA) (44 practices, or other factors, may have BILLING CODE 6560–50–P U.S.C. 3501 et seq.), nor does it involve atypical or disproportionately high and any technical standards that would adverse human health impacts or require Agency consideration of environmental effects from exposure to FEDERAL COMMUNICATIONS voluntary consensus standards pursuant the pesticide discussed in this COMMISSION to section 12(d) of the National document, compared to the general Technology Transfer and Advancement population. 47 CFR Parts 1 and 22 Act of 1995 (NTTAA) (15 U.S.C. 272 note). XI. Congressional Review Act [WT Docket No. 12–40; RM–11510; FCC 14– Since tolerances and exemptions that Pursuant to the Congressional Review 181] are established on the basis of a petition Act (5 U.S.C. 801 et seq.), EPA will Cellular Service, Including Changes in under FFDCA section 408(d), such as submit a report containing this rule and Licensing of Unserved Area the tolerance in this final rule, do not other required information to the U.S. require the issuance of a proposed rule, Senate, the U.S. House of AGENCY: Federal Communications the requirements of the Regulatory Representatives, and the Comptroller Commission.

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ACTION: Final rule. Synopsis of the Report and Order consistent with the Commission’s goals I. Background and recognizes the history and current SUMMARY: In this Report and Order status of the Cellular Service. (‘‘R&O’’), the Federal Communications 1. Under the current site-based 4. As explained in more detail in the Commission (‘‘Commission’’) adopts licensing rules, a Cellular applicant 2012 NPRM, the Commission digitized new and revised rules governing the 800 requests authorization to construct at a all CGSAs using the most recent maps specific transmitter location (or multiple MHz Cellular (‘‘Cellular’’) Service, on file for licensed CGSAs, creating map locations) in Unserved Area and may files in geographic information system changing the licensing model from site- construct only authorized transmitters. (‘‘GIS’’) format. Since then, the staff has based to geographic-based and Cellular Unserved Area applications regularly updated the files, and in eliminating numerous filing specify the area to be licensed as CGSA October 2013, made them publicly requirements while preserving direct and, because they are classified as available online. They draw directly access to area not yet licensed ‘‘major’’ applications no matter how from official Universal Licensing (‘‘Unserved Area’’). The Commission small the expansion area, they are System (‘‘ULS’’) station records for the also deletes obsolete and unnecessary subject to a 30-day public comment Cellular Service, using the most recent provisions in the rules and streamlines period during which petitions to deny CGSA maps of record, including those requirements remaining in place. The and competing applications may be accompanying Cellular applications resulting modernized scheme gives filed. In the event that mutually submitted pursuant to Commission greater flexibility to Cellular licensees to exclusive applications are accepted for rules. The staff uses them to determine make improvements to their systems in a particular Unserved Area, they are the official boundary of an authorized response to changing market demands. resolved through competitive bidding in CGSA (and a proposed CGSA when closed auctions. Unserved Area licenses reviewing a Cellular Service DATES: Effective January 5, 2015, except granted are subject to a one-year application). They will continue to be for the amendments to 47 CFR construction deadline for the authorized updated regularly, and licensees as well 22.165(e), 47 CFR 22.948, and 47 CFR site; failure to build out results in as new-system applicants should 22.953, which contain information automatic termination of the consult them to verify CGSA collection requirements that have not authorization for that site, and the boundaries. yet been approved by the Office of Unserved Area again is subject to re- B. Field Strength Limit Management and Budget (OMB). The licensing. Commission will publish a document in 2. In a Notice of Proposed Rulemaking 5. Based on the record in this the Federal Register announcing the released on February 15, 2012 (‘‘2012 proceeding, the Commission finds that effective date of those three NPRM’’), the Commission proposed to its proposed 40 dBmV/m field strength amendments. transition the Cellular Service to limit is appropriate for the Cellular geographic-based licensing by issuing Service and, accordingly, the FOR FURTHER INFORMATION CONTACT: geographic-area overlay licenses Commission adopts a new rule Nina Shafran, Mobility Division, through competitive bidding in two establishing this limit. The Commission Wireless Telecommunications Bureau, stages. The Commission also proposed also finds it appropriate, consistent with (202) 418–2781, TTY (202) 418–7233. new and revised rules. The Commission other geographic-based wireless sought comment on all aspects of its services, to permit neighboring co- SUPPLEMENTARY INFORMATION: This is a channel Cellular licensees to negotiate synopsis of the Federal proposals as well as on other ideas, proposals, and comments discussed in different field strength limits—higher or Communications Commission’s Report lower than 40 dBmV/m. The the 2012 NPRM, and also invited the and Order (‘‘R&O’’), WT Docket No. 12– Commission emphasizes that Cellular submission of alternative ideas. In 40, RM No. 11510, FCC 14–181, adopted licensees must comply at all times with response to the 2012 NPRM, interested November 7, 2014 and released the applicable radiated power limits as parties submitted comments, reply November 10, 2014. The full text of the well as applicable provisions of comments, and ex parte letters. The international agreements and treaties. R&O, including all Appendices, is specific reforms adopted by the However, given that the Commission is available for inspection and copying Commission in the R&O are described preserving the ability to expand service during normal business hours in the below. FCC Reference Center, 445 12th Street coverage into any Unserved Area SW., Room CY–A157, Washington, DC II. Report and Order nationwide, both through CGSA expansions and SAB extensions (as 20554, or by downloading the text from A. Geographic License Boundaries the Commission’s Web site at http:// discussed further below), the transition.fcc.gov/Daily_Releases/Daily_ 3. While the traditional geographic Commission finds it appropriate to licensing model, such as the model for Business/2014/db1110/FCC-14- depart from the 2012 NPRM proposal to the Broadband Personal subject all Cellular licensees to a 40 181A1.pdf. The complete text also may Communications Service (‘‘PCS’’) and dBmV/m (or negotiated) signal field be purchased from the Commission’s other commercial wireless services, strength limit at their respective license duplicating contractor, Best Copy and entails awarding licenses (via boundaries. Under the approach the Printing, Inc. Portals II, 445 12th Street competitive bidding if mutually Commission has adopted in the R&O, a SW., Suite CY–B402, Washington, DC exclusive applications are accepted) for Cellular licensee’s CGSA will not 20554. Alternative formats are available areas whose boundaries are co-terminus always be adjacent to a neighboring co- for people with disabilities (Braille, with well-known political boundaries or channel licensee’s CGSA; it may in large print, electronic files, audio other market areas established by the some cases be bordered by Unserved format), by sending an email to Commission, such as Metropolitan Area. Therefore, increased flexibility for [email protected] or calling the Statistical Areas, the Commission Cellular licensees is warranted when Consumer and Government Affairs concludes that geographic areas should applying the field strength limit rule. Bureau at (202) 418–0530 (voice), (202) be defined for the Cellular Service at 6. Accordingly, the Commission 418–0432 (TTY). this time by CGSA boundaries. This is adopts a rule that will apply at every

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point along the neighboring co-channel 8. No commenters objected to the emphasizes that it does not seek to licensee’s CGSA boundary. The proposal to retain the requirements for disrupt previously negotiated SAB following two examples illustrate this mandatory coordination currently set extension agreements between Cellular new rule: (1) If a licensee’s CGSA forth in 47 CFR 22.907, and the licensees, nor does it seek to prohibit borders Unserved Area (whether Commission finds that it serves the new ones. The Commission fully currently or through a service coverage public interest to adopt that proposal. expects that parties will continue to expansion in compliance with the new As the Commission emphasizes, comply with the terms of their existing rules), that licensee can exceed the 40 Cellular licensees will be permitted to SAB extension agreements or negotiate dBmV/m limit at its own CGSA expand their CGSAs and extend their new terms if they deem warranted. SABs (in compliance with the new rules boundary, so long as it complies with D. SABs Remaining Within CGSA adopted in the R&O), which are that limit (or a negotiated limit) at every Boundaries point along the neighboring co-channel calculated based on contours. The licensee’s CGSA boundary; (2) if two co- formulas in 47 CFR 22.911 provide a 11. Under the existing site-based channel licensees’ CGSAs are adjacent, proven method for the requisite licensing regime, Cellular licensees are both licensees will be subject to the calculation of such contours and the required to file minor modification field strength limit rule at every point service area within them, and the applications notifying the Commission along their shared CGSA boundary to Commission finds that they do not of the addition or modification of protect one another. The Commission warrant change at this time. The transmitter sites that form the CGSA concludes that this more flexible Commission does, however, revise 47 boundary—so-called border sites. While approach serves the public interest. CFR 22.911 to delete provisions system changes to purely internal (non- border) sites generally do not require a 7. The Commission declines at this rendered obsolete by its decision to adopt a field strength limit rule and the Commission filing, changes to border time to provide a methodology sites require the notifications (but not regarding how the field strength should related decision to eliminate certain requirements governing SAB extensions prior approval) even when the resulting be determined. Cellular licensees are new or modified SAB remains entirely best positioned to choose a methodology into another licensee’s CGSA, discussed below, in connection with transitioning within the CGSA boundary. that takes into account factors unique to the Cellular Service to a geographic- 12. The Commission finds that it their systems and the area involved, based model. These revisions to 47 CFR serves the public interest to no longer including, for example, technologies, 22.911 do not affect the formulas for require that Cellular licensees notify the traffic loading, topography, and location calculating CGSAs and SABs. Commission of changes to cell sites, or of major roads. The Commission the addition of new cell sites, where the recognizes that the existing regime in C. SAB Extensions Negotiated With SAB remains confined within the the Gulf of Mexico (‘‘Gulf’’) Cellular Another Licensee existing CGSA boundary. This approach market was carefully crafted following 9. Background. Under the current is consistent with the Commission’s lengthy Commission and judicial Cellular site-based licensing regime, a goals of reducing licensee proceedings. Accordingly, as set forth in licensee seeking to extend service administrative burdens, enhancing the new field strength limit rule (47 CFR coverage on a secondary basis into the flexibility to adapt quickly to 22.983) and the revised version of 47 licensed area of a neighboring co- technological and market place changes, CFR 22.912 that the Commission also channel licensee is required to negotiate and increasing harmonization of the adopts in this R&O (discussed further an SAB extension agreement and is then Cellular Service rules with those of below), the Commission finds that it required to file a minor modification other geographically licensed services. serves the public interest to continue to application for the extension and certify 13. Section 22.165(e). The maintain the status quo Gulf regime in that the neighboring licensee’s consent introductory clause of 47 CFR 22.165 most respects and not apply the new has been obtained. In response to the limits the scope of the entire rule to field strength limit rule. Specifically, 2012 NPRM, some commenters transmitters that may be added without the Commission will continue to require cautioned that previously negotiated prior Commission approval, and service area extension agreements and SAB extension agreements should not subsection 22.165(e) governs Cellular associated filings with the Commission be disrupted by the Commission. licensees solely in that context; it does as follows: land-based carriers adjoining 10. Consistent with the approach not address whether adding a Cellular the Gulf will be required to negotiate taken in other commercial wireless transmitter triggers the requirement to any desired SAB extensions into the services and the Commission’s goals in file a notification with the Commission. Gulf of Mexico Exclusive Zone and this proceeding, the Commission revises Consistent with the licensing approach submit minor modification applications 47 CFR 22.912 to reflect that the the Commission adopts in this R&O, the to the Commission, certifying that such Commission will no longer require Commission also adopts a simplified 47 consent has been obtained; and applications for SAB extensions into CFR 22.165(e) that eliminates references licensees in the Gulf of Mexico neighboring CGSAs, and it adopts a to the legacy Cellular licensing model Exclusive Zone will likewise be conforming change to 47 CFR 22.911(d). (e.g., the five-year construction period of required to negotiate any desired SAB The Commission clarifies that, so long an initial primary license) and clarifies extensions into the licensed area of as a licensee either meets the 40 dBmV/ when a Cellular transmitter may be neighboring land-based carriers and m field strength limit or negotiates a added without prior Commission submit minor modification applications different limit (higher or lower) with the approval. to the Commission, certifying that such neighboring co-channel licensee, consent has been obtained. The resulting SAB extensions into a E. 50-Square-Mile Minimum for CGSA Commission clarifies that all land-based neighboring licensee’s CGSA will be Expansions carriers will, however, be subject to the permitted without a minor modification 14. There is currently no required new field strength limit rule to protect application or a certification that minimum for expansion of an existing the licensed CGSA boundaries of all consents have been obtained. The system’s CGSA into Unserved Area, and neighboring co-channel land-based exception is with respect to the Gulf, as any expansion no matter how small licensees. discussed above. The Commission requires a major modification

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application seeking prior Commission well and does warrant change at this 19. The Commission declines to adopt approval. All CGSA-expansion time. commenters’ unsupported proposals to applications are placed on public notice 16. The Commission anticipates that permit Cellular incumbents simply to for 30 days. This reform proceeding has licensees will not make unnecessary absorb small parcels of Unserved Area evaluated whether there is a continued filings under the new rules it adopts in into their existing CGSAs, even when need for modification applications and this R&O. The Commission clarifies bordered on all sides by only one subsequent buildout notifications for that, to the extent that applications are incumbent. The Commission finds these very small system changes. Also, a high filed claiming Unserved Area as CGSA proposals to be inconsistent with number of amendments are without meeting the new minimum Commission precedent. Consistent, subsequently filed, either to cure square mileage requirement, however, with the approach the applicant errors or change the coverage Commission staff will not process them; Commission adopts in this R&O to or certain technical parameters initially rather, they will return or dismiss such increase flexibility to make changes to proposed. The result is a process that filings unless first withdrawn by the an existing system without Commission consumes significant licensee and FCC applicant. filings, the Commission finds it serves resources. Commission data indicate F. SAB Extensions Into Unserved Area; the public interest to permit incumbents that, by limiting CGSA-expansion major Shared Service on a Secondary Basis to extend their SABs (as calculated modification applications to those that under 47 CFR 22.911) into adjacent propose expansion of 50 contiguous 17. Since 2004, the Commission has Unserved Area parcels that are less than square miles or more, together with permitted Cellular licensees to extend 50 contiguous square miles and provide adopting a streamlined procedure for their SABs into adjacent Unserved Area service coverage on a secondary basis service coverage expansions of less than and provide service on a secondary indefinitely and without any filings basis without first filing a major 50 contiguous square miles, the volume with the Commission. The Commission modification application seeking prior of major modification applications and clarifies that this is applicable whether Commission approval, so long as the associated amendments for CGSA the SAB extension is the result of an extension is less than 50 square miles. expansions will be dramatically added transmitter, modification of a cell In such instances, the licensee has been reduced. Likewise, the volume of build- site, or both. A licensee extending its required to file only a notification upon out notification filings would also be SAB into an Unserved Area parcel of commencing service on a secondary significantly reduced. less than 50 contiguous square miles (i.e., an unlicensed, unprotected) basis. must: (1) Pursuant to 47 CFR 22.983 that 15. The Commission is persuaded, as A licensee seeking to claim the area as the Commission adopts in this R&O, noted above, to continue to permit part of its CGSA (i.e., for primary, comply with the 40 dBmV/m field CGSA expansions in all CMA Blocks at protected service) is required to submit strength limit at the boundary of the this time. The Commission also agrees a major modification application subject neighboring co-channel licensee’s CGSA with the commenters that it serves the to a 30-day public comment period, no or negotiate a different field strength public interest to establish by rule a matter how small the area. The 2004 limit; (2) accept interference from other minimum requirement of 50 contiguous relaxation of the prior approval Cellular systems; and (3) avoid causing square miles (as determined pursuant to requirement in such circumstances was harmful interference to any neighboring the applicable formula in 47 CFR designed to provide licensees with co-channel licensee’s CGSA. To the 22.911) for all CGSA expansions (i.e., to additional flexibility to respond to extent that more than one incumbent expand service coverage on a primary, operational demands immediately in a borders and wishes to serve the same protected basis). The Commission manner that remained consistent with Unserved Area parcel less than 50 concludes that this approach balances site-based licensing rules. contiguous square miles, such the concerns of large and smaller 18. As explained in the preceding incumbents will be required to provide carriers alike, particularly because the section, to balance the concerns of service in that parcel on a shared Commission will not only continue to smaller, more rural carriers and large secondary (unprotected) basis only. The permit secondary operation to serve carriers alike, the Commission adopts Commission finds that these revisions smaller parcels (less than 50 contiguous revised Cellular rules based on a serve the public interest and further the square miles), but will enhance geographic licensing model while also Commission’s goals in this proceeding. flexibility by eliminating previously preserving certain elements of the required Commission filings for such existing site-based model, including the G. Submission of Maps parcels, as discussed in detail in the continued ability to expand CGSAs into 20. In the 2012 NPRM, the next section of this R&O. The Unserved Area so long as the proposed Commission noted that, pursuant to Commission incorporates this minimum expansion area is at least 50 contiguous delegated authority and rules adopted in requirement for CGSA expansions into square miles. A high volume of the ULS proceeding to eliminate paper the revised version of 47 CFR 22.949 applications under current Cellular filings, the Bureau had announced that the Commission adopts in this R&O rules are to make improvements in optional electronic filing of CGSA map and, consistent with the Commission’s response to technological changes, files in lieu of the large-scale (1:500,000 regulatory reform agenda to streamline demographic changes, and consumer scale) paper CGSA maps required to be rules where possible, the Commission demand that change the CGSA submitted with certain Cellular consolidates the existing new-system boundary by an extremely small applications. The Commission also coverage requirements currently set amount. The Commission finds that it reaffirmed the Bureau’s delegated forth in 47 CFR 22.951 into 47 CFR serves the public interest to permit authority to determine and announce 22.949. The Commission declines at this continued access to these small parcels the effective date of mandatory time to adopt a commenter’s proposal to of Unserved Area, but the Commission electronic filing of such maps, with establish a two-year build-out recognizes that filings associated with instructions for the public regarding requirement solely for licensees in minor system changes that expand access to such submissions. The Bureau Alaska; it finds that the one-year build- service into these small parcels often continued its voluntary policy to allow out requirement applicable to all constitute hindrances to system all Cellular licensees, including the Cellular licensees has generally worked improvements. smaller carriers, time to explore and

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choose appropriate software for their the maximum lobe; antenna model; where mutually exclusive applications electronic map filings. The 2012 NPRM antenna manufacturer name; antenna have been accepted. The Commission anticipated mandatory electronic filing type; antenna height to tip above ground finds that it serves the public interest to and sought comment on proposed rules level; maximum effective radiated adopt the proposed geographic coverage incorporating this requirement. power; beam-width of the maximum build-out requirements, rather than 21. Nearly all large-scale CGSA maps lobe of the antenna; polar plot of the subjecting the new Chambers licensee to are now submitted by applicants horizontal gain pattern of the antenna; the legacy five-year and Unserved Area electronically in ULS. The Commission electrical field polarization of the wave licensing build-out/application finds that, in conjunction with the emitted by the antenna when installed processes. The Chambers licensee will numerous other changes adopted in the as proposed; channel plan; service therefore be required to provide signal R&O to modernize the Cellular rules, it proposal; Cellular design; blocking coverage and offer service over at least is appropriate to adopt final rules that level; start-up expenses; and 35% of the geographic area of CMA672– require mandatory electronic filing of interconnection. A within four years of initial license map files (rather than the large-scale 24. In light of technological advances grant, and to at least 70% of that same paper CGSA maps) in GIS format with and maturity of the Cellular Service, the area by the end of the license term, as any Cellular applications that require Commission finds that the information set forth in new 47 CFR 22.960 that the maps. The Commission will continue to and technical exhibits identified above Commission adopts in this R&O. As accept and preserve large-scale paper are either no longer routinely necessary proposed, for purposes of this maps filed prior to the effective date of for Commission staff in reviewing geographic benchmark, the licensee is to the electronic filing requirement that the Cellular applications or can be accessed count total land, and failure to meet Commission adopts in this R&O. elsewhere. By eliminating all 16 of these these coverage benchmarks will result Thereafter, the Commission will not requirements for routine review, the in automatic termination of the license accept paper maps with Cellular Commission is alleviating to a and its return to the Commission for re- applications unless it finds that a large- significant degree the resources that licensing by auction. Any licensee that scale paper map is necessary to review licensees will need to expend on so fails to meet these benchmarks will and act on a particular application and Cellular applications. The Commission not be eligible to regain the Chambers requests such a submission. concludes that such streamlining and license. The Commission emphasizes Applications that do not comply with modernization of the current rules that the holder of the interim operating the new requirement will either be serves the public interest. authorization (currently AT&T returned to the applicant or dismissed. Galveston) does not have primary I. Mutually Exclusive Applications in authority to operate and would not be H. Elimination of Certain Application the Cellular Service Content Requirements afforded incumbent status entitled to 1. Initial License for Chambers, Texas protection from the Chambers licensee. 22. In an effort to streamline and Market (CMA672–A) 27. The performance obligations for modernize the Cellular Service-specific the Chambers license are consistent rules in Subpart H as well as certain 25. Block A of the Chambers, Texas with those for geographic area licenses Part 1 and other Part 22 rules applicable CMA (CMA672–A) (‘‘Chambers’’) is the in certain other services similarly issued to Cellular licensing, the Commission only CMA in the country for which a through competitive bidding. proposed in the 2012 NPRM numerous Cellular initial primary license has Accordingly, consistent with its rule deletions and changes to current never been issued, and AT&T Mobility regulatory reform agenda and as requirements. The Commission of Galveston LLC (‘‘AT&T Galveston’’) proposed, the Commission finds that it specifically indicated that, in the future, holds an interim operating serves the public interest to eliminate— certain information and exhibits authorization—not a permanent or, where appropriate, update—the currently required pursuant to 47 CFR license—and provides Cellular service numerous existing provisions pertaining 22.929 and 22.953(a) would not be to nearly all of the area under Call Sign to or referencing the legacy build-out routinely required by the Commission’s KNKP971. The Commission proposed periods for the Cellular Service engineering staff in their review of that the entire CMA672–A be licensed throughout Parts 1 and 22 of the Cellular new-system and modification on a geographic area basis by auction, Commission’s rules. The Commission applications, and therefore proposed with specified build-out benchmarks. discusses these specific rule changes streamlining the information 26. In light of the Commission’s further below. requirements in those rules. decision in this R&O to adopt a 28. Moreover, the Commission 23. Based on the record and geographic-based licensing model for concludes that it is appropriate to deem consistent with the Commission’s the Cellular Service, the Commission the boundary of CMA672–A as the regulatory reform agenda, the finds it appropriate to adopt the CGSA boundary of the Chambers Commission finds that it serves the Commission’s proposal regarding the licensee. Neighboring co-channel public interest to adopt revised Chambers license, with a few licensees will not be permitted to claim provisions to minimize the content clarifications. The current rules provide as CGSA any area within CMA672–A, requirements for Cellular applications. for the acceptance of mutually exclusive even if not built out by the Chambers Specifically, the Commission adopts the applications for the initial license for licensee by the end of the initial license proposal to delete 47 CFR 22.929 and Chambers, which would be resolved by term. The Chambers licensee will be consolidate application requirements competitive bidding pursuant to section permitted to claim, as a CGSA into a single revised and streamlined 309(j) of the Communications Act of expansion, Unserved Area in a rule, 47 CFR 22.953, such that 1934, as amended. Accordingly, the neighboring CMA, provided that it has applicants for new systems or system Wireless Telecommunications Bureau first met all of its build-out modifications will no longer be required (‘‘Bureau’’) will accept applications for requirements in CMA672–A by the end routinely to submit the following a CMA-based initial primary license for of the initial license term. Any such information in their exhibits: Height of Chambers, consistent with initial CGSA expansion area will not, however, the center of radiation of the antenna licensing of other CMA Blocks that have remain part of the Chambers license in above average terrain; antenna gain in been subject to competitive bidding the event the Chambers license is

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automatically terminated by through settlement) in accordance with CFR 1.919(c) governing the reporting of Commission rule or revoked for any the Commission’s rules. Consistent with Cellular cross-ownership interests, reason, in which case the area within the Commission’s proposals in the 2012 which is obsolete because the reporting CMA672–A will revert to the NPRM, the Commission adopts new 47 requirement has sunset. Accordingly, Commission for re-licensing by auction, CFR 22.961 not only to govern the the Commission deletes 47 CFR 1.919(c) while the CGSA expansion area will Chambers license, but also mutually as proposed. The Commission finds that revert to the Commission for re- exclusive Cellular Unserved Area adopting these rule changes serves the licensing pursuant to the Unserved Area applications, and the Commission public interest and advances the licensing rules. consolidates into 47 CFR 22.961 certain Commission’s regulatory reform agenda. 29. With respect to licensee protection other rules to eliminate redundancy and requirements, pursuant to the field obsolescence in provisions addressing 2. AMPS-Related Data Collection strength limit rule the Commission mutually exclusive Cellular Service 35. The Commission noted in the adopts in this R&O, the Commission applications. 2012 NPRM that, with sunset of the clarifies that the Chambers licensee will requirement to provide analog Cellular have the flexibility to construct J. Other Amendments; Non-Relocation of Rules service, all of 47 CFR 22.901(b) had anywhere within CMA672–A subject to been rendered moot. Stating its belief Cellular Service technical requirements, 32. In this section, the Commission that all Cellular licensees have had but must comply with the 40 dBmV/m explains various other changes to its ample time to make their choice and file field strength limit at the CGSA rules in Part 22, Subpart H, and either the one-time AMPS sunset boundaries of neighboring co-channel provisions found elsewhere in Part 22 as certification or the appropriate revised licensees, unless a different limit is well as in Part 1. The Commission urges CGSA showing, the Commission negotiated. Further, consistent with the all parties to review and become proposed to terminate its collection of familiar with all final rules the new Cellular field strength limit rule such certifications and to delete 47 CFR Commission adopts in the R&O in this and with protection requirements in 22.901(b). Based on the record, the proceeding, including the new and other geographic-based wireless Commission finds that it serves the revised terms and definitions, all as set services, a neighboring co-channel public interest to adopt revised 47 CFR forth in Appendix A of this R&O and Cellular licensee must comply with the 22.901, deleting paragraph (b) of the which will take effect as specified in the 40 dBmV/m field strength limit at the rule as proposed. As of the effective date pertinent Ordering Clauses. Chambers licensed area boundary (i.e., of revised 47 CFR 22.901 that the the boundary of CMA672–A), regardless 1. Obsolete or Outdated Terminology Commission adopts in this R&O, the of whether the Chambers licensee is yet and Provisions Commission will cease collecting AMPS operating near the border of CMA672– sunset certifications from Cellular A, or else negotiate a different limit. 33. As stated above in the context of licensees. 30. The Commission concludes that its decision concerning the Chambers this approach provides the most license, obsolete and outdated terms are 3. Correction of Section 1.958(d) efficient and effective means to foster pervasive in the current rules applicable the provision of additional advanced to the Cellular Service. Consistent with 36. The Commission proposed in the wireless service by a primary licensee to the Commission’s proposal in the 2012 2012 NPRM to correct a clerical error in this Texas market and serves the public NPRM, a number of revised rules are the distance computation formula in 47 interest. In the event that mutually being adopted in this R&O solely to CFR 1.958(d)—an error that was exclusive applications are accepted for bring the rules up to date by eliminating introduced in the process of moving the this license, the Commission concludes legacy terminology and cross-references, provision containing the formula from that new 47 CFR 22.961, which the and by replacing outdated terms. In Part 22 (then 47 CFR 22.157) to Subpart Commission adopts in this R&O addition, the Commission adopts F of Part 1 of its rules. The error in this consistent with the Commission’s revisions here to conform certain rules distance computation formula was proposal in the 2012 NPRM, shall in Parts 1 and 22 to the other rule inadvertent, and correction is obviously govern. The Commission directs the changes the Commission adopts, as warranted. Accordingly, the Bureau to proceed, within a reasonable described above in this R&O. Commission adopts the corrected rule as time following the effective date of the 34. Specifically, the Commission is proposed. final rules the Commission adopts in deleting rules and adopting revised 4. Non-Relocation of Part 22 Cellular this R&O, to release the appropriate rules as follows: 47 CFR 1.929(b) and Part 24 PCS Rules to Part 27 public notice(s) to implement its (revised); 47 CFR 22.99 (deleting decision regarding the Chambers defined terms ‘‘Build-out transmitters,’’ 37. The Commission invited comment license. ‘‘Five-year build-out period,’’ and in the 2012 NPRM on whether the ‘‘Partitioned Cellular market,’’ revising revised Cellular Service-specific rules 2. Mutually Exclusive CGSA Expansion slightly the definitions for ‘‘Cellular should be incorporated into Part 27. The Applications Geographic Service Area,’’ ‘‘Extension,’’ Commission further suggested that, if 31. The Commission emphasizes that, and ‘‘Unserved Area,’’ and adding and the revised Cellular Service rules were with this R&O, the Commission is not defining the term ‘‘Cellular Market to be moved into Part 27, then the rules eliminating the existing prohibition on Area’’); 47 CFR 22.131 (revising for the Part 24 PCS, should also be CGSA overlaps. Accordingly, whenever paragraphs (c)(3)(iii) and (d)(2)(iv)); 47 moved into Part 27, and sought CGSA-expansion or new-system CGSA CFR 22.143 (revising paragraph (a)); 47 comment on optimal timing and applications are mutually exclusive CFR 22.909 (revised); 47 CFR 22.911 whether a separate rulemaking should with other pending proposed (deleting paragraph (c) and revising be launched to address any such operations, they will continue to be set paragraph (e)); 47 CFR 22.912 (revised); relocations. The Commission concludes for resolution by competitive bidding in 47 CFR 22.946 (revised); 47 CFR 22.947 that relocating the Part 22, Subpart H a closed auction unless the competing (deleted); 47 CFR 22.948 (revised); and Cellular Service rules is not appropriate. applicants are able to resolve the mutual 47 CFR 22.949 (revised). The Moreover, the Commission also exclusivity beforehand (for example, Commission also proposed to delete 47 concludes that it is not appropriate to

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further consider relocation of the Part 24 of 1995 (‘‘PRA’’), Public Law 104–13. presentation was made, and (2) PCS rules in this proceeding. Those rule amendments will be summarize all data presented and submitted to the Office of Management arguments made during the K. Gulf of Mexico Service Area and Budget (‘‘OMB’’) for review under presentation. If the presentation 38. The Commission proposed in the section 3507(d) of the PRA. OMB, the consisted in whole or in part of the 2012 NPRM generally to exempt the general public, and other Federal presentation of data or arguments Gulf from the licensing revisions being agencies will be invited to comment on already reflected in the presenter’s considered, except that it proposed to the modified information collection written comments, memoranda or other subject Gulf licensees to the same field requirements. In addition, the filings in the proceeding, the presenter strength limit as all other Cellular Commission notes that pursuant to the may provide citations to such data or licensees and also to certain rule Small Business Paperwork Relief Act of arguments in his or her prior comments, changes designed to update and 2002, Public Law 107–198, see 44 U.S.C. memoranda, or other filings (specifying streamline the Cellular licensing regime. 3506(c)(4), the Commission previously the relevant page and/or paragraph The Commission has already described, sought specific comment on how the numbers where such data or arguments earlier in this R&O, its decision Commission might further reduce the can be found) in lieu of summarizing regarding field strength limit and the information collection burden for small them in the memorandum. Documents related issue of contractually negotiated business concerns with fewer than 25 shown or given to Commission staff SAB extensions with respect to the Gulf. employees. The Commission has during ex parte meetings are deemed to The Commission concludes that, to the assessed the effects on small business be written ex parte presentations and extent Gulf licensees are subject to concerns of the rule changes it is must be filed consistent with rule Unserved Area licensing procedures adopting by this R&O and finds that 1.1206(b). In proceedings governed by under the current rules, consistent with businesses with fewer than 25 people rule 1.49(f) or for which the the proposal in the 2012 NPRM, it will benefit from the elimination of Commission has made available a serves the public interest that Gulf certain filing requirements as well as method of electronic filing, written ex licensees not be exempt from the from the streamlining and updating of parte presentations and memoranda revised rules and procedures that the various requirements applicable to all summarizing oral ex parte Commission adopts in this R&O to Cellular licensees. presentations, and all attachments thereto, must be filed through the modernize and streamline the Cellular B. Congressional Review Act Unserved Area licensing model. This Commission’s Electronic Comment does not disrupt the Gulf regime. 41. The Commission will send a copy Filing System (‘‘ECFS’’) available for of this R&O to Congress and the that proceeding, and must be filed in L. Freeze Order Lifted and Related Government Accountability Office their native format (e.g., .doc, .xml, .ppt, Interim Procedures Terminated pursuant to the Congressional Review searchable .pdf). 39. To permit the orderly and Act. 44. People with Disabilities. To request materials in accessible formats effective resolution of the changes and C. Final Regulatory Flexibility Analysis issues raised in the 2012 NPRM, and for people with disabilities (braille, consistent with numerous prior 42. The Regulatory Flexibility Act of large print, electronic files, audio proceedings, the Commission adopted a 1980 (‘‘RFA’’) requires that an agency format), send an email to [email protected] companion Order imposing a freeze on prepare a regulatory flexibility analysis or call the Consumer & Governmental the acceptance of certain Cellular for notice and comment rulemakings, Affairs Bureau at 202–418–0530 (voice), applications and imposing other interim unless the agency certifies that ‘‘the rule 202–418–0432 (tty). will not, if promulgated, have a procedures. The freeze and related IV. Ordering Clauses interim procedures were very limited so significant economic impact on a as to permit continued expansion of substantial number of small entities.’’ 45. Accordingly, it is ordered, service to consumers by incumbents but Accordingly, the Commission has pursuant to Sections 1, 2, 4(i), 4(j), 7, nonetheless help the Commission prepared a Final Regulatory Flexibility 301, 302, 303, 307, 308, 309, and 332 of identify Unserved Area in substantially Analysis (‘‘FRFA’’), set forth in the Communications Act of 1934, as licensed CMA Blocks for purposes of Appendix C of the R&O, concerning the amended, 47 U.S.C. 151, 152, 154(i), conducting the proposed overlay possible impact of the rule changes 154(j), 157, 301, 302, 303, 307, 308, 309, auction. Although the Commission is contained in the R&O. and 332, that this report and order in not concluding this proceeding with WT Docket No. 12–40 is adopted. D. Ex Parte Presentations 46. It is further ordered that Parts 1 this R&O, the Commission finds that it 43. Permit-But-Disclose. The and 22 of the Commission’s rules, 47 no longer serves the goals of this Commission will continue to treat this CFR parts 1 and 22, are amended, as proceeding or the public interest to proceeding as a ‘‘permit-but-disclose’’ specified in Appendix A, effective 30 continue the freeze or the interim proceeding in accordance with the days after publication in the Federal procedures. Accordingly, the freeze and Commission’s ex parte rules. Persons Register except as otherwise provided the interim procedures that were making presentations must file a copy of herein. It is the Commission’s intention imposed will no longer be in force as of any written presentation or a in adopting these rule changes that if the date specified in the pertinent memorandum summarizing any oral any provision of the rules, or the Ordering Clause. presentation within two business days application thereof to any person or III. Procedural Matters after the presentation (unless a different circumstance, is held to be unlawful, deadline applicable to the Sunshine the remaining portions of the rules not A. Paperwork Reduction Act Analysis period applies). Persons making oral ex deemed unlawful, and the application 40. Three of the rule amendments parte presentations are reminded that of such rules to other persons or adopted by this R&O—47 CFR 22.165(e), memoranda summarizing the circumstances, shall remain in effect to 22.948, and 22.953—contain modified presentation must (1) list all persons the fullest extent permitted by law. information collection requirements attending or otherwise participating in 47. It is further ordered that the subject to the Paperwork Reduction Act the meeting at which the ex parte amendments adopted in the report and

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order, and specified in Appendix A, to § 1.919 Ownership information. determining whether a petitioner has Sections 22.165(e), 22.948, and 22.953 * * * * * standing, in the Cellular Radiotelephone of the Commission’s rules, 47 CFR (c) [Reserved] Service, and within which the Cellular 22.165(e), 22.948, and 22.953, which * * * * * licensee is permitted to transmit, or contain modified information collection ■ 3. Section 1.929 is amended by consent to allow other Cellular licensees requirements that require approval by revising paragraph (b) to read as follows: to transmit, electromagnetic energy and the Office of Management and Budget signals on the assigned channel block, under the Paperwork Reduction Act, § 1.929 Classification of filings as major or in order to provide Cellular service. See will become effective after the minor. § 22.911. Commission publishes a notice in the * * * * * * * * * * Federal Register announcing such (b) In addition to those changes listed Cellular Market Area (CMA). A approval and the relevant effective date. in paragraph (a) of this section, the standard geographic area used by the 48. It is futher ordered that, effective following are major changes in the FCC for administrative convenience in 30 days after publication in the Federal Cellular Radiotelephone Service: the licensing of Cellular systems; a more Register of a summary of this report and (1) Application requesting recent term for ‘‘Cellular market’’ (and order, the freeze and interim procedures authorization to expand the Cellular includes Metropolitan Statistical Areas that were imposed as of the adoption Geographic Service Area (CGSA) of an (MSAs) and Rural Service Areas date of the 2012 Notice of Proposed existing Cellular system or, in the case (RSAs)). See § 22.909. Rulemaking and Order in this WT of an amendment, as previously * * * * * Docket No. 12–40 will no longer be in proposed in an application to expand effect. the CGSA; or Cellular markets. This term is 49. It is further ordered that, pursuant (2) Application or amendment obsolescent. See definition for ‘‘Cellular to Section 801(a)(1)(A) of the requesting that a CGSA boundary or Market Area (CMA).’’ Congressional Review Act, 5 U.S.C. portion of a CGSA boundary be * * * * * 801(a)(1)(A), the Commission shall send determined using an alternative method. Extension. In the Cellular a copy of this report and order to (3) [Reserved] Radiotelephone Service, an area within Congress and to the Government * * * * * the service area boundary (calculated Accountability Office. ■ 4. Section 1.958 is amended by using the methodology of § 22.911) of a 50. It is further ordered that the revising paragraph (d) to read as Cellular system but outside the licensed Commission’s Consumer and follows: Cellular Geographic Service Area Governmental Affairs Bureau, Reference boundary. See §§ 22.911 and 22.912. Information Center, shall send a copy of § 1.958 Distance computation. * * * * * this report and order, including the * * * * * Unserved Area. With regard to a Final Regulatory Flexibility Analysis, to (d) Calculate the number of kilometers channel block allocated for assignment the Chief Counsel for Advocacy of the per degree of longitude difference for in the Cellular Radiotelephone Service: Small Business Administration. the mean geodetic latitude calculated in Geographic area in the District of paragraph (b) of this section as follows: List of Subjects Columbia, or any State, Territory or KPDlon = 111.41513 cos ML ¥ 0.09455 Possession of the United States of 47 CFR Part 1 cos 3ML + 0.00012 cos 5ML America that is not within any Cellular Telecommunications, Reporting and * * * * * Geographic Service Area of any Cellular recordkeeping requirements. system authorized to transmit on that PART 22—PUBLIC MOBILE SERVICES channel block. With regard to a channel 47 CFR Part 22 allocated for assignment in the Paging ■ 5. The authority citation for part 22 Communications common carriers, and Radiotelephone service: Geographic continues to read as follows: Reporting and recordkeeping area within the District of Columbia, or requirements. Authority: 47 U.S.C. 154, 222, 303, 309 any State, Territory or possession of the and 332. United States of America that is not Federal Communications Commission. ■ within the service contour of any base Marlene H. Dortch, 6. Section 22.99 is amended by: ■ a. Removing the definitions of ‘‘Build- transmitter in any station authorized to Secretary. out transmitters,’’ ‘‘Five year build-out transmit on that channel. Final Rules period,’’ ‘‘Partitioned Cellular market’’, ■ 7. Section 22.131 is amended by and ‘‘Unserved Areas’’. For the reasons discussed in the revising paragraphs (c)(3)(iii) and ■ b. Revising the definitions of ‘‘Cellular preamble, the Federal Communications (d)(2)(iv) to read as follows: Geographic Service Area,’’ ‘‘Cellular Commission amends 47 CFR parts 1 and markets’’ and ‘‘Extension’’. § 22.131 Procedures for mutually 22 as follows: ■ c. Adding the new definitions, exclusive applications. PART 1—PRACTICE AND ‘‘Cellular Market Area’’ and ‘‘Unserved * * * * * PROCEDURE Area’’. (c) * * * The additions and revisions read as (3) * * * ■ 1. The authority citation for part 1 follows: (iii) If all of the mutually exclusive continues to read as follows: § 22.99 Definitions. applications filed on the earliest filing date are applications for initial Authority: 15 U.S.C. 79 et seq.; 47 U.S.C. * * * * * authorization, a 30-day notice and cut- 151, 154(i), 154(j), 155, 157, 225, 227, 303(r), Cellular Geographic Service Area 309, 1403, 1404, 1451, and 1452. off filing group is used. (CGSA). The licensed geographic area ■ 2. Section 1.919 is amended by within which a Cellular system is * * * * * removing and reserving paragraph (c) to entitled to protection and adverse (d) * * * read as follows: effects are recognized, for the purpose of (2) * * *

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(iv) Any application to expand the Cellular service, each Cellular system SAB extensions are areas (calculated Cellular Geographic Service Area of an may incorporate any technology that using the methodology of § 22.911) that existing Cellular system. See § 22.911. meets all applicable technical extend outside of the licensee’s Cellular * * * * * requirements in this part. Geographic Service Area (CGSA) ■ 8. Section 22.143 is amended by ■ 12. Section 22.909 is amended by boundary into Unserved Area or into the revising paragraph (a) to read as follows: revising the introductory text to read as CGSA of a neighboring co-channel follows: licensee. Service within SAB extensions § 22.143 Construction prior to grant of is not protected from interference or application. § 22.909 Cellular Market Areas (CMAs). capture under § 22.911(d) unless and * * * * * Cellular Market Areas (CMAs) are until the area within the SAB extension (a) When applicants may begin standard geographic areas used by the becomes part of the CGSA in construction. An applicant may begin FCC for administrative convenience in compliance with all applicable rules. construction of a facility 35 days after the licensing of Cellular systems. CMAs (a) Extensions into Unserved Area. the date of the Public Notice listing the comprise Metropolitan Statistical Areas Subject to paragraph (c) of this section, application for that facility as acceptable (MSAs) and Rural Service Areas (RSAs). the licensee of a Cellular system may, at for filing. All CMAs and the counties they any time, extend its SAB into Unserved * * * * * comprise are listed in: ‘‘Common Carrier Area and provide service on a secondary ■ 9. Section 22.165 is amended by Public Mobile Services Information, basis only, provided that the extension revising paragraph (e) to read as follows: Cellular MSA/RSA Markets and area comprises less than 130 contiguous Counties,’’ Public Notice, Rep. No. CL– square kilometers (50 contiguous square § 22.165 Additional transmitters for 92–40, 7 FCC Rcd 742 (1992). miles). If more than one licensee of a existing systems. * * * * * Cellular system extends into all or a * * * * * ■ 13. Section 22.911 is amended by portion of the same Unserved Area (e) Cellular Radiotelephone Service. revising the introductory text of under this section, all such licensees The service area boundaries (SABs) of paragraph (a), by removing and may provide service in such Unserved the additional transmitters, as reserving paragraph (c), and by revising Area on a shared secondary calculated by the method set forth in paragraphs (d) and (e) to read as follows: (unprotected) basis only. § 22.911(a), must not cause an (b) Contract extensions. The licensee expansion of the Cellular Geographic § 22.911 Cellular geographic service area. of any Cellular system may, at any time, Service Area (CGSA), and must not * * * * * enter into a contract with an applicant extend outside the CGSA boundary into (a) CGSA determination. The CGSA is for, or a licensee of, a Cellular system Unserved Area unless such extension is the composite of the service areas of all on the same channel block to allow one less than 130 contiguous square of the cells in the system, excluding any or more SAB extensions into its CGSA kilometers (50 contiguous square miles). Unserved Area (even if it is served on (not into Unserved Area). The licensee must seek prior approval a secondary basis) or area within the (c) Gulf of Mexico Service Area. Land- (using FCC Form 601) regarding any CGSA of another Cellular system. The based Cellular system licensees may not transmitters to be added under this service area of a cell is the area within extend their SABs into the Gulf of section that would cause an expansion its service area boundary (SAB). The Mexico Exclusive Zone (GMEZ) absent of the CGSA, or an SAB extension of distance to the SAB is calculated as a written contractual consent of the co- 130 contiguous square kilometers (50 function of effective radiated power channel GMEZ licensee. GMEZ contiguous square miles) or more, into (ERP) and antenna center of radiation licensees may not extend their SABs Unserved Area. See §§ 22.912, 22.953. height above average terrain (HAAT), into the CGSA of a licensee on the same * * * * * height above sea level (HASL), or height channel block in an adjacent CMA or above mean sea level (HAMSL). the Gulf of Mexico Coastal Zone absent § 22.228 [Removed] * * * * * written contractual consent of the co- ■ 10. Remove § 22.228. (c) [Reserved] channel licensee. ■ 11. Revise § 22.901 to read as follows: (d) Protection afforded. Cellular systems are entitled to protection only § 22.929 [Removed and Reserved] § 22.901 Cellular service requirements and within the CGSA (as determined in ■ 15. Remove and reserve § 22.929. limitations. accordance with this section) from co- ■ 16. Revise § 22.946 to read as follows: The licensee of each Cellular system channel and first-adjacent channel is responsible for ensuring that its interference and from capture of § 22.946 Construction period for Unserved Cellular system operates in compliance subscriber traffic by adjacent systems on Area authorizations. with this section. Each Cellular system the same channel block. Licensees must The construction period applicable to must provide either mobile service, cooperate in resolving co-channel and new or modified Cellular facilities for fixed service, or a combination of first-adjacent channel interference by which an authorization is granted mobile and fixed service, subject to the changing channels used at specific cells pursuant to the Unserved Area process requirements, limitations and or by other technical means. is one year, beginning on the date the exceptions in this section. Mobile (e) Unserved Area. Unserved Area is authorization is granted. To satisfy this service provided may be of any type, area outside of all existing CGSAs on requirement, a Cellular system must be including two-way radiotelephone, either of the channel blocks, to which providing service to mobile stations dispatch, one-way or two-way paging, the Communications Act of 1934, as operated by subscribers and roamers. and personal communications services amended, is applicable. The licensee must notify the FCC (FCC (as defined in part 24 of this chapter). ■ 14. Revise § 22.912 to read as follows: Form 601) after the requirements of this Fixed service is considered to be section are met. See § 1.946 of this primary service, as is mobile service. § 22.912 Service area boundary chapter. See also § 22.949. When both mobile and fixed services extensions. are provided, they are considered to be This section contains rules governing § 22.947 [Removed and Reserved] co-primary services. In providing service area boundary (SAB) extensions. ■ 17. Remove and reserve § 22.947.

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■ 18. Revise § 22.948 to read as follows: granted on each channel block of each (1) Exhibit I—Geographic Information CMA that is subject to the procedures of System (GIS) map files. Geographic § 22.948 Geographic partitioning and this section. Consequently, Unserved Information System (GIS) map files spectrum disaggregation; spectrum leasing. Area applications are mutually must be submitted showing the entire exclusive only if the proposed CGSAs proposed CGSA, the new cell sites Cellular licensees may apply to would overlap. Mutually exclusive (transmitting antenna locations), and the partition any portion of their licensed applications are processed using the service area boundaries of additional Cellular Geographic Service Area general procedures under § 22.131. and modified cell sites that extend into (CGSA) or to disaggregate their licensed (c) Unserved Area applications under Unserved Area being claimed as CGSA. spectrum at any time following the grant this section may propose a CGSA See § 22.911. The FCC will specify the of their authorization(s). Parties seeking covering more than one CMA. Each file format required for the GIS map approval for partitioning and Unserved Area application must request files, which are to be submitted disaggregation shall request from the authorization for only one CGSA and electronically via the Universal FCC an authorization for partial must not propose a CGSA overlap with Licensing System (ULS). assignment of a license pursuant to an existing CGSA. (2) Exhibit II—Reduced-size PDF map. § 1.948 of this chapter. See also (d) Settlements among some, but not This map must be 81⁄2 x 11 inches (if paragraph (d) of this section regarding all, applicants with mutually exclusive possible, a proportional reduction of a spectrum leasing. 1:500,000 scale map). The map must (a) Partitioning, disaggregation, or applications for Unserved Area (partial have a legend, a distance scale, and combined partitioning and settlements) under this section are correctly labeled latitude and longitude disaggregation. Applicants must file prohibited. Settlements among all lines. The map must be clear and FCC Form 603 (‘‘Assignment of applicants with mutually exclusive legible. The map must accurately show Authorization and Transfer of Control’’) applications under this section (full the entire proposed CGSA, the new cell pursuant to § 1.948 of this chapter, as settlements) are allowed and must be sites (transmitting antenna locations), well as GIS map files and a reduced-size filed no later than the date that the FCC the service area boundaries of additional PDF map pursuant to § 22.953 for both Form 175 (short-form) is filed. and modified cell sites that extend the assignor and assignee. ■ 20. Section 22.950 is amended by (b) Field strength limit. For purposes revising paragraphs (c) and (d) to read beyond the CGSA, and the relevant of partitioning and disaggregation, as follows: portions of the CMA boundary. See Cellular systems must be designed so as § 22.911. § 22.950 Provision of service in the Gulf of (3) Exhibit III—Technical Information. to comply with § 22.983. Mexico Service Area (GMSA). (c) License term. The license term for In addition, upon request by an a partitioned license area and for * * * * * applicant, licensee, or the FCC, a disaggregated spectrum will be the (c) Gulf of Mexico Exclusive Zone Cellular applicant or licensee of whom remainder of the original license term. (GMEZ). GMEZ licensees have an the request is made shall furnish the (d) Spectrum leasing. Cellular exclusive right to provide Cellular antenna type, model, the name of the spectrum leasing is subject to all service in the GMEZ, and may add, antenna manufacturer, antenna gain in applicable provisions of subpart X of modify, or remove facilities anywhere the maximum lobe, the beam width of part 1 of this chapter as well as the within the GMEZ without prior FCC the maximum lobe of the antenna, a provisions of paragraph (a) of this approval. There is no Unserved Area polar plot of the horizontal gain pattern section, except that applicants must file licensing procedure for the GMEZ. of the antenna, antenna height to tip FCC Form 608 (‘‘Application or (d) Gulf of Mexico Coastal Zone above ground level, the height of the Notification for Spectrum Leasing (GMCZ). The GMCZ is subject to the center of radiation of the antenna above Arrangement or Private Commons Unserved Area licensing procedures set the average terrain, the maximum Arrangement’’), not FCC Form 603. forth in § 22.949. effective radiated power, and the ■ 19. Revise § 22.949 to read as follows: electric field polarization of the wave § 22.951 [Removed and Reserved] emitted by the antenna when installed § 22.949 Unserved Area licensing; ■ 21. Remove and reserve § 22.951. as proposed to the requesting party minimum coverage requirements. ■ 22. Section 22.953 is revised to read within ten (10) days of receiving written (a) The Unserved Area licensing as follows: notification. process described in this section is on- (4)–(10) [Reserved] going and applications may be filed at § 22.953 Content and form of applications (11) Additional information. The FCC any time, subject to the following for Cellular Unserved Area authorizations. may request information not specified coverage requirements: Applications for authority to operate in FCC Form 601 or in paragraphs (a)(1) (1) Applicants for authority to operate a new Cellular system or to modify an through (a)(3) of this section as a new Cellular system or expand an existing Cellular system must comply necessary to process an application. existing Cellular Geographic Service with the specifications in this section. (b) Existing systems—major Area (CGSA) in Unserved Area must (a) New Systems. In addition to modifications. Licensees making major propose a CGSA or CGSA expansion of information required by subpart B of modifications pursuant to § 1.929(a) and at least 130 contiguous square this part and by FCC Form 601, (b) of this chapter must file FCC Form kilometers (50 contiguous square miles) applications for an Unserved Area 601 and comply with the requirements using the methodology of § 22.911. authorization to operate a Cellular of paragraph (a) of this section. (2) Applicants for authority to operate system must comply with all applicable (c) Existing systems—minor a new Cellular system must not propose requirements set forth in part 1 of this modifications. Licensees making minor coverage of water areas only (or water chapter, including the requirements modifications pursuant to § 1.929(k) of areas and uninhabited islands or reefs specified in §§ 1.913, 1.923, and 1.924, this chapter, must file FCC Form 601 or only), except for Unserved Area in the and must include the information listed FCC Form 603. See also § 22.169. If the Gulf of Mexico Service Area. below. Geographical coordinates must modification involves a contract SAB (b) There is no limit to the number of be correct to ±1 second using the NAD extension into or from the Gulf of Unserved Area applications that may be 83 datum. Mexico Exclusive Zone, it must include

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a certification that the required written (2) Mutually exclusive applications Channel 258C2 can be allotted to Rough consent has been obtained. See for the initial authorization for Rock consistent with the minimum § 22.912(c). CMA672–A (Chambers, TX). distance separation requirements of the ■ 23. Revise § 22.960 to read as follows: (b) The competitive bidding Commission’s Rules with the imposition procedures set forth in § 22.229 and the of a site restriction 7.1 km (4.4 miles) § 22.960 Cellular operations in the general competitive bidding procedures southeast of the community. The Chambers, TX CMA (CMA672–A). set forth in subpart Q of part 1 of this reference coordinates are 36–21–08 NL This section applies only to Cellular chapter will apply. and 109–49–54 WL. systems operating on channel block A of the Chambers, Texas CMA (CMA672– § 22.969 [Removed] DATES: Effective December 5, 2014, and applicable October 31, 2014. A). ■ 25. Remove § 22.969. (a) The geographic boundary of ■ 26. Add § 22.983 to subpart H to read FOR FURTHER INFORMATION CONTACT: CMA672–A is deemed to be the Cellular as follows: Rolanda F. Smith, Media Bureau, (202) Geographic Service Area (CGSA) 418–2700. boundary. This CGSA boundary is not § 22.983 Field strength limit. SUPPLEMENTARY INFORMATION: This is a determined using the methodology of (a) Subject to paragraphs (b) and (c) of synopsis of the Commission’s Report § 22.911. The licensee of CMA672–A this section, a licensee’s predicted or and Order, MB Docket No. 14–46, may not propose an expansion of this measured median field strength limit adopted September 15, 2014, and CGSA into another CMA unless and must not exceed 40 dBmV/m at any released September 16, 2014. The full until it meets the construction given point along the Cellular text of this Commission decision is requirement set forth in paragraph (b)(2) Geographic Service Area (CGSA) available for inspection and copying of this section. boundary of a neighboring licensee on during normal business hours in the (b) A licensee that holds the license the same channel block, unless the FCC’s Reference Information Center at for CMA672–A must be providing signal affected licensee of the neighboring Portals II, CY–A257, 445 12th Street coverage and offering service as follows CGSA on the same channel block agrees SW., Washington, DC 20554. This (and in applying these geographic to a different field strength. This also document may also be purchased from construction benchmarks, the licensee is applies to CGSAs partitioned pursuant the Commission’s duplicating to count total land area): to § 22.948. (1) To at least 35% of the geographic contractors, Best Copy and Printing, (b) Gulf of Mexico Service Area. Inc., 445 12th Street SW., Room CY– area of CMA672–A within four years of Notwithstanding the field strength limit the grant of such authorization; and B402, Washington, DC 20554, telephone provision set forth in paragraph (a) of 1–800–378–3160 or via email (2) To at least 70% of the geographic this section, licensees in or adjacent to area of its license authorization by the www.BCPIWEB.com. This document the Gulf of Mexico Exclusive Zone are does not contain information collection end of the license term. subject to § 22.912(c) regarding service (c) After it has met each of the requirements subject to the Paperwork area boundary extensions. See Reduction Act of 1995, Public Law 104– requirements of paragraphs (b)(1) and § 22.912(c). (b)(2), respectively, of this section, the 13. The Commission will send a copy of (c) Cellular licensees shall be subject the Report and Order in a report to be licensee that holds the license for to all applicable provisions and CMA672–A must notify the FCC that it sent to Congress and the Government requirements of treaties and other Accountability Office pursuant to the has met the requirement by submitting international agreements between the FCC Form 601, including GIS map files Congressional Review Act, see 5 U.S.C. United States government and the 801(a)(1)(A). and other supporting documents governments of Canada and Mexico, showing compliance with the notwithstanding paragraphs (a) and (b) List of Subjects in 47 CFR Part 73 requirement. See § 1.946 of this chapter. of this section. See also § 22.953. Radio, Radio broadcasting. [FR Doc. 2014–28151 Filed 12–4–14; 8:45 am] (d) Failure to meet the construction Federal Communications Commission. BILLING CODE 6712–01–P requirements set forth in paragraphs Nazifa Sawez, (b)(1) and (b)(2) of this section by each Assistant Chief, Audio Division, Media of the applicable deadlines will result in FEDERAL COMMUNICATIONS Bureau. automatic termination of the license for COMMISSION For the reasons discussed in the CMA672–A and its return to the preamble, the Federal Communications Commission for future re-licensing 47 CFR Part 73 Commission amends 47 CFR part 73 as subject to competitive bidding follows: procedures. The licensee that fails to [MB Docket No. 14–46, RM–11717, DA 14– 1334] meet each requirement of this section by PART 73—RADIO BROADCAST the applicable deadline set forth in Radio Broadcasting Services; Rough SERVICES paragraphs (b)(1) and (b)(2) shall be Rock, Arizona ineligible to regain the license for ■ 1. The authority citation for part 73 CMA672–A. AGENCY: Federal Communications continues to read as follows: ■ Commission. 24. Add § 22.961 to read as follows: Authority: 47 U.S.C. 154, 303, 334, 336 and ACTION: Final rule. § 22.961 Cellular licenses subject to 339. competitive bidding. SUMMARY: At the request of The Navajo § 73.202 [Amended] (a) The following applications for Nation, the Audio Division amends the ■ Cellular licensed area authorizations are FM Table of Allotments, by allotting FM 2. Section 73.202(b), the Table of FM subject to competitive bidding: Channel 258C2 at Rough Rock, Arizona, Allotments under Arizona, is amended (1) Mutually exclusive applications as a first local Tribal Allotment and a by adding Rough Rock, Channel 258C2. for Unserved Area filed after July 26, first local service to the community. A [FR Doc. 2014–28589 Filed 12–4–14; 8:45 am] 1993; and staff engineering analysis confirms that BILLING CODE 6712–01–P

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Proposed Rules Federal Register Vol. 79, No. 234

Friday, December 5, 2014

This section of the FEDERAL REGISTER 2014–0365 before or after the meeting except Federal holidays. We have an contains notices to the public of the proposed using any one of the following methods: agreement with the Department of issuance of rules and regulations. The (1) Federal eRulemaking Portal: Transportation to use the Docket purpose of these notices is to give interested http://www.regulations.gov. Management Facility. persons an opportunity to participate in the (2) Fax: 202–493–2251. We encourage you to participate in rule making prior to the adoption of the final (3) Mail: Docket Management Facility this rulemaking by submitting rules. (M–30), U.S. Department of comments either orally at the meeting or Transportation, West Building Ground in writing before or at the meeting. If DEPARTMENT OF HOMELAND Floor, Room W12–140, 1200 New Jersey you bring written comments to the SECURITY Avenue SE., Washington, DC 20590– meeting, you may submit them to Coast 0001. Guard personnel specified at the Coast Guard (4) Hand delivery: Same as mail meeting to receive written comments. address above, between 9 a.m. and 5 These comments will be posted to the 33 CFR Part 117 p.m., Monday through Friday, except public docket for this proposed Federal holidays. The telephone number rulemaking. All comments received will [Docket No. USCG–2014–0365] is 202–366–9329. be posted without change to http:// www.regulations.gov and will include RIN 1625–AA09 To avoid duplication, please use only one of these four methods. Our online any personal information you have Drawbridge Operation Regulation: docket for this rulemaking is available provided. Illinois Waterway, Joliet, IL on the Internet at http:// Comments submitted after the www.regulations.gov under docket meeting must reach the Coast Guard on AGENCY: Coast Guard, DHS. number USCG–2014–0365. or before December 26, 2014. If you ACTION: Notice of public meeting; FOR FURTHER INFORMATION CONTACT: If submit a comment online via http:// request for comments. you have questions concerning the www.regulations.gov, it will be meeting or the proposed rule, please call considered received by the Coast Guard SUMMARY: The Coast Guard announces a or email Mr. Eric Washburn, Bridge when you successfully transmit the public meeting to receive comments on Administrator, Western Rivers, (314) comment. If you fax, hand deliver, or a notice of proposed rulemaking 269–2378, email eric.washburn@ mail your comment, it will be (NPRM) entitled ‘‘Drawbridge Operation uscg.mil. If you have questions on considered as having been received by the Coast Guard when it is received at Regulation; Illinois Waterway, Joliet, IL’’ viewing or submitting material to the the Docket Management Facility. that was published in the Federal docket, call Cheryl Collins, Program Register on August 27, 2014. As stated Anyone can search the electronic Manager, Docket Operations, telephone form of comments received into any of in the NPRM, the Coast Guard proposes 202–366–9826. to modify the operating regulations for our dockets by the name of the six drawbridges, located between river SUPPLEMENTARY INFORMATION: individual submitting the comment (or mile 285.8 and river mile 288.7, across Background and Purpose signing the comment, if submitted on the Illinois Waterway, at Joliet, Illinois. behalf of an association, business, labor We published a NPRM in the Federal The NPRM proposes to consolidate the union, etc.). You may review a Privacy Register on August 27, 2014 (79 FR current operating regulation, which Act notice regarding our public dockets 51132), entitled ‘‘Drawbridge Operation includes five on-site bridge tender in the January 17, 2008, issue of the Regulation; Illinois Waterway, Joliet, control stations, into one centralized Federal Register (73 FR 3316). IL.’’ We did not plan to hold a public control point for all five drawbridges. meeting, but we received several valid Information on Service for Individuals The NPRM also proposes to add a sixth requests for one and have concluded With Disabilities drawbridge that will also operate under that a public meeting would aid this the centralized control point. The For information on facilities or proposed rulemaking. proposed action is intended to improve services for individuals with disabilities In the NPRM, we proposed to modify or to request special assistance at the navigational safety and operational the operating regulations for six efficiency in the Joliet area. public meeting, contact Mr. Eric drawbridges in the Joliet Harbor, based Washburn at the telephone number or DATES: A public meeting will be held on on an Illinois Department of email address indicated under the FOR Tuesday, December 16, 2014, from 3 Transportation request. FURTHER INFORMATION CONTACT section of p.m. until 6 p.m. We are also re-opening You may view the NPRM in our this document. the comment period for this proposed online docket and comments submitted rule. Comments and related material thus far by going to http:// Public Meeting submitted after the meeting must be www.regulations.gov. Once there, insert The Coast Guard will hold a public received by the Coast Guard on or before ‘‘USCG–2014–0365’’ in the ‘‘Keyword’’ meeting regarding its Drawbridge December 26, 2014. box and click ‘‘Search.’’ You may also Operation Regulation; Illinois ADDRESSES: The public meeting will be visit the Docket Management Facility in Waterway, Joliet, IL proposed rule on held at City of Joliet, City Hall, 150 West Room W12–140 on the ground floor of Tuesday, December 16, 2014, from 3 Jefferson Street, Planning Conference the Department of Transportation West p.m. until 6 p.m. at City of Joliet, City Room, Joliet, IL 60432. Building, 1200 New Jersey Avenue SE., Hall, 150 West Jefferson Street, Planning You may submit written comments Washington, DC 20590, between 9 a.m. Conference Room, Joliet, IL 60432. We identified by docket number USCG– and 5 p.m., Monday through Friday, plan to record this meeting using an

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audio-digital recorder and then make FOR FURTHER INFORMATION CONTACT: If postcard or envelope. We will consider that audio recording available through a you have questions on this rulemaking, all comments and material received link in our online docket. We will also call or email LT Derek J. Burrill, U.S. during the comment period and may provide a written summary of the Coast Guard Sector North Carolina; change the rule based on your meeting and comments and will place telephone 910–772–2230, email comments. that summary in the docket. [email protected]. If you have 2. Viewing Comments and Documents Dated: November 25, 2014. questions on viewing or submitting To view comments, as well as Kevin S. Cook, material to the docket, call Cheryl Collins, Program Manager, Docket documents mentioned in this preamble Rear Admiral, Commander, U.S. Coast Guard, as being available in the docket, go to Eighth Coast Guard District. Operations, telephone (202) 366–9826. SUPPLEMENTARY INFORMATION: http://www.regulations.gov, type the [FR Doc. 2014–28608 Filed 12–4–14; 8:45 am] docket number (USCG–2014–0718) in BILLING CODE 9110–04–P Table of Acronyms the ‘‘SEARCH’’ box and click DHS Department of Homeland Security ‘‘SEARCH.’’ Click on Open Docket FR Federal Register Folder on the line associated with this DEPARTMENT OF HOMELAND NPRM Notice of Proposed Rulemaking rulemaking. You may also visit the SECURITY A. Public Participation and Request for Docket Management Facility in Room Coast Guard Comments W12–140 on the ground floor of the Department of Transportation West We encourage you to participate in 33 CFR Part 165 Building, 1200 New Jersey Avenue SE., this rulemaking by submitting Washington, DC 20590, between 9 a.m. [Docket Number USCG–2014–0718] comments and related materials. All and 5 p.m., Monday through Friday, comments received will be posted except Federal holidays. RIN 1625–AA00 without change to http:// www.regulations.gov and will include 3. Privacy Act Safety Zone: Gallant Channel, any personal information you have Anyone can search the electronic Beaufort, NC provided. form of comments received into any of AGENCY: Coast Guard, DHS. 1. Submitting Comments our dockets by the name of the ACTION: Notice of proposed rulemaking. individual submitting the comment (or If you submit a comment, please signing the comment, if submitted on include the docket number for this SUMMARY: The Coast Guard proposes to behalf of an association, business, labor establish a temporary safety zone on the rulemaking, indicate the specific section union, etc.). You may review a Privacy waters of the Gallant Channel at of this document to which each Act notice regarding our public dockets Beaufort, North Carolina. The safety comment applies, and provide a reason in the January 17, 2008, issue of the zone is necessary to provide for the for each suggestion or recommendation. Federal Register (73 FR 3316). You may submit your comments and safety of mariners on navigable waters 4. Public Meeting during construction of the new U.S. 70 material online at http:// Fixed Bridge crossing the Gallant www.regulations.gov, or by fax, mail, or We do not now plan to hold a public Channel, mile 203.8, at Beaufort, North hand delivery, but please use only one meeting. But you may submit a request Carolina. The safety zone will of these means. If you submit a for one, using one of the methods temporarily restrict vessel movement comment online, it will be considered specified under ADDRESSES. Please within the designated area. received by the Coast Guard when you explain why you believe a public successfully transmit the comment. If meeting would be beneficial. If we DATES: Comments and related material you fax, hand deliver, or mail your determine that one would aid this must be received by the Coast Guard on comment, it will be considered as rulemaking, we will hold one at a time or before January 5, 2015. having been received by the Coast and place announced by a later notice ADDRESSES: You may submit comments Guard when it is received at the Docket in the Federal Register. identified by docket number using any Management Facility. We recommend one of the following methods: that you include your name and a B. Basis and Purpose (1) Federal eRulemaking Portal: mailing address, an email address, or a The legal basis for this rule is found http://www.regulations.gov. telephone number in the body of your in 33 U.S.C. 1231, 46 U.S.C. Chapter (2) Fax: 202–493–2251. document so that we can contact you if 701, 3306, 3703; 50 U.S.C. 191, 195; 33 (3) Mail or Delivery: Docket we have questions regarding your CFR 1.05–1, 6.04–1, 6.04–6, and 160.5; Management Facility (M–30), U.S. submission. Pub. L. 107–295, 116 Stat. 2064; and Department of Transportation, West To submit your comment online, go to Department of Homeland Security Building Ground Floor, Room W12–140, http://www.regulations.gov, type the Delegation No. 0170.1, which 1200 New Jersey Avenue SE., docket number [USCG–2014–0718] in collectively authorize the Coast Guard Washington, DC 20590–0001. Deliveries the ‘‘SEARCH’’ box and click to propose, establish, and define accepted between 9 a.m. and 5 p.m., ‘‘SEARCH.’’ Click on ‘‘Submit a regulatory safety zones. Monday through Friday, except federal Comment’’ on the line associated with This safety zone is necessary to holidays. The telephone number is 202– this rulemaking. ensure public and maritime safety from 366–9329. If you submit your comments by mail the potential hazards associated with See the ‘‘Public Participation and or hand delivery, submit them in an bridge construction work. Request for Comments’’ portion of the unbound format, no larger than 81⁄2 by SUPPLEMENTARY INFORMATION section 11 inches, suitable for copying and C. Discussion of Proposed Rule below for further instructions on electronic filing. If you submit North Carolina Department of submitting comments. To avoid comments by mail and would like to Transportation has awarded a contract duplication, please use only one of know that they reached the Facility, to Conti Enterprises, Inc of Edison, New these three methods. please enclose a stamped, self-addressed Jersey and Orion Marine Construction,

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Inc. (OMCI) of Houston, Texas to entities during rulemaking. The term 5. Federalism perform construction work that will take ‘‘small entities’’ comprises small A rule has implications for federalism place at the Gallant’s Channel and businesses, not-for-profit organizations under Executive Order 13132, surrounding area of that Waterway, mile that are independently owned and Federalism, if it has a substantial direct 203.8, Beaufort, North Carolina. The operated and are not dominant in their effect on the States, on the relationship contract involves pile driving, concrete fields, and governmental jurisdictions between the national government and placement, girder setting and post with populations of less than 50,000. the States, or on the distribution of tensioning assistance to commence on The Coast Guard certifies under 5 U.S.C. power and responsibilities among the January 15, 2015 with a completion date 605(b) that this proposed rule will not various levels of government. We have of September 30, 2015. The contractor have a significant economic impact on analyzed this proposed rule under that will utilize a 40 foot by 60 foot barge as a substantial number of small entities. a work platform and for equipment This proposed rule would affect the Order and determined that this rule staging. This safety zone will provide a following entities, some of which may does not have implications for safety buffer to transiting vessels as be small entities: The owners or federalism. bridge construction work presents operators of commercial tug and barge 6. Protest Activities potential hazards to mariners and companies, recreational and commercial The Coast Guard respects the First property due to reduction in horizontal fishing vessels intending to transit the Amendment rights of protesters. clearance. specified portion of Atlantic Intracoastal The proposed temporary safety zone Waterway, 7 a.m. to 5:30 p.m., from Protesters are asked to contact the will encompass the waters directly January 15, 2015 through September 30, person listed in the FOR FURTHER under the new U.S. 70 Fixed Bridge 2015. INFORMATION CONTACT section to crossing the Gallant Channel, mile This safety zone would not have a coordinate protest activities so that your 203.8, at Beaufort, North Carolina significant economic impact on a message can be received without (34°43′16″ N, 076°41′37″ W). All vessels substantial number of small entities for jeopardizing the safety or security of transiting this section of the waterway the following reasons. Although the people, places or vessels. requiring a horizontal clearance of safety zone will apply to this section of 7. Unfunded Mandates Reform Act greater than 40 feet will be required to the Gallant Channel, vessel traffic make a two hour advanced notification requiring a horizontal clearance of The Unfunded Mandates Reform Act to the work supervisor while the safety greater than 40 feet will be able to of 1995 (2 U.S.C. 1531–1538) requires zone is in effect. This zone will be in request passage by providing a two hour Federal agencies to assess the effects of effect daily, 7 a.m. to 5:30 p.m., from advanced notification to the work their discretionary regulatory actions. In January 15, 2015 through September 30, supervisor. All those requiring less than particular, the Act addresses actions 2015. 40 feet may pass at any time. Before the that may result in the expenditure by a effective period, the Coast Guard will State, local, or tribal government, in the D. Regulatory Analyses issue maritime advisories widely aggregate, or by the private sector of We developed this proposed rule after available to the users of the waterway. $100,000,000 (adjusted for inflation) or considering numerous statutes and If you think that your business, more in any one year. Though this executive orders related to rulemaking. organization, or governmental proposed rule would not result in such Below we summarize our analyses jurisdiction qualifies as a small entity expenditure, we do discuss the effects of based on a number of these statutes or and that this rule would have a this rule elsewhere in this preamble. executive orders. significant economic impact on it, 8. Taking of Private Property please submit a comment (see 1. Regulatory Planning and Review ADDRESSES) explaining why you think it This proposed rule would not cause a This proposed rule is not a significant qualifies and how and to what degree taking of private property or otherwise regulatory action under section 3(f) of this rule would economically affect it. have taking implications under Executive Order 12866, Regulatory Executive Order 12630, Governmental Planning and Review, as supplemented 3. Assistance for Small Entities Actions and Interference with by Executive Order 13563, Improving Under section 213(a) of the Small Constitutionally Protected Property Regulation and Regulatory Review, and Business Regulatory Enforcement Rights. does not require an assessment of Fairness Act of 1996 (Pub. L. 104–121), 9. Civil Justice Reform potential costs and benefits under we want to assist small entities in section 6(a)(3) of Executive Order 12866 understanding this proposed rule. If the This proposed rule meets applicable or under section 1 of Executive Order rule would affect your small business, standards in sections 3(a) and 3(b)(2) of 13563. The Office of Management and organization, or governmental Executive Order 12988, Civil Justice Budget has not reviewed it under those jurisdiction and you have questions Reform, to minimize litigation, Orders. This rule does not restrict traffic concerning its provisions or options for eliminate ambiguity, and reduce from transiting the designated portion of compliance, please contact the person burden. the Atlantic Intracoastal Waterway; it listed in the FOR FURTHER INFORMATION 10. Protection of Children From imposes a two hour notification to CONTACT, above. The Coast Guard will Environmental Health Risks ensure the waterway is clear of not retaliate against small entities that impediments to passage of vessels question or complain about this We have analyzed this proposed rule requiring a horizontal clearance of proposed rule or any policy or action of under Executive Order 13045, greater than 40 feet. the Coast Guard. Protection of Children from Environmental Health Risks and Safety 2. Impact on Small Entities 4. Collection of Information Risks. This proposed rule is not an The Regulatory Flexibility Act of 1980 This proposed rule will not call for a economically significant rulemaking (RFA), 5 U.S.C. 601–612, as amended, new collection of information under the and would not create an environmental requires federal agencies to consider the Paperwork Reduction Act of 1995 (44 risk to health or risk to safety that might potential impact of regulations on small U.S.C. 3501–3520.). disproportionately affect children.

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11. Indian Tribal Governments PART 165—REGULATED NAVIGATION and local agencies in the patrol and AREAS AND LIMITED ACCESS AREAS enforcement of the zone. This proposed rule does not have (e) Enforcement period. This section tribal implications under Executive ■ 1. The authority citation for part 165 will be enforced daily 7 a.m. to 5:30 Order 13175, Consultation and continues to read as follows: p.m., from January 15, 2015 through Coordination with Indian Tribal Authority: 33 U.S.C. 1231; 46 U.S.C. September 30, 2015 unless cancelled Governments, because it would not have Chapter 701, 3306, 3703; 50 U.S.C. 191, 195; earlier by the Captain of the Port. a substantial direct effect on one or 33 CFR 1.05–1, 6.04–1, 6.04–6, 160.5; Pub. L. Dated: November 17, 2014. more Indian tribes, on the relationship 107–295, 116 Stat. 2064; Department of S. R. Murtagh, between the Federal Government and Homeland Security Delegation No. 0170.1. Captain, U.S. Coast Guard, Captain of the Indian tribes, or on the distribution of ■ 2. Add temporary § 165.T05–0718 to Port North Carolina. power and responsibilities between the read as follows: [FR Doc. 2014–28604 Filed 12–4–14; 8:45 am] Federal Government and Indian tribes. § 165.T05–0718 Safety Zone, Gallant BILLING CODE P 12. Energy Effects Channel; Beaufort, NC. This proposed rule is not a (a) Regulated Area. The following area DEPARTMENT OF HOMELAND is a safety zone: This zone includes the ‘‘significant energy action’’ under SECURITY waters directly under and 100 yards Executive Order 13211, Actions either side of the new U.S. 70 Fixed Coast Guard Concerning Regulations That Bridge crossing the Gallant Channel, Significantly Affect Energy Supply, mile 203.8, at Beaufort, North Carolina 33 CFR Part 167 Distribution, or Use. (34°43′16″ N, 076°41′37″ W). 13. Technical Standards (b) Regulations. The general safety [USCG–2014–0941] zone regulations found in 33 CFR This proposed rule does not use 165.23 apply to the safety zone created Port Access Route Study: In the technical standards. Therefore, we did by this temporary section, § 165.T05– Chukchi Sea, Bering Strait and Bering not consider the use of voluntary 0718. In addition, the following Sea consensus standards. regulations apply: (1) All vessels requiring greater than AGENCY: Coast Guard, DHS. 14. Environment 40 feet horizontal clearance to safely ACTION: Notice of study; request for comments. We have analyzed this proposed rule transit through the new U.S. 70 Fixed Bridge crossing the Atlantic Intracoastal under Department of Homeland SUMMARY: Waterway, mile 203.8, at Beaufort, This study is a continuation Security Management Directive 023–01 of and an expansion of scope to the Port and Commandant Instruction North Carolina must contact the work supervisor tender on VHF–FM marine Access Route Study (PARS) the Coast M16475.lD, which guide the Coast band radio channels 10 and 13 or at Guard announced in 2010. Based on Guard in complying with the National (732) 520–5000 two hours in advance of comments received from the 2010 notice Environmental Policy Act of 1969 intended transit. the Coast Guard has developed a potential vessel routing system for the (NEPA) (42 U.S.C. 4321–4370f), and (2) All Coast Guard assets enforcing area. The Coast Guard requests have made a preliminary determination this safety zone can be contacted on comments on how consolidating vessel that this action is one of a category of VHF–FM marine band radio channels traffic into a defined vessel routing actions that do not individually or 13 and 16. system may impact or benefit the region. cumulatively have a significant effect on (3) The operator of any vessel within The goal of the study is to help reduce the human environment. This proposed or in the immediate vicinity of this the risk of marine casualties and rule involves the establishment of a safety zone shall: (i) Stop the vessel increase the efficiency of vessel traffic temporary safety zone. This rulemaking immediately upon being directed to do in the region. The recommendations of is categorically excluded from further so by any commissioned, warrant or the study may lead to future rulemaking review under paragraph 34(g) of Figure petty officer on board a vessel action or appropriate international 2–1 of the Commandant Instruction. A displaying a Coast Guard Ensign, and agreements. preliminary environmental analysis (ii) Proceed as directed by any checklist supporting this determination commissioned, warrant or petty officer DATES: Comments must be received on and a Categorical Exclusion on board a vessel displaying a Coast or before June 3, 2015. Determination are available in the Guard Ensign. ADDRESSES: docket where indicated under (c) Definitions. Schematic of proposed vessel routing ADDRESSES. We seek any comments or (1) Captain of the Port North Carolina system: A chart showing the Coast information that may lead to the means the Commander, Coast Guard Guard’s proposed two-way route can be discovery of a significant environmental Sector North Carolina. downloaded from http:// impact from this proposed rule. (2) Designated representative means www.regulations.gov, type ‘‘USCG– any Coast Guard commissioned, 2014–0941’’ into the search bar and List of Subjects in 33 CFR Part 165 warrant, or petty officer who has been click search, next to the displayed Harbors, Marine safety, Navigation authorized by the Captain of the Port search results click ‘‘Open Docket (water), Reporting and recordkeeping North Carolina to assist in enforcing the Folder’’, which will display all requirements, Security measures, safety zone described in paragraph (a) of comments and documents associated this section. Waterways. with this docket. (3) Work Supervisor means the Comment submission: You may For the reasons discussed in the contractors’ on site representative. submit comments identified by docket preamble, the Coast Guard proposes to (d) Enforcement. The U.S. Coast number USCG–2014–0941 using any amend 33 CFR part 165 as follows: Guard may be assisted by Federal, State one of the following methods:

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(1) Federal eRulemaking Portal: recommend that you include your name aid in the study, we will hold a meeting http://www.regulations.gov. and a mailing address, an email address, at a time and place announced by a later (2) Fax: 202–493–2251. or a telephone number in the body of notice in the Federal Register. (3) Mail: Docket Management Facility your document so that we can contact Definitions (M–30), U.S. Department of you if we have questions regarding your Transportation, West Building Ground submission. The following definitions (except Floor, Room W12–140, 1200 New Jersey To submit your comment online, go to ‘‘Regulated Navigation Area’’) are from Avenue SE., Washington, DC 20590– http://www.regulations.gov, type the International Maritime 0001. ‘‘USCG–2014–0941’’ into the search bar Organization’s (IMO’s) publication (4) Hand delivery: Same as mail and click search, next to the displayed ‘‘Ships’ Routeing’’ Tenth Edition 2010 address above, between 9 a.m. and 5 search results click ‘‘Comment Now’’, and should help you review this notice: p.m., Monday through Friday, except which will open the comment page for Area to be avoided (ATBA) means a Federal holidays. The telephone number this study. If you submit your comments routing measure comprising an area is 202–366–9329. by mail or hand delivery, submit them within defined limits in which either To avoid duplication, please use only in an unbound format, no larger than 8.5 navigation is particularly hazardous or one of these four methods. See the by 11 inches, suitable for copying and it is exceptionally important to avoid ‘‘Public Participation and Request for electronic filing. If you submit casualties and which should be avoided Comments’’ portion of the comments by mail and would like to by all ships, or certain classes of ships. SUPPLEMENTARY INFORMATION section know that they reached the Facility, Deep-water route means a route below for instructions on submitting please enclose a stamped, self-addressed within defined limits, which has been comments. postcard or envelope. We will consider accurately surveyed for clearance of sea all comments and material received FOR FURTHER INFORMATION CONTACT: If bottom and submerged obstacles as during the comment period. you have questions on this notice of indicated on the chart. study, call or email LT Kody Stitz, Viewing Comments and Documents Inshore traffic zone means a routing Seventeenth Coast Guard District (dpw); measure comprising a designated area To view comments, as well as between the landward boundary of a telephone (907) 463–2270; email documents mentioned in this preamble [email protected] or Mr. David traffic separation scheme and the as being available in the docket, go to adjacent coast, to be used in accordance Seris, Seventeenth Coast Guard District http://www.regulations.gov, type (dpw); telephone (907) 463–2267; email with the provisions of Rule 10(d), as ‘‘USCG–2014–0941’’ into the search bar amended, of the International [email protected]. If you have and click search, next to the displayed questions on viewing or submitting Regulations for Preventing Collisions at search results click ‘‘Open Docket Sea, 1972 (COLREGS). material to the docket, call Cheryl F. Folder’’, which will display all Precautionary area means a routing Collins, Program Manager, Docket comments and documents associated measure comprising an area within Operations, telephone 202–366–9826. with this docket. You may also visit the defined limits where ships must SUPPLEMENTARY INFORMATION: Docket Management Facility in Room navigate with particular caution and W12–140 on the ground floor of the Public Participation and Request for within which the direction of traffic Department of Transportation West Comments flow may be recommended. Building, 1200 New Jersey Avenue SE., Recommended route means a route of We encourage you to participate in Washington, DC 20590, between 9 a.m. undefined width, for the convenience of this study by submitting comments and and 5 p.m., Monday through Friday, ships in transit, which is often marked related materials. All comments except Federal holidays. We have an by centerline buoys. received will be posted without change agreement with the Department of Recommended track is a route which to http://www.regulations.gov and will Transportation to use the Docket has been specially examined to ensure include any personal information you Management Facility. have provided. so far as possible that it is free of Privacy Act dangers and along which vessels are Submitting Comments Anyone can search the electronic advised to navigate. If you submit a comment, please form of comments received into any of Regulated Navigation Area (RNA) include the docket number for this our dockets by the name of the means a water area within a defined notice of availability (USCG–2014– individual submitting the comment (or boundary for which regulations for 0941), indicate the specific section of signing the comment, if submitted on vessels navigating within the area have this document to which each comment behalf of an association, business, labor been established under 33 CFR part 165. applies, and provide a reason for each union, etc.). You may review a Privacy Roundabout means a routing measure suggestion or recommendation. You Act notice regarding our public dockets comprising a separation point or may submit your comments and in the January 17, 2008, issue of the circular separation zone and a circular material online (via http:// Federal Register (73 FR 3316). traffic lane within defined limits. Traffic www.regulations.gov) or by fax, mail, or within the roundabout is separated by hand delivery, but please use only one Public Meeting moving in a counterclockwise direction of these means. If you submit a The Coast Guard will hold public around the separation point or zone. comment online via meeting(s) if there is sufficient demand Separation zone or separation line www.regulations.gov, it will be to warrant holding a meeting. You must means a zone or line separating the considered received by the Coast Guard submit a request for one on or before traffic lanes in which ships are when you successfully transmit the Month Day, Year (30 days from publish proceeding in opposite or nearly comment. If you fax, hand deliver, or date) using one of the four methods opposite directions; or separating a mail your comment, it will be specified under ADDRESSES. Please traffic lane from the adjacent sea area; considered as having been received by explain why you believe a public or separating traffic lanes designated for the Coast Guard when it is received at meeting would be beneficial. If we particular classes of ship proceeding in the Docket Management Facility. We determine that a public meeting would the same direction.

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Traffic lane means an area within Vessel Routing Comments to Date • 54°50′ N, 164°40′ W; defined limits in which one-way traffic The Coast Guard received twenty five • 54°03′ N, 166°25′ W; is established. Natural obstacles, public comments during the open • ° ′ ° ′ including those forming separation 63 20 N, 173 43 W; thence comment period associated with the following the Russian Federation/ zones, may constitute a boundary. 2010 announcement. Nearly all of the Traffic Separation Scheme (TSS) United States maritime boundary line to comments that addressed vessel routing means a routing measure aimed at the the first geographical position. were supportive of the Coast Guard separation of opposing streams of traffic creating and implementing some form of The proposed ship routing measures by appropriate means and by the vessel routing measure in the area. are described as follows: establishment of traffic lanes. Two-way route means a route within Since no specific routing measure was (1) A four nautical mile wide, two- defined limits inside which two-way proposed in 2010, the comments way route extending from Unimak Pass traffic is established, aimed at providing received did note that precise concerns in the Aleutian Islands that proceeds safe passage of ships through waters and impacts could only be identified Northward through the Bering Sea and where navigation is difficult or after a specific route or measure was Bering Strait before terminating in the dangerous. proposed. Chukchi Sea. Vessel routing system means any Reopening of the Comment Period (2) A four nautical mile wide, two- system of one or more routes or routing This Federal Register notice way route extending from a location measures aimed at reducing the risk of North of the Western side of St. casualties; it includes traffic separation announces the Coast Guard’s intent to Lawrence Island and near the U.S./ schemes, two-way routes, recommended continue the PARS started in 2010, Russian Federation maritime border, tracks, areas to be avoided, no anchoring expand the study area and release the areas, inshore traffic zones, Coast Guard’s proposed vessel routing then proceeding Northeast to a junction roundabouts, precautionary areas, and system for comment. The Coast Guard’s with the first two way route located to deep-water routes. goal of the study remains the same in the West of King Island. that the study is focused on gathering (3) A total of four precautionary areas, Background and Purpose factual and relevant information to aid each circular and 8 nautical miles wide Requirement for Port Access Route the Coast Guard in reducing the risk of in diameter. Three of these Studies marine casualties and increasing the precautionary areas will be located at efficiency of vessel traffic in the region. Under the Ports and Waterways Safety the starting/ending points of the two- The study will assess whether the Act (PWSA) (33 U.S.C. 1223(c)), the way routes, and the fourth will be creation of a vessel routing system is Commandant of the Coast Guard may located at the junction of the advisable to increase the predictability designate necessary fairways and traffic recommended two-way routes. separation schemes (TSSs) to provide of vessel movements, which may See the ADDRESSES section for where safe access routes for vessels proceeding decrease the potential for collisions, oil to obtain a copy of the chart showing to and from U.S. ports. spills, and other events that could threaten the marine environment. the exact location of the proposed route. Port Access Route Study to Date Based on comments received to date Timeline, Study Area, and Process of The Coast Guard announced a port there is a general sense that a designated this PARS: The Seventeenth Coast access route study in the Federal traffic route could improve traffic Guard District will conduct this PARS. Register on November 8, 2010 (75 FR predictability thereby reducing marine The study will continue upon casualties and oil spills; however, a few 68568). The purpose of the PARS was to publication of this notice and may take comments received did note that a solicit public comments on whether a 24 months to complete. vessel routing system such as a fairway designated traffic route (depending on or TSS was needed and if it could location) could adversely impact We will publish the results of the increase vessel safety in the area. The subsistence hunting, marine mammals PARS in the Federal Register. It is 2010 PARS was limited geographically and other wildlife more so than widely possible that the study may validate the in scope to a section of water extending dispersed vessel traffic. Therefore, the status quo (no routing measures) and approximately 100 nautical miles north Coast Guard puts forth a potential two- conclude that no changes are necessary. of the Bering Strait into the Chukchi Sea way route as a starting point for It is also possible that the study may to approximately 30 nautical miles analyzing where to put a vessel traffic recommend one or more changes to south of St. Lawrence Island in the route should one be deemed needed and enhance navigational safety and the Bering Sea. At that time the Coast Guard beneficial to the region. efficiency of vessel traffic management. did not propose a specific vessel routing The Coast Guard will analyze vessel The recommendations may lead to system, but instead sought more general traffic density, agency and stakeholder future rulemakings or appropriate comments about whether a vessel experience in vessel traffic management, international agreements. routing system was needed or advisable navigation, ship handling, the effects of in the study area. The Coast Guard weather, impacts to subsistence Dated: November 14, 2014. received twenty five comments, and hunting, impacts to marine mammals D. B. Abel, after reviewing them, determined that a and other wildlife concerns into the Rear Admiral, U.S. Coast Guard, Commander, vessel route needed to be proposed so decision making process of the study. Seventeenth Coast Guard District. more specific comments and concerns We encourage you to participate in the [FR Doc. 2014–28672 Filed 12–4–14; 8:45 am] could be gathered and evaluated before study process by submitting comments BILLING CODE 9110–04–P determining if a routing system would in response to this notice. be beneficial. The Coast Guard further The expanded study area is described determined that the study area should as an area bounded by a line connecting include a larger geographic area than the following geographic positions: was initially studied before finalizing • 67°30′ N, 168°58′37″ W; the study and publishing the results. • 67°30′ N, 167°30′ W;

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ENVIRONMENTAL PROTECTION FOR FURTHER INFORMATION CONTACT: Mr. Repricing agents may be used to AGENCY Phil Mulrine, Metals and Inorganic determine whether IHS may benefit Chemicals Group (D243–02), Sector from savings by utilizing negotiated 40 CFR Part 63 Policies and Programs Division, Office rates offered through commercial health of Air Quality Planning and Standards, care networks. This proposed rule seeks [EPA–HQ–OAR–2010–0895; FRL–9920–03– U.S. Environmental Protection Agency, comment on how to establish OAR] Research Triangle Park, North Carolina reimbursement that is consistent across 27711; Telephone number: (919) 541– Federal health care programs, aligns RIN 2060–AQ11 5289; Fax number (919) 541–3207; payment with inpatient services, and National Emission Standards for Email address: [email protected]. enables the IHS to expand beneficiary Hazardous Air Pollutants: Ferroalloys SUPPLEMENTARY INFORMATION: access to medical care. DATES: Comments must be received on Production; Extension of Comment Comment Period Period or before January 20, 2015. After considering the request received ADDRESSES: In commenting, please refer AGENCY: Environmental Protection from ERAMET Marietta, Incorporated to to file code [Federal Register insert Agency. extend the public comment period, the No.]. Because of staff and resource ACTION: Supplemental notice of EPA has decided to extend the public limitations, we cannot accept comments proposed rulemaking; extension of comment period for an additional 11 by facsimile (FAX) transmission. You public comment period. days. Therefore, the public comment may submit comments in one of four period will end on December 19, 2014, ways (please choose only one of the SUMMARY: The Environmental Protection rather than December 8, 2014. ways listed): Agency (EPA) is announcing that the Dated: November 25, 2014. 1. Electronically. You may submit period for providing public comments electronic comments on this regulation on the October 6, 2014, supplemental Mary E. Henigin, Acting Director, Office of Air Quality Planning to http://regulations.gov. Follow the proposed rule titled ‘‘National Emission ‘‘Submit a Comment’’ instructions. Standards for Hazardous Air Pollutants: and Standards. [FR Doc. 2014–28387 Filed 12–4–14; 8:45 am] 2. By regular mail. You may mail Ferroalloys Production’’ is being written comments to the following BILLING CODE 6560–50–P extended an additional 11 days. address ONLY: Betty Gould, Regulations DATES: The public comment period for Officer, Indian Health Service, 801 the supplemental proposed rule Thompson Avenue, TMP STE 450, DEPARTMENT OF HEALTH AND published October 6, 2014 (79 FR Rockville, Maryland 20852. 60238), and initially extended by 18 HUMAN SERVICES Please allow sufficient time for mailed days on November 14, 2014 (79 FR Indian Health Service comments to be received before the 68152), is being extended an additional close of the comment period. 11 days to December 19, 2014, in order 42 CFR Part 136 3. By express or overnight mail. You to provide the public additional time to may send written comments to the submit comments and supporting RIN 0917–AA12 above address. information. The EPA received a request 4. By hand or courier. If you prefer, for an extension from ERAMET Payment for Physician and Other you may deliver (by hand or courier) Marietta, Incorporated to gather and Health Care Professional Services your written comments before the close analyze data and formulate their Purchased by Indian Health Programs of the comment period to the address comments on the supplemental and Medical Charges Associated With above. proposed amendments. Non-Hospital-Based Care If you intend to deliver your ADDRESSES: Written comments on the AGENCY: Indian Health Service, HHS. comments to the Rockville address, please call telephone number (301) 443– supplemental proposed rule may be ACTION: Proposed rule. submitted to EPA electronically, by 1116 in advance to schedule your mail, by facsimile or through hand SUMMARY: This proposed rule would arrival with a staff member. delivery/courier. Please refer to the amend Indian Health Service (IHS) Comments will be made available for supplemental proposal (79 FR 60238) Purchased and Referred Care (PRC), public inspection at the Rockville for the addresses and detailed formally known as the Contract Health address from 8:30 a.m. to 5 p.m., instructions. Services (CHS), regulations to apply Monday–Friday, approximately three Docket. Publicly available documents Medicare payment methodologies to all weeks after publication of this notice. relevant to this action are available for physician and other health care FOR FURTHER INFORMATION CONTACT: Carl public inspection either electronically at professional services and non-hospital- Harper, Director, Office of Resource http://www.regulations.gov or in hard based services that are either authorized Access and Partnerships, Indian Health copy at the EPA Docket Center, Room under such regulations or purchased by Service, 801 Thompson Avenue, 3334, 1301 Constitution Avenue NW., urban Indian organizations. Specifically, Rockville, Maryland 20852. Telephone: Washington, DC. The Public Reading it proposes that the health programs (301) 443–1553. Room is open from 8:30 a.m. to 4:30 operated by IHS, Tribe, Tribal SUPPLEMENTARY INFORMATION: The p.m., Monday through Friday, excluding organization, or urban Indian Consolidated Appropriation Act of 2014 legal holidays. A reasonable fee may be organization (collectively, I/T/U signed by President Obama in January, charged for copying. The official public programs) will pay the lowest of the 2014, adopted a new name, Purchased/ docket for this rulemaking is Docket No. amount provided for under the Referred Care (PRC), for the CHS EPA–HQ–OAR–2010–0895. applicable Medicare fee schedule, program. The name change was official World Wide Web. The EPA Web site prospective payment system, or with passage of the FY 2014 for this rulemaking is at http:// Medicare waiver; the amount negotiated appropriation. The new name better www.epa.gov/ttn/atw/ferroa/ by a repricing agent, if available; or the describes the purpose of the program ferropg.html. usual and customary billing rate. funding, which is for both purchased

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care and referred care outside of IHS. hospitals, cancer hospitals, and certain These findings and recommendations The name change does not change the other hospitals reimbursed by Medicare are substantiated by a report from the program, and all current policies, under special arrangements), payment is Department of Health and Human practices, will continue and is not made per discharge based on the Services’ Office of the Inspector intended to have any effect on the laws reasonable cost methods established General. Department of Health and that govern or apply to CHS. IHS will under 42 CFR part 413, except that the Human Services, Office of Inspector administer PRC in accordance with all interim payment rate, under 42 CFR part General, IHS Contract Health Services laws applicable to CHS. This proposed 413 subpart E, constitutes payment in Program: Overpayments and Potential rule will use the term PRC. For the full for authorized charges. Savings (Sept. 2009). purposes of this rule, the terms provider Notwithstanding, if an amount has been II. Provisions of the Proposed Rule of services (or ‘‘provider’’) and supplier negotiated with the hospital or its agent have the same meaning as the terms by the I/T/U, the I/T/U will pay the This proposed rule is promulgated defined at 42 U.S.C. 1395x. lesser of the amount determined under pursuant to 42 U.S.C. 2001(b), which the PPS or the amount negotiated with provides that the Secretary ‘‘[i]n I. Background the hospital or its agent. carrying out [her] functions, This proposed rule would amend the The Medicare-like rate methodology responsibilities, authorities, and duties IHS medical regulations at 42 CFR part established by 42 CFR part 136 subpart under [the Transfer Act] . . . is 136 to apply Medicare payment D does not apply to non-hospital authorized, with the consent of the methodologies to all physician and services, including physician and other Indian people served, to contract with other health professional services and health professional services, services private or other non-Federal health non-hospital-based services provided provided by a comprehensive outpatient agencies or organizations for the through Contract Health Services (CHS), rehabilitation facility, a home health provision of health services to such now Purchased Referred Care (PRC), or agency, or a hospice, or other non- people on a fee-for-service basis or on a purchased by urban Indian hospital-based items and services. prepayment or other basis’’ and organizations, and that are not Rather, I/T/Us reimburse for authorized pursuant to 42 U.S.C. 2003, which otherwise subject to Medicare payment services at the rates provided by authorizes the Secretary to promulgate rates by law. Under 42 CFR 136.23, contracts negotiated at the local level regulations to carry out the Transfer Act. when necessary health services are not with individual providers or according It amends the IHS regulation at 42 CFR reasonably accessible or available to IHS to a provider’s billed charges. Given the part 136 by adding a new subpart I that beneficiaries, the IHS and Tribes are small market share of individual I/T/U applies ‘‘Medicare-like’’ rate payment authorized to pay for medical care programs, I/T/Us historically have paid methodologies to all physicians and provided to IHS beneficiaries by non- rates in substantial excess of Medicare’s health care professional services and all IHS or Tribal, public or private health allowable rates or rates paid by private non-hospital-based services that are not care providers, depending on the insurers for the same services. Despite covered currently under 42 CFR part availability of funds. Similarly, under establishing medical priorities to cover 136 subpart D. The proposed rule is section 503 of the Indian Health Care the most necessary care, IHS is still similar to payment methodologies Improvement Act (IHCIA), 25 U.S.C. unable to provide care to all of its promulgated in other Federal health 1653, urban Indian organizations may beneficiaries. The demand for PRC care care programs, including the refer eligible urban Indians, as defined consistently exceeds available funding. Department of Veterans Affairs, by under section 4 of the IHCIA, to non-I/ IHS recently reported to Congress that applying a consistent reimbursement T/U public and private health care IHS and tribal PRC programs denied an policy across Federal health care providers and, depending on the estimated $760,855,000 for an estimated programs. The proposed rule provides availability of funds, may also cover the 146,928 contract care services needed that the I/T/U will pay the lowest of the cost of care. by eligible beneficiaries in FY 2013.1 amount provided under the applicable Sec. 506 of the Medicare Prescription Based on an audit of fiscal year 2012, Medicare fee schedule, prospective Drug, Improvement, and Modernization the Government Accountability Office payment system, or Medicare waiver; Act of 2003 (MMA) (Pub. L. 108–173) (GAO) estimated that, by implementing the amount negotiated by a repricing authorized the Secretary to establish a a Medicare-like rate methodology, the agent,2 if available; or the usual and payment methodology, payment rates, IHS PRC programs could have saved $32 customary billing rate. In the absence of and admissions practices for Medicare- million on physician services alone, not a Medicare rate or Medicare waiver, or participating hospitals that furnish including additional savings for other agreement, payment will be made at the inpatient services applicable when such non-hospital services, or savings amount that the provider or supplier hospitals provide to an eligible accrued to Tribal PRC programs. bills the general public for the same American Indian/Alaskan Native (AI/ Government Accountability Office, service. The rule specifies the AN) beneficiary medical care authorized Indian Health Service: Capping circumstances in which a non-hospital by an I/T/U. As implemented in 42 CFR Payment Rates for Non-Hospital health care provider or supplier will be part 136 subpart D, Medicare- Services Could Save Millions of Dollars deemed to have accepted the rates participating hospitals, including for Contract Health Services (April established herein. Critical Access Hospitals (CAHs), are 2013) (‘‘April 2013 Study’’). The GAO The rule caps the rate that I/T/Us are reimbursed by I/T/Us using ‘‘Medicare- concluded that by setting PRC physician authorized to pay non-I/T/U health care like’’ rates that generally correspond to and other non-hospital payments at providers and suppliers for services and the applicable Medicare payment rates consistent with Medicare and leaves no discretion for the I/T/U and methodology for the medical service. In other Federal agencies, the IHS could the health care provider to negotiate instances where Medicare-participating expand IHS beneficiary access to care. higher rates. The IHS recognizes this hospitals furnish inpatient services, but are exempt from Medicare’s Prospective 1 See Congress FY 2015 Congressional 2 A repricing agent discounts rates charged by a Payment System (PPS) and receive Justification Purchased/Referred Care Program health care provider to rates that the agent may Description and Accomplishments page 92–95, have established with the health care provider as reimbursement based on reasonable available online at: http://www.ihs.gov/ a condition of participating in the agent’s provider costs (for example, CAHs, children’s budgetformulation/congressionaljustifications/. network.

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constraint could impact the delivery of alternate resources have been increase in purchasing power brought patient care, particularly in considered and paid, including about by this proposed rule would be circumstances where the I/T/U cannot applicable co-payments, deductibles, unlikely to exceed $100 million find a health care provider or supplier and coinsurance owed by the patient. annually. OMB has determined that this willing to accept the payment rates For purposes of the payment is a significant regulatory action under established herein or the patient methodology specified in § 136.30(a), Executive Order 12866. receives emergency services from a required co-payments, deductibles, and The Secretary hereby proposes to provider or supplier that refuses to coinsurance are those that would have accept the rate. Under 25 U.S.C. 1621u, been owed by a Medicare beneficiary certify that this proposed rule will not a patient who receives authorized under the proposed methodology. have a significant economic impact on contract care may not be held liable for Because the patient may not be held a substantial number of small entities as the payment of any charges. If the liable for the payment of costs or they are defined in the Regulatory medical provider or supplier does not charges under 25 U.S.C. 1621u, the I/T/ Flexibility Act, 5 U.S.C. 601 through agree to accept the payment rate as U will assume these costs to the extent 612. The proposed rule will not cause payment in full, the I/T/U is effectively all payments made by any payer, do not significant economic impact on health precluded from authorizing the care or in aggregate, exceed the maximum care providers, suppliers, or entities paying the health care provider or payment rate set forth § 136.201(a). since only a small portion of the supplier for services rendered to a III. Collection of Information business of such entities concerns IHS beneficiary. In such circumstances, the Requirements beneficiaries. The April 2013 Study I/T/U will not authorize payment and released by the GAO found that of the the patient may be held financially These regulations do not impose any physicians sampled, the PRC program new information collection responsible by the provider or supplier represented a small portion of their requirements. The requirements for of care for the charges. The IHS also practice and was not a significant source notes that, while Medicare-participating submitting a claim are currently approved under Office and Management of revenue. Although the sampling of hospitals are required to accept payment physicians was small, all of the sampled rates set forth in 42 CFR part 136 and Budget approval number 0917– 0002, IHS Contract Health Services physicians were in the top 25% in terms subpart D for facility services, subpart D of volume of paid services covered by does not apply to the professional Report (Expires: 02/28/2016). Providers and suppliers will not be required to PRC. IHS believes the sample to be service provided by a physician or update information technology systems representative of higher volume practitioner through the hospital. To the as a result of the provisions of this practitioners currently providing extent the physician or practitioner does proposed rule. Claims will be re-priced services paid for by PRC. Accordingly, not agree to accept the rates established by the IHS Fiscal Intermediary or the pursuant to 5 U.S.C. 605(b), the by this regulation, the I/T/U will not appropriate Tribal administrator proposed rule is exempt from the initial authorize payment for the service. The according to the methodology adopted and final regulatory flexibility analysis IHS seeks comment on whether herein. exceptions should be incorporated into requirements of sections 603 and 604. the rule to permit an I/T/U to pay in IV. Regulatory Impact Statement In addition, section 1102(b) of the Act excess of the calculated rate in The IHS has examined the impact of requires IHS to prepare a RIA if a rule circumstances where it may be this final rule as required by Executive may have a significant impact on the appropriate for the I/T/U to retain more Order 12866 (September 1993, operations of a substantial number of flexibility over the payment rate. For Regulatory Planning and Review), the small rural hospitals. This analysis must example, a specialist that does not Regulatory Flexibility Act (RFA) conform to the provisions of section 603 accept reduced rates and to access this (September 19, 1980, Pub. L. 96–354), of the RFA. For purposes of section specialty at a reduced rate it is located section 1102(b) of the Social Security 1102(b) of the Act, IHS defines a small in another State. The travel costs and Act, and the Unfunded Mandates rural hospital as a hospital that is burden on the patient is too great to Reform Act of 1995 (Pub. L. 104–4). located outside of a Metropolitan access the needed specialty care. Executive Order 12866 directs Statistical Area and has fewer than 100 The proposed rule also specifies that agencies to assess all costs and benefits beds. For the reasons provided above, payments made in accordance with the of available regulatory alternatives and, IHS has determined that this rule will described methodology shall constitute if regulation is necessary, to select not have a significant impact on the payment in full and that, in accordance regulatory approaches that maximize operations of a substantial number of with 25 U.S.C. 1621u, the provider, net benefits (including potential small rural hospitals. Section 202 of the supplier or their agent, may not impose economic, environmental, public health Unfunded Mandates Reform Act of 1995 additional charge on an individual for I/ and safety effects, distributive impacts, also requires that agencies assess T/U authorized items and services. and equity). A regulatory impact anticipated costs and benefits before analysis (RIA) must be prepared for Consistent with IHS regulations, the issuing any rule whose requirements rule further provides that, if an I/T/U major rules with economically mandate expenditure in any one year by has authorized payment for PRC significant effects ($100 million or more State, local, or Tribal governments, in services provided to an individual who in any one year). The April 2013 Study the aggregate, or by the private sector, of is eligible for benefits under Medicare, released by the GAO found that if Medicaid, or another third party payer, federal PRC programs had paid $141 million. This proposal would not the I/T/U shall be the payer of last resort Medicare rates for physicians services in impose substantial Federal mandates on in accordance with 25 U.S.C. 1623(b). If 2010, they could have realized an State, local or Tribal governments or there are any third party payers, the I/ estimated $32 million in annual savings private sector. T/U will pay the amount for which the to pay for additional services. Although List of Subjects in 42 CFR Part 136 patient is being held responsible after the analysis did not include other types the provider or supplier of services has of non-hospital services or funding that Alaska Natives, American Indian, coordinated benefits and all other goes to tribal PRC programs, the Health, Medicare.

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Dated: November 6, 2014 . (‘‘Medicare rate’’) for the period in Improvement Act (IHCIA), Public Law Yvette Roubideaux, which the service was provided), or in 94–437, as amended, 25 U.S.C. 1653(a). Acting Director, Indian Health Service. the event of a Medicare waiver, the (d) No additional charges. Dated: November 18, 2014. payment amount will be calculated in (1) The health care provider or accordance with such waiver. supplier shall be deemed to have Sylvia M. Burwell, (2) An amount that has been Secretary, Health and Human Services. accepted the applicable Medicare negotiated with a specific provider or its payment amount, including payment For the reasons set forth in the agent, or supplier or its agent by the I/ according to a fee schedule, a preamble, the Indian Health Service T/U or the amount negotiated by a prospective payment system or based on proposes to amend 42 CFR chapter I as repricing agent if the provider or reasonable cost (‘‘Medicare rate’’) for the set forth below: supplier is participating within the period in which the service was repricing agent’s network and an I/T/U PART 136—INDIAN HEALTH provided), as payment in full if: has a pricing arrangement or contract (i) The services were provided based ■ 1. The authority citation for part 136 with that repricing agent. For the on a PRC referral authorized for continues to read as follows: purposes of this section, repricing agent payment; or, means an entity that seeks to connect I/ Authority: 25 U.S.C. 13; 42 U.S.C. T/U with discounted rates from non-I/ (ii) The health care provider or 1395cc(a)(1)(U), 42 U.S.C. 2001 and 2003, supplier submits a Notification of a unless otherwise noted. T/U public and private providers as a result of existing contracts that the non- Claim for payment to the I/T/U; or ■ 2. Add new subpart I consisting of I/T/U public or private provider may (iii) The health care provider or §§ 136.201 and 136.202, to read as have within the commercial health care supplier accepts payment for the follows: industry. provision of services from the I/T/U. (2) A payment made and accepted in Subpart I—Limitation on Charges for (3) The amount that the provider or accordance with this section shall Health Care Professional Services and supplier bills the general public for the constitute payment in full and the Non-Hospital-Based Care same service. (b) Coordination of benefits and provider or its agent, or supplier or its Sec. limitation on recovery: If an I/T/U has agent, may not impose any additional 136.201 Payment for physician and other authorized payment for items and charge— health care professional services services provided to an individual who (i) On the individual for I/T/U purchased by Indian health programs is eligible for benefits under Medicare, authorized items and services; or and other medical charges associated Medicaid, or another third party payer— (ii) For information requested by the with non-hospital-based care. (1) The I/T/U is the payer of last resort 136.202 Authorization by urban Indian I/T/U or its agent or fiscal intermediary organizations. under 25 U.S.C. 1623(b); for the purposes of payment (2) If there are any third party payers, determinations or quality assurance. the I/T/U will pay the amount for which § 136.201 Payment for physician and other (e) For physicians and health care health care professional services the patient is being held responsible professionals and all other non-hospital- purchased by Indian health programs and after the provider or supplier of services based entities required by law to accept other medical charges associated with non- has coordinated benefits and all other the rates specified in this section, the hospital-based care. alternate resources have been applicable rate shall be the lowest of (a) Payment to physicians and health considered and paid, including any amount calculated under paragraph care professionals and all other non- applicable co-payments, deductibles, (a)(1) of this section, without regard to hospital-based entities, for any level of and coinsurance that are owed by the paragraph (d)(1) of this section. care authorized under part 136, subpart patient; and C by a Purchased/Referred Care (PRC) (3) The maximum payment by the I/ (f) No service shall be authorized and program of the Indian Health Service T/U will be only that portion of the no payment shall be issued in excess of (IHS); or authorized by a Tribe or Tribal payment amount determined under this the rate authorized by this subpart. organization carrying out a PRC program section not covered by any other payer; § 136.202 Authorization by an urban Indian of the IHS under the Indian Self- and organization. Determination and Education (4) The I/T/U payment will not Assistance Act, as amended, Public Law exceed the rate calculated in accordance An urban Indian organization may 93–638, 25 U.S.C. 450 et seq.; or with paragraph (a) of this section (plus authorize for purchase items and authorized for purchase under § 136.31 applicable cost sharing); and services for an eligible urban Indian (as by an urban Indian organization (as that (5) When payment is made by those terms are defined in 25 U.S.C. term is defined in 25 U.S.C. 1603(h)) Medicaid it is considered payment in 1603(f) and (h)) according to section 503 (hereafter ‘‘I/T/U’’), shall be determined full and there will be no additional of the IHCIA and applicable regulations. based on the applicable method in this payment made by the I/T/U to the Services and items furnished by section: The I/T/U will pay the lowest amount paid by Medicaid. physicians and other health care of the following amounts: (c) Authorized services: Payment shall professionals and non-hospital-based (1) The applicable Medicare payment be made only for those items and entities shall be subject to the payment amount, including payment according services authorized by an I/T/U methodology set forth in § 136.30. to a fee schedule, a prospective payment consistent with part 136 of this title or [FR Doc. 2014–28508 Filed 12–3–14; 8:45 am] system or based on reasonable cost section 503(a) of the Indian Health Care BILLING CODE 4165–16–P

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Notices Federal Register Vol. 79, No. 234

Friday, December 5, 2014

This section of the FEDERAL REGISTER potential persons who are to respond to Forest Service contains documents other than rules or the collection of information that such proposed rules that are applicable to the persons are not required to respond to Title: Generic Clearance for the public. Notices of hearings and investigations, the collection of information unless it Stewardship Mapping and Assessment committee meetings, agency decisions and displays a currently valid OMB control Project (STEW–MAP). rulings, delegations of authority, filing of OMB Control Number: 0596—NEW. petitions and applications and agency number. statements of organization and functions are Forest Service Summary of Collection: The examples of documents appearing in this Cooperative Forestry Assistance Act of section. Title: Generic Clearance for Large 1978 (Pub. L. 113–79) Section 9(a); Scale Collaborative Project Socio- (b)(8); (c) and (d); The Forest and economic Monitoring. Rangeland Renewable Resources DEPARTMENT OF AGRICULTURE OMB Control Number: 0596—NEW. Research Act of 1978 and the National Summary of Collection: The Forest Environmental Policy Act of 1969 Landscape Restoration Act of 2009 (16 Submission for OMB Review; authorize the Forest Service to expand U.S.C. 7303) requires the Forest Service Comment Request and strengthen existing research, to monitor socio-economic impacts of December 1, 2014. collaborative restoration activities education, technical assistance and The Department of Agriculture has within the project site. In addition, the public information and participation in submitted the following information 2012 Planning Rule (36 CFR part 219) tree planting and maintenance programs collection requirement(s) to OMB for requires a transparent, collaborative and through stewardship. Civic review and clearance under the informed planning process. Large scale environmental stewards are involved in Paperwork Reduction Act of 1995, collaborative projects involve interested a range of activities like planting trees, Public Law 104–13. Comments parties, such as neighboring land organizing community gardens, offering regarding (a) whether the collection of owners, state, local and tribal environment-themed classes, leading information is necessary for the proper government representatives, businesses, local conservation efforts, monitoring performance of the functions of the interest groups and nonprofit plants and animals, and cleaning up agency, including whether the organizations working with a federal nearby parks or natural areas. These information will have practical utility; government agency to find common stewards may be nonprofit (b) the accuracy of the agency’s estimate ground pertaining to geographically organizations, formal or informal of burden including the validity of the extensive land management, often community groups, faith-based methodology and assumptions used; (c) across multiple jurisdictions. Bureau of organizations, or academic institutions. ways to enhance the quality, utility and Land Management (BLM) and U.S. STEW–MAP will create a publicly clarity of the information to be Forest Service (FS) collaboration on available database and map of collected; (d) ways to minimize the large scale projects also extends beyond stewardship groups, their activities, and burden of the collection of information Collaborative Forest Landscape where they work. on those who are to respond, including Restoration and Management Plans. Need and Use of the Information: through the use of appropriate Need and Use of the Information: Information will be gathered on civic automated, electronic, mechanical, or Data will be collected through a variety stewardship groups and their efforts other technological collection of methods, including: A census survey such as where they work, the types of techniques and other forms of of partners/participants of a projects they focus on, and how they are information technology. collaborative project; mail-survey of organized. There are three phases to a Comments regarding this information residents in the large scale collaborative STEW–MAP project: (1) A census to put collection received by January 5, 2015 project or planning areas; survey of together a master list of known will be considered. Written comments spending habits of restoration workers; stewardship groups and their contact should be addressed to: Desk Officer for and key informant interviews with information in the target city or region; Agriculture, Office of Information and business, community, stakeholder (2) a survey distributed to all of the Regulatory Affairs, Office of leaders in collaborative project and organizations identified in phase one to Management and Budget (OMB), New planning areas. Results will assist collect information about what they Executive Office Building, 725 17th program managers in evaluating the work on, structure of the group and Street NW., Washington, DC 20503. positive and negative social and what other groups they collaborate with; Commentors are encouraged to submit economic effects of collaborative project and (3) follow-up interviews with key their comments to OMB via email to: implementation and assist FS and BLM longstanding organizations identified _ OIRA [email protected] or fax forest planners in meeting collaborative during phase two, to collect more (202) 395–5806 and to Departmental and public input requirement of the detailed information about Clearance Office, USDA, OCIO, Mail 2012 Forest Planning Rule. organizational histories. Stop 7602, Washington, DC 20250– Description of Respondents: Description of Respondents: Business 7602. Copies of the submission(s) may Individuals; Business or other for-profit; or other for-profit; Not-for-profit be obtained by calling (202) 720–8681. Not-for-profit institutions; State, Local institutions; State, Local or Tribal An agency may not conduct or or Tribal Governments. Governments. sponsor a collection of information Number of Respondents: 48,800. unless the collection of information Frequency of Responses: Reporting: Number of Respondents: 15,900. displays a currently valid OMB control Annually. Frequency of Responses: Reporting: number and the agency informs Total Burden Hours: 38,800. Annually.

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Total Burden Hours: 7,925. DEPARTMENT OF COMMERCE weighted-average dumping margin for Calgon Carbon (Tianjin) Co., Ltd.’s Charlene Parker, Foreign-Trade Zones Board (‘‘Calgon Tianjin’’) using revised Departmental Information Collection [B–55–2014] surrogate values for coal and fine by- Clearance Officer. products.2 The Department also [FR Doc. 2014–28552 Filed 12–4–14; 8:45 am] Foreign-Trade Zone 221—Mesa, recalculated in the Remand the BILLING CODE 3411–15–P Arizona; Authorization of Production dumping margin for three respondents Activity; Apple Inc./GTAT Corp. not selected for individual examination (Components for Consumer (i.e., the separate rate)—Ningxia Electronics); Mesa, Arizona Guanghua Cherishmet Activated Carbon COMMISSION ON CIVIL RIGHTS Co., Ltd. (‘‘Ningxia Guanghua’’) and its On July 31, 2014, the City of Mesa, affiliate Beijing Pacific Activated Carbon Sunshine Act Meeting grantee of FTZ 221, submitted a Products Co., Ltd. (‘‘Beijing Pacific’’) notification of proposed production (together, ‘‘Cherishmet’’),3 as well as AGENCY: United States Commission on activity to the Foreign-Trade Zones Shanxi DMD Corporation (‘‘Shanxi Civil Rights. (FTZ) Board on behalf of Apple Inc./ DMD’’).4 GTAT Corp., within Subzone 221A, in Consistent with the decision of the ACTION: Notice of Commission Business Mesa, Arizona. United States Court of Appeals for the Meeting. The notification was processed in Federal Circuit (‘‘CAFC’’) in Timken Co. accordance with the regulations of the v. United States, 893 F.2d 337 (Fed. Cir. DATES: Date and Time: Friday, FTZ Board (15 CFR part 400), including 1990) (‘‘Timken’’), as clarified by December 12, 2014; 9:30 a.m. EST. notice in the Federal Register inviting Diamond Sawblades Mfrs. Coalition v. public comment (79 FR 47088–47089, ADDRESSES: Place: 1331 Pennsylvania United States, 626 F.3d 1374 (Fed. Cir. 8–12–2014). The FTZ Board has 2010), the Department is notifying the Ave. NW., Suite 1150, Washington, DC. determined that no further review of the public that the final judgment in this activity is warranted at this time. The FOR FURTHER INFORMATION CONTACT: case is not in harmony with the production activity described in the Lenore Ostrowsky, Acting Chief, Public Department’s final results of the notification is authorized, subject to the Affairs Unit (202) 376–8591. antidumping duty administrative review FTZ Act and the Board’s regulations, Hearing-impaired persons who will of the antidumping duty order on including Section 400.14. attend the briefing and require the certain activated carbon from the services of a sign language interpreter Dated: November 28, 2014. People’s Republic of China (‘‘PRC’’) should contact Pamela Dunston at (202) Andrew McGilvray, covering the period of review (‘‘POR’’) 376–8105 or at [email protected] Executive Secretary. April 1, 2009, through March 31, 2010, at least seven business days before the [FR Doc. 2014–28582 Filed 12–4–14; 8:45 am] and is amending the final results with scheduled date of the meeting. BILLING CODE 3510–DS–P respect to the weighted-average dumping margins assigned to Ningxia SUPPLEMENTARY INFORMATION: Guanghua, Beijing Pacific, and Shanxi 5 Meeting Agenda DEPARTMENT OF COMMERCE DMD. International Trade Administration DATES: Effective Date: December 4, This meeting is open to the public. 2014. [A–570–904] I. Approval of Agenda FOR FURTHER INFORMATION CONTACT: II. Program Planning Certain Activated Carbon From the Robert Palmer, AD/CVD Operations • Review and Vote of the 2015 People’s Republic of China: Notice of Office V, Enforcement and Compliance, Statutory Enforcement Report Court Decision Not in Harmony With International Trade Administration, Discovery Plan Final Results of Administrative Review U.S. Department of Commerce, 14th • and Notice of Amended Final Results Street and Constitution Avenue NW., Discussion and Vote on Updating of Antidumping Duty Administrative Washington, DC 20230; telephone: (202) Select Commission Reports Review; 2009–2010 482–9068. III. Management and Operations AGENCY: SUPPLEMENTARY INFORMATION: • Enforcement and Compliance, Presentations from the Illinois and International Trade Administration, Georgia SAC Chairs on their Department of Commerce. 2 Id. at 8–10. As we explain below, the Immigration Projects Department’s recalculation of these surrogate values SUMMARY: On November 24, 2014, the • continued to yield a de minimis weighted-average Staff Director’s Report United States Court of International dumping margin for Calgon Tianjin. Thus, IV. State Advisory Committee (SAC) Trade (‘‘the Court’’) issued final consistent with our practice, the Department has judgment in Albemarle Corp. et al. v. not amended the final results with respect to Calgon Appointments Tianjin. United States, Consol. Court No. 11– • Indiana 3 The Department found Ningxia Guanghua and 00451, sustaining the Department of Beijing Pacific to be affiliated and a single entity in V. Adjourn Meeting Commerce’s (‘‘the Department’’) final First Administrative Review of Certain Activated Carbon From the People’s Republic of China: Final Dated: December 2, 2014. results of redetermination pursuant to 1 Results of Antidumping Duty Administrative Marlene Sallo, remand (‘‘Remand’’). In the Remand, Review, 74 FR 57995, 57998 (November 10, 2009). the Department recalculated the 4 Staff Director. See Remand at 10–13. 5 See Certain Activated Carbon From the People’s [FR Doc. 2014–28649 Filed 12–3–14; 11:15 am] 1 See Final Results Of Redetermination Pursuant Republic of China: Final Results and Partial BILLING CODE 6335–01–P To Court Remand, Consol. Court No. 11–00451, Slip Rescission of Third Antidumping Duty Op. 13–106 (CIT August 15, 2013), dated January Administrative Review, 76 FR 67142 (October 31, 9, 2014, available at http://enforcement.trade.gov/ 2011) (‘‘AR3 Final Results’’) and the accompanying remands/13-106.pdf. Issues and Decision Memorandum.

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Background entries was moot, given that the Cash Deposit Requirements On October 31, 2011, the Department Department assigned Shanxi DMD a The cash deposit rate for Cherishmet 12 issued AR3 Final Results.6 Cherishmet dumping margin of zero. On will remain the respondent-specific rate and Shanxi DMD, exporters of subject November 24, 2014, the Court entered established for the subsequent and merchandise, timely filed complaints judgment sustaining the Remand.13 most-recent period during which the with the Court. Albemarle Corporation Timken Notice respondent was reviewed, which is (‘‘Albemarle’’), a U.S. importer of $0.04 per kilogram.15 The cash deposit subject merchandise, and Ningxia In its decision in Timken, 893 F.2d at rate for the PRC-wide rate, which now Huahui Activated Carbon Co., Ltd. 341, as clarified by Diamond Sawblades, includes Shanxi DMD, will remain the (‘‘Huahui’’), an exporter of subject the CAFC held that, pursuant to section PRC-wide entity rate established for the merchandise, also timely filed a 516A(e) of the Tariff Act of 1930, as subsequent and most-recent period complaint with the Court. Together, amended (‘‘the Act’’), the Department during which the PRC-wide entity was these parties challenged four aspects of must publish a notice of a court reviewed, which is 2.42 U.S. dollars per 16 the Department’s final results: (1) The decision that is not ‘‘in harmony’’ with kilogram. surrogate value for Calgon Tianjin’s a Department determination and must Notification to Interested Parties carbonized material; (2) the surrogate suspend liquidation of entries pending This notice is issued and published in values for Calgon Tianjin’s coal and fine a ‘‘conclusive’’ court decision. The by-products; (3) the dumping margins accordance with sections 516A(e), Court’s November 24, 2014, judgment 751(a)(1), and 777(i)(1) of the Act. assigned to Huahui, Shanxi DMD, sustaining the Remand constitutes a Dated: December 1, 2014. Ningxia Guanghua, and Beijing Pacific, final decision of the Court that is not in which were not selected for individual harmony with the Department’s AR3 Paul Piquado, examination in the review; and (4) the Final Results. This notice is published Assistant Secretary for Enforcement and use of a per-unit assessment rate for Compliance. in fulfillment of the publication Shanxi DMD’s entries. On August 15, [FR Doc. 2014–28577 Filed 12–4–14; 8:45 am] requirement of Timken. 2013, the Court remanded the BILLING CODE 3510–DS–P Department’s AR3 Final Results and Amended Final Results instructed the Department to reconsider each of these issues.7 Because there is now a final court DEPARTMENT OF COMMERCE On January 9, 2014, the Department decision, the Department amends AR3 filed the Remand with the Court. First, Final Results with respect to Cherishmet International Trade Administration the Department continued to calculate and Shanxi DMD. The revised weighted- [A–570–924] Calgon Tianjin’s surrogate value for average dumping margins for these carbonized material with the same data exporters during the period April 1, Polyethylene Terephthalate Film, that it used in AR3 Final Results.8 2009, through March 31, 2010, follow: Sheet, and Strip From the People’s Second, the Department recalculated Republic of China: Preliminary Results Calgon Tianjin’s surrogate values for Weighted average of Antidumping Duty Administrative coal and fine by-products by capping Exporter name dumping margin Review, Preliminary Determination of (dollars per No Shipments and Partial Rescission those values at the value assigned to kilogram) their main input, carbonized material.9 of Review; 2012–2013 The Department’s recalculation of the Ningxia Guanghua AGENCY: Enforcement and Compliance, by-products surrogate values continued Cherishmet Activated International Trade Administration, 14 to yield a de minimis weighted-average Carbon Co., Ltd ..... 0.00 Department of Commerce. dumping margin for Calgon Tianjin.10 Shanxi DMD Corpora- SUMMARY: Third, and under protest, the tion ...... 0.00 The Department of Commerce Department averaged the zero and de (‘‘the Department’’) is conducting an administrative review of the minimis rates calculated for the two Accordingly, the Department will mandatory respondents in this antidumping duty order on continue the suspension of liquidation polyethylene terephthalate film, sheet, administrative review (i.e., Jacobi of the subject merchandise pending the Carbons AB and Calgon Tianjin) and and strip (‘‘PET film’’) from the People’s expiration of the period of appeal or, if Republic of China (‘‘PRC’’). The period assigned the resulting zero dumping appealed, pending a final and margin to Ningxia Guanghua, Beijing of review (‘‘POR’’) is November 1, 2012, conclusive court decision. In the event through October 31, 2013. The Pacific, and Shanxi DMD.11 Finally, the the Court’s ruling is not appealed or, if Department initiated the review with Department determined that the issue appealed, upheld by the CAFC, the respect to five companies. We concerning the use of a per-unit Department will instruct U.S. Customs preliminarily find that two of the assessment rate for Shanxi DMD’s and Border Protection to assess mandatory respondents, Shaoxing antidumping duties on unliquidated 6 Xiangyu Green Packing Co., Ltd. and Id. entries of subject merchandise exported 7 See Albemarle Corp. v. United States, 931 F. Tianjin Wanhua Co., Ltd. made sales of Supp. 2d 1280 (CIT 2013). The Court reserved by Cherishmet and Shanxi DMD using subject merchandise at less than normal judgment on the dumping margin assigned to the assessment rate calculated by the value (‘‘NV’’). We are rescinding the Huahui, which was different from the margin that Department in the Remand and listed review with respect to Huangshi the Department assigned to Shanxi DMD, Ningxia Guanghua, and Beijing Pacific. Id. It explained that above. Yucheng Trade Co. Ltd. (‘‘Yucheng’’). the Department could, but was not required to, Further, we preliminarily find that reconsider Huahui’s margin on remand. Id. 12 Id. at 13–15. 8 See Remand at 3–8. 13 See Albemarle Corp. et al. v. United States, 15 See Certain Activated Carbon From the 9 Id. at 10. Consol. Court No. 11–00451 (CIT November 24, People’s Republic of China: Final Results of 10 Id. 2014). Antidumping Duty Administrative Review; 2012– 11 Id. at 10–13. The Department did not change 14 This dumping margin also applies to Beijing 2013, 79 FR 70163, 70165 (November 25, 2014). the dumping margin assigned to Huahui. Id. at 22. Pacific. See supra note 3. 16 Id.

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Fuwei Films (Shandong) Co., Ltd. Methodology after the date of publication of these 3 (‘‘Fuwei Films’’) and Sichuan Dongfang The Department conducted this preliminary results of review. Rebuttal Insulating Material Co., Ltd., review in accordance with section briefs may be filed no later than five (‘‘Dongfang’’), did not have any 751(a)(1)(A) of the Tariff Act of 1930, as days after case briefs are filed and may reviewable transactions during the POR. amended (‘‘the Act’’). We calculated respond only to arguments raised in the Interested parties are invited to export prices in accordance with section case briefs.4 A table of contents, list of comment on these preliminary results. 772 of the Act. Because the PRC is a authorities used and an executive DATES: Effective Date: December 5, 2014. non-market economy (‘‘NME’’) within summary of issues should accompany FOR FURTHER INFORMATION CONTACT: the meaning of section 771(18) of the any briefs submitted to the Department. Jonathan Hill or Thomas Martin, AD/ Act, we calculated NV in accordance This summary should be limited to five CVD Operations, Office IV, Enforcement with section 773(c) of the Act. pages total, including footnotes. & Compliance, International Trade For a full description of the Interested parties who wish to request Administration, Department of methodology underlying our a hearing must submit a written request Commerce, 14th Street and Constitution conclusions, see the Preliminary to the Assistant Secretary for Avenue NW., Washington, DC 20230; Decision Memorandum, which is hereby Enforcement & Compliance, U.S. telephone: (202) 482–3518 or (202) 482– adopted by this notice. The Preliminary Department of Commerce, within 30 3936, respectively. Decision Memorandum is a public days after the date of publication of this SUPPLEMENTARY INFORMATION: document and is on file electronically notice.5 Requests should contain the via Enforcement and Compliance’s party’s name, address, and telephone Scope of the Order Antidumping and Countervailing Duty number, the number of participants, and The products covered by the order are Centralized Electronic Service System a list of the issues to be discussed. Oral all gauges of raw, pre-treated, or primed (‘‘ACCESS’’).2 ACCESS is available to argument presentations will be limited PET film, whether extruded or co- registered users at http:// to issues raised in the briefs. If a request extruded.1 PET film is classifiable under access.trade.gov. The Preliminary for a hearing is made, the Department subheading 3920.62.00.90 of the Decision Memorandum is also available intends to hold the hearing at the U.S. Harmonized Tariff Schedule of the in the Central Records Unit, room 7046 Department of Commerce, 14th Street United States (‘‘HTSUS’’). Although the of the main Department of Commerce and Constitution Avenue NW., HTSUS subheadings are provided for building. In addition, a complete Washington, DC 20230, at a date and convenience and customs purposes, our version of the Preliminary Decision time to be determined.6 Parties should written description of the scope of the Memorandum can be accessed directly confirm by telephone the date, time, and order is dispositive. at http://enforcement.trade.gov/frn/ location of the hearing two days before Preliminary Determination of No index.html. The signed Preliminary the scheduled date. Shipments Decision Memorandum and the All submissions, with limited electronic version of the Preliminary exceptions, must be filed electronically Based on our analysis of U.S. Customs Decision Memorandum are identical in using ACCESS.7 An electronically filed and Border Protection (‘‘CBP’’) content. document must be received successfully information and information provided in its entirety by the Department’s by Fuwei Films and Dongfang, we Preliminary Results of Review electronic records system, ACCESS, by preliminarily determine that Fuwei The Department preliminarily 5 p.m. Eastern Time (‘‘ET’’) on the due Films and Dongfang did not have any determines that the following weighted- date. Documents excepted from the reviewable transactions during the POR. average dumping margins exist for the electronic submission requirements For additional information regarding POR: must be filed manually (i.e., in paper this determination, see the Preliminary form) with the APO/Dockets Unit in Decision Memorandum. Weighted-average Exporter dumping margin Room 1870 and stamped with the date Partial Rescission (percent) and time of receipt by 5 p.m. ET on the On December 2, 2013, Now Plastics due date.8 Shaoxing Xiangyu Inc. (‘‘Now Plastics’’) requested an The Department intends to issue the Green Packing Co., final results of this administrative administrative review of subject Ltd ...... 35.10 merchandise exported by Yucheng. Tianjin Wanhua Co., Ltd 67.69 review, which will include the results of Subsequently, on February 12, 2014, its analysis of issues raised in any briefs, within 120 days of publication of these Now Plastics timely withdrew its Disclosure and Public Comment request for an administrative review of preliminary results, pursuant to section Yucheng’s exports. No other parties The Department intends to disclose 751(a)(3)(A) of the Act. calculations performed for these requested a review of Yucheng. The Assessment Rates Department, pursuant to 19 CFR preliminary results to the parties within 351.213 (d)(1), is therefore rescinding five days of the date of publication of Upon issuance of the final results of this administrative review with respect this notice in accordance with 19 CFR this review, the Department will to Yucheng. 351.224(b). Interested parties may determine, and CBP shall assess, submit case briefs no later than 30 days antidumping duties on all appropriate 1 For a complete description of the scope of the 2 order, see ‘‘Decision Memorandum for the ‘‘On November 24, 2014, Enforcement and 3 See 19 CFR 351.309(c). Preliminary Results of 2012–2013 Antidumping Compliance changed the name of Enforcement and 4 See 19 CFR 351.309(d). Duty Administrative Review of Polyethylene Compliance’s AD and CVD Centralized Electronic 5 Terephthalate Film, Sheet, and Strip From the Service System (‘‘IA Access’’) to AD and CVD See 19 CFR 351.310(c). People’s Republic of China’’ from Christian Marsh, Centralized Electronic Service System (‘‘Access’’). 6 See 19 CFR 351.310(d). Deputy Assistant Secretary for Antidumping and The Web site location was changed from http:// 7 See, generally, 19 CFR 351.303. Countervailing Duty Operations to Paul Piquado, iaaccess.trade.gov to http://access.trade.gov. The 8 See Antidumping and Countervailing Duty Assistant Secretary for Enforcement and Final Rule changing the references to the Proceedings: Electronic Filing Procedures; Compliance, dated concurrently with this notice Regulations can be found at 79 FR 69046 Administrative Protective Order Procedures, 76 FR (‘‘Preliminary Decision Memorandum’’). (November 20, 2014.’’ 39263 (July 6, 2011).

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entries covered by this review.9 The most recently completed segment of this DEPARTMENT OF COMMERCE Department intends to issue assessment proceeding; (3) for all PRC exporters of instructions to CBP 15 days after the subject merchandise which have not International Trade Administration publication date of the final results of been found to be entitled to a separate this review. Where either a respondent’s rate, the cash deposit rate will be the [A–580–809] weighted-average dumping margin is rate for the PRC-wide entity, 76.72 zero or de minimis, or an importer- percent; and (4) for all non-PRC Circular Welded Non-Alloy Steel Pipe specific assessment rate is zero or de exporters of subject merchandise which From the Republic of Korea: minimis, we will instruct CBP to have not received their own rate, the Preliminary Results and Partial liquidate the appropriate entries Rescission of Antidumping Duty cash deposit rate will be the rate without regard to antidumping duties. Administrative Review; 2012–2013 applicable to the PRC exporter that For any individually examined supplied that non-PRC exporter. These respondent and its importer(s) where AGENCY: Enforcement and Compliance, neither of those situations is the case, in deposit requirements, when imposed, International Trade Administration, the final results of this review we will shall remain in effect until further Department of Commerce. calculate an importer-specific per-unit notice. SUMMARY: The Department of Commerce assessment rate by dividing the total Notification to Importers dumping margins for reviewed sales to (the Department) is conducting an the importer by the total sales quantity This notice also serves as a administrative review of the associated with those sales. preliminary reminder to importers of antidumping duty order on circular welded non-alloy steel pipe (CWP) from On October 24, 2011, the Department their responsibility under 19 CFR the Republic of Korea (Korea).1 The announced a refinement to its 351.402(f)(2) to file a certificate period of review (POR) is November 1, assessment practice in NME regarding the reimbursement of antidumping duty cases.10 Pursuant to 2012, through October 31, 2013. This antidumping duties prior to liquidation review covers eight producers or this refinement in practice, for of the relevant entries during this merchandise that was not reported in exporters of the subject merchandise, review period. Failure to comply with the U.S. sales databases submitted by an Husteel Co., Ltd. (Husteel), Hyundai this requirement could result in the exporter individually examined during HYSCO (HYSCO), Dongbu Steel Co., this review, but that entered under the Department’s presumption that Ltd., SeAH Steel Corporation, A-JU case number of that exporter (i.e., at the reimbursement of antidumping duties Besteel Co., Ltd., Kumkang Industrial individually-examined exporter’s cash occurred and the subsequent assessment Co., Ltd., Nexteel Co., Ltd., and Union deposit rate), the Department will of double antidumping duties. Steel Co., Ltd. We preliminarily find instruct CBP to liquidate such entries at We are issuing and publishing these that Husteel and HYSCO have made the PRC-wide rate. Additionally, results in accordance with sections sales of the subject merchandise at pursuant to this refinement, if the 751(a)(1) and 777(i)(1) of the Act and 19 prices below normal value. We are Department determines that an exporter CFR 351.213. rescinding this review for the remaining under review had no shipments of the six producers or exporters. Interested subject merchandise, any suspended Dated: November 28, 2014. parties are invited to comment on these entries that entered under that Ronald K. Lorentzen, preliminary results. exporter’s case number will be Acting Assistant Secretary for Enforcement DATES: Effective Date: December 5, 2014. liquidated at the PRC-wide rate. and Compliance. FOR FURTHER INFORMATION CONTACT: Cash Deposit Requirements Appendix—List of Topics Discussed in Jennifer Meek or Joseph Shuler, AD/ The following cash deposit the Preliminary Decision Memorandum CVD Operations, Office I, Enforcement requirements will be effective upon 1. Summary and Compliance, International Trade publication of the final results of this 2. Background Administration, U.S. Department of administrative review for shipments of 3. Scope of the Order Commerce, 14th Street and Constitution the subject merchandise from the PRC 4. Preliminary Determination of No Avenue NW., Washington DC 20230; entered, or withdrawn from warehouse, Shipments telephone (202) 482–2778 or (202) 482– for consumption on or after the 5. Selection of Respondents 1293, respectively. publication date, as provided by 6. Non-Market Economy Country Scope of the Order sections 751(a)(2)(C) of the Act: (1) For 7. Separate Rate the exporters listed above, the cash 8. Surrogate Country The merchandise subject to the order deposit rate will be equal to the 9. Date of Sale is circular welded non-alloy steel pipe weighted-average dumping margin 10. Fair Value Comparisons and tube. The product is currently established in the final results of this 11. U.S. Price classifiable under the following review (except, if the rate is zero or de 12. Normal Value Harmonized Tariff Schedule of the minimis, then the cash deposit rate will [FR Doc. 2014–28579 Filed 12–4–14; 8:45 am] United States (HTSUS) numbers: be zero for that exporter); (2) for BILLING CODE 3510–DS–P 7306.30.1000, 7306.30.5025, previously investigated or reviewed PRC 7306.30.5032, 7306.30.5040, and non-PRC exporters not listed above 7306.30.5055, 7306.30.5085, and that have separate rates, the cash deposit rate will continue to be the 7306.30.5090. Although the HTSUS exporter-specific rate published for the numbers are provided for convenience and customs purposes, the written 9 See 19 CFR 351.212(b)(1). 10 See Non-Market Economy Antidumping 1 See Initiation of Antidumping and Proceedings: Assessment of Antidumping Duties, 76 Countervailing Duty Administrative Reviews and FR 65694 (October 24, 2011), for a full discussion Request for Revocation in Part, 78 FR 79392 of this practice. (December 30, 2013).

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product description remains electronic versions of the Preliminary will be held at the U.S. Department of dispositive.2 Decision Memorandum are identical in Commerce, 14th Street and Constitution content. Avenue NW., Washington, DC 20230, at Partial Rescission of Administrative a time and location to be determined. Review Preliminary Results of the Review Parties should confirm by telephone the Pursuant to 19 CFR 351.213(d)(1), we As a result of this review, we date, time, and location of the hearing. are rescinding this administrative preliminarily determine that the Unless the deadline is extended review with respect to the following following weighted-average dumping pursuant to section 751(a)(2)(B)(iv) of parties because the review requests were margins exist for the respondents for the the Act and 19 CFR 351.213(h)(2), the timely withdrawn: Dongbu Steel Co., period November 1, 2012, through Department intends to issue the final Ltd., SeAH Steel Corporation, A-JU October 31, 2013. results of this administrative review, Besteel Co., Ltd., Kumkang Industrial including the results of our analysis of Co., Ltd., Nexteel Co., Ltd., and Union Weighted-average the issues raised by the parties in their Steel Co., Ltd.3 Producer or exporter dumping margin (percent) case and rebuttal briefs, within 120 days Methodology after the publication of these Husteel Co., Ltd ...... 1.15 preliminary results, pursuant to section The Department has conducted this Hyundai HYSCO ...... 2.02 751(a)(3)(A) of the Act and 19 CFR review in accordance with section 351.213(h)(1). 751(a)(2) of the Tariff Act of 1930, as Disclosure and Public Comment amended (the Act). Constructed export Assessment Rates price is calculated in accordance with The Department intends to disclose to For Husteel and HYSCO, upon section 772 of the Act. Normal value is interested parties the calculations issuance of the final results, the calculated in accordance with section performed in connection with these Department shall determine, and U.S. 773 of the Act. preliminary results within five days of 5 Customs and Border Protection (CBP) For a full description of the the date of publication of this notice. shall assess, antidumping duties on all methodology underlying our Interested parties may submit case briefs appropriate entries covered by this conclusions, see the Preliminary no later than 30 days after the date of 6 review. Both Husteel and HYSCO Decision Memorandum. The publication of the preliminary results. reported the name of the importer of Preliminary Decision Memorandum is a Rebuttal briefs, limited to the issues record and the entered value for all of public document and is on file raised in the case briefs, may be filed no their sales to the United States during electronically via Enforcement and later than five days after the submission 7 the POR. If Husteel and HYSCO’s Compliance’s Antidumping and of case briefs. Parties who submit case weighted-average dumping margins are Countervailing Duty Centralized briefs or rebuttal briefs in this not zero or de minimis (i.e., less than Electronic Service System (ACCESS).4 proceeding are encouraged to submit 0.50 percent) in the final results of this ACCESS is available to registered users with each argument: (1) A statement of review, we will calculate importer- at http://access.trade.gov, and is the issue; (2) a brief summary of the 8 specific assessment rates on the basis of available to all parties in the Central argument; and (3) a table of authorities. the ratio of the total amount of dumping Records Unit, Room 7046 of the main All case and rebuttal briefs must be filed calculated for each importer’s examined Department of Commerce building. In electronically using ACCESS, and must 9 sales and the total entered value of those addition, a complete version of the also be served on interested parties. An sales in accordance with 19 CFR Preliminary Decision Memorandum can electronically filed document must be 351.212(b)(1). be accessed directly at http://trade.gov/ received successfully in its entirety by We will instruct CBP to assess enforcement. The signed Preliminary the Department’s electronic records antidumping duties on all appropriate Decision Memorandum and the system, ACCESS, by 5:00 p.m. Eastern entries covered by this review when the Standard Time on the date that the importer-specific assessment rate 2 For a full description of the scope of the order, document is due. Executive summaries calculated in the final results of this see the Memorandum from Gary Taverman, should be limited to five pages total, review is not zero or de minimis. Where Associate Deputy Assistant Secretary for including footnotes. either the respondent’s weighted- Antidumping and Countervailing Duty Operations, Interested parties who wish to request to Ronald K. Lorentzen, Acting Assistant Secretary average dumping margin is zero or de for Enforcement and Compliance, ‘‘Decision a hearing, or to participate if one is minimis,11 or an importer-specific Memorandum for the Preliminary Results of requested, must submit a written assessment rate is zero or de minimis, Antidumping Duty Administrative Review: Circular request to the Assistant Secretary for we will instruct CBP to liquidate the Welded Non-Alloy Steel Pipe from the Republic of Enforcement and Compliance, U.S. Korea: 2012–2013’’ (Preliminary Decision appropriate entries without regard to Memorandum), dated concurrently with these Department of Commerce, using antidumping duties. results and hereby adopted by this notice. Enforcement and Compliance’s ACCESS The Department clarified its 3 See Letter from Wheatland Tube Company system within 30 days of publication of ‘‘automatic assessment’’ regulation on (Wheatland) to the Department, ‘‘Circular Welded this notice.10 Hearing requests should Non-Alloy Steel Pipe from Republic of Korea/ May 6, 2003. This clarification will Partial Withdrawal of Request for Administrative contain the party’s name, address, and apply to entries of subject merchandise Review,’’ dated March 31, 2014 and Letter from telephone number, the number of during the POR produced by Husteel United States Steel Corporation (U.S. Steel) to the participants, and a list of the issues to and HYSCO for which they did not Department, ‘‘Circular Welded Non-Alloy Steel be discussed. If a request for a hearing Pipe from Korea,’’ dated March 31, 2014. know its merchandise was destined for 4 On November 24, 2014, Enforcement and is made, we will inform parties of the the United States. In such instances, we Compliance changed the name of Enforcement and scheduled date for the hearing which will instruct CBP to liquidate Compliance’s AD and CVD Centralized Electronic unreviewed entries at the all-others rate Service System (IA ACCESS) to AD and CVD 5 See 19 CFR 351.224(b). Centralized Electronic Service System (ACCESS). 6 See 19 CFR 351.309(c)(1)(ii). 11 See Antidumping Proceedings: Calculation of The Web site location was changed from http:// 7 iaaccess.trade.gov to http://access.trade.gov. The See 19 CFR 351.309(d)(1). the Weighted-Average Dumping Margin and Final Rule changing the references to the 8 See 19 CFR 351.309(c)(2) and (d)(2). Assessment Rate in Certain Antidumping Duty Regulations can be found at 79 FR 69046 9 See 19 CFR 351.303(f). Proceedings; Final Modification, 77 FR 8101, 8102 (November 20, 2014). 10 See 19 CFR 351.310(c). (February 14, 2012).

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if there is no rate for the intermediate Notification to Importers 1, 2013, through July 31, 2014.1 On company(ies) involved in the This notice serves as a preliminary November 4, 2014, BASACO timely transaction. For a full discussion of this reminder and, with respect to withdrew its request for a new shipper clarification, see Antidumping and companies which we rescind in part as review. Accordingly, the Department is Countervailing Duty Proceedings: a final reminder, to importers of their rescinding the new shipper review with Assessment of Antidumping Duties, 68 responsibility under 19 CFR respect to BASACO. FR 23954 (May 6, 2003). 351.402(f)(2) to file a certificate DATES: Effective Date: December 5, 2014. For Husteel and HYSCO, we intend to regarding the reimbursement of FOR FURTHER INFORMATION CONTACT: issue instructions to CBP 15 days after antidumping duties prior to liquidation Alexander Montoro, AD/CVD publication of the final results of this of the relevant entries during this Operations, Office V, Enforcement and review. review period. Failure to comply with Compliance, International Trade For the companies for which the this requirement could result in the Administration, U.S. Department of review has been rescinded, antidumping Secretary’s presumption that Commerce, 14th Street and Constitution duties shall be assessed at rates equal to reimbursement of antidumping duties Avenue NW., Washington, DC 20230; the rates for the cash deposit of occurred and the subsequent assessment telephone: (202) 482–0238. of double antidumping duties. estimated antidumping duties required Rescission of New Shipper Review at the time of entry, or withdrawal from The Department is issuing and On September 24, 2014, the warehouse, for consumption, in publishing these results in accordance Department initiated a new shipper accordance with 19 CFR with sections 751(a)(1) and 777(i)(1) of review of BASACO.2 On November 4, 351.212(c)(1)(i). The Department the Act. 2014, BASACO withdrew its new intends to issue appropriate assessment Dated: November 28, 2014. shipper review request.3 19 CFR instructions to CBP 15 days after the Ronald K. Lorentzen, 351.214(f)(1) provides that the date of publication of this notice. Acting Assistant Secretary for Enforcement Department may rescind a new shipper and Compliance. Cash Deposit Requirements review if the party that requested the Appendix review withdraws its request for review The following cash deposit within 60 days of the date of publication requirements for estimated antidumping List of Topics Discussed in the Preliminary Decision Memorandum of the notice of initiation of the duties will be effective upon publication requested review in the Federal of the notice of final results of I. Summary II. Background Register. Because BASACO timely administrative review for all shipments III. Scope of Order withdrew its request for a new shipper of CWP from Korea entered, or IV. Rescission of Review In Part review (i.e., 33 days after the date of withdrawn from warehouse, for V. Discussion of the Methodology publication of the notice of initiation of consumption on or after the date of 1. Comparison to Normal Value the requested review), the Department is publication as provided by section 2. Product Comparisons rescinding the new shipper review of 751(a)(2) of the Act: (1) The cash deposit 3. Treatment of Grade as a Physical the antidumping duty order on certain rate for HYSCO and Husteel will be Characteristic frozen fish fillets from Vietnam with equal to the weighted-average dumping 4. Level of Trade/Constructed Export Price respect to BASACO. Consequently, margins established in the final results Offset 5. Constructed Export Price BASACO will remain part of the of this administrative review; (2) for 6. Normal Value Vietnam-wide entity. merchandise exported by producers or 7. Currency Conversion Assessment exporters not covered in this review but VI. Recommendation Because BASACO remains part of the covered in a prior completed segment of [FR Doc. 2014–28580 Filed 12–4–14; 8:45 am] the proceeding, the cash deposit rate Vietnam-wide entity, it remains under BILLING CODE 3510–DS–P will continue to be the company- review in the ongoing administrative specific rate published for the most review of the antidumping duty order of recent period; (3) if the exporter is not DEPARTMENT OF COMMERCE certain frozen fish fillets from Vietnam a firm covered in this review, a prior covering the period August 1, 2013, to review, or the original investigation but International Trade Administration July 31, 2014.4 Therefore, the the producer has been covered in a prior Department will not order liquidation of complete segment of this proceeding, [A–552–801] entries for BASACO. The Department the cash deposit rate will be the rate intends to issue liquidation instructions established for the most recent period Certain Frozen Fish Fillets From the for the Vietnam-wide entity, which will for the producer of the merchandise; (4) Socialist Republic of Vietnam: cover any entries by BASACO, 15 days the cash deposit rate for all other Rescission of Antidumping Duty New after publication of the final results of producers or exporters will continue to Shipper Review; 2013–2014 the administrative review covering the be 4.80 percent, the ‘‘all others’’ rate AGENCY: Enforcement and Compliance, established in the order.12 These cash 1 See Certain Frozen Fish Fillets from the Socialist International Trade Administration, deposit requirements, when imposed, Republic of Vietnam: Initiation of Antidumping Department of Commerce. shall remain in effect until further Duty New Shipper Review; 2013–2014, 79 FR 59476 SUMMARY: In response to a request from (October 2, 2014) (‘‘Initiation Notice’’). notice. 2 BASA Joint Stock Company Id. 3 See letter from BASACO entitled ‘‘Withdrawal 12 See Notice of Antidumping Duty Orders: (‘‘BASACO’’), the Department of of Request for New Shipper Review: Certain Frozen Certain Circular Welded Non-Alloy Steel Pipe from Commerce (‘‘Department’’) initiated a Fish Fillets from the Socialist Republic of Vietnam: Brazil, the Republic of Korea (Korea), Mexico, and new shipper review of the antidumping Review Period—8/1/13–7/31/14,’’ dated November Venezuela, and Amendment to Final Determination duty order on certain frozen fish fillets 4, 2014. of Sales at Less Than Fair Value: Certain Circular 4 See Initiation of Antidumping and Welded Non-Alloy Steel Pipe from Korea, 57 FR from the Socialist Republic of Vietnam Countervailing Duty Administrative Reviews, 79 FR 49453 (November 2, 1992). (‘‘Vietnam’’) covering the period August 58729, 58731 (Sept. 30, 2014).

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period August 1, 2013, to July 31, 2014 COMMITTEE FOR PURCHASE FROM Requirement as aggregated by the in the Federal Register. PEOPLE WHO ARE BLIND OR General Services Administration, New SEVERELY DISABLED York, NY. Cash Deposit Services Procurement List; Proposed Additions The Department will notify U.S. Service Type/Locations: Custodial Service. and Deletion Customs and Border Protection (‘‘CBP’’) U.S. Navy, Naval Air Station Oceana and Naval Auxiliary Landing Field Fentress, that bonding is no longer permitted to AGENCY: Committee for Purchase From U.S. Navy, Dam Neck Annex, 1750 fulfill security requirements for subject People Who Are Blind or Severely Tomcat Boulevard, Virginia Beach, VA. merchandise produced and exported by Disabled. U.S. Navy, Naval Weapons Station, U.S. BASACO that is entered, or withdrawn ACTION: Proposed additions to and Navy, Cheatham Annex, 160 Main Road, from warehouse, for consumption in the deletion from the Procurement List. Yorktown, VA. United States on or after the publication U.S. Navy, Norfolk Naval Shipyard and St. of this rescission notice in the Federal SUMMARY: The Committee is proposing Juliens Creek Annex, Cassin Ave and Hitchcock Street, Portsmouth, VA. Register. The Department will notify to add products and services to the Procurement List that will be furnished NPA: Didlake, Inc., Manassas, VA. CBP that a cash deposit of 2.11 U.S. by nonprofit agencies employing Contracting Activity: Dept of the Navy, Naval Dollars per kilogram should be collected persons who are blind or have other FAC Engineering CMD MID LANT, for all shipments of subject merchandise Norfolk, VA. severe disabilities and delete a service Service Type/Location: Operations and by BASACO entered, or withdrawn from previously provided by such agency. warehouse, for consumption in the Maintenance. Comments Must Be Received on or Bureau of Engraving and Printing, Western United States on or after the publication Before: 1/5/2015. 5 Currency Facility, 9000 Blue Mound of this rescission notice. ADDRESSES: Committee for Purchase Road, Fort Worth, TX. Notifications to Interested Parties From People Who Are Blind or Severely NPA: PRIDE Industries, Roseville, CA. Disabled, 1401 S. Clark Street, Suite Contracting Activity: Dept of Treasury, This notice serves as a reminder to 10800, Arlington, Virginia 22202–4149. Bureau of Engraving and Printing, Washington, DC. importers of their responsibility under FOR FURTHER INFORMATION OR TO SUBMIT Service Type/Locations: Facility Support 19 CFR 351.402(f)(2) to file a certificate COMMENTS CONTACT: Barry S. Lineback, Service. regarding the reimbursement of Telephone: (703) 603–7740, Fax: (703) Department of Homeland Security, ICE, antidumping duties prior to liquidation 603–0655, or email CMTEFedReg@ Enforcement and Removal Operations of the relevant entries during this AbilityOne.gov. Buffalo Command Center, 205 Oak review period. Failure to comply with SUPPLEMENTARY INFORMATION: This Street, Batavia, NY. this requirement could result in the notice is published pursuant to 41 Buffalo Federal Detention Facility, 4250 Federal Drive, Batavia, NY. Secretary’s presumption that U.S.C. 8503(a)(2) and 41 CFR 51–2.3. Its reimbursement of antidumping duties NPA: New Dynamics Corporation, purpose is to provide interested persons Middletown, NY. occurred and the subsequent assessment an opportunity to submit comments on Contracting Activity: U.S. Immigration and of double antidumping duties. the proposed actions. Customs Enforcement, Detention Management—DC Office, Washington, This notice also serves as a reminder Additions to parties subject to administrative DC. If the Committee approves the protective order (‘‘APO’’) of their Deletion responsibility concerning the return or proposed additions, the entities of the Federal Government identified in this The following service is proposed for destruction of proprietary information notice will be required to procure the deletion from the Procurement List: disclosed under APO in accordance products and services listed below from with 19 CFR 351.305(a). Timely written Service nonprofit agencies employing persons notification of the return or destruction Service Type/Location: Mess Attendant who are blind or have other severe Service. of APO materials, or conversion to disabilities. judicial protective order, is hereby 121st Air Refueling Wing, 7370 Minuteman The following products and services Way, Redtail Dining Facility, Bldg. 917, requested. Failure to comply with the are proposed for addition to the Columbus, OH. regulations and terms of an APO is a Procurement List for production by the NPA: First Capital Enterprises, Inc., violation which is subject to sanction. nonprofit agencies listed: Chillicothe, OH. We are issuing and publishing this Contracting Activity: Dept of the Army, Products W7NU USPFO ACTIVITY OH ARNG, rescission and notice in accordance Columbus, OH. with sections 751(a)(2)(B) and 777(i) of Toner Cartridge, Remanufactured, Lexmark the Act and 19 CFR 351.214(f)(3). NSN: 7510–00–NSH–0212—Optra T630/ Barry S. Lineback, T632/T634 Series Compatible. Director, Business Operations. Dated: November 20, 2014. NSN: 7510–00–NSH–1010—Optra T644/ [FR Doc. 2014–28563 Filed 12–4–14; 8:45 am] Gary Taverman, X644/X646 Series Compatible. BILLING CODE 6353–01–P Associate Deputy Assistant Secretary for NSN: 7510–00–NSH–1060—E260/E360/ E460/E462 Series Compatible. Antidumping and Countervailing Duty NSN: 7510–00–NSH–1061—E360/E460/E462 Operations. Series Compatible. COMMITTEE FOR PURCHASE FROM [FR Doc. 2014–28583 Filed 12–4–14; 8:45 am] NSN: 7510–00–NSH–1063—Multiple T & X PEOPLE WHO ARE BLIND OR BILLING CODE 3510–DS–P Series, Compatible, 25,000 page. SEVERELY DISABLED NSN: 7510–00–NSH–1064—Multiple T & X Compatible, 36,000 page. Procurement List; Addition 5 See Certain Frozen Fish Fillets from the Socialist NPA: TRI Industries NFP, Chicago, IL. Republic of Vietnam: Amended Final Results of Contracting Activity: General Services AGENCY: Committee for Purchase From Antidumping Duty Administrative Review; 2011– Administration, New York, NY. People Who Are Blind or Severely 2012, 79 FR 37714, 37715 (July 2, 2014). Coverage: A-List for the Total Government Disabled.

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ACTION: Addition to the Procurement Requirement as aggregated by the Coconino and Kaibab National List. General Services Administration, Fort Forests, Review Period Ends: 01/20/ Worth, TX. 2015, Contact: Annette Fredette, 928– SUMMARY: This action adds a product to Barry S. Lineback, 226–4684. the Procurement List that will be Director, Business Operations. furnished by the nonprofit agency Amended Notices [FR Doc. 2014–28567 Filed 12–4–14; 8:45 am] employing persons who are blind or EIS No. 20140275, Final EIS, FHWA, have other severe disabilities. BILLING CODE 6353–01–P AZ, South Mountain Freeway (Loop DATES: Effective Date: 1/5/2015. 202), Review Period Ends: 12/26/ ADDRESSES: Committee for Purchase 2014, Contact: Alan Hansen, 602– ENVIRONMENTAL PROTECTION 382–8964. Revision to FR Notice From People Who Are Blind or Severely AGENCY Disabled, 1401 S. Clark Street, Suite Published 09/24/2014; Extending 10800, Arlington, Virginia 22202–4149. [ER–FRL–9018–3] Review Period from 11/25/2014 to 12/ 26/2014 FOR FURTHER INFORMATION CONTACT: Environmental Impact Statements; EIS No. 20140297, Draft EIS, USFS, OR, Barry S. Lineback, Telephone: (703) Notice of Availability Kahler Dry Forest Restoration Project, 603–7740, Fax: (703) 603–0655, or email Comment Period Ends: 12/29/2014, [email protected]. Responsible Agency: Office of Federal Contact: John Evans, 541–278–3869. Activities, General Information (202) SUPPLEMENTARY INFORMATION: Revision to FR Notice Published 09/ 564–7146 or http://www.epa.gov/ 24/2014; Extending Review Period Addition compliance/nepa/. from 11/25/2014 to 12/26/2014 On 10/31/2014 (79 FR 64754), the Weekly receipt of Environmental Impact EIS No. 20140298, Draft EIS, USACE, Committee for Purchase From People Statements WA, Puget Sound Nearshore Who Are Blind or Severely Disabled Filed 11/24/2014 Through 11/28/2014. Ecosystem Restoration, Comment Pursuant to 40 CFR 1506.9. published notice of proposed addition Period Ends: 01/08/2015, Contact: to the Procurement List. Notice: Section 309(a) of the Clean Air Nancy Gleason 206–764–6577. After consideration of the material Act requires that EPA make public its Revision to FR Notice Published 11/ presented to it concerning capability of comments on EISs issued by other 28/2014; Correcting the Extended qualified nonprofit agency to provide Federal agencies. EPA’s comment letters Comment Period to 01/08/2015. the product and impact of the addition on EISs are available at: http:// EIS No. 20140317, Final EIS, USACE, on the current or most recent www.epa.gov/compliance/nepa/ AL, Update of the Water Control contractors, the Committee has eisdata.html. Manual for the Alabama-Coosa- determined that the product listed EIS No. 20140339, Draft EIS, BLM, NV, Tallapoosa River Basin in Georgia and below is suitable for procurement by the Carson City District Draft Resource Alabama, Review Period Ends: 02/05/ Federal Government under 41 U.S.C. Management Plan, Comment Period 2015, Contact: Lewis Sumner 251– 8501–8506 and 41 CFR 51–2.4. Ends: 03/27/2015, Contact: Colleen 694–3857. Revision to FR Notice Regulatory Flexibility Act Certification Sievers 775–885–6168, Published 11/07/2014; Extending EIS No. 20140340, Final EIS, USFS, SC, Review Period from 12/08/2014 to 02/ I certify that the following action will Chester County Stream and Riparian/ 05/2015. not have a significant impact on a Restoration. Dated: December 2, 2014. substantial number of small entities. Enhancement Project, Review Period The major factors considered for this Ends: 01/05/2015, Contact: Jim Knibbs Cliff Rader, certification were: 803–561–4078. Director, NEPA Compliance Division, Office of Federal Activities. 1. The action will not result in any EIS No. 20140341, Final EIS, USFWS, additional reporting, recordkeeping or CA, Maricopa Sun Solar Complex [FR Doc. 2014–28576 Filed 12–4–14; 8:45 am] other compliance requirements for small Habitat Conservation Plan, Review BILLING CODE 6560–50–P entity other than the small organization Period Ends: 01/05/2015, Contact: that will furnish the product to the Mike Thomas 916–414–6600. Government. EIS No. 20140342, Final EIS, USFS, WY, EXPORT-IMPORT BANK 2. The action will result in Teckla-Osage-Rapid City 230 kV authorizing small entity to furnish the Transmission Line Project, Review Sunshine Act Meeting product to the Government. Period Ends: 01/05/2015, Contact: 3. There are no known regulatory ACTION: Notice of an Open Meeting of Edward Fischer 605–673–9207. the Board of Directors of the Export- alternatives which would accomplish EIS No. 20140343, Final EIS, NPS, OH, Import Bank of the United States. the objectives of the Javits-Wagner- Cuyahoga Valley National Park, O’Day Act (41 U.S.C. 8501–8506) in White-tailed Deer Management Plan, TIME AND PLACE: Thursday, December 11, connection with the product proposed Review Period Ends: 01/05/2015, for addition to the Procurement List. 2014 at 3:00 p.m. The meeting will be Contact: Craig Kenkel 330–657–2752. held at Ex-Im Bank in Room 1126, 811 End of Certification EIS No. 20140344, Final EIS, FHWA, Vermont Avenue NW., Washington, DC TX, US 181 Harbor Bridge, Review 20571. Accordingly, the following product is Period Ends: 01/05/2015, Contact: OPEN AGENDA ITEMS: Item No. 1 Ex-Im added to the Procurement List: Gregory S. Punske, 512–536–5960. Bank Advisory Committee for 2015 Product EIS No. 20140345, Final EIS, FEMA, CA, East Bay Hills, Final Hazardous Fire (New Members) NSN: 8520–01–432–2618—Hand Soap, Risk Reduction, Review Period Ends: PUBLIC PARTICIPATION: The meeting will Liquid, Biobased. be open to public observation for Item NPA: TRI Industries NFP, Chicago, IL. 01/07/2015, Contact: Alessandro Contracting Activity: General Services Amaglio 510–627–7222. No. 1 only. Administration, Fort Worth, TX. EIS No. 20140346, Final EIS, USDA, AZ, FURTHER INFORMATION: Members of the Coverage: A-List for the Total Government Four-Forest Restoration Initiative, public who wish to attend the meeting

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should call Joyce Stone, Office of the B. New Business collection of information unless it Secretary, 811 Vermont Avenue NW., • Organization, Mergers, Consolidations displays a currently valid OMB control Washington, DC 20571 (202) 565–3336 and Charter Amendments of Banks or number. No person shall be subject to by close of business Tuesday, December Associations—Proposed Rule any penalty for failing to comply with 9, 2014. a collection of information subject to the C. Reports PRA that does not display a valid OMB Lloyd Ellis, • control number. Program Specialist, Office of the General Quarterly Report on Economic Counsel. Conditions and Fcs Conditions DATES: Written PRA comments should • be submitted on or before February 3, [FR Doc. 2014–28662 Filed 12–3–14; 11:15 am] Semi-Annual Report on Office of Examination Operations 2015. If you anticipate that you will be BILLING CODE 6690–01–P submitting comments, but find it Closed Session* difficult to do so within the period of Reports time allowed by this notice, you should FARM CREDIT ADMINISTRATION • Office of Examination Supervisory advise the contact listed below as soon and Oversight Activities Report as possible. Sunshine Act Meeting ADDRESSES: Direct all PRA comments to * Session Closed-Exempt pursuant to 5 U.S.C. Cathy Williams, FCC, via email to PRA@ 552b(c)(8) and (9). AGENCY: Farm Credit Administration. fcc.gov and to [email protected]. Dated: December 2, 2014. FOR FURTHER INFORMATION CONTACT: For SUMMARY: Notice is hereby given, Dale L. Aultman, additional information about the pursuant to the Government in the Secretary, Farm Credit Administration Board. information collection, contact Cathy Sunshine Act, of the regular meeting of [FR Doc. 2014–28651 Filed 12–3–14; 11:15 am] Williams at (202) 418–2918. the Farm Credit Administration Board BILLING CODE 6705–01–P (Board). SUPPLEMENTARY INFORMATION: OMB Control Number: 3060–0508. DATES: Date and Time: The regular Title: Parts 1 and 22 Reporting and meeting of the Board will be held at the FEDERAL COMMUNICATIONS Recordkeeping Requirements. offices of the Farm Credit COMMISSION Form Number: Not applicable. Type of Review: Revision of a Administration in McLean, Virginia, on [OMB 3060–0508; OMB 3060–0800; and December 11, 2014, from 9:00 a.m. until OMB 3060–1058] currently approved collection. such time as the Board concludes its Respondents: Business or other for- business. Information Collections Being profit entities, Individuals or Reviewed by the Federal households, and State, Local or Tribal FOR FURTHER INFORMATION CONTACT: Dale Communications Commission Governments. L. Aultman, Secretary to the Farm Number of Respondents and Credit Administration Board, (703) 883– AGENCY: Federal Communications Responses: 15,713 respondents; 15,713 4009, TTY (703) 883–4056. Commission. responses. ACTION: Notice and request for Estimated Time per Response: 15 ADDRESSES: Farm Credit comments. minutes–10 hours. Administration, 1501 Farm Credit Drive, Frequency of Response: McLean, Virginia 22102–5090. Submit SUMMARY: As part of its continuing effort Recordkeeping requirement; On attendance requests via email to to reduce paperwork burdens, and as occasion, quarterly, and semi-annual [email protected]. See required by the Paperwork Reduction reporting requirements. SUPPLEMENTARY INFORMATION for further Act (PRA) of 1995 (44 U.S.C. 3501– Obligation to Respond: Required to information about attendance requests. 3520), the Federal Communications obtain or retain benefits. The statutory SUPPLEMENTARY INFORMATION: Parts of Commission (FCC or Commission) authority for this collection is contained this meeting of the Board will be open invites the general public and other in 47 U.S.C. 154, 222, 303, 309 and 332. to the public (limited space available), Federal agencies to take this Total Annual Burden: 4,894 hours. and parts will be closed to the public. opportunity to comment on the Annual Cost Burden: $19,445,250. Please send an email to VisitorRequest@ following information collections. Privacy Act Impact Assessment: Yes. FCA.gov at least 24 hours before the Comments are requested concerning: Nature and Extent of Confidentiality: meeting. In your email include: Name, Whether the proposed collection of There is no need for confidentiality with postal address, entity you are information is necessary for the proper this collection of information. The representing (if applicable), and performance of the functions of the information to be collected will be made telephone number. You will receive an Commission, including whether the available for public inspection. email confirmation from us. Please be information shall have practical utility; Applicants may request materials or prepared to show a photo identification the accuracy of the Commission’s information submitted to the when you arrive. If you need assistance burden estimate; ways to enhance the Commission be given confidential for accessibility reasons, or if you have quality, utility, and clarity of the treatment under 47 CFR 0.459 of the any questions, contact Dale L. Aultman, information collected; ways to minimize Commission’s rules. Secretary to the Farm Credit the burden of the collection of Needs and Uses: Part 22 contains the Administration Board, at (703) 883– information on the respondents, technical and legal requirements for 4009. The matters to be considered at including the use of automated radio stations operating in the Public the meeting are: collection techniques or other forms of Mobile Services. The information information technology; and ways to collected is used to determine on a case- Open Session further reduce the information by-case basis, whether or not to grant A. Approval of Minutes collection burden on small business licenses authorizing construction and concerns with fewer than 25 employees. operation of wireless • November 13, 2014 The FCC may not conduct or sponsor a telecommunications facilities to

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common carriers. Further, this consummated assignments and transfers Frequency of Response: information is used to develop statistics of wireless and/or public safety licenses Recordkeeping requirement and on about the demand for various wireless that have previously been consented to occasion reporting requirement. licenses and/or the licensing process by the Commission or for which Obligation to Respond: Required to itself, and occasionally for rule notification but not prior consent is obtain or retain benefits. The statutory enforcement purposes. required. This form is used by authority for this collection of This revised information collection applicants/licensees in the Public information is contained in 47 U.S.C. reflects changes in rules applicable to Mobile Services, Personal 151, 154(i), 154(j), 155, 158, 161, 301, Part 22 800 MHz Cellular Communications Services, General 303(r), 308, 309, 310, 332 and 503. Radiotelephone (‘‘Cellular’’) Service Wireless Communications Services, Total Annual Burden: 996 hours. licensees and applicants, as adopted by Private Land Mobile Radio Services, Annual Cost Burden: $1,282,075. the Commission in a Report and Order Broadcast Auxiliary Services, Nature and Extent of Confidentiality: (‘‘R&O’’) on November 7, 2014 (WT Broadband Radio Services, Educational In general there is no need for Docket No. 12–40; RM No. 11510; FCC Radio Services, Fixed Microwave confidentiality. On a case by case basis, 14–181). By the R&O, the Commission Services, Maritime Services (excluding the Commission may be required to eliminates or streamlines certain ships), and Aviation Services (excluding withhold from disclosure certain Cellular Service filing requirements, aircraft). information about the location, thereby reducing the information The purpose of this form is to obtain character, or ownership of a historic collection burdens for Cellular Service information sufficient to identify the property, including traditional religious respondents. parties to the proposed assignment or sites. OMB Control No.: 3060–0800. transfer, establish the parties’ basic Privacy Act Impact Assessment: Not Title: FCC Application for eligibility and qualifications, classify applicable. Assignments of Authorization and the filing, and determine the nature of Needs and Uses: FCC Form 608 is a Transfers of Control: Wireless the proposed service. Various technical multipurpose form. It is used to provide Telecommunications Bureau and/or schedules are required along with the notification or request approval for any Public Safety and Homeland Security main form applicable to Auctioned spectrum leasing arrangement (‘‘Lease’’) Bureau. Services, Partitioning and entered into between an existing Form No.: FCC Form 603. Disaggregation, Undefined Geographical licensee in certain wireless services and Type of Review: Revision of a Area Partitioning, Notification of a spectrum lessee. This form also is currently approved collection. Consummation or Request for Extension required to notify or request approval Respondents: Individuals or of Time for Consummation. for any spectrum subleasing households; business or other for-profit This revised information collection arrangement (‘‘Sublease’’). The data entities; not-for-profit institutions; State, reflects changes in rules applicable to collected on the form is used by the FCC local or Tribal Government. Part 22 800 MHz Cellular to determine whether the public interest Number of Respondents and Radiotelephone (‘‘Cellular’’) Service would be served by the Lease or Responses: 2,447 respondents; 2,447 licensees and applicants, as adopted by Sublease. The form is also used to responses. the Commission in a Report and Order provide notification for any Private Estimated Time per Response: 0.5– (‘‘R&O’’) on November 7, 2014 (WT Commons Arrangement entered into 1.75 hours. Docket No. 12–40; RM No. 11510; FCC between a licensee, lessee, or sublessee Frequency of Response: and a class of third-party users (as Recordkeeping requirement; occasion 14–181). In addition to other rule revisions that do not affect this defined in Section 1.9080 of the reporting requirement. Commission’s Rules). Obligation to Respond: Required to information collection, the Commission adopted a revised rule Section 22.948(a) This revised information collection obtain or retain benefits. The statutory reflects changes in rules applicable to authority for this collection of to require the electronic submission of maps (in GIS format and PDF) when the Part 22 800 MHz Cellular information is contained in 47 U.S.C. Radiotelephone (‘‘Cellular’’) Service 4(i), 154(i), 303(r) and 309(j). Cellular applicant submits Form 603 to apply for Partitioning and licensees and applicants, as adopted by Total Annual Burden: 2,759 hours. the Commission in a Report and Order Total Annual Cost: $366,975. Disaggregation. This requirement very slightly increases the total annual (‘‘R&O’’) on November 7, 2014 (WT Nature and Extent of Confidentiality: Docket No. 12–40; RM No. 11510; FCC In general there is no need for burden hours for this information collection. FCC Form 603 itself is not 14–181). In addition to other rule confidentiality. On a case by case basis, revisions that do not affect this the Commission may be required to being revised. OMB Control No.: 3060–1058. information collection, the Commission withhold from disclosure certain adopted a revised rule Section 22.948(d) Title: FCC Application or Notification information about the location, to require the electronic submission of for Spectrum Leasing Arrangement: character, or ownership of a historic maps (in GIS format and PDF) when the Wireless Telecommunications Bureau property, including traditional religious Cellular Service applicant submits Form and/or Public Safety and Homeland sites. 608. Security Bureau. Privacy Act Impact Assessment: Yes. The requirement very slightly Form No.: FCC Form 608. Needs and Uses: FCC Form 603 is a increases the total annual burden hours Type of Review: Revision of a multi-purpose form used to apply for for this information collection. FCC currently approved collection. approval of assignment or transfer of Form 608 itself is not being revised. control of licenses in the wireless Respondents: Business or other for- services. The data collected on this form profit entities; not-for-profit institutions; Federal Communications Commission. is used by the FCC to determine State, Local or Tribal Government. Marlene H. Dortch, whether the public interest would be Number of Respondents and Secretary, Office of the Secretary, Office of served by approval of the requested Responses: 991 respondents; 991 Managing Director. assignment or transfer. This form is also responses. [FR Doc. 2014–28581 Filed 12–4–14; 8:45 am] used to notify the Commission of Estimated Time per Response: 1 hour. BILLING CODE 6712–01–P

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FEDERAL COMMUNICATIONS Kingston Ansah, hereinafter Complainant alleges that Respondents COMMISSION ‘‘Respondents.’’ Complainant states that have violated the Shipping Act, 46 it is a Nigerian Limited Liability U.S.C. 41102, 41104, 40501, and 46 CFR Radio Broadcasting Services; AM or Company. Complainant alleges that part 515, in connection with shipment FM Proposals To Change The Respondent OCL is a license ocean of over 4000 used automobiles over a Community of License freight forwarder and non-vessel- five year period and charging rates ‘‘in operating common carrier and excess of the amounts set forth in EUL’s AGENCY: Federal Communications Respondent Kingston Ansah is a tariff.’’ Complainant alleges it ‘‘has Commission. ‘‘member of OCL’’ and ‘‘has utilized sustained and continued to sustain ACTION: Notice. OCL as his alter egos [sic].’’ injuries and damages in excess of Complainant alleges that Respondents $400,000.’’ SUMMARY: The following applicants filed have violated the Shipping Act, 46 AM or FM proposals to change the Complainant seeks that Respondents U.S.C. 41102(c), in connection with the community of license: Marie H. ‘‘be required to answer the charges failed shipment of three vehicles from Whitehead, Executrix, Station KWRW, herein; that after due hearing, an order the United States to Nigeria. Facility ID 17835, BPH–20140925ABH, be made commanding said respondent Complainant alleges that Respondent From Rusk, TX, To Troup, TX; Top O to pay to Complainant by way of shipped the vehicles to the wrong Texas Educational Broadcasting reparations for the unlawful conduct destination resulting in the loss of the Foundation, Station KASV, Facility ID . . . with interest and attorney’s fees or vehicles. such other sum as the Commission may 175031, BPED–20141104AEB, From Red Complainant seeks an Order holding River, NM, To Sanford, CO. determine to be proper as an award of that Respondents violated § 41102(c); an reparation; and that such other and DATES: The agency must receive Order compelling Respondents ‘‘to further order or orders be made as the comments on or before February 3, make reparations to Complainant NCNL 2015. Commission determines to be proper in in the amount of $180,628.66 for the premises.’’ shipping its goods intentionally or ADDRESSES: Federal Communications The full text of the complaint can be unintentionally to a wrong destination Commission, 445 Twelfth Street SW., found in the Commission’s Electronic and abandoning it there’’; ‘‘attorney’s Washington, DC 20554. Reading Room at www.fmc.gov/14-16. fees, interests and costs and expenses FOR FURTHER INFORMATION CONTACT: This proceeding has been assigned to Tung Bui, 202–418–2700. incurred in this matter’’; and ‘‘such other and further relief as the the Office of Administrative Law Judges. SUPPLEMENTARY INFORMATION: The full Commission deems just and proper.’’ The initial decision of the presiding text of these applications is available for The full text of the complaint can be officer in this proceeding shall be issued inspection and copying during normal found in the Commission’s Electronic by December 1, 2015 and the final business hours in the Commission’s Reading Room at www.fmc.gov/14-15. decision of the Commission shall be Reference Center, 445 12th Street SW., This proceeding has been assigned to issued by June 1, 2016. Washington, DC 20554 or electronically the Office of Administrative Law Judges. Karen V. Gregory, via the Media Bureau’s Consolidated The initial decision of the presiding Secretary. Data Base System, http:// officer in this proceeding shall be issued svartifoss2.fcc.gov/prod/cdbs/pubacc/ [FR Doc. 2014–28539 Filed 12–4–14; 8:45 am] _ by December 1, 2015 and the final prod/cdbs pa.htm. decision of the Commission shall be BILLING CODE 6730–01–P A copy of this application may also be issued by June 1, 2016. purchased from the Commission’s duplicating contractor, Best Copy and Karen V. Gregory, FEDERAL MARITIME COMMISSION Printing, Inc., 445 12th Street SW., Secretary. Sunshine Act Meeting Room CY–B402, Washington, DC 20554, [FR Doc. 2014–28538 Filed 12–4–14; 8:45 am] telephone 1–800–378–3160 or BILLING CODE 6730–01–P www.BCPIWEB.com. AGENCY: Federal Maritime Commission. Federal Communications Commission. TIME AND DATE: December 10, 2014; FEDERAL MARITIME COMMISSION James D. Bradshaw, 11:00 a.m. Deputy Chief, Audio Division, Media Bureau. [Docket No. 14–16] PLACE: 800 N Capitol Street NW., First [FR Doc. 2014–28509 Filed 12–4–14; 8:45 am] Floor Hearing Room, Washington, DC. Baltic Auto Shipping, Inc. v. Michael BILLING CODE 6712–01–P Hitrinov a/k/a Michael Khitrinov, STATUS: The first portion of the meeting Empire United Lines Co., Inc.; Notice will be held in Open Session; the of Filing of Complaint and Assignment second in Closed Session. FEDERAL MARITIME COMMISSION MATTERS TO BE CONSIDERED: Notice is given that a complaint has [Docket No. 14–15] been filed with the Federal Maritime Open Session Commission (Commission) by Baltic Ngobros and Company Nigeria Limited 1. Briefing on European Maritime Law v. Oceane Cargo Link, LLC, and Auto Shipping, Inc., hereinafter ‘‘Complainant,’’ against Michael Organization’s (EMLO) Conference. Kingston Ansah, Individually; Notice of 2. Briefing on South Atlantic Port Filing of Complaint and Assignment Hitrinov (‘‘Hitrinov’’) and Empire United Lines Co., Inc. (‘‘EUL’’), Forum held October 30th Concerning Notice is given that a complaint has hereinafter ‘‘Respondents.’’ Causes and Implications of Congestion been filed with the Federal Maritime Complainant states that it is an Illinois at U.S. Ports. Commission (Commission) by Ngobros corporation. Complainant alleges that 3. Briefing on Gulf Coast Port Forum and Company Nigeria Limited (NCNL), Respondent EUL is a licensed NVOCC, held November 3rd Concerning Causes hereinafter ‘‘Complainant,’’ against and Respondent Hitrinov is ‘‘the sole and Implications of Congestion at U.S. Ocean Cargo Link, LLC (OCL) and principal and officer of EUL.’’ Ports.

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Closed Session FOR FURTHER INFORMATION CONTACT: expands the existing reporting 1. Staff Briefing Concerning Requests for additional information requirements (which require the International Affairs. should be addressed to Shira Modell, companies to provide yield data only for Division of Advertising Practices, those varieties for which such data CONTACT PERSON FOR MORE INFORMATION: Bureau of Consumer Protection, Federal Karen V. Gregory, Secretary, (202) 523 already exist), it should require all Trade Commission, 600 Pennsylvania 5725. cigarette manufacturers, not just the Avenue NW., Mailstop CC–10528, major companies, to submit those data. Karen V. Gregory, Washington, DC 20580. Telephone: Altria, at 3. Secretary. (202) 326–3116. CTFK acknowledged that tar, [FR Doc. 2014–28726 Filed 12–3–14; 4:15 pm] SUPPLEMENTARY INFORMATION: nicotine, and carbon monoxide yield BILLING CODE 6730–01–P Title: FTC Cigarette and Smokeless data may be important for researchers Tobacco Data Collection. and regulatory agencies, but noted that OMB Control Number: 3084–0134. ‘‘the tobacco industry’s history of FEDERAL TRADE COMMISSION Type of Review: Extension of manipulating this self-reported data currently approved collection. raises concerns about its accuracy and Agency Information Collection On August 13, 2014, the Commission validity,’’ and urged the Commission to Activities; Submission for OMB sought comment on the information coordinate with FDA ‘‘to establish a Review; Comment Request collection requirements associated with coherent set of product testing the Cigarette and Smokeless Tobacco requirements that will best serve the AGENCY: Federal Trade Commission Data Collection. 79 FR 47463 (‘‘August statutory missions of both agencies.’’ (‘‘FTC’’ or ‘‘Commission’’). 13, 2014 Notice’’). Pursuant to the OMB CTFK, at 3. ACTION: Notice. regulations, 5 CFR part 1320, that Legacy encouraged the Commission to implement the PRA, 44 U.S.C. 3501 et SUMMARY: The information collection cease its collection and reporting of seq., the FTC is providing a second these cigarette yield data, citing their requirements described below will be opportunity for the public to comment potential to mislead consumers about submitted to the Office of Management while seeking OMB approval to renew health risks, the limitations of existing and Budget (‘‘OMB’’) for review, as the pre-existing clearance for the testing methodologies to produce yield required by the Paperwork Reduction information the FTC proposes to seek results consistent with those actually Act (‘‘PRA’’). The FTC seeks public from cigarette manufacturers and experienced by smokers, and the comments on proposed information smokeless tobacco manufacturers. requests by compulsory process to a In response to the August 13, 2014 ‘‘potential unintended consequences combined ten or more of the largest Notice, the Commission received among people of low literacy and low cigarette manufacturers and smokeless comments from Altria Client Services numeracy’’ to understand information tobacco manufacturers. The information (‘‘Altria’’), the Campaign for Tobacco- on smoke constituent yields. Legacy, at sought would include, among other Free Kids (‘‘CTFK’’), Legacy, and 2–3. Instead, Legacy noted, the things, data on manufacturer annual Professor M. Jane Lewis (‘‘Lewis’’) of the Commission and the FDA should work sales and marketing expenditures. The Rutgers School of Public Health. together to determine the best current FTC clearance from the OMB to Three of the comments (Legacy, methodology for determining the yields conduct such information collection Lewis, and CTFK) specifically noted the of harmful or potentially harmful smoke expires January 31, 2015. The utility and importance of the constituents, and the best means of Commission intends to ask OMB for Commission’s Cigarette and Smokeless disseminating that information in a way renewed three-year clearance to collect Tobacco Reports, and urged the agency that protects public health. this information. to continue collection and reporting The FTC and FDA staff have long DATES: Comments must be submitted by industry sales and marketing worked together on the many areas January 5, 2015. expenditure data.1 Legacy and CTFK where the two agencies share ADDRESSES: Interested parties may file a also noted that these data are not jurisdiction, and the Commission fully comment online or on paper, by available from other sources. expects this tradition to continue now following the instructions in the Three of the commenters (Altria, that the agencies share jurisdiction over Request for Comment part of the CTFK, and Legacy) responded to cigarettes and smokeless tobacco. The SUPPLEMENTARY INFORMATION section questions raised in the Commission’s Commission further agrees that FDA below. Write ‘‘Tobacco Reports: 60-day notice concerning the future should be the primary agency to Paperwork Comment, FTC File No. collection of data on cigarette tar, determine the best test methodology. P054507’’ on your comment. File your nicotine, and carbon monoxide yields. The Commission is not aware, however, comment online at https:// Altria stated that the Commission of another means of preserving the ftcpublic.commentworks.com/ftc/ should not require the manufacturers to existing record of cigarette yield trends tobaccoreportspra2 by following the provide yield data on all varieties of unless it continues to collect these data. instructions on the web-based form. If cigarettes they sell and should cease Freedom of Information Act requests you prefer to file your comment on requiring the cigarette manufacturers to filed with the Commission also suggest paper, mail your comment to the report any smoke constituent data, given that researchers remain interested in following address: Federal Trade the Food and Drug Administration’s these data. Accordingly, the Commission, Office of the Secretary, (‘‘FDA’’) new statutory authority to Commission intends to continue 600 Pennsylvania Avenue NW., Suite collect such data. Altria stated further collecting the data to the extent CC–5610 (Annex J), Washington, DC that if the Commission retains or recipients of the 6(b) Orders possess 20580, or deliver your comment to the them.2 following address: Federal Trade 1 CTFK and Legacy also urged the Commission to Commission, Office of the Secretary, collect and report sales and marketing data for 2 The Commission will consider Altria’s cigars and electronic cigarettes, as well as for recommendation that all cigarette manufacturers be Constitution Center, 400 7th Street SW., conventional tobacco cigarettes and smokeless required to provide yield data if the major 5th Floor, Suite 5610 (Annex J), tobacco. CTFK, at 2–3; Legacy, at 5–6. The manufacturers are required to do so, although it Washington, DC 20024. Commission will consider those recommendations. believes that the five major cigarette manufacturers

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Two commenters (CTFK and Lewis) that this was not possible. The The Commission will clarify in future suggested modifications to the Commission again asks for comment on Orders that spending on brand-specific Commission’s reports. CTFK this question. Web sites should be counted as recommended that the Commission: (1) The Commission already requires the spending on the company’s Web sites. Report price discount expenditures for recipients of its 6(b) Orders to report However, the Commission does not retailers and wholesalers separately; (2) certain expenditures made in the name believe that its Orders should clarify the definitions of certain of the company, rather than any of its distinguish between, for example, expenditure categories—specifically, in brands,4 although it does not include expenditures on coupons delivered which category coupons obtained online them in its Cigarette and Smokeless through direct mail and coupons are to be counted; (3) report data on a Tobacco Reports. The Commission will delivered by other means. The full company-specific or brand-specific consider whether those expenditures impact of couponing by the major basis, rather than on a fully aggregated should be reported in the future. cigarette and smokeless tobacco basis, and on a state-level basis, as well Similarly, the companies do report to manufacturers can be seen only if as nationally; and (4) require the Commission the amount they spend expenditures for all coupons are manufacturers to report expenditures on advertising directed to youth or their reported together, regardless of how related to corporate sponsorships and parents that are intended to reduce those coupons are delivered to advertisements, and expenditures youth smoking or smokeless tobacco use consumers. related to promotion of their youth (depending on the Order). The The Commission believes that its tobacco prevention programs. CTFK, at Commission includes this information Orders have been clear that spending on 2. in the textual portions of its industry electronic mail messages should be The Commission agrees that Reports (unless only one company reported as advertising expenditures on separating the existing category for price reported such spending), not in the the Internet other than on the discounts (which have accounted for annual expenditure-by-category tables. company’s Web site, and that the absence of reported expenditures does more than 70% of cigarette industry Lewis noted that the Commission’s not mean that those costs are being expenditures and more than 20% of reports do not define the term categorized incorrectly.7 However, smokeless tobacco industry ‘‘expenditure,’’ and she recommended Lewis’s comment raises a question expenditures in recent years) into two that the reports clearly state what costs about whether spending on electronic separate categories would be useful, and (e.g., contracted outside services, in- consistent with past decisions to mail messages should continue to be house costs, and personnel) are covered. reported in the ‘‘other Internet’’ category disaggregate certain expenditure Lewis, at 2. The Commission agrees that categories when they represent a or should be reported as direct mail this would be a useful addition to its expenditures. The Commission requests significant proportion of overall Reports. spending.3 Regarding CTFK’s suggestion comment on that question. Lewis stated that the Commission’s Finally, the Commission requests that data be reported on other than a reports underestimate direct mail fully aggregated, nationwide basis, the comment on two additional subjects: (1) spending because the costs of items Its intention to have the cigarette and cigarette and smokeless tobacco distributed by direct mail (e.g., coupons companies assert that those data are smokeless tobacco companies that and specialty items) are reported in receive these Orders submit two confidential and, as CTFK other categories, and recommended that acknowledges, the Commission cannot separate datafiles (one containing sales- the Commission require the companies related data, the other containing data publicly release trade secrets or certain to include the costs of those items in commercial or financial information. Id. on marketing expenditures), rather than their calculations of their direct mail one; and (2) whether it should cease at 2 n.2. CTFK’s contention that much expenditures.5 Lewis also recommended collecting expenditure data on transit of the information that the companies that the Commission clarify whether advertising. claim to be confidential is actually spending for brand-specific Web sites The Commission’s Orders require that available from other sources seems should be reported as advertising on the sales data be reported in actual dollars, inconsistent with its assertion that: company’s Web site, or as spending on while advertising and promotional The FTC is currently the primary source for the Internet other than on the expenditures are reported in thousands data on cigarette and smokeless tobacco company’s own Web site, and specify of dollars; sales data are also reported companies’ marketing and promotional whether expenditures for electronic for each individual variety of cigarette expenditures. No other agency collects and publishes such information directly from the mail messages should be reported as and smokeless tobacco sold by the companies, making the FTC reports the most direct mail or as advertising on the company, while expenditure data are accurate and reliable assessment of tobacco Internet other than on the company’s reported at the brand level. The marketing and promotion expenditures own Internet Web site.6 Lewis, at 2–3. Commission believes that requiring the available. recipients of these Orders to submit Id. at 1. Similarly, when the 4 Both the cigarette and smokeless tobacco Orders separate datafiles for sales and require submission of data on ‘‘Public marketing expenditure data will both Commission has previously inquired entertainment events (including, but not limited to, about the feasibility of requiring concerts and sporting events) bearing or otherwise help avoid errors in the preparation of expenditures to be reported on a state- displaying the name of the Company or any the companies’ submissions and by-state basis, rather than nationally, the variation thereof but not bearing or otherwise expedite the agency staff’s processing of displaying the name, logo, or an image of any those data, without imposing additional major cigarette companies have stated portion of the package’’ of any of its cigarettes or smokeless tobacco products, or otherwise referring costs on the Order recipients. that have received its Orders in recent years already to those products. represent at least 95% of domestic cigarette sales. 5 As noted above, CTFK also asked about the questioned whether the companies might actually 3 For example, the Commission reported spending reporting of coupons obtained online. be reporting those costs as direct mail. on a single ‘‘promotional allowances’’ category 6 Lewis correctly noted that the category for 7 For example, companies do not report the costs through 2001, at which time separate categories spending other than on the company’s Web site of employing full-time employees. If those were created for price discounts and promotional specifically references ‘‘direct mail advertising employees are producing the electronic mail allowances paid to retailers, wholesalers, and using electronic mail messages.’’ Based on her messages, their salaries would not show up in the others. review of recent Commission reports, however, she companies’ submissions to the Commission.

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The Commission has collected and comment, we must receive it on or may file a comment through that Web reported data on transit advertising before January 5, 2015. Write ‘‘Tobacco site. (currently defined as ‘‘advertising on or Reports: Paperwork Comment, FTC File If you file your comment on paper, within private or public vehicles and all No. P054507’’ on your comment. Your write ‘‘Tobacco Reports: Paperwork advertisements placed at, on or within comment—including your name and Comment, FTC File No. P054507’’ on any bus stop, taxi stand, transportation your state—will be placed on the public your comment and on the envelope, and waiting area, train station, airport or any record of this proceeding, including, to mail it to the following address: Federal other transportation facility’’) for the extent practicable, on the public Trade Commission, Office of the decades. However, the 1998 Tobacco Commission Web site, at http:// Secretary, 600 Pennsylvania Avenue Master Settlement Agreement www.ftc.gov/os/publiccomments.shtm. NW., Suite CC–5610 (Annex J), prohibited transit advertising, and the As a matter of discretion, the Washington, DC 20580, or deliver your major cigarette manufacturers have Commission tries to remove individuals’ comment to the following address: reported no such spending since 2000, home contact information from Federal Trade Commission, Office of the while the major smokeless tobacco comments before placing them on the Secretary, Constitution Center, 400 7th companies have never reported any Commission Web site. Street SW., 5th Floor, Suite 5610 transit spending.8 Because your comment will be made (Annex J), Washington, DC 20024. If Burden Statement: 9 public, you are solely responsible for possible, submit your paper comment to Estimated Annual Burden: 2,100 making sure that your comment does the Commission by courier or overnight hours.10 not include any sensitive personal service. Estimated Number of Respondents: 15 information, like anyone’s Social The FTC Act and other laws that the maximum. Security number, date of birth, driver’s Commission administers permit the The estimated number of respondents license number or other state collection of public comments to include any time spent by separately identification number or foreign country consider and use in this proceeding as incorporated subsidiaries and other equivalent, passport number, financial appropriate. The Commission will entities affiliated with the ultimate account number, or credit or debit card consider all timely and responsive parent company that has received the number. You are also solely responsible public comments that it receives on or information request. for making sure that your comment does before January 5, 2015. For information Estimated Average Burden per Year on the Commission’s privacy policy, not include any sensitive health per Respondent: 140 hours. including routine uses permitted by the information, like medical records or (a) Information requests to the five Privacy Act, see http://www.ftc.gov/ftc/ other individually identifiable health largest cigarette companies and five privacy.htm. For supporting information. In addition, do not include largest smokeless tobacco companies, at documentation and other information any ‘‘[t]rade secret or any commercial or a per company average each year of 180 underlying the PRA discussion in this financial information which is obtained hours = 1,800 hours, cumulatively, per Notice, see http://www.reginfo.gov/ from any person and which is privileged year; and public/jsp/PRA/praDashboard.jsp. (b) Information requests to five or confidential . . ., ’’ as provided in Comments on the information additional respondents, of smaller size, Section 6(f) of the FTC Act, 15 U.S.C. collection requirements subject to at a per company average each year of 46(f), and FTC Rule 4.10(a)(2), 16 CFR review under the PRA should 60 hours = 300 hours, cumulatively, per 4.10(a)(2). If you want the Commission additionally be submitted to OMB. If year. to give your comment confidential sent by U.S. mail, they should be Estimated Annual Labor Cost: treatment, you must file it in paper addressed to Office of Information and $210,000. form, with a request for confidential Regulatory Affairs, Office of Estimated Capital or Other Non-Labor treatment, and you have to follow the Management and Budget, Attention: Cost: de minimis. procedure explained in FTC Rule 4.9(c), Desk Officer for the Federal Trade 11 Request for Comment: 16 CFR 4.9(c). Your comment will be Commission, New Executive Office You can file a comment online or on kept confidential only if the FTC Building, Docket Library, Room 10102, paper. For the FTC to consider your General Counsel grants your request in 725 17th Street NW., Washington, DC accordance with the law and the public 20503. Comments sent to OMB by U.S. 8 See Federal Trade Commission Cigarette Report interest. postal mail, however, are subject to for 2011 (2013), at Tables 2B—2E, available at Postal mail addressed to the http://www.ftc.gov/sites/default/files/documents/ delays due to heightened security reports/federal-trade-commission-cigarette-report- Commission is subject to delay due to precautions. Thus, comments instead 2011/130521cigarettereport.pdf; Federal Trade heightened security screening. As a should be sent by facsimile to (202) Commission Smokeless Tobacco Report for 2011 result, we encourage you to submit your 395–5806. (2013), at Tables 3B—3H, available at http:// comments online, or to send them to the www.ftc.gov/reports/federal-trade-commission- David C. Shonka, smokeless-tobacco-report-2011. Commission by courier or overnight Principal Deputy General Counsel. 9 The details and assumptions underlying these service. To make sure that the estimates were set forth in the August 13, 2014 Commission considers your online [FR Doc. 2014–28597 Filed 12–4–14; 8:45 am] Federal Register notice. comment, you must file it at https:// BILLING CODE 6750–01–P 10 The Commission intends to use this PRA ftcpublic.commentworks.com/ftc/ clearance renewal to collect information from the tobaccoreportspra2 by following the companies concerning their marketing and sales FEDERAL TRADE COMMISSION activities for the years 2014, 2015, and 2016. The instructions on the web-based form. If Commission expects to issue compulsory process this Notice appears at http:// [File No. 141 0141] orders seeking this information annually, but it is www.regulations.gov/#!home, you also possible that orders might not be issued in any given year and that orders seeking information for GlaxoSmithKline, PLC and Novartis two years would be issued the next year. The 11 In particular, the written request for AG; Analysis of Proposed Consent figures set forth in this notice for the estimated confidential treatment that accompanies the Orders To Aid Public Comment hours and labor costs associated with this comment must include the factual and legal basis information collection represent average annual for the request, and must identify the specific AGENCY: Federal Trade Commission. burden over the course of the prospective PRA portions of the comment to be withheld from the ACTION: Proposed Consent Agreement. clearance. public record. See FTC Rule 4.9(c), 16 CFR 4.9(c).

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SUMMARY: The consent agreement in this ‘‘GlaxoSmithKline, PLC and Novartis www.regulations.gov/#!home, you also matter settles alleged violations of AG—Consent Agreement; File No. 141– may file a comment through that Web federal law prohibiting unfair methods 01414’’ on your comment. Your site. of competition. The attached Analysis to comment—including your name and If you file your comment on paper, Aid Public Comment describes both the your state—will be placed on the public write ‘‘GlaxoSmithKline, PLC and allegations in the draft complaint and record of this proceeding, including, to Novartis AG—Consent Agreement; File the terms of the consent orders— the extent practicable, on the public No. 141–01414’’ on your comment and embodied in the consent agreement— Commission Web site, at http:// on the envelope, and mail your that would settle these allegations. www.ftc.gov/os/publiccomments.shtm. comment to the following address: DATES: Comments must be received on As a matter of discretion, the Federal Trade Commission, Office of the or before December 29, 2014. Commission tries to remove individuals’ Secretary, 600 Pennsylvania Avenue ADDRESSES: Interested parties may file a home contact information from NW., Suite CC–5610 (Annex D), comment at https:// comments before placing them on the Washington, DC 20580, or deliver your ftcpublic.commentworks.com/ftc/ Commission Web site. comment to the following address: gsknovartisconsent online or on paper, Because your comment will be made Federal Trade Commission, Office of the by following the instructions in the public, you are solely responsible for Secretary, Constitution Center, 400 7th Request for Comment part of the making sure that your comment does Street SW., 5th Floor, Suite 5610 SUPPLEMENTARY INFORMATION section not include any sensitive personal (Annex D), Washington, DC 20024. If below. Write ‘‘GlaxoSmithKline, PLC information, like anyone’s Social possible, submit your paper comment to and Novartis AG—Consent Agreement; Security number, date of birth, driver’s the Commission by courier or overnight File No. 141–01414’’ on your comment license number or other state service. and file your comment online at identification number or foreign country Visit the Commission Web site at https://ftcpublic.commentworks.com/ equivalent, passport number, financial http://www.ftc.gov to read this Notice ftc/gsknovartisconsent by following the account number, or credit or debit card and the news release describing it. The instructions on the Web-based form. If number. You are also solely responsible FTC Act and other laws that the you prefer to file your comment on for making sure that your comment does Commission administers permit the paper, write ‘‘GlaxoSmithKline, PLC not include any sensitive health collection of public comments to and Novartis AG—Consent Agreement; information, like medical records or consider and use in this proceeding as File No. 141–01414’’ on your comment other individually identifiable health appropriate. The Commission will and on the envelope, and mail your information. In addition, do not include consider all timely and responsive comment to the following address: any ‘‘[t]rade secret or any commercial or public comments that it receives on or Federal Trade Commission, Office of the financial information which . . . is before December 29, 2014. You can find Secretary, 600 Pennsylvania Avenue privileged or confidential,’’ as discussed more information, including routine NW., Suite CC–5610 (Annex D), in Section 6(f) of the FTC Act, 15 U.S.C. uses permitted by the Privacy Act, in 46(f), and FTC Rule 4.10(a)(2), 16 CFR Washington, DC 20580, or deliver your the Commission’s privacy policy, at 4.10(a)(2). In particular, do not include comment to the following address: http://www.ftc.gov/ftc/privacy.htm. competitively sensitive information Federal Trade Commission, Office of the such as costs, sales statistics, Analysis of Agreement Containing Secretary, Constitution Center, 400 7th inventories, formulas, patterns, devices, Consent Orders To Aid Public Comment Street SW., 5th Floor, Suite 5610 manufacturing processes, or customer (Annex D), Washington, DC 20024. I. Introduction names. FOR FURTHER INFORMATION CONTACT: If you want the Commission to give The Federal Trade Commission Mark Silvia, Bureau of Competition, your comment confidential treatment, (‘‘Commission’’) has accepted, subject to (202–326–3291), 600 Pennsylvania you must file it in paper form, with a final approval, an Agreement Avenue NW., Washington, DC 20580. request for confidential treatment, and Containing Consent Orders (‘‘Consent SUPPLEMENTARY INFORMATION: Pursuant you have to follow the procedure Agreement’’) from Novartis AG to Section 6(f) of the Federal Trade explained in FTC Rule 4.9(c), 16 CFR (‘‘Novartis’’), which is designed to Commission Act, 15 U.S.C. 46(f), and 4.9(c).1 Your comment will be kept remedy the anticompetitive effects of FTC Rule 2.34, 16 CFR 2.34, notice is confidential only if the FTC General Novartis’s proposed consumer hereby given that the above-captioned Counsel, in his or her sole discretion, healthcare joint venture with consent agreement containing consent grants your request in accordance with GlaxoSmithKline, PLC (‘‘GSK’’). orders to cease and desist, having been the law and the public interest. The proposed Consent Agreement has filed with and accepted, subject to final Postal mail addressed to the been placed on the public record for approval, by the Commission, has been Commission is subject to delay due to thirty days for receipt of comments from placed on the public record for a period heightened security screening. As a interested persons. Comments received of thirty (30) days. The following result, we encourage you to submit your during this period will become part of Analysis to Aid Public Comment comments online. To make sure that the the public record. After thirty days, the describes the terms of the consent Commission considers your online Commission will again evaluate the agreement, and the allegations in the comment, you must file it at https:// proposed Consent Agreement, along complaint. An electronic copy of the ftcpublic.commentworks.com/ftc/ with the comments received, in order to full text of the consent agreement gsknovartisconsent by following the make a final decision as to whether it package can be obtained from the FTC instructions on the Web-based form. If should withdraw from the proposed Home Page (for November 26, 2014), on this Notice appears at http:// Consent Agreement, modify it, or make the World Wide Web, at http:// final the Decision and Order (‘‘Order’’). www.ftc.gov/os/actions.shtm. 1 In particular, the written request for confidential Pursuant to a series of agreements You can file a comment online or on treatment that accompanies the comment must dated April 22, 2014, GSK and Novartis include the factual and legal basis for the request, paper. For the Commission to consider and must identify the specific portions of the intend to combine the GSK consumer your comment, we must receive it on or comment to be withheld from the public record. See healthcare business and most of the before December 29, 2014. Write FTC Rule 4.9(c), 16 CFR 4.9(c). Novartis consumer healthcare business

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(excluding Novartis’s nicotine Transaction will consolidate the only requires Novartis to assign to Dr. replacement therapy (‘‘NRT’’) two providers of branded NRT Reddy’s its contract manufacturing transdermal patch business) into a joint transdermal patches, and two of the agreements for the divested assets. venture in which GSK will hold a three producers of private label NRT Finally, Novartis will provide a short 63.5% controlling share and Novartis transdermal patches. term packaging agreement to Dr. will hold the remaining 36.5% share Reddy’s for secondary packaging of the III. Entry (the ‘‘Transaction’’). Both parties sell product while Dr. Reddy’s seeks a over-the-counter (‘‘OTC’’) NRT Entry into the manufacture and sale of contract packager. The parties must transdermal patches in the United NRT transdermal patches would not be accomplish these divestitures and States. The Commission alleges in its timely, likely, or sufficient in relinquish their rights no later than ten Complaint that the Transaction, if magnitude, character, and scope to deter days after the Transaction is consummated, would violate Section 7 or counteract the anticompetitive effects consummated. of the Clayton Act, as amended, 15 of the Transaction. Developing a patch Dr. Reddy’s is well positioned to U.S.C. 18, and Section 5 of the Federal that adheres to the skin and properly assume Novartis’s role in the NRT Trade Commission Act, as amended, 15 delivers nicotine to the body over time transdermal patch market. Dr. Reddy’s U.S.C. 45, by lessening competition in is expensive and time consuming, and manufactures a wide range of branded the market for the manufacture, has a high risk of failure. Even if an and private label OTC products for sale marketing, distribution, and sale of NRT entrant is able to successfully develop a in the United States, including private transdermal patches. The proposed new patch, it must then obtain an FDA label versions of popular allergy and Consent Agreement will remedy the approval to market the product, which gastrointestinal products. Thus, Dr. alleged violations by preserving the adds several years to the entry process. Reddy’s is already a supplier to most competition that would otherwise be IV. Effects major retailers of OTC consumer eliminated by the Transaction. healthcare products. In addition, Specifically, under the terms of the The Transaction is likely to result in because Novartis will be transferring its Consent Agreement, Novartis would be significant competitive harm in the existing contract manufacturing required to divest all of its rights and market for NRT transdermal patches. arrangement for its NRT transdermal assets related to U.S. NRT transdermal Although the Novartis NRT patch patches, the divestiture to Dr. Reddy’s patches, including its branded product, business has been excluded from the will not require a transfer of Habitrol. Novartis has proposed Dr. consumer healthcare joint venture, manufacturing processes or facilities. Reddy’s Laboratories (‘‘Dr. Reddy’s’’) as GSK’s patch business will be included. Dr. Reddy’s will therefore be able to step the buyer of these assets. Thus, Novartis’s partial interest in the into Novartis’s current position and joint venture means it will benefit from immediately begin competing in the II. The Product and Structure of the any sales lost to GSK NRT patches in market for NRT transdermal patches. Market the future. With an interest in its most The Commission’s goal in evaluating The proposed joint venture would significant competing product, Novartis possible purchasers of divested assets is likely substantially increase would have an increased incentive to to maintain the competitive concentration in the market for NRT raise prices for its NRT patches post- environment that existed prior to the transdermal patches. Tobacco transaction. The Transaction, by altering Transaction. If the Commission consumption introduces nicotine into the interactions between Novartis’s and determines that Dr. Reddy’s is not an the body, and nicotine addiction is a GSK’s branded and private label NRT acceptable acquirer of the divested major contributor to addiction to transdermal patches, would likely result assets, or that the manner of the tobacco. Nicotine replacement therapies in price increases for NRT patches in divestiture is not acceptable, the parties work by providing nicotine to the body several ways. First, the Transaction must unwind the sale of rights to Dr. through sources other than smoking, would reduce the competition between Reddy’s, and divest the U.S. NRT thereby replacing the nicotine that the only two branded NRT transdermal transdermal patch assets to a would have come from tobacco and patches, and reduce the competition Commission-approved acquirer within helping to ease tobacco cravings in between Novartis’s branded Habitrol six months of the date the Order those who are attempting to quit. Users product and GSK’s private label becomes final. In that circumstance, the of NRT products are therefore more patches, both of which would increase Commission may appoint a trustee to likely to have success in quitting the likelihood that Novartis would divest the product if the parties fail to tobacco. NRT transdermal patches work increase the prices of Habitrol. Second, divest the business as required. by adhering to the skin, much like an the Transaction would reduce the The proposed Consent Agreement adhesive bandage, and slowly providing competition between Novartis’s private contains several provisions to help a steady amount of nicotine through the label patches and GSK’s NicoDerm CQ ensure that the divestiture is successful. skin over the course of a day. Patches and private label patches, which would The Order requires Novartis to take all are usually provided in decreasing create incentives for Novartis to increase action necessary to maintain the dosages to help the user step down their the price of its private label NRT economic viability, marketability, and nicotine intake over time. transdermal patches. competitiveness of the product to be Novartis markets and sells the divested until such time that they are branded NRT transdermal patch V. The Consent Agreement transferred to a Commission-approved Habitrol. The only other branded patch The proposed Consent Agreement acquirer. The Order also requires that is GSK’s NicoDerm CQ. Both companies effectively remedies the Transaction’s Novartis transfer all confidential also market private label versions of anticompetitive effects in the relevant business information, including their branded patch. Private label market. Pursuant to the Consent customer information related to the products are competitive with the Agreement, the parties are required to divestiture product, to Dr. Reddy’s. branded products, but there is only one divest Novartis’s rights and assets The purpose of this analysis is to other manufacturer of private label related to its U.S. NRT transdermal facilitate public comment on the patches, Aveva Drug Delivery Systems. patch business to Dr. Reddy’s. Further, proposed Consent Agreement, and it is Therefore, without a remedy, the the proposed Consent Agreement not intended to constitute an official

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interpretation of the proposed Order or FTC Rule 2.34, 16 CFR 2.34, notice is 4.9(c).1 Your comment will be kept to modify its terms in any way. hereby given that the above-captioned confidential only if the FTC General By direction of the Commission. consent agreement containing consent Counsel, in his or her sole discretion, grants your request in accordance with Donald S. Clark, order to cease and desist, having been filed with and accepted, subject to final the law and the public interest. Secretary. approval, by the Commission, has been Postal mail addressed to the [FR Doc. 2014–28605 Filed 12–4–14; 8:45 am] placed on the public record for a period Commission is subject to delay due to BILLING CODE 6750–01–P of thirty (30) days. The following heightened security screening. As a Analysis to Aid Public Comment result, we encourage you to submit your describes the terms of the consent comments online. To make sure that the FEDERAL TRADE COMMISSION agreement, and the allegations in the Commission considers your online [File No. 141 0187] complaint. An electronic copy of the comment, you must file it at https:// full text of the consent agreement ftcpublic.commentworks.com/ftc/ Medtronic, Inc. and Covidien plc; package can be obtained from the FTC covidienmedtronicconsent by following Analysis of Proposed Consent Order Home Page (for November 26, 2014), on the instructions on the web-based form. To Aid Public Comment the World Wide Web, at http:// If this Notice appears at http:// www.ftc.gov/os/actions.shtm. www.regulations.gov/#!home, you also AGENCY: Federal Trade Commission. You can file a comment online or on may file a comment through that Web ACTION: Proposed consent agreement. paper. For the Commission to consider site. If you file your comment on paper, SUMMARY: The consent agreement in this your comment, we must receive it on or before December 29, 2014. Write write ‘‘Medtronic and Covidien— matter settles alleged violations of Consent Agreement; File No. 141 0187’’ federal law prohibiting unfair methods ‘‘Medtronic and Covidien—Consent Agreement; File No. 141 0187’’ on your on your comment and on the envelope, of competition. The attached Analysis to and mail your comment to the following Aid Public Comment describes both the comment. Your comment—including your name and your state—will be address: Federal Trade Commission, allegations in the draft complaint and Office of the Secretary, 600 the terms of the consent order— placed on the public record of this proceeding, including, to the extent Pennsylvania Avenue NW., Suite CC– embodied in the consent agreement— 5610 (Annex D), Washington, DC 20580, that would settle these allegations. practicable, on the public Commission Web site, at http://www.ftc.gov/os/ or deliver your comment to the DATES: Comments must be received on publiccomments.shtm. As a matter of following address: Federal Trade or before December 29, 2014. discretion, the Commission tries to Commission, Office of the Secretary, ADDRESSES: Interested parties may file a remove individuals’ home contact Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610 (Annex D), comment at https:// information from comments before Washington, DC 20024. If possible, ftcpublic.commentworks.com/ftc/ placing them on the Commission Web submit your paper comment to the covidienmedtronicconsent online or on site. Commission by courier or overnight paper, by following the instructions in Because your comment will be made service. the Request for Comment part of the public, you are solely responsible for Visit the Commission Web site at SUPPLEMENTARY INFORMATION section making sure that your comment does http://www.ftc.gov to read this Notice below. Write ‘‘Medtronic and not include any sensitive personal and the news release describing it. The Covidien—Consent Agreement; File No. information, like anyone’s Social FTC Act and other laws that the 141 0187’’ on your comment and file Security number, date of birth, driver’s Commission administers permit the your comment online at https:// license number or other state collection of public comments to ftcpublic.commentworks.com/ftc/ identification number or foreign country consider and use in this proceeding as covidienmedtronicconsent by following equivalent, passport number, financial appropriate. The Commission will the instructions on the web-based form. account number, or credit or debit card consider all timely and responsive If you prefer to file your comment on number. You are also solely responsible public comments that it receives on or paper, write ‘‘Medtronic and Covidien— for making sure that your comment does before December 29, 2014. You can find Consent Agreement; File No. 141 0187’’ not include any sensitive health more information, including routine on your comment and on the envelope, information, like medical records or uses permitted by the Privacy Act, in and mail your comment to the following other individually identifiable health the Commission’s privacy policy, at address: Federal Trade Commission, information. In addition, do not include http://www.ftc.gov/ftc/privacy.htm. Office of the Secretary, 600 any ‘‘[t]rade secret or any commercial or Pennsylvania Avenue NW., Suite CC– financial information which . . . is Analysis of Agreement Containing 5610 (Annex D), Washington, DC 20580, privileged or confidential,’’ as discussed Consent Order To Aid Public Comment or deliver your comment to the in Section 6(f) of the FTC Act, 15 U.S.C. The Federal Trade Commission following address: Federal Trade 46(f), and FTC Rule 4.10(a)(2), 16 CFR (‘‘Commission’’) has accepted from Commission, Office of the Secretary, 4.10(a)(2). In particular, do not include Medtronic, Inc. (‘‘Medtronic’’) and Constitution Center, 400 7th Street SW., competitively sensitive information Covidien plc (‘‘Covidien’’), subject to 5th Floor, Suite 5610 (Annex D), such as costs, sales statistics, final approval, an Agreement Washington, DC 20024. inventories, formulas, patterns, devices, Containing Consent Order (‘‘Consent FOR FURTHER INFORMATION CONTACT: manufacturing processes, or customer Agreement’’) designed to remedy the Christine E. Tasso, Bureau of names. anticompetitive effects resulting from Competition, (202–326–2232), 600 If you want the Commission to give Pennsylvania Avenue NW., Washington, your comment confidential treatment, 1 In particular, the written request for confidential DC 20580. you must file it in paper form, with a treatment that accompanies the comment must SUPPLEMENTARY INFORMATION: request for confidential treatment, and include the factual and legal basis for the request, Pursuant and must identify the specific portions of the to Section 6(f) of the Federal Trade you have to follow the procedure comment to be withheld from the public record. See Commission Act, 15 U.S.C. 46(f), and explained in FTC Rule 4.9(c), 16 CFR FTC Rule 4.9(c), 16 CFR 4.9(c).

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Medtronic’s proposed acquisition of narrowing of blood vessels due to the fem-pop artery. The merger would Covidien. Under the terms of the plaque buildup. Percutaneous combine the second and third proposed Decision and Order (‘‘Order’’) transluminal angioplasty (‘‘PTA’’) anticipated entrants into the market, contained in the Consent Agreement, balloon catheters are catheters with likely prolonging a duopoly in the U.S. the parties are required to divest balloons that, once inserted into an market for drug-coated balloon catheters Covidien’s drug-coated balloon catheter artery, are expanded to push plaque indicated for the fem-pop artery. business to The Spectranetics against the artery’s lumen wall to Because Medtronic and Covidien are the Corporation (‘‘Spectranetics’’). reopen blood flow. Drug-coated balloon only two anticipated entrants that have The Consent Agreement has been catheters are a type of PTA balloon advanced to the clinical trial stage of the placed on the public record for 30 days catheter that releases paclitaxel, a cell- FDA approval process, the to solicit comments from interested proliferation inhibiting drug, into the consolidation of the two firms would persons. Comments received during this artery wall during a medical procedure deprive consumers of the benefits of a period will become part of the public to prevent restenosis, or re-narrowing, of third competitive entrant into the record. After 30 days, the Commission the artery. market for a substantial period of time. will again review the Consent The United States is the relevant As a result, the Proposed Acquisition Agreement and the comments received, geographic market in which to assess likely would reduce the substantial and decide whether it should withdraw the competitive effects of the Proposed additional price competition that would from the Consent Agreement, modify it, Acquisition. Drug-coated balloon have resulted from an additional U.S. or make it final. catheters are medical devices that are supplier of drug-coated balloon Pursuant to a Transaction Agreement regulated by the FDA. As such, drug- catheters indicated for the fem-pop dated June 15, 2014, Medtronic coated balloon catheters sold outside artery. Further, the Proposed proposes to merge with Covidien in the United States, but not approved for Acquisition likely would reduce exchange for cash and stock valued at sale in the United States, do not provide innovation in the U.S. market for drug- approximately $42.9 billion (the viable competitive alternatives for U.S. coated balloon catheters indicated for ‘‘Proposed Acquisition’’). The consumers. the fem-pop artery. Commission’s Complaint alleges that The U.S. market for drug-coated the Proposed Acquisition, if balloon catheters indicated for the fem- The Consent Agreement consummated, would violate Section 7 pop artery is highly concentrated with The Consent Agreement eliminates of the Clayton Act, as amended, 15 only one current supplier, C.R. Bard, the competitive concerns raised by U.S.C. 18, and Section 5 of the Federal Inc. Medtronic and Covidien are likely Medtronic’s proposed acquisition of Trade Commission Act, as amended, 15 to enter as the second and third U.S. Covidien by requiring the parties divest U.S.C. 45, by substantially lessening suppliers, respectively. While there are to Spectranetics all of the assets and competition in the U.S. market for drug- other firms with drug-coated balloon resources needed for it to become an coated balloon catheters indicated for catheters in development for sale in the independent, viable, and effective the femoropopliteal (‘‘fem-pop’’) artery. U.S. market, Medtronic and Covidien competitor in the U.S. market for drug- The proposed Consent Agreement will are the only two anticipated market coated balloon catheters indicated for remedy the alleged violations by participants that have advanced to the the fem-pop artery. preserving the competition that would clinical-trial stage of the FDA approval Spectranetics possesses the industry otherwise be eliminated by the process for drug-coated balloon and regulatory experience to achieve Proposed Acquisition. catheters indicated for the fem-pop FDA approval of Covidien’s drug-coated artery. balloon catheter and become the third The Parties entrant into the U.S. market. Headquartered in Minneapolis, Entry Headquartered in Colorado Springs, Minnesota, Medtronic is a global leader Entry into the U.S. market for drug- Colorado, Spectranetics is a leader in in medical technology that develops, coated balloon catheters indicated for peripheral vascular solutions with a manufactures, and sells device-based the fem-pop artery would not be timely, portfolio of products that is highly medical therapies. Medtronic is likely, or sufficient in magnitude, complementary to Covidien’s drug- developing a drug-coated balloon character, and scope to deter or coated balloon catheter. Spectranetics catheter indicated for the fem-pop artery counteract the anticompetitive effects of manufactures and markets a range of that is currently in the Food and Drug the Proposed Acquisition. The devices to treat peripheral and coronary Administration (‘‘FDA’’) approval development process for a drug-coated arterial disease and is well positioned to process. balloon catheter is difficult, time- restore the benefits of competition that Headquartered in Dublin, Ireland, consuming, and expensive. It can take would be lost through the Proposed Covidien develops, manufactures, and tens of millions of dollars of research Acquisition. sells medical devices and medical and development, significant further Pursuant to the Order, Spectranetics supplies. Like Medtronic, Covidien has funding for clinical trials, and an will receive all rights and assets related a drug-coated balloon catheter indicated extensive amount of time to even reach to Covidien’s drug-coated balloon for the fem-pop artery under the stage of applying to the FDA for catheter products, including all of the development for which it is seeking approval. The regulatory approval intellectual property used in the drug- FDA approval. process itself can also be time- coated balloon catheter business. In consuming as the FDA reviews the addition, Spectranetics will take over The Relevant Product and Market volume of material and data a company the manufacturing facility where Structure submits in support of its application. Covidien currently coats the PTA Drug-coated balloon catheters balloon catheters with paclitaxel. The indicated for the fem-pop artery are Effects of the Acquisition Order further requires that Covidien used to treat peripheral arterial disease The Proposed Acquisition would provide Spectranetics with a worldwide in the fem-pop artery, an artery located cause significant competitive harm to license to produce the PTA balloon above the knee. Peripheral arterial consumers in the U.S. market for drug- catheters incorporated into the drug- disease results from atherosclerosis, the coated balloon catheters indicated for coated balloon catheters. In order to

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ensure continuity of supply of a critical DEPARTMENT OF HEALTH AND 855B (not including physician and non- input, the Order requires that the parties HUMAN SERVICES physician practitioner organizations), supply Spectranetics with PTA balloon CMS–855S, or associated Internet-based catheters for up to three years while Centers for Medicare & Medicaid PECOS enrollment application.’’ As we Spectranetics transitions to independent Services explained in the February 2, 2011 final manufacturing. This provision ensures [CMS–6056–N] rule (76 FR 5914), in addition to the that drug-coated balloon catheters will providers and suppliers subject to the continue to be available for ongoing Medicare, Medicaid, and Children’s application fee under Medicare, clinical trials while Spectranetics works Health Insurance Programs; Provider Medicaid-only, and CHIP-only to obtain FDA approval to manufacture Enrollment Application Fee Amount for institutional providers would include the PTA balloon catheters Calendar Year 2015 nursing facilities, intermediate care independently. facilities for persons with mental To ensure that the divestiture is AGENCY: Centers for Medicare & retardation (ICF/MR), psychiatric successful, the Order requires the Medicaid Services (CMS), HHS. residential treatment facilities, and may parties to enter into a transitional ACTION: Notice. include other institutional provider services agreement with Spectranetics to types designated by a state in SUMMARY: assist the company in establishing its This notice announces a accordance with their approved state manufacturing capabilities and securing $553.00 calendar year (CY) 2015 plan. all necessary FDA approvals. Further, application fee for institutional As indicated in §§ 424.514 and the Order requires that the parties providers that are initially enrolling in 455.460, the application fee is not transfer all confidential business the Medicare or Medicaid program or required for either of the following: information to Spectranetics, as well as the Children’s Health Insurance • A Medicare physician or non- provide access to employees who Program (CHIP); revalidating their physician practitioner submitting a possess or are able to identify such Medicare, Medicaid, or CHIP CMS–855I. information. Spectranetics also will enrollment; or adding a new Medicare • A prospective or revalidating have the right to interview and offer practice location. This fee is required Medicaid or CHIP provider— employment to employees associated with any enrollment application ++ Who is an individual physician or with Covidien’s drug-coated balloon submitted on or after January 1, 2015 non-physician practitioner; or catheter business. and on or before December 31, 2015. ++ That is enrolled in Title XVIII of The parties must accomplish the DATES: This notice is effective on the Act or another state’s Title XIX or divestiture no later than ten days after January 1, 2015. XXI plan and has paid the application the consummation of the Proposed FOR FURTHER INFORMATION: Frank fee to a Medicare contractor or another Acquisition. If the Commission Whelan, (410) 786–1302 for Medicare state. determines that Spectranetics is not an enrollment issues. Alvin Anderson, II. Provisions of the Notice acceptable acquirer, or that the manner (410) 786–2188 for Medicaid and CHIP of the divestiture is not acceptable, the enrollment issues. A. CY 2014 Fee Amount Order requires the parties to unwind the SUPPLEMENTARY INFORMATION: In the December 2, 2013 Federal sale and accomplish the divestiture Register (78 FR 72089), we published a I. Background within 180 days of the date the Order notice announcing a fee amount for the becomes final to another Commission- In the February 2, 2011 Federal period of January 1, 2014 through approved acquirer. Register (76 FR 5862), we published a December 31, 2014 of $542.00. This To ensure compliance with the Order, final rule with comment period titled figure was calculated as follows: the Commission has agreed to appoint ‘‘Medicare, Medicaid, and Children’s • Section 1866(j)(2)(C)(i)(I) of the Act an Interim Monitor to ensure that Health Insurance Programs; Additional established a $500 application fee for Medtronic and Covidien comply with Screening Requirements, Application institutional providers in CY 2010. all of their obligations pursuant to the Fees, Temporary Enrollment Moratoria, • Consistent with section Consent Agreement and to keep the Payment Suspensions and Compliance 1866(j)(2)(C)(i)(II) of the Act, Commission informed about the status Plans for Providers and Suppliers.’’ This § 424.514(d)(2) states that for CY 2011 of the transfer of the rights and assets to rule finalized, among other things, and subsequent years, the preceding Spectranetics. Further, the Order allows provisions related to the submission of year’s fee will be adjusted by the the Commission to appoint a Divestiture application fees as part of the Medicare, percentage change in the consumer Trustee to accomplish the divestiture Medicaid, and CHIP provider price index (CPI) for all urban should the parties fail to comply with enrollment processes. As provided in consumers (all items; United States city their divestiture obligations. Lastly, the section 1866(j)(2)(C)(i) of the Social average, CPI–U) for the 12-month period Order terminates after ten years. Security Act (as amended by section ending on June 30 of the previous year. • The purpose of this analysis is to 6401 of the Affordable Care Act) and in The CPI–U increase for CY 2011 facilitate public comment on the 42 CFR 424.514, ‘‘institutional was 1.0 percent, based on data obtained Consent Agreement, and it is not providers’’ that are initially enrolling in from the Bureau of Labor Statistics intended to constitute an official the Medicare, Medicaid, or CHIP (BLS). This resulted in an application interpretation of the proposed Decision program, revalidating their enrollment, fee amount for CY 2011 of $505 (or $500 × and Order or to modify its terms in any or adding a new Medicare practice 1.01). • way. location are required to submit a fee The CPI–U increase for the period with their enrollment application. An of July 1, 2010 through June 30, 2011 By direction of the Commission. ‘‘institutional provider’’ for purposes of was 3.54 percent, based on BLS data. Donald S. Clark, Medicare is defined at § 424.502 as This resulted in an application fee Secretary. ‘‘(a)ny provider or supplier that submits amount for CY 2012 of $522.87 (or $505 [FR Doc. 2014–28609 Filed 12–4–14; 8:45 am] a paper Medicare enrollment × 1.0354). In the aforementioned BILLING CODE 6750–01–P application using the CMS–855A, CMS– February 2, 2011 final rule, we stated

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that if the adjustment sets the fee at an 354), section 1102(b) of the Social 31,200 affected, newly enrolling uneven dollar amount, we would round Security Act, section 202 of the institutional providers for CY 2014. the fee to the nearest whole dollar Unfunded Mandates Reform Act of 1995 • 580,000 Medicare providers and amount. Accordingly, the application (March 22, 1995; Pub. L. 104–4), suppliers would be subject to fee amount for CY 2012 was rounded to Executive Order 13132 on Federalism revalidation in CY 2014, of which the nearest whole dollar amount, or (August 4, 1999), and the Congressional 116,000 would be institutional $523.00. Review Act (5 U.S.C. 804(2)). providers required to pay a fee. • • The CPI–U increase for the period Executive Orders 12866 and 13563 27,859 Medicaid and CHIP of July 1, 2011 through June 30, 2012 direct agencies to assess all costs and providers (8,438 newly enrolling + was 1.664 percent, based on BLS data. benefits of available regulatory 19,421 revalidating) would be subject to This resulted in an application fee alternatives and, if regulation is an application fee in CY 2014. × amount for CY 2013 of $531.70 ($523 necessary, to select regulatory 3. CY 2015 Estimates 1.01664). Rounding this figure to the approaches that maximize net benefits, a. Medicare nearest whole dollar amount resulted in including potential economic, a CY 2013 application fee amount of environmental, public health and safety Based on CMS data, we estimate that $532.00. effects, distributive impacts, and equity. in CY 2015 approximately— • • The CPI–U increase for the period A regulatory impact analysis (RIA) must 10,000 newly enrolling institutional of July 1, 2012 through June 30, 2013 be prepared for major rules with providers will pay an application fee; was 1.8 percent, based on BLS data. and economically significant effects ($100 • This resulted in an application fee million or more in any 1 year). As 35,000 institutional providers will amount for CY 2014 of $541.576 ($532 explained in this section of the notice, be subject to revalidation and will pay × 1.018). Rounding this figure to the we estimate that the total cost of the an application fee. nearest whole dollar amount resulted in increase in the application fee will not Using a figure of 45,000 (10,000 newly a CY 2014 application fee amount of exceed $100 million. Therefore, this enrolling + 35,000 revalidating) $542.00. notice does not reach the $100 million institutional providers, we estimate an increase in the cost of the Medicare B. CY 2015 Fee Amount economic threshold and is not considered a major notice. application fee requirement in CY 2015 Using BLS data, the CPI–U increase of $270,000 (or 45,000 x $6.00) from the for the period of July 1, 2013 through B. Costs CY 2015 projections we had made in the June 30, 2014 was 2.1 percent. This The costs associated with this notice February 2, 2011 final rule. results in a CY 2015 application fee involve the increase in the application b. Medicaid and CHIP amount of $553.382 ($542 × 1.021). As fee amount that certain providers and As we did for CY 2014, we continue we must round this to the nearest whole suppliers must pay in CY 2015. dollar amount, the resultant application to estimate that 27,859 (8,438 newly fee amount for CY 2015 is $553.00. This 1. Initial Estimates in February 2011 enrolling + 19,421 revalidating) represents a $6.00 difference from the Final Rule Medicaid and CHIP providers would be $547 application fee amount that we subject to an application fee in CY 2015. In the RIA for the February 2, 2011 Using this figure, we project an increase had originally projected for CY 2015 in final rule, as indicated earlier, we the February 2, 2011 final rule. in the cost of the Medicaid and CHIP estimated the total amount of application fee requirement in CY 2015 III. Collection of Information application fees for CYs 2011 through of $167,154 (27,859 x $6.00) from the Requirements 2015. For CY 2015, and based on a CY 2014 projections we had made in the projected $547 application fee amount, February 2, 2011 final rule. This document does not impose we estimated in Tables 11 and 12 (76 FR information collection requirements, 5955 and 5956) a total cost in fees of c. Total that is, reporting, recordkeeping or $63,465,675 ($17,066,400 + Based on the foregoing, we estimate third-party disclosure requirements. $46,399,275) for 116,025 affected the total increase in the cost of the Consequently, there is no need for Medicare institutional providers (31,200 application fee requirement for review by the Office of Management and newly enrolling + 84,825 revalidating). Medicare, Medicaid, and CHIP Budget under the authority of the We also projected in Tables 13 and 14 providers and suppliers in CY 2015 to Paperwork Reduction Act of 1995. (76 FR 5957 and 5958) a total cost in CY be $437,154 ($270,000 + $167,154) from However, it does reference previously 2015 application fees of $13,748,298 the CY 2015 projections we had made approved information collections. The ($4,615,586 + $9,132,712) for 25,134 in the February 2, 2011 final rule. forms CMS–855A, CMS–855B, and affected Medicaid and CHIP providers The RFA requires agencies to analyze CMS–855I are approved under OMB (8,438 newly enrolling + 16,696 options for regulatory relief of small control number 0938–0685; the CMS– revalidating). businesses. For purposes of the RFA, 855S is approved under OMB control small entities include small businesses, number 0938–1056. 2. Estimates of Number of Affected Institutional Providers in December 2, nonprofit organizations, and small IV. Regulatory Impact Statement 2013 Fee Notice governmental jurisdictions. Most hospitals and most other providers and A. Background In the December 2, 2013 application suppliers are small entities, either by We have examined the impact of this fee notice, we estimated that— nonprofit status or by having revenues notice as required by Executive Order • 4,800 newly enrolling Medicare of less than $7.5 million to $38.5 12866 on Regulatory Planning and institutional providers would be subject million in any 1 year. Individuals and Review (September 30, 1993), Executive to an application fee in CY 2014. This states are not included in the definition Order 13563 on Improving Regulation was based on CMS statistics for the final of a small entity. As we stated in the and Regulatory Review (January 18, quarter of CY 2012 and represented a RIA for the February 2, 2011 final rule 2011), the Regulatory Flexibility Act substantial decrease from our estimate with comment period (76 FR 5952), we (RFA) (September 19, 1980, Pub. L. 96– in the February 2, 2011 final rule of do not believe that the application fee

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will have a significant impact on small DEPARTMENT OF HEALTH AND Submit written comments to the entities. HUMAN SERVICES Division of Dockets Management (HFA– In addition, section 1102(b) of the Act 305), Food and Drug Administration, Food and Drug Administration requires us to prepare a regulatory 5630 Fishers Lane, Rm. 1061, Rockville, MD 20852. impact analysis if a rule may have a [Docket No. FDA–2014–D–1891] significant impact on the operations of FOR FURTHER INFORMATION CONTACT: a substantial number of small rural How To Obtain a Letter From the Food Elizabeth Giaquinto, Center for Drug and Drug Administration Stating That Evaluation and Research, Food and hospitals. This analysis must conform to Bioequivalence Study Protocols Drug Administration, 10903 New the provisions of section 604 of the Contain Safety Protections Hampshire Ave., Bldg. 75, Rm. 1670, RFA. For purposes of section 1102(b) of Comparable to Applicable Risk Silver Spring, MD 20993, 240–402– the Act, we define a small rural hospital Evaluation and Mitigation Strategies 7930, [email protected]. as a hospital that is located outside of for Reference Listed Drugs; Draft SUPPLEMENTARY INFORMATION: a Metropolitan Statistical Area for Guidance for Industry; Availability Medicare payment regulations and has I. Background fewer than 100 beds. We are not AGENCY: Food and Drug Administration, FDA is announcing the availability of preparing an analysis for section 1102(b) HHS. a draft guidance for industry entitled of the Act because we have determined, ACTION: Notice. ‘‘How to Obtain a Letter from FDA and the Secretary certifies, that this Stating that Bioequivalence Study SUMMARY: The Food and Drug notice would not have a significant Protocols Contain Safety Protections Administration (FDA) is announcing the impact on the operations of a substantial Comparable to Applicable REMS for availability of a draft guidance for number of small rural hospitals. RLD.’’ Section 505–1(a)(1) of the FD&C industry entitled ‘‘How to Obtain a Act authorizes FDA to require Section 202 of the Unfunded Letter from FDA Stating that applicants to submit a proposed REMS Mandates Reform Act of 1995 (UMRA) Bioequivalence Study Protocols Contain as a part of the relevant application 1 if also requires that agencies assess Safety Protections Comparable to FDA determines that a REMS is anticipated costs and benefits before Applicable REMS for RLD.’’ This draft necessary to ensure that the benefits of issuing any rule whose mandates guidance describes how a prospective a drug outweigh its risks (21 U.S.C. 355– require spending in any 1 year of $100 abbreviated new drug application 1(a)(1)). A REMS is a required risk million in 1995 dollars, updated (ANDA) applicant may request a letter management plan that uses tools beyond annually for inflation. In 2014, that stating that FDA has determined the routine professional labeling (such as a threshold is approximately $141 following: The potential applicant’s medication guide, a patient package million. The Agency has determined bioequivalence (BE) study protocol insert, and/or a communication plan) to that there will be minimal impact from contains safety protections comparable ensure that the benefits of a drug the costs of this notice, as the threshold to those in the risk evaluation and outweigh its risks (section 505–1(f) of is not met under the UMRA. mitigation strategy (REMS) with the FD&C Act). In addition, FDA may elements to assure safe use (ETASU) require ETASU in some circumstances Executive Order 13132 establishes applicable to the reference listed drug when such elements are necessary to certain requirements that an agency (RLD) and FDA will not consider it a mitigate the risks associated with the must meet when it promulgates a violation of the REMS for the RLD drug. ETASU may include, for example, proposed rule (and subsequent final sponsor to provide a sufficient quantity requirements that health care providers rule) that imposes substantial direct of the RLD to the interested generic firm who prescribe or administer the drug requirement costs on state and local or its agent to allow the firm to perform have particular training or certification; governments, preempts state law, or the testing necessary to support its that patients using the drug be otherwise has federalism implications. ANDA. monitored and/or enrolled in a registry; Since this notice does not impose DATES: Although you can comment on or that pharmacies, practitioners, or substantial direct costs on state or local any guidance at any time (see 21 CFR health care settings that dispense the governments, the requirements of 10.115(g)(5)), to ensure that the Agency drug be specially certified. Executive Order 13132 are not considers your comment on this draft FDA is aware of instances in which an applicable. guidance before it begins work on the RLD sponsor has refused to sell drug In accordance with the provisions of final version of the guidance, submit products to a prospective ANDA Executive Order 12866, this notice was either electronic or written comments applicant seeking to conduct the testing reviewed by the Office of Management on the draft guidance by February 3, needed to obtain approval, and the RLD sponsor has cited the REMS ETASU as and Budget. 2015. justification. In the interest of Dated: October 22, 2014. ADDRESSES: Submit written requests for facilitating prospective generic single copies of the draft guidance to the Marilyn Tavenner, applicants’ access to RLD products to Division of Drug Information, Center for Administrator, Centers for Medicare & conduct the testing necessary to support Drug Evaluation and Research, Food ANDA approval, FDA has, on request, Medicaid Services. and Drug Administration, 10903 New [FR Doc. 2014–28503 Filed 12–2–14; 4:15 pm] reviewed the BE study protocols Hampshire Ave., Bldg. 51, Rm. 2201, proposed by a prospective ANDA BILLING CODE 4120–01–P Silver Spring, MD 20993–0002. Send one self-addressed adhesive label to 1 Section 505–1 of the FD&C Act applies to any assist that office in processing your application for approval of a prescription drug requests. See the SUPPLEMENTARY submitted under section 505(b) or (j) of the FD&C INFORMATION section for electronic Act (including both NDAs submitted under section 505(b)(2) and ANDAs submitted under section access to the guidance document. 505(j)), as well as applications submitted under Submit electronic comments on the section 351 of the Public Health Service Act (42 guidance to http://www.regulations.gov. U.S.C. 262).

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applicant to assess whether they will be posted to the docket at http:// ACTION: Notice. provide safety protections comparable www.regulations.gov. to those in the applicable REMS III. The Paperwork Reduction Act of SUMMARY: The Food and Drug ETASU. When the Agency has 1995 Administration (FDA) is withdrawing determined that comparable protections approval of 23 new drug applications existed, FDA has issued letters to the This guidance refers to previously (NDAs) and 68 abbreviated new drug RLD sponsor stating so, and indicating approved collections of information that applications (ANDAs) from multiple that FDA would not consider it to be a are subject to review by the Office of applicants. The holders of the Management and Budget under the violation of the REMS for the RLD applications notified the Agency in sponsor to provide drug product to the Paperwork Reduction Act of 1995 (44 writing that the drug products were no prospective ANDA applicant or its U.S.C. 3501–3520). The collections of longer marketed and requested that the agent. information in 21 CFR parts 312 and Requesting or obtaining such a letter 314 have been approved under OMB approval of the applications be from FDA is not a legal requirement. If control numbers 0910–0014 and 0910– withdrawn. a prospective ANDA applicant chooses 0001. DATES: Effective Date: January 5, 2015. to request such a letter, this guidance is intended to clarify the process for doing IV. Electronic Access FOR FURTHER INFORMATION CONTACT: so. Persons with access to the Internet Florine P. Purdie, Center for Drug This draft guidance is being issued may obtain the document at either Evaluation and Research, Food and consistent with FDA’s good guidance http://www.fda.gov/Drugs/Guidance Drug Administration, 10903 New practices regulation (21 CFR 10.115). ComplianceRegulatoryInformation/ Hampshire Ave., Bldg. 51, Rm. 6248, The guidance represents the Agency’s Guidances/default.htm or http://www. Silver Spring, MD 20993–0002, 301– current thinking on how a prospective regulations.gov. 796–3601. generic applicant can obtain a letter Dated: December 1, 2014. stating that its BE study protocols SUPPLEMENTARY INFORMATION: The contain safety protections comparable to Leslie Kux, holders of the applications listed in those in the applicable REMS for the Associate Commissioner for Policy. table 1 in this document have informed RLD. It does not create or confer any [FR Doc. 2014–28540 Filed 12–4–14; 8:45 am] FDA that these drug products are no rights for or on any person and does not BILLING CODE 4164–01–P longer marketed and have requested that operate to bind FDA or the public. FDA withdraw approval of the applications pursuant to the process in II. Comments DEPARTMENT OF HEALTH AND § 314.150(c) (21 CFR 314.150(c)). The Interested persons may submit either HUMAN SERVICES applicants have also, by their requests, electronic comments regarding this waived their opportunity for a hearing. document to http://www.regulations.gov Food and Drug Administration or written comments to the Division of Withdrawal of approval of an [Docket No. FDA–2014–N–1795] Dockets Management (see ADDRESSES). It application or abbreviated application is only necessary to send one set of under § 314.150(c) is without prejudice Mallinckrodt Inc. et al.; Withdrawal of to refiling. comments. Identify comments with the Approval of 23 New Drug Applications docket number found in brackets in the and 68 Abbreviated New Drug heading of this document. Received Applications comments may be seen in the Division of Dockets Management between 9 a.m. AGENCY: Food and Drug Administration, and 4 p.m., Monday through Friday, and HHS.

TABLE 1

Application No. Drug Applicant

NDA 002852 ...... Plexofer (multivitamins) Syrup ...... Mallinckrodt Inc., 675 McDonnell Blvd., Hazelwood, MO 63042. NDA 008719 ...... Levo-Dromoran (levorphanol tartrate) Injection, 2 milligrams Valeant Pharmaceuticals North America LLC, 400 Somerset (mg)/milliliter (mL). Corporate Blvd., Bridgewater, NJ 08807. NDA 008720 ...... Levo-Dromoran (levorphanol tartrate) Tablets, 2 mg ...... Do. NDA 011777 ...... Sodium Phosphate P 32 Solution ...... Mallinckrodt Inc. NDA 012366 ...... Soma Compound with Codeine (carisoprodol, aspirin, and Meda Pharmaceuticals Inc., 265 Davidson Ave., Suite 300, codeine phosphate). Somerset, NJ 08873–4120. NDA 012708 ...... Diutensen-R (methyclothiazide and reserpine) Tablets, 2.5 Do. mg/0.1 mg. NDA 016245 ...... Vercyte (pipobroman) Tablets ...... AbbVie, Inc., 1 North Waukegan Rd., Dept. PA 77/Bldg. AP30, North Chicago, IL 60064. NDA 017463 ...... Motrin (ibuprofen) Tablets, 300 mg, 400 mg, 600 mg, and McNeil Consumer Healthcare Division of McNeil-PPC, Inc., 800 mg. 7050 Camp Hill Rd., Fort Washington, PA 19034–2299. NDA 018310 ...... Lymphazurin (isosulfan blue), 1% ...... Covidien, 60 Middletown Ave., North Haven, CT 06473. NDA 018340 ...... Aerobid (flunisolide) Inhalation Aerosol 1 ...... Roche Palo Alto LLC, c/o Genentech Inc., 1 DNA Way, South San Francisco, CA 94080–4990. NDA 018731 ...... Buspar (buspirone hydrochloride (HCl)) Tablets, 5 mg, 10 Bristol-Myers Squibb Co., P.O. Box 4000, Princeton, NJ mg, 15 mg, and 30 mg. 08543–4000. NDA 019453...... Drixoral (dexbrompheniramine maleate, pseudoephedrine Merck Consumer Care, 556 Morris Ave., Summit, NJ 07901. sulfate, and acetaminophen) Extended-Release Tablets, 3 mg, 60 mg, and 500 mg.

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TABLE 1—Continued

Application No. Drug Applicant

NDA 019842 ...... Motrin (ibuprofen) Suspension, 100 mg/5 mL ...... McNeil Consumer Healthcare Division of McNeil-PPC, Inc. NDA 020150 ...... Nicotrol TD (nicotine transdermal system), 5 mg/16 hour (hr), Do. 10 mg/16 hr, and 15 mg/16 hr. NDA 020707 ...... Skelid (tiludronate disodium) Tablets ...... Sanofi-Aventis U.S. LLC, 55 Corporate Dr., Mailstop 55C– 205A, Bridgewater, NJ 08807. NDA 021043 ...... RID Mousse (pyrethrins 0.33% and piperonyl butoxide 4.0%) Bayer Healthcare LLC, 100 Bayer Blvd., Whippany, NJ Topical Aerosol. 07981–0915. NDA 021082...... Tavist Allergy Sinus Headache (clemastine fumarate, Novartis Consumer Health, Inc., 200 Kimball Dr., Parsippany, pseudoephedrine HCl, and acetaminophen) Tablets, 0.335 NJ 07054. mg, 30 mg, and 500 mg. NDA 021190 ...... Buspar (buspirone HCl) Capsules, 5 mg, 7.5 mg, 10 mg, and Bristol-Myers Squibb Co. 15 mg. NDA 021335 ...... Gleevac (imatinib mesylate) Capsules, 50 mg and 100 mg ... Novartis Pharmaceuticals Corp., One Health Plaza, East Hanover, NJ 07936. NDA 021745 ...... Ryzolt (tramadol HCl) Extended-Release Tablets, 100 mg, Purdue Pharma Products L.P., One Stamford Forum, Stam- 200 mg, and 300 mg. ford, CT 06901–3431. NDA 022217 ...... Valturna (aliskiren and valsartan) Tablets ...... Novartis Pharmaceuticals Corp. NDA 022470 ...... Nexcede (ketoprofen) Oral Soluble Films, 12.5 mg ...... Novartis Consumer Health, Inc. ANDA 040034 .... Theophylline Extended-Release Tablets, 450 mg ...... Inwood Laboratories, Inc., Subsidiary of Forest Laboratories, Inc., Harborside Financial Center, Plaza Five, Suite 1900, Jersey City, NJ 07311. ANDA 040052 .... Theophylline Extended-Release Capsules, 100 mg, 125 mg, Do. 200 mg, and 300 mg. ANDA 040365 .... Dextroamphetamine Sulfate Tablets, 5 mg ...... Nesher Pharmaceutical (USA) LLC, 13910 Saint Charles Rock Rd., Bridgeton, MO 63044. ANDA 040367 .... Dextroamphetamine Sulfate Tablets, 10 mg ...... Do. ANDA 060578 .... Mycostatin Topical Powder (nystatin topical powder USP) Delcor Asset Corp., c/o Prestium Pharma Inc., 411 South 100,000 units/gram (g). State St., Suite E–100, Newtown, PA 18940. ANDA 062162 .... Erythromycin Estolate Capsules USP, 125 mg and 250 mg .. Barr Laboratories, Inc., Subsidiary of Teva Pharmaceuticals USA, 400 Chestnut Ridge Rd., Woodcliff Lake, NJ 07677. ANDA 062256 .... Erythromycin Ethylsuccinate Tablets USP, 400 mg ...... Do. ANDA 062773 .... Cephalexin Capsules USP 250 mg ...... Do. ANDA 062850 .... Cephradine Capsules USP 250 mg ...... Do. ANDA 062851 .... Cephradine Capsules USP 500 mg ...... Do. ANDA 062858 .... Cephradine for Oral Suspension USP 125 mg/5 mL ...... Do. ANDA 062859 .... Cephradine for Oral Suspension USP, 250 mg/5 mL ...... Do. ANDA 063016 .... Cefazolin for Injection USP 250 mg/vial, 500 mg/vial, and 1 Teva Pharmaceuticals USA, 425 Privet Rd., Horsham, PA g/vial. 19044. ANDA 063028 .... Erythromycin Delayed-Release Tablets USP, 333 mg ...... Barr Laboratories, Inc., Subsidiary of Teva Pharmaceuticals USA. ANDA 063086 .... Erythromycin Delayed-Release Tablets, 333 mg ...... Do. ANDA 063098 .... Erythromycin Delayed-Release Capsules USP, 250 mg ...... Do. ANDA 063179 .... Erythromycin Stearate Tablets USP 500 mg ...... ANI Pharmaceuticals, Inc., 210 Main St. West, Baudette, MN 56623. ANDA 064191 .... Cefuroxime for Injection USP 7.5 g/vial ...... Teva Pharmaceuticals USA. ANDA 064192 .... Cefuroxime for Injection USP 750 mg/vial and 1.5 g/vial ...... Do. ANDA 065032 .... Doxycycline Capsules USP 50 mg and 100 mg ...... Sandoz Inc., 4700 Sandoz Dr., Wilson, NC 27893. ANDA 065227 .... Ceftriaxone for Injection USP, 250 mg/vial, 500 mg/vial, 1 g/ Teva Pharmaceuticals USA. vial, and 2 g/vial. ANDA 065262 .... Ceftriaxone for Injection USP, 1 g/vial and 2 g/vial ...... Do. ANDA 065274 .... Ceftriaxone for Injection USP, 10 g/vial ...... Do. ANDA 070034 .... Sulfamethoxazole and Trimethoprim Tablets USP 400 mg/80 Teva Pharmaceuticals USA. mg. ANDA 070216 .... Sulfamethoxazole and Trimethoprim Tablets USP 800 mg/ Barr Laboratories Inc., Subsidiary of Teva Pharmaceuticals. 160 mg. ANDA 072410 .... Indomethacin Extended-Release Capsules, 75 mg ...... Inwood Laboratories, Inc., Subsidiary of Forest Laboratories, Inc. ANDA 072499 .... Propranolol HCl Extended-Release Capsules, 60 mg ...... Do. ANDA 072500 .... Propranolol HCl Extended-Release Capsules, 80 mg ...... Do. ANDA 072501 .... Propranolol HCl Extended-Release Capsules, 120 mg ...... Do. ANDA 072502 .... Propranolol HCl Extended-Release Capsules, 160 mg ...... Do. ANDA 072619 .... Albuterol Sulfate Tablets USP 2 mg ...... Teva Pharmaceuticals USA. ANDA 072620 .... Albuterol Sulfate Tablets USP 4 mg ...... Do. ANDA 073095 .... Clemastine Fumerate Syrup, 0.5 mg/5 mL ...... Do. ANDA 073531.... Potassium Chloride Extended-Release Capsules USP, 8 Do. milliequivalents (mEq). ANDA 073532 .... Potassium Chloride Extended-Release Capsules USP, 10 Do. mEq. ANDA 073667 .... Nortriptyline HCl Capsules, 10 mg, 25 mg, 50 mg, and 75 Do. mg. ANDA 074043 .... Piroxicam Capsules USP, 10 mg and 20 mg ...... Mylan Pharmaceuticals, Inc., 781 Chestnut Ridge Rd., P.O. Box 4310, Morgantown, WV 26505.

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TABLE 1—Continued

Application No. Drug Applicant

ANDA 074126 .... Atenolol Tablets USP, 25 mg, 50 mg, and 100 mg ...... Do. ANDA 074589 .... Minoxidil Topical Solution, 2% ...... Teva Pharmaceuticals USA. ANDA 074828 .... Acyclovir Capsules, 200 mg ...... Do. ANDA 074849 .... Clomipramine HCl Capsules, 25 mg, 50 mg, and 75 mg ...... Do. ANDA 074879 .... Ketoprofen Extended-Release Capsules, 200 mg ...... Alkermes Gainesville LLC, 1300 Gould Dr., Gainesville, GA 30504. ANDA 074976 .... Acyclovir Tablets USP, 400 mg and 800 mg ...... Mylan Pharmaceuticals, Inc. ANDA 074977 .... Acyclovir Capsules USP, 200 mg ...... Do. ANDA 075161 .... Ticlopidine HCl Tablets USP, 250 mg ...... Do. ANDA 075472 .... Enalapril Maleate Tablets USP, 2.5 mg, 5 mg, 10 mg, and 20 Do. mg. ANDA 075934 .... Nizatidine Capsules USP, 150 mg and 300 mg ...... Do. ANDA 076036 .... Quinapril Tablets USP, 5 mg, 10 mg, 20 mg, and 40 mg ...... Do. ANDA 076969 .... Metoprolol Succinate Extended-Release Tablets USP, 25 Sandoz, Inc. mg, 50 mg, 100 mg, and 200 mg. ANDA 077136 .... Terbinafine HCl Tablets, 250 mg ...... Mylan Pharmaceuticals, Inc. ANDA 077163 .... Sumatriptan Succinate Tablets, 25 mg, 50 mg, and 100 mg .. Do. ANDA 077254 .... Divalproex Sodium Delayed-Release Tablets USP, 125 mg, Do. 250 mg, and 500 mg. ANDA 077486 .... Glimepiride Tablets USP, 1 mg, 2 mg, and 4 mg ...... Do. ANDA 077705 .... Fosinopril Sodium and Hydrochlorothiazide Tablets, 10 mg/ Do. 12.5 mg and 20 mg/12.5 mg. ANDA 077934 .... Meloxicam Tablets USP, 7.5 mg and 15 mg ...... Do. ANDA 077976 .... Cromolyn Sodium Nasal Solution USP, 5.2 mg/1 spray ...... HH & P LLC, c/o Kuker Regulatory Consulting, LLC, 18 Dun- bar Way, Mahtomedi, MN 55115. ANDA 078638 .... Alendronate Sodium Tablets USP, 35 mg and 70 mg ...... Mylan Pharmaceuticals, Inc. ANDA 078731 .... Levetiracetam Tablets, 250 mg, 500 mg, 750 mg, and 1,000 Do. mg. ANDA 079184 .... Ursodiol Tablets USP, 250 mg and 500 mg ...... Teva Pharmaceuticals USA. ANDA 081295 .... Estradiol Tablets USP, 0.5 mg ...... Bristol-Myers Squibb Co. ANDA 084499 .... Estradiol Tablets USP, 1 mg ...... Do. ANDA 084500 .... Estradiol Tablets USP, 2 mg ...... Do. ANDA 085794 .... Acetaminophen and Codeine Phosphate Tablets USP, 300 Mutual Pharmaceutical Co., Inc., 1100 Orthodox St., Phila- mg/30 mg. delphia, PA 19124. ANDA 085795 .... Acetaminophen and Codeine Phosphate Tablets USP, 300 Do. mg/15 mg. ANDA 087176 .... Chlorthalidone Tablets USP, 50 mg ...... Ivax Pharmaceuticals, Inc., Subsidiary of Teva Pharma- ceuticals USA, 400 Chestnut Ridge Rd., Woodcliff Lake, NJ 07677. ANDA 087653 .... Acetaminophen and Codeine Phosphate Tablets USP, 300 Mutual Pharmaceutical Co., Inc. mg/60 mg. ANDA 088833 .... Triprolidine HCl, pseudoephedrine HCl, and Codeine Phos- Wockhardt Bio AG, c/o Morton Grove Pharmaceuticals, Inc., phate Cough Syrup, 1.25 mg/5 mL, 30 mg/5 mL, and 10 6451 Main St., Morton Grove, IL 60053. mg/5 mL. ANDA 088896 .... Promethazine VC with Codeine (promethazine HCl, phenyl- Do. ephrine HCl, and codeine phosphate) Cough Syrup, 6.25 mg/5 mL, 5 mg/5 mL, and 10 mg/5 mL. NDA 202343 ...... Juvisync (sitagliptin and simvastatin) Tablets, 100 mg/10 mg, Merck Sharp & Dohme Corp., 351 North Sumneytown Pike, 100 mg/20 mg, and 100 mg/40 mg. P.O. Box 1000, UG2CD–015, North Wales, PA 19454. 1 This product included an oral pressurized metered-dose inhaler that contained chlorofluorocarbons (CFCs) as a propellant. CFCs may no longer be used as a propellant for any flunisolide metered-dose inhalers (see 75 FR 19213, April 14, 2010).

Therefore, under section 505(e) of the Table 1 that are in inventory on the date DEPARTMENT OF HEALTH AND Federal Food, Drug, and Cosmetic Act that this notice becomes effective (see HUMAN SERVICES (the FD&C Act) (21 U.S.C. 355(e)) and the DATES section) may continue to be under authority delegated to the dispensed until the inventories have Health Resources and Services Director, Center for Drug Evaluation and been depleted or the drug products have Administration Research, by the Commissioner, reached their expiration dates or Agency Information Collection approval of the applications listed in otherwise become violative, whichever Activities: Submission to OMB for table 1 in this document, and all occurs first. Review and Approval; Public Comment amendments and supplements thereto, Dated: December 1, 2014. Request is hereby withdrawn, effective January Leslie Kux, 5, 2015. Introduction or delivery for AGENCY: Health Resources and Services introduction into interstate commerce of Associate Commissioner for Policy. Administration, HHS. products without approved new drug [FR Doc. 2014–28541 Filed 12–4–14; 8:45 am] ACTION: Notice. applications violates section 301(a) and BILLING CODE 4164–01–P (d) of the FD&C Act (21 U.S.C. 331(a) SUMMARY: In compliance with Section and (d)). Drug products that are listed in 3507(a)(1)(D) of the Paperwork

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Reduction Act of 1995, the Health (NSL) Program Administrative made through the Federal Capital Resources and Services Administration Requirements (Regulations and Policy). Contribution (FCC). Academic (HRSA) has submitted an Information OMB No. 0915–0047—Extension. institutions are free to use improved Collection Request (ICR) to the Office of Abstract: The statutory authorities for information technology to manage the Management and Budget (OMB) for the Health Professions Student Loan information required by the regulations. (HPSL) Program, as authorized by review and approval. Comments Likely Respondents: Financial Aid Public Health Service (PHS) Act submitted during the first public review Directors working at institutions sections 721–722, and 725–735, and the of this ICR will be provided to OMB. participating in the HPSL and NSL Nursing Student Loan (NSL) Program, as OMB will accept further comments from Programs. the public during the review and authorized by PHS Act sections 835– approval period. 842, contain a number of recordkeeping Burden Statement: Burden in this and reporting requirements for context means the time expended by DATES: Comments on this ICR should be persons to generate, maintain, retain, received no later than January 5, 2015. academic institutions and loan applicants. The applicable regulations disclose or provide the information ADDRESSES: Submit your comments, for these programs under 42 CFR part 57 requested. This includes the time including the Information Collection details the various requirements (see needed to review instructions; to Request Title, to the desk officer for develop, acquire, install and utilize _ chart below). HRSA, either by email to OIRA Need and Proposed Use of the technology and systems for the purpose [email protected] or by fax to Information: The requirements are of collecting, validating and verifying 202–395–5806. essential for assuring that borrowers are information, processing and FOR FURTHER INFORMATION CONTACT: To aware of their rights and maintaining information, and disclosing request a copy of the clearance requests responsibilities, academic institutions and providing information; to train submitted to OMB for review, email the have accurate records of the history and personnel and to be able to respond to HRSA Information Collection Clearance status of each loan account in order to a collection of information; to search Officer at [email protected] or call pursue aggressive collection efforts to data sources; to complete and review (301) 443–1984. reduce default rates, and that academic the collection of information; and to SUPPLEMENTARY INFORMATION: institutions maintain adequate records transmit or otherwise disclose the Information Collection Request Title: for audit and assessment purposes to information. The total annual burden Health Professions Student Loan (HPSL) help the U.S. Department of Health and hours estimated for this ICR are Program and Nursing Student Loan Human Services safeguard federal funds summarized in the table below.

TOTAL ESTIMATED ANNUALIZED BURDEN—HOURS RECORDKEEPING REQUIREMENTS

Number of Total burden Regulatory/section requirements record keepers Hours per year hours

HPSL Program: 57.206(b)(2), Documentation of Cost of Attendance ...... 50 325 16,250 57.208(a), Promissory Note ...... 90 325 29,250 57.210((b)(1)(i), Documentation of Entrance Interview ...... 40 325 13,000 57.210(b)(1)(ii), Documentation of Exit Interview ...... 80 334 26,720 57.215(a)&(d), Program Records ...... 140 334 46,760 57.215(b), Student Records ...... 70 334 23,380 57.215(c), Repayment Records ...... 150 334 50,100

HPSL Subtotal ...... 205,460

NSL Program: 57.306(b)(2)(ii), Documentation of Cost of Attendance ...... 16.0 282 4,512 57.308(a), Promissory Note ...... 4.5 282 1,269 57.310(b)(1)(i), Documentation of Entrance Interview ...... 1.5 282 423 57.310(b)(1)(ii), Documentation of Exit Interview ...... 1.5 348 522 57.315(a)(1)&(a)(4), Program Records ...... 21.0 348 7,308 57.315(a)(2), Student Records ...... 8.5 348 2,958 57.315(a)(3), Repayment Records ...... 5.0 348 1,740

NSL Subtotal ...... 18,732 * Includes active and closing schools. HPSL data includes active and closing Loans for Disadvantaged Students (LDS) program schools.

REPORTING REQUIREMENTS

Responses Regulatory/section requirements Number of per Total annual Hours per Total hour respondents respondent responses response burden

HPSL Program: 57.206(a)(2), Student Financial Aid Transcript ...... n/a ...... 57.208(c), Loan Information Disclosure ...... 325 299.5 97,338 0.63 60,836 57.210(b)(1)(i), Entrance Interview ...... 325 139.5 45,338 0.50 22,669 57.210(b)(1)(ii), Exit Interview ...... 334 113.5 37,909 1.00 37,909

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REPORTING REQUIREMENTS—Continued

Responses Regulatory/section requirements Number of per Total annual Hours per Total hour respondents respondent responses response burden

57.210(b)(1)(iii), Notification of Repayment ...... 334 862.5 288,075 0.38 108,028 57.210(b)(1)(iv), Notification During Deferment ...... 334 17.0 5,678 0.63 3,549 57.210(b)(1)(vi), Notification of Delinquent Accounts ... 334 172.5 57,615 1.25 72,019 57.210(b)(1)(x), Credit Bureau Notification ...... 334 6 2,004 0.50 1,002 57.210(b)(4)(i), Write-off of Uncollectible Loans ...... 5 1 5 3.00 15 57.211(a) Disability Cancellation ...... 3 1 3 1.00 3 57.215(a)(2), Administrative Hearings ...... 0 0 0 0 0 57.215(a)(d), Administrative Hearings ...... 0 0 0 0 0

HPSL Subtotal ...... 306,029

NSL Program: 57.306(a)(2), Student Financial Aid Transcript ...... 57.310(b)(1)(i), Entrance Interview ...... 282 17.5 4,935 0.42 2,048 57.310(b)(1)(ii), Exit Interview ...... 348 9.0 3,132 0.42 1,300 57.301(b)(1)(iii), Notification of Repayment ...... 348 9.0 3,132 0.27 830 57.310(b)(1)(iv), Notification During Deferment ...... 348 1.5 522 0.29 151 57.310(b)(1)(vi), Notification of Delinquent Accounts ... 348 42.5 14,790 0.04 592 57.310(b)(1)(x), Credit Bureau Notification ...... 348 709.0 246,732 0.00 86 57.310(b)(4)(i), Write-off of Uncollectible Loans ...... 23 1.0 23 3.00 69 57.311(a), Disability Cancellation ...... 16 1.0 16 1.00 16 57.315(a)(1)(ii), Administrative Hearings ...... 0 0 0 0 0 57.316(a)(d), Administrative Hearings ...... 0 0 0 0 0

NSL Subtotal ...... 5,092 *Includes active and closing schools.

Jackie Painter, Agenda: To review and evaluate grant Referral, Review, and Program Coordination, Acting Director, Division of Policy and applications. Division of Extramural Activities, National Information Coordination. Place: Gaithersburg Marriott Cancer Institute, NIH, 9609 Medical Center Washingtonian Center, 9751 Washingtonian Drive, 7W530, Rockville, MD 20850, 240– [FR Doc. 2014–28555 Filed 12–4–14; 8:45 am] Boulevard, Gaithersburg, MD 20878. 276–6442, [email protected]. BILLING CODE 4165–15–P Contact Person: Peter J. Wirth, Ph.D., Information is also available on the Scientific Review Officer, Research Programs Institute’s/Center’s home page: http:// Review Branch, Division of Extramural deainfo.nci.nih.gov/advisory/sep/sep.htm, DEPARTMENT OF HEALTH AND Activities, National Cancer Institute, 9609 where an agenda and any additional HUMAN SERVICES Medical Center Drive, Room 7W154, information for the meeting will be posted Rockville, MD 20850, 240–276–6434, pw2q@ when available. nih.gov. National Institutes of Health (Catalogue of Federal Domestic Assistance Name of Committee: National Cancer Program Nos. 93.392, Cancer Construction; National Cancer Institute; Notice of Institute Special Emphasis Panel; 93.393, Cancer Cause and Prevention Closed Meetings Outstanding Investigator Award 1. Research; 93.394, Cancer Detection and Date: March 24–26, 2015. Diagnosis Research; 93.395, Cancer Pursuant to section 10(d) of the Time: 6:00 p.m. to 5:00 p.m. Treatment Research; 93.396, Cancer Biology Federal Advisory Committee Act, as Agenda: To review and evaluate grant Research; 93.397, Cancer Centers Support; applications. 93.398, Cancer Research Manpower; 93.399, amended (5 U.S.C. App.), notice is Place: Gaithersburg Marriott hereby given of the following meetings. Cancer Control, National Institutes of Health, Washingtonian Center, 9751 Washingtonian HHS) The meetings will be closed to the Boulevard, Gaithersburg, MD 20878. public in accordance with the Contact Person: Michael B. Small, Ph.D., Dated: December 1, 2014. provisions set forth in sections Chief, Program and Review Extramural Staff Melanie J. Gray, 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., Training Office, Division of Extramural Program Analyst, Office of Federal Advisory Activities, National Cancer Institute, 9609 as amended. The grant applications and Committee Policy. Medical Center Drive, Room 7W412, [FR Doc. 2014–28530 Filed 12–4–14; 8:45 am] the discussions could disclose Rockville, MD 20850, 240–276–6438, confidential trade secrets or commercial [email protected]. BILLING CODE 4140–01–P property such as patentable material, Name of Committee: National Cancer and personal information concerning Institute Special Emphasis Panel; DEPARTMENT OF HEALTH AND individuals associated with the grant Outstanding Investigator Award 3. applications, the disclosure of which Date: March 24–26, 2015. HUMAN SERVICES Time: 6:00 p.m. to 5:00 p.m. would constitute a clearly unwarranted National Institutes of Health invasion of personal privacy. Agenda: To review and evaluate grant applications. Name of Committee: National Cancer Place: Gaithersburg Marriott National Human Genome Research Institute Special Emphasis Panel; Washingtonian Center, 9751 Washingtonian Institute; Notice of Meeting Outstanding Investigator Award 2. Boulevard, Gaithersburg, MD 20878. Date: March 24–26, 2015. Contact Person: Shamala K. Srinivas, Pursuant to section 10(d) of the Time: 6:00 p.m. to 5:00 p.m. Ph.D., Scientific Review Officer, Office of Federal Advisory Committee Act, as

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amended (5 U.S.C. App.), notice is National Human Genome Research Institute, Building 10, Room 6–3521, Bethesda, MD hereby given of a meeting of the Board 50 South Drive, Bldg. 50, Rm. 5222, 20892, (301) 496–3515. of Scientific Counselors, National Bethesda, MD 20892, 301–294–6873, In the interest of security, NIH has Human Genome Research Institute. [email protected]. instituted stringent procedures for entrance The meeting will be open to the This notice is being published less than 15 onto the NIH campus. All visitor vehicles, days prior to the meeting due to the urgent including taxicabs, hotel, and airport shuttles public as indicated below, with need to meet timing limitations imposed by will be inspected before being allowed on attendance limited to space available. the intramural research review cycle. Individuals who plan to attend and In the interest of security, NIH has campus. Visitors will be asked to show one need special assistance, such as sign instituted stringent procedures for entrance form of identification (for example, a language interpretation or other onto the NIH campus. All visitor vehicles, government-issued photo ID, driver’s license, reasonable accommodations, should including taxicabs, hotel, and airport shuttles or passport) and to state the purpose of their notify the Contact Person listed below will be inspected before being allowed on visit. in advance of the meeting. campus. Visitors will be asked to show one Dated: December 1, 2014. form of identification (for example, a The meeting will be closed to the Michelle Trout, public as indicated below in accordance government-issued photo ID, driver’s license, or passport) and to state the purpose of their Program Analyst, Office of Federal Advisory with the provisions set forth in section visit. Committee Policy. 552b(c)(6), Title 5 U.S.C., as amended (Catalogue of Federal Domestic Assistance [FR Doc. 2014–28527 Filed 12–4–14; 8:45 am] for the review, discussion, and Program Nos. 93.172, Human Genome BILLING CODE 4140–01–P evaluation of individual intramural Research, National Institutes of Health, HHS) programs and projects conducted by the National Human Genome Research Dated: December 1, 2014. DEPARTMENT OF HEALTH AND Institute, including consideration of David Clary, HUMAN SERVICES personnel qualifications and Program Analyst, Office of Federal Advisory Committee Policy. performance, and the competence of National Institutes of Health individual investigators, the disclosure [FR Doc. 2014–28529 Filed 12–4–14; 8:45 am] of which would constitute a clearly BILLING CODE 4140–01–P Center for Scientific Review; Notice of unwarranted invasion of personal Closed Meeting privacy. DEPARTMENT OF HEALTH AND Pursuant to section 10(d) of the Name of Committee: Board of Scientific HUMAN SERVICES Counselors, National Human Genome Federal Advisory Committee Act, as Research Institute. National Institutes of Health amended (5 U.S.C. App.), notice is Date: December 10–11, 2014. hereby given of the following meeting. Closed: December 10, 2014, 5:00 p.m. to Clinical Center; Notice of Closed 7:00 p.m. The meeting will be closed to the Agenda: To review and evaluate personal Meeting public in accordance with the qualifications and performance, and provisions set forth in sections competence of individual investigators. Pursuant to section 10(d) of the 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., Place: Hyatt Regency Bethesda, One Federal Advisory Committee Act, as as amended. The grant applications and Bethesda Metro Center, 7400 Wisconsin amended (5 U.S.C. App.), notice is the discussions could disclose Avenue, Bethesda, MD 20814. hereby given of a meeting of the Board Open: December 10, 2014, 7:00 p.m. to 9:30 confidential trade secrets or commercial of Scientific Counselors of the NIH property such as patentable material, p.m. Clinical Center. Agenda: To discuss matters of program and personal information concerning relevance. The meeting will be closed to the individuals associated with the grant Place: Hyatt Regency Bethesda, One public as indicated below in accordance applications, the disclosure of which Bethesda Metro Center, 7400 Wisconsin with the provisions set forth in section would constitute a clearly unwarranted Avenue, Bethesda, MD 20814. 552b(c)(6), Title 5 U.S.C., as amended invasion of personal privacy. Open: December 11, 2014, 8:00 a.m. to 1:45 for the review, discussion, and Name of Committee: Center for Scientific p.m. evaluation of individual intramural Review Special Emphasis Panel; Member Agenda: To discuss matters of program programs and projects conducted by the relevance. Conflict: Cognition, Diabetic Neuropathy and Place: National Institutes of Health, CLINICAL CENTER, including Metabolomics. Natcher Conference Center, Room F1/F2 consideration of personnel Date: December 19, 2014. (lower level), 45 Center Drive, Bethesda, MD qualifications and performance, and the Time: 3:00 p.m. to 5:00 p.m. 20892. competence of individual investigators, Agenda: To review and evaluate grant Closed: December 11, 2014, 1:45 p.m. to the disclosure of which would applications. 3:30 p.m. constitute a clearly unwarranted Place: National Institutes of Health, 6701 Agenda: To review and evaluate personal invasion of personal privacy. qualifications and performance, and Rockledge Drive, Bethesda, MD 20892, competence of individual investigators. Name of Committee: Board of Scientific (Telephone Conference Call). Place: National Institutes of Health, Counselors of the NIH Clinical Center. Contact Person: Suzan Nadi, Ph.D., Natcher Conference Center, Room F1/F2 Date: January 5–6, 2015. Scientific Review Officer, Center for (lower level), 45 Center Drive, Bethesda, MD Time: 8:00 a.m. to 4:45 p.m.; 8:00 a.m. to Scientific Review, National Institutes of 20892. 11:45 a.m. Health, 6701 Rockledge Drive, Room 5217B, Open: December 11, 2014, 3:30 p.m. to 5:00 Agenda: To review and evaluate the MSC 7846, Bethesda, MD 20892, 301–435– p.m. Bioethics Department. 1259, [email protected]. Agenda: Closing Keynote. Place: National Institutes of Health, Place: National Institutes of Health, Building 10, 4–2551, 10 Center Drive, (Catalogue of Federal Domestic Assistance Natcher Conference Center, Room F1/F2 Bethesda, MD 20892. Program Nos. 93.306, Comparative Medicine; (lower level), 45 Center Drive, Bethesda, MD Contact Person: Mary Sparks, Nurse 93.333, Clinical Research, 93.306, 93.333, 20892. Consultant for the Deputy Director for 93.337, 93.393–93.396, 93.837–93.844, Contact Person: Monica Berger, Executive Clinical Care, Office of the Deputy Director, 93.846–93.878, 93.892, 93.893, National Secretary, Office of the Scientific Director, Clinical Center, National Institutes of Health, Institutes of Health, HHS)

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Dated: December 1, 2014. (2) Evaluate the accuracy of the updated since the publication of the 60 Melanie J. Gray, agencies estimate of the burden of the day Federal Register notice to provide Program Analyst, Office of Federal Advisory proposed collection of information, better estimates—201,447 annual Committee Policy. including the validity of the burden hours. [FR Doc. 2014–28528 Filed 12–4–14; 8:45 am] methodology and assumptions used; Dated: December 1, 2014. (3) Enhance the quality, utility, and BILLING CODE 4140–01–P Scott Elmore, clarity of the information to be collected; and Program Manager, Forms Management Office, (4) Minimize the burden of the Office of the Chief Information Officer, U.S. Immigration and Customs Enforcement, DEPARTMENT OF HOMELAND collection of information on those who Department of Homeland Security. SECURITY are to respond, including through the use of appropriate automated, [FR Doc. 2014–28504 Filed 12–4–14; 8:45 am] United States Immigration and electronic, mechanical, or other BILLING CODE 9111–28–P Customs Enforcement technological collection techniques or other forms of information technology, Agency Information Collection e.g., permitting electronic submission of DEPARTMENT OF HOUSING AND Activities: Extension, With Changes, of responses. URBAN DEVELOPMENT an Existing Information Collection; [Docket No. FR–5752–N–102] Comment Request Overview of This Information Collection 30-Day Notice of Proposed Information ACTION: 30-Day notice of information (1) Type of Information Collection: Collection: Survey Questions for Small collection for review; Form No. I–901; Extension, with changes, of a currently Contractor Marketplace fee remittance for certain F, J and M approved information collection. non-immigrants; OMB Control No. (2) Title of the Form/Collection: Fee AGENCY: Office of the Chief Information 1653–0034. Remittance for Certain F, J and M Non- Officer, HUD. immigrants. ACTION: Notice. The Department of Homeland (3) Agency form number, if any, and Security, U.S. Immigration and Customs the applicable component of the SUMMARY: HUD has submitted the Enforcement (USICE), is submitting the Department of Homeland Security proposed information collection following information collection request sponsoring the collection: Form I–901, requirement described below to the for review and clearance in accordance U.S. Immigration and Customs Office of Management and Budget with the Paperwork Reduction Act of Enforcement. (OMB) for review, in accordance with 1995. The information collection is (4) Affected public who will be asked the Paperwork Reduction Act. The published in the Federal Register to or required to respond, as well as a brief purpose of this notice is to allow for an obtain comments from the public and abstract: Primary: Individuals or additional 30 days of public comment. affected agencies. The information households. Public Law 104–208, DATES: Comments Due Date: January 5, collection was previously published in Subtitle D, Section 641 directs the 2015. the Federal Register on September 25, Attorney General, in consultation with 2014, Vol. 79 No. 22829 allowing for a ADDRESSES: Interested persons are the Secretary of State and the Secretary invited to submit comments regarding 60 day comment period. No comments of Education, to develop and conduct a were received on this information this proposal. Comments should refer to program to collect information on the proposal by name and/or OMB collection. The purpose of this notice is nonimmigrant foreign students and to allow an additional 30 days for public Control Number and should be sent to: exchange visitors from approved HUD Desk Officer, Office of comments. institutions of higher education, as Written comments and suggestions Management and Budget, New defined in section 101(a) of the Higher Executive Office Building, Washington, regarding items contained in this notice Education Act of 1965, as amended or and especially with regard to the DC 20503; fax: 202–395–5806. Email: in a program of study at any other DHS [email protected]. estimated public burden and associated approved academic or language-training response time should be directed to the institution, to include approved private FOR FURTHER INFORMATION CONTACT: Office of Information and Regulatory elementary and secondary schools and Colette Pollard, Reports Management Affairs, Office of Management and public secondary schools, and from Officer, QDAM, Department of Housing Budget. Comments should be addressed approved exchange visitor program and Urban Development, 451 7th Street to the OMB Desk Officer for U.S. sponsors designated by the Department SW., Washington, DC 20410; email at Immigration and Customs Enforcement, of State (DOS). It also authorized a fee, [email protected] or telephone Department of Homeland Security, and not to exceed $200, to be collected from 202–402–3400. Persons with hearing or sent via electronic mail to oira_ these students and exchange visitors to speech impairments may access this [email protected] or faxed to support this information collection number through TTY by calling the toll- (202) 395–5806. program. DHS has implemented the free Federal Relay Service at (800) 877– Written comments and suggestions Student and Exchange Visitor 8339. This is not a toll-free number. from the public and affected agencies Information System (SEVIS) to carry out Copies of available documents concerning the proposed collection of this statutory requirement. submitted to OMB may be obtained information should address one or more (5) An estimate of the total number of from Ms. Pollard. of the following four points: respondents and the amount of time SUPPLEMENTARY INFORMATION: This (1) Evaluate whether the proposed estimated for an average respondent to notice informs the public that HUD has collection of information is necessary respond: 805,786 responses at 15 submitted to OMB a request for for the proper performance of the minutes (.25 hours) per response. approval of the information collection functions of the agency, including (6) An estimate of the total public described in Section A. whether the information will have burden (in hours) associated with the The Federal Register notice that practical utility; collection: The burden figures have been solicited public comment on the

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information collection for a period of 60 Initiative. HUD is partnering with the companies, lenders, surety bond agents, days was published on September 29, U.S. Small Business Administration and business counseling organizations. 2014. (SBA) and BusinessUSA to promote the Respondents: (i.e. affected public): State, local, and tribal governments. A. Overview of Information Collection HUD Small Contractor Initiative through the BusinessUSA FBOpen Web site. The HUD grantees, contracting companies, Title of Information Collection: Web site will be used by HUD and other lenders, surety bond agents, and Survey Form for Small Contractor federal agencies to notify small business counseling organizations. Initiative. contractors for bid opportunities Estimated Number of Responses: OMB Approval Number: 2506—New. nationwide in one place online. Surveys 5,000. Type of Request: New collection. will be collected from grantees in the Estimated Number of Responses: Form Number: N/A. BusinessUSA online system and follow- 20,000. Description of the need for the up user surveys for different user groups Frequency of Response: 4. information and proposed use: Survey Average Hours per Response: 1. such as HUD grantees, contracting collection form for the Small Contractor Total Estimated Burdens: 20,000.

Number of Frequency of Responses Burden hour Annual burden Hourly cost Information collection respondents response per annum per response hours per response Annual cost

Survey Form ...... 5,000 4 20,000 1 20,000 $0 $0

Total ...... 5,000 4 20,000 1 20,000 0 0

B. Solicitation of Public Comment DEPARTMENT OF HOUSING AND SUPPLEMENTARY INFORMATION: This URBAN DEVELOPMENT notice informs the public that HUD has This notice is soliciting comments submitted to OMB a request for [Docket No. FR–5752–N–101] from members of the public and affected approval of the information collection parties concerning the collection of 30-Day Notice of Proposed Information described in Section A. information described in Section A on Collection: Use Restriction Agreement The Federal Register notice that the following: Monitoring and Compliance solicited public comment on the (1) Whether the proposed collection information collection for a period of 60 AGENCY: of information is necessary for the Office of the Chief Information days was published on June 25, 2014. Officer, HUD. proper performance of the functions of A. Overview of Information Collection the agency, including whether the ACTION: Notice. Title of Information Collection: Use information will have practical utility; SUMMARY: HUD has submitted the Restriction Agreement Monitoring and (2) The accuracy of the agency’s proposed information collection Compliance. estimate of the burden of the proposed requirement described below to the OMB Approval Number: 2502–0577. collection of information; Office of Management and Budget Type of Request: Revision or (OMB) for review, in accordance with (3) Ways to enhance the quality, extension of currently approved the Paperwork Reduction Act. The collection. utility, and clarity of the information to purpose of this notice is to allow for an be collected; and Form Number: (HUD–90060, HUD– additional 30 days of public comment. 90061, HUD–90065, HUD–90066, HUD– (4) Ways to minimize the burden of DATES: Comments Due Date: January 5, 93140, HUD–93142, HUD–93143, HUD– the collection of information on those 2015. 93144, HUD–90067, HUD–90068, HUD– who are to respond; including through ADDRESSES: Interested persons are 90069, HUD–90070, HUD–93150, HUD– the use of appropriate automated invited to submit comments regarding 93155, HUD–90075). collection techniques or other forms of this proposal. Comments should refer to Description of the need for the information technology, e.g., permitting the proposal by name and/or OMB information and proposed use: This electronic submission of responses. Control Number and should be sent to: information is necessary for HUD to HUD encourages interested parties to HUD Desk Officer, Office of ensure that owners of certain submit comment in response to these Management and Budget, New multifamily housing projects comply Executive Office Building, Washington, questions. with use restriction requirements once DC 20503; fax: 202–395–5806. Email: the mortgage agreement is terminated. Authority: Section 3507 of the Paperwork [email protected]. This information is also used to monitor Reduction Act of 1995, 44 U.S.C. Chapter 35. FOR FURTHER INFORMATION CONTACT: owner compliance with the Use Dated: November 28, 2014. Colette Pollard, Reports Management Restriction Agreement provisions. Colette Pollard, Officer, QDAM, Department of Housing Estimated Number of Respondents: and Urban Development, 451 7th Street Department Reports Management Officer, Non-profit institutions. Office of the Chief Information Officer. SW., Washington, DC 20410; email at Estimated Number of Responses: 848. Colette [email protected] or telephone Estimated Number of Responses: 848. [FR Doc. 2014–28621 Filed 12–4–14; 8:45 am] 202–402–3400. Persons with hearing or Frequency of Response: 1. BILLING CODE 4210–67–P speech impairments may access this Average Hours per Response: 2. number through TTY by calling the toll- Total Estimated Burdens: 1,696. free Federal Relay Service at (800) 877– 8339. This is not a toll-free number. B. Solicitation of Public Comment Copies of available documents This notice is soliciting comments submitted to OMB may be obtained from members of the public and affected from Ms. Pollard. parties concerning the collection of

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information described in Section A on 20410–5000; telephone 202–402–3400 (4) Ways to minimize the burden of the following: (this is not a toll-free number) or email the collection of information on those (1) Whether the proposed collection at [email protected] for a copy of who are to respond; including through of information is necessary for the the proposed forms or other available the use of appropriate automated proper performance of the functions of information. Persons with hearing or collection techniques or other forms of the agency, including whether the speech impairments may access this information technology, e.g., permitting information will have practical utility; number through TTY by calling the toll- electronic submission of responses. (2) The accuracy of the agency’s free Federal Relay Service at (800) 877– HUD encourages interested parties to estimate of the burden of the proposed 8339. submit comment in response to these collection of information; FOR FURTHER INFORMATION CONTACT: questions. (3) Ways to enhance the quality, Office Of Portfolio Management, Claude utility, and clarity of the information to Authority: Section 3507 of the Paperwork Dickson, Bonds and Appeals Manager, Reduction Act of 1995, 44 U.S.C. Chapter 35. be collected; and Office of Multifamily Housing, (4) Ways to minimize the burden of Dated: December 1, 2014. [email protected], Phone the collection of information on those Laura M. Marin Number: (202) 402–8372, Department of who are to respond; including through Associate General Deputy Assistant Secretary Housing and Urban Development, 451 the use of appropriate automated for Housing–Associate Deputy Federal 7th Street SW., Washington, DC 20410. collection techniques or other forms of Housing Commissioner. This is not a toll-free number. Persons information technology, e.g., permitting [FR Doc. 2014–28594 Filed 12–4–14; 8:45 am] with hearing or speech impairments electronic submission of responses. BILLING CODE 4210–67–P HUD encourages interested parties to may access this number through TTY by submit comment in response to these calling the toll-free Federal Relay questions. Service at (800) 877–8339. DEPARTMENT OF HOUSING AND Copies of available documents URBAN DEVELOPMENT Authority: Section 3507 of the Paperwork submitted to OMB may be obtained Reduction Act of 1995, 44 U.S.C. Chapter 35. from Ms. Pollard. [Docket No. FR–5752–N–100] Dated: November 26, 2014. SUPPLEMENTARY INFORMATION: This Colette Pollard, notice informs the public that HUD is 30-Day Notice of Proposed Information Department Reports Management Officer, seeking approval from OMB for the Collection: Multifamily Insurance Office of the Chief Information Officer. information collection described in Benefits Claims Package [FR Doc. 2014–28629 Filed 12–4–14; 8:45 am] Section A. AGENCY: Office of the Chief Information BILLING CODE 4210–67–P A. Overview of Information Collection Officer, HUD. ACTION: Title of Information Collection: Notice. DEPARTMENT OF HOUSING AND Application for Energy Innovation SUMMARY: HUD has submitted the URBAN DEVELOPMENT Fund—Multifamily Pilot Program. proposed information collection [Docket No. FR–5756–N–41] OMB Approval Number: 2502–0599. requirement described below to the Type of Request: Extension of Office of Management and Budget 60-Day Notice of Proposed Information currently approved collection. (OMB) for review, in accordance with Collection: Application for Energy Form Number: Sample Final Report. the Paperwork Reduction Act. The Innovation Fund—Multifamily Pilot Description of the need for the purpose of this notice is to allow for an Program information and proposed use: additional 30 days of public comment. Application information will be used to DATES: Comments Due Date: January 5, AGENCY: Office of the Assistant evaluate, score and rank applications for 2015. Secretary for Housing—Federal Housing grant funds. Commissioner, HUD. Estimated Number of Respondents: ADDRESSES: Interested persons are ACTION: Notice. 12. invited to submit comments regarding Estimated Number of Responses: 120. this proposal. Comments should refer to SUMMARY: HUD is seeking approval from Frequency of Response: 4. the proposal by name and/or OMB the Office of Management and Budget Average Hours per Response: 25. Control Number and should be sent to: (OMB) for the information collection Total Estimated Burdens: 464. HUD Desk Officer, Office of described below. In accordance with the Management and Budget, New Paperwork Reduction Act, HUD is B. Solicitation of Public Comment Executive Office Building, Washington, requesting comment from all interested This notice is soliciting comments DC 20503; fax: 202–395–5806. Email: parties on the proposed collection of from members of the public and affected [email protected]. information. The purpose of this notice parties concerning the collection of FOR FURTHER INFORMATION CONTACT: is to allow for 60 days of public information described in Section A on Colette Pollard, Reports Management comment. the following: Officer, QDAM, Department of Housing DATES: Comments Due Date: February 3, (1) Whether the proposed collection and Urban Development, 451 7th Street 2015. of information is necessary for the SW., Washington, DC 20410; email at ADDRESSES: Interested persons are proper performance of the functions of Colette [email protected] or telephone invited to submit comments regarding the agency, including whether the 202–402–3400. Persons with hearing or this proposal. Comments should refer to information will have practical utility; speech impairments may access this the proposal by name and/or OMB (2) The accuracy of the agency’s number through TTY by calling the toll- Control Number and should be sent to: estimate of the burden of the proposed free Federal Relay Service at (800) 877– Colette Pollard, Reports Management collection of information; 8339. This is not a toll-free number. Officer, QDAM, Department of Housing (3) Ways to enhance the quality, Copies of available documents and Urban Development, 451 7th Street utility, and clarity of the information to submitted to OMB may be obtained SW., Room 4176, Washington, DC be collected; and from Ms. Pollard.

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SUPPLEMENTARY INFORMATION: This DEPARTMENT OF HOUSING AND property is described as for ‘‘off-site use notice informs the public that HUD has URBAN DEVELOPMENT only’’ recipients of the property will be submitted to OMB a request for required to relocate the building to their [Docket No. FR–5750–N–49] approval of the information collection own site at their own expense. described in Section A. Federal Property Suitable as Facilities Homeless assistance providers The Federal Register notice that To Assist the Homeless interested in any such property should solicited public comment on the send a written expression of interest to information collection for a period of 60 AGENCY: Office of the Assistant HHS, addressed to Theresa Ritta, Ms. days was published on August 21, 2014. Secretary for Community Planning and Theresa M. Ritta, Chief Real Property Development, HUD. Branch, the Department of Health and A. Overview of Information Collection ACTION: Notice. Human Services, Room 5B–17, Title of Information Collection: Parklawn Building, 5600 Fishers Lane, Multifamily Insurance Benefits Claims SUMMARY: This Notice identifies Rockville, MD 20857, (301) 443–6672 Package. unutilized, underutilized, excess, and (This is not a toll-free number). HHS OMB Approval Number: 2502–0418. surplus Federal property reviewed by will mail to the interested provider an Type of Request: Extension of HUD for suitability for use to assist the application packet, which will include currently approved collection. homeless. instructions for completing the Form Number: HUD–2741, HUD– FOR FURTHER INFORMATION CONTACT: application. In order to maximize the 2742, HUD–2744A, HUD–2744B, HUD– Juanita Perry, Department of Housing opportunity to utilize a suitable 2744C, HUD–2744D, HUD–2744E, and Urban Development, 451 Seventh property, providers should submit their HUD–434, HUD–1044D. Street SW., Room 7266, Washington, DC written expressions of interest as soon Description of the need for the as possible. For complete details information and proposed use: We need 20410; telephone (202) 402–3970; TTY number for the hearing- and speech- concerning the processing of this information to pay a claim. This has applications, the reader is encouraged to to do with all the backup paperwork to impaired (202) 708–2565 (these telephone numbers are not toll-free), or refer to the interim rule governing this pay a complete and accurate claim for program, 24 CFR part 581. the mortgagee company. call the toll-free Title V information line at 800–927–7588. For properties listed as suitable/to be Estimated Number of Respondents: excess, that property may, if SUPPLEMENTARY INFORMATION: Business or other for-profit. In subsequently accepted as excess by Estimated Number of Responses: 125. accordance with 24 CFR part 581 and GSA, be made available for use by the Frequency of Response: On occasion. section 501 of the Stewart B. McKinney homeless in accordance with applicable Average Hours per Response: 4.25. Homeless Assistance Act (42 U.S.C. Total Estimated Burdens: 531.25. law, subject to screening for other 11411), as amended, HUD is publishing Federal use. At the appropriate time, B. Solicitation of Public Comment this Notice to identify Federal buildings HUD will publish the property in a and other real property that HUD has Notice showing it as either suitable/ This notice is soliciting comments reviewed for suitability for use to assist from members of the public and affected available or suitable/unavailable. the homeless. The properties were For properties listed as suitable/ parties concerning the collection of reviewed using information provided to information described in Section A on unavailable, the landholding agency has HUD by Federal landholding agencies decided that the property cannot be the following: regarding unutilized and underutilized (1) Whether the proposed collection declared excess or made available for buildings and real property controlled of information is necessary for the use to assist the homeless, and the by such agencies or by GSA regarding proper performance of the functions of property will not be available. its inventory of excess or surplus the agency, including whether the Properties listed as unsuitable will Federal property. This Notice is also information will have practical utility; not be made available for any other (2) The accuracy of the agency’s published in order to comply with the purpose for 20 days from the date of this estimate of the burden of the proposed December 12, 1988 Court Order in Notice. Homeless assistance providers collection of information; National Coalition for the Homeless v. interested in a review by HUD of the (3) Ways to enhance the quality, Veterans Administration, No. 88–2503– determination of unsuitability should utility, and clarity of the information to OG (D.D.C.). call the toll free information line at 1– be collected; and Properties reviewed are listed in this 800–927–7588 for detailed instructions (4) Ways to minimize the burden of Notice according to the following or write a letter to Ann Marie Oliva at the collection of information on those categories: Suitable/available, suitable/ the address listed at the beginning of who are to respond; including through unavailable, and suitable/to be excess, this Notice. Included in the request for the use of appropriate automated and unsuitable. The properties listed in review should be the property address collection techniques or other forms of the three suitable categories have been (including zip code), the date of information technology, e.g., permitting reviewed by the landholding agencies, publication in the Federal Register, the electronic submission of responses. and each agency has transmitted to landholding agency, and the property HUD encourages interested parties to HUD: (1) Its intention to make the number. submit comment in response to these property available for use to assist the For more information regarding questions. homeless, (2) its intention to declare the particular properties identified in this property excess to the agency’s needs, or Notice (i.e., acreage, floor plan, existing Authority: Section 3507 of the Paperwork Reduction Act of 1995, 44 U.S.C. Chapter 35. (3) a statement of the reasons that the sanitary facilities, exact street address), property cannot be declared excess or providers should contact the Dated: November 26, 2014. made available for use as facilities to appropriate landholding agencies at the Colette Pollard, assist the homeless. following addresses: Army: Ms. Department Reports Management Officer, Properties listed as suitable/available Veronica Rines, Office of the Assistant Office of the Chief Information Officer. will be available exclusively for Chief of Staff for Installation [FR Doc. 2014–28631 Filed 12–4–14; 8:45 am] homeless use for a period of 60 days Management, Department of Army, BILLING CODE 4210–67–P from the date of this Notice. Where Room 5A128, 600 Army Pentagon,

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Washington, DC 20310, (571) 256–8145; Hunter Army Airfield GA 31409 support facility; repairs needed; secured (This is not a toll-free number). Landholding Agency: Army area; contact Army for more information Property Number: 21201440009 04R28 Dated: November 25, 2014. Status: Underutilized Fort Campbell Brian P. Fitzmaurice, Comments: Off-site removal only; no future Ft. Campbell TN 42223 Director, Division of Community Assistance, agency need; relocation extremely difficult Landholding Agency: Army Office of Special Needs Assistance Programs. due to size/type; 39,653 sq.; storage; 1+ Property Number: 21201440004 month vacant; contact Army for more Status: Underutilized TITLE V, FEDERAL SURPLUS PROPERTY information Comments: Off-site removal only; no future PROGRAM, FEDERAL REGISTER REPORT 9002 agency need; 800 sq. ft.; 26+ yrs.-old; major FOR 12/05/2014 Hunter Army Airfield repairs; secured area; contact Army for Suitable/Available Properties Hunter Army Airfield GA 31406 more information Landholding Agency: Army Building 03R28, 02r28, & 01R28 Property Number: 21201440010 Fort Campbell Arizona Status: Underutilized Ft. Campbell TN 42223 Comments: Off-site removal only; no future Building 90890 Landholding Agency: Army agency need; relocation difficult due to Fort Huachuca Property Number: 21201440005 type; 221 sq. ft.; 12+ months vacant; poor Fort Huachuca AZ 85613 Status: Underutilized conditions; asbestos; contact Army for Landholding Agency: Army Comments: Off-site removal only; no future more information Property Number: 21201440051 agency need; 552 sq. ft.; range support Status: Unutilized 5 Buildings facility; major repairs; secured area; contact Comments: Off-site removal only; no future Fort Benning Army for more information agency need; 40 sq. ft.; 80+ months vacant; Ft. Benning GA 31905 05127 repairs needed; contact Army for more Landholding Agency: Army Fort Campbell information Property Number: 21201440013 Ft. Campbell TN 42223 Status: Underutilized California Landholding Agency: Army Directions: 8744; 8780; 8782; 8787; 9045 Property Number: 21201440058 Comments: Off-site removal only; no future Building 00054 Status: Excess agency need; sq. ft. varies; poor conditions; Los Alamitos Joint Forces Training Base Comments: Off-site removal only; 224 sq. ft.; contact Army for more information Los Alamitos CA 90720 storage; fair conditions; contact Army for Landholding Agency: Army Building 8510 more information on accessibility/removal Property Number: 21201440019 5037 Moye Rd. requirements Status: Unutilized Fort Benning GA 31905 4 Buildings Comments: Off-site removal only; no future Landholding Agency: Army Fort Campbell agency need; relocation extremely difficult Property Number: 21201440014 Ft. Campbell TN 42223 due to size/type; 13,680 sq. ft.; national Status: Unutilized Landholding Agency: Army guard readiness center; very poor Comments: Off-site removal only; no future conditions; contact Army for more agency need; 10,800 sq. ft.; relocation Property Number: 21201440059 information extremely difficult due to size/type; 8+ Status: Excess Directions: 05211 (320 sq. ft.); 05665 (800 sq. Colorado yrs.-old; poor conditions; contact Army for more information ft.); 00100 (800 sq. ft.); 01604 (126 sq. ft.) Building 01431 Comments: Off-site removal only; fair 6101 Wetzel Ave. 2 Buildings conditions; usage varies; contact Army for Ft. Carson CO 80913 Fort Benning more information on a specific property Ft. Benning GA 31905 Landholding Agency: Army Landholding Agency: Army Texas Property Number: 21201440050 Property Number: 21201440016 Status: Unutilized 07133 Status: Underutilized Comments: Off-site removal only; no future Fort Bliss Directions: 9208; 9211 agency need; 202 sq. ft.; 4+ months vacant; Ft. Bliss TX 79916 Comments: Off-site removal only; no future repair needed; contact Army for more Landholding Agency: Army agency need; relocation difficult due to information Property Number: 21201440011 size/type; sq. ft. varies; poor conditions; Status: Unutilized Georgia secured area; contact Army for more Comments: Off-site removal only; no future Building 7097 information agency need; relocation difficult due to Fort Stewart Tennessee size/type; 12,178 sq. ft.; storage; 120+ months vacant; poor conditions; contact Ft. Stewart GA 31314 9 Buildings Army for more information Landholding Agency: Army Fort Campbell Property Number: 21201440007 Ft. Campbell TN 42223 5 Buildings Status: Underutilized Landholding Agency: Army Fort Bliss Comments: Off-site removal only; no future Property Number: 21201440002 Ft. Bliss TX 79916 agency need; relocation difficult due to Status: Excess Landholding Agency: Army size/type; 9,520 sq. ft.; child development Directions: 00039; 00846; 05123; 05638; Property Number: 21201440012 center; 6+ months vacant; poor conditions; 05640; 05641; 05646; 07540; 07811 Status: Unutilized contact Army for more information Comments: Off-site removal only; relocation Directions: 07134; 07142; 07153; 07162; 100 may be extremely difficult due to size/type; 07178 Hunter Army Airfield sq. ft. varies; poor conditions; Comments: Off-site removal only; no future Hunter Army Airfield GA 31409 contamination; contact Army for more agency need; relocation difficult due to Landholding Agency: Army information size/type; sq. ft. varies; 120+ months Property Number: 21201440008 09R28 vacant; poor conditions; contact Army for Status: Excess Fort Campbell more information Comments: Off-site removal only; relocation Ft. Campbell TN 42223 05095 extremely difficult due to size; 13,331 sq. Landholding Agency: Army Fort Bliss ft.; classroom; poor conditions; contact Property Number: 21201440003 Ft. Bliss TX 79916 Army for more information Status: Underutilized Landholding Agency: Army 1020 Comments: Off-site removal only; no future Property Number: 21201440022 Hunter Army Airfield agency need; 552 sq. ft.; 26+ yrs.-old; range Status: Unutilized

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Comments: Off-site removal only; no future Directions: 01036; 01037 Landholding Agency: Army agency need; 12+ months vacant; good Comments: Off-site removal only; no future Property Number: 21201440020 conditions; secured area; contact Army for agency need; relocation extremely difficult Status: Unutilized more information due to size; 8,142 sq. ft. for each; major Comments: Public access denied and no 07113 repairs needed; contact Army for more alternative method to gain access w/out Fort Bliss information compromising national security Ft. Bliss TX 79916 Wisconsin Reasons: Secured Area Landholding Agency: Army 7 Buildings Illinois Property Number: 21201440023 Fort McCoy 343 Status: Unutilized Ft. McCoy WI 54656 USAG-Rock Island Arsenal Comments: Off-site removal only; 8,855 sq. Landholding Agency: Army Rock Island Arsenal IL 61299 ft.; no future agency need; relocation Property Number: 21201440053 Landholding Agency: Army difficult due to size/type; 120+ months Status: Unutilized Property Number: 21201440037 vacant; child-care center; poor conditions; Directions: 00822; 01146; 01350; 02559; Status: Underutilized contact Army for more information 02866; 09020; 09030 Comments: Public access denied and no 2 Buildings Comments: Off-site removal only; no future alternative method to gain access w/out Yoakum USARC agency need; relocation may be difficult compromising national security Yoakum TX 77995 due to size/type; contamination; poor Reasons: Secured Area Landholding Agency: Army conditions; sq. varies; secured area; contact Maryland Property Number: 21201440035 Army for more info. Status: Underutilized 10 Buildings Directions: P1005; P1006 Unsuitable Properties Aberdeen Proving Ground Aberdeen MD 21005 Comments: Off-site removal only; no future Building agency need; 30 sq. ft.; storage for Landholding Agency: Army flammable materials; 53+ yrs.-old; Alabama Property Number: 21201440025 remediation needed; contact Army for C1310 Status: Unutilized more information Fort McClellan Directions: 00351; 00379; 00893; E2570; E3365; E4100; E4162; E5307; E5359; E6000 01113 Ft. McClellan AL 36205 Comments: Public access denied and no Red River Army Depot Landholding Agency: Army alternative method to gain access w/out Texarkana TX 75507 Property Number: 21201440032 compromising national security Landholding Agency: Army Status: Unutilized Reasons: Secured Area Property Number: 21201440043 Comments: Public access denied and no Status: Excess alternative method to gain access w/out E6100 Comments: Off-site removal only; 257 sq. ft.; compromising national security Aberdeen Proving Ground access control facility; 50+ yrs.-old; contact Reasons: Secured Area Abingdon MD 21009 Army for more information 7134 Landholding Agency: Army Property Number: 21201440027 00940 Redstone Arsenal Redstone Arsenal AL 35898 Status: Unutilized Red River Army Depot Comments: Entire property located w/in Texarkana TX 75507 Landholding Agency: Army Property Number: 21201440038 floodway where it has not been contained Landholding Agency: Army or corrected Property Number: 21201440044 Status: Unutilized Comments: Documented deficiencies: Reasons: Floodway Status: Excess suffered severe flood damage; severe 6 Buildings Comments: Off-site removal only; 200 sq. ft.; structural damage; clear threat to physical Aberdeen Proving Ground break room; extensive deterioration; 19+ safety Aberdeen MD 21010 yrs.-old; secured area; contact Army for Reasons: Extensive deterioration Landholding Agency: Army more information 4812 Property Number: 21201440028 00930 Redstone Arsenal Status: Unutilized Red River Army Depot Redstone Arsenal AL 35898 Directions: E6101; E6102; E6105; E6110; Texarkana TX 75507 Landholding Agency: Army E6111; E6112 Landholding Agency: Army Property Number: 21201440039 Comments: Entire property located in a Property Number: 21201440046 Status: Unutilized floodway where it has not been contained/ Status: Excess Comments: Documented deficiencies: corrected; public access denied and no Comments: Off-site removal only; 200 sq. ft.; suffered major damage from tornado; roof alternative method to gain access w/out ammunition storage; 31+ yrs.-old; torn completely off; clear threat to physical compromising national security extensive deterioration; secured area; safety Reasons: Floodway; Secured Area contact Army for more information Reasons: Extensive deterioration Missouri Washington Arkansas 13 Buildings Building 02080 5 Buildings Fort Leonard Wood Joint Base Lewis McChord Pine Bluff Arsenal Fort Leonard Wood MO 65473 JBLM WA 98433 Pine Bluff AR 71602 Landholding Agency: Army Landholding Agency: Army Landholding Agency: Army Property Number: 21201440024 Property Number: 21201440048 Status: Unutilized Property Number: 21201440045 Status: Underutilized Directions: 02431; 02433; 02435; 02462; Status: Unutilized Comments: Off-site removal only; no future 02464; 02466; 02468; 02470; 02472; 02474; Directions: 32070; 33150; 34133; 51650; agency need; relocation may be difficult 02476; 02478;02480 55040 due to type/size; 2,031 sq. ft.; storage; 1+ Comments: Public access denied and no Comments: Public access denied and no month vacant; major repairs needed; alternative method to gain access w/out alternative method to gain access w/out contact Army for more information compromising national security compromising national security Reasons: Secured Area 2 Buildings Reasons: Secured Area Joint Base Lewis McChord Building 00500 JBLM WA 98433 Colorado Fort Leonard Wood Landholding Agency: Army Building 07303 Fort Leonard Wood MO 65049 Property Number: 21201440057 Fort Carson Landholding Agency: Army Status: Underutilized Ft. Carson CO 80913 Property Number: 21201440026

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Status: Unutilized Reasons: Secured Area compromising national security; Comments: Public access denied and no Oklahoma documented deficiencies: roof caving-in; alternative method to gain access w/out clear threat to physical safety compromising national security Buildings Reasons: Extensive deterioration; Secured Reasons: Secured Area Fort Sill Area Ft. Sill OK 73503 11 Buildings 3 Buildings Landholding Agency: Army Fort Leonard Wood Red River Army Depot Property Number: 21201440054 Fort Leonard Wood MO 65473 Red River Army Depot TX 75507 Status: Unutilized Landholding Agency: Army Landholding Agency: Army Directions: 6280; 6281; 6283; 6292; 6295; Property Number: 21201440029 Property Number: 21201440041 6293 Status: Unutilized Status: Excess Comments: Public access denied and no Directions: 02461; 02463; 02465; 02467; Directions: 01161; 01162; 01165 alternative method to gain access w/out 02469; 02471; 02473; 02475; 02477; 02479; Comments: Public access denied and no compromising national security 02481 alternative method to gain access w/out Reasons: Secured Area Comments: Public access denied and no compromising national security alternative method to gain access w/out Pennsylvania Reasons: Secured Area compromising national security 6 Buildings 01154 Reasons: Secured Area Tobyhanna Army Depot Red River Army Depot 3 Buildings Tobyhanna PA 18466 Texarkana TX 75507 Fort Leonard Wood Landholding Agency: Army Landholding Agency: Army Fort Leonard Wood MO 65473 Property Number: 21201440036 Property Number: 21201440042 Landholding Agency: Army Status: Unutilized Status: Excess Property Number: 21201440030 Directions: 00046; 00245; 00246; A0031; Comments: Public access denied and no Status: Unutilized A0132; S0051 alternative method to gain access w/out Directions: 02430; 02432; 02434 Comments: Public access denied and no compromising national security Comments: Public access denied and no alternative method to gain access w/out Reasons: Secured Area alternative method to gain access w/out compromising national security Virginia compromising national security Reasons: Secured Area Reasons: Secured Area 5 Buildings Rhode Island 2 Buildings Fort Pickett Training Center Fort Leonard Wood Lake of Ozarks Rec. Area Building 000P2 Blackstone VA 23824 Fort Leonard Wood MO 65473 570 Read Schoolhouse Rd. Landholding Agency: Army Landholding Agency: Army NG Coventry RI 02816 Property Number: 21201440006 Property Number: 21201440031 Landholding Agency: Army Status: Unutilized Status: Unutilized Property Number: 21201440049 Directions: T2362; T2363; T2364; T2411; Directions: 00550; 00500 Status: Excess T2603 Comments: Public access denied and no Comments: Public access denied and no Comments: Public access denied and no alternative method to gain access w/out alternative method to gain access w/out alternative method to gain access w/out compromising national security compromising national security compromising national security Reasons: Secured Area Reasons: Secured Area Reasons: Secured Area New Jersey Building OSKRG 6 Buildings Camp Fogarty Fort Belvoir 2 Buildings East Greenwich RI 02818 Ft. Belvoir VA 22060 Picatinny Arsenal Landholding Agency: Army Landholding Agency: Army Dover NJ 07806 Property Number: 21201440052 Property Number: 21201440017 Landholding Agency: Army Status: Unutilized Status: Excess Property Number: 21201440056 Comments: Documented Deficiencies: Directions: 1151; 1906; 1141; 1186; 1194; Status: Unutilized structural damage; several large holes; 1195 Directions: 3208B; 3208G severely rotten foundation; extreme rodent Comments: Documented deficiencies: roof Comments: Public access denied and no infestation; clear threat to physical safety alternative method to gain access w/out caving in; walls are rotted; overgrown Reasons: Extensive deterioration vegetation; clear threat to physical safety compromising national security Reasons: Extensive deterioration Tennessee Reasons: Secured Area 2 Buildings North Carolina 19 Buildings Fort Campbell Defense Distribution San Joaquin 4 Buildings Ft. Campbell TN 42223 Tracy Site 00046, 0234A Fort Bragg Landholding Agency: Army Tracy VA 95304 Ft. Bragg NC 28310 Property Number: 21201440055 Landholding Agency: Army Landholding Agency: Army Status: Excess Property Number: 21201440018 Property Number: 21201440001 Directions: A5212; 06099; 05860; 05800; Status: Unutilized Status: Unutilized 05223; 05217; 05668; 05214; 05213; 05212; Comments: Public access denied and no Directions: M6450; M2346; 14865; 03554 05160; 05128; 05125; 05121; 03068; 02604; alternative method to gain access w/out Comments: Public access denied and no 00893; 00892; 00849 compromising national security alternative method to gain access w/out Comments: Public access denied and no Reasons: Secured Area compromising national security alternative method to gain access w/out Reasons: Secured Area Washington compromising national security 7 Buildings Reasons: Secured Area 23 Buildings Fort Bragg Joint Base Lewis McChord Ft. Bragg NC 28310 Texas JBLM WA 98433 Landholding Agency: Army 01445 Landholding Agency: Army Property Number: 21201440021 Red River Army Depot Property Number: 21201440047 Status: Underutilized Texarkana TX 75507 Status: Underutilized Directions: 12732; 69262; 69357; 85703; Landholding Agency: Army Directions: 07517; 07514; 07507; 07500; 85706; 86103; 42102 Property Number: 21201440040 03422; 03421; 03420; 03419; 03416; 03415; Comments: Public access denied and no Status: Excess 03414; 03413; 03412; 03324; 03287; 03286; alternative method to gain access w/out Comments: Public access denied and no 03279; 03278; 03277; 03214;03212; 03213; compromising national security alternative method to gain access w/out 03080

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Comments: Public access denied and no BEAUDREAU, TOMMY P. GOULD, ROWAN W. alternative method to gain access w/out BECK, RICHARD T. GRAZIANO, ANGELA V. compromising national security BELIN, ALLETTA D. GREENBERGER, SARAH D. Reasons: Secured Area BERRIGAN, MICHAEL J. GROSS, LAWRENCE NMN JR. Wisconsin BIRDSONG, BRET CREECH GUERTIN, STEPHEN D. 09003 BLACK, MICHAEL S. HAINES, DAVID ELSWORTH Fort McCoy BLAIR, JOHN WATSON HAMLEY, JEFFREY L. Ft. McCoy WI 54656 BLANCHARD, MARY JOSIE HANNA, JEANETTE D. Landholding Agency: Army BLEDSOE DOWNES, ANN MARIE HARRIS, SARAH E Property Number: 21201440034 BOLING, EDWARD A. HART, PAULA L. Status: Unutilized BOLTON, HANNIBAL HARTLEY, DEBORAH J. Comments: Public access denied and no BOWKER, BRYAN L. HASKETT, GEOFFREY L. alternative method to gain access w/out BROUN, LAURENCE I. HAUGRUD, KEVIN JACK compromising national security Reasons: Secured Area BROWN, LAURA B. HAWBECKER, KAREN S. BROWN, WILLIAM Y HERBST, LARS T. [FR Doc. 2014–28336 Filed 12–4–14; 8:45 am] BUFFA, NICOLE NMN HILDEBRANDT, BETSY J. BILLING CODE 4210–67–P BURCH, MELVIN E. HOSKINS, DAVID WILLIAM BURCKMAN, JAMES N. HUMBERT, HARRY L BURDEN, JOHN W. IMPSON, ROBERT K. DEPARTMENT OF THE INTERIOR BURNS, SYLVIA W. ISEMAN, THOMAS M CALDWELL, MICHAEL A. IUDICELLO, FAY S. Office of the Secretary CARAMANIAN, LORI L. JAMES, JAMES D. JR. [156D0102DM/DS64600000/ CARL, LEON M. JOHNSTON, MICHAEL J. DLSN00000.000000/DX.64601] CARTER-PFISTERER, CAROLE JUEN, JESSE J. CLARK, HORACE G. KEABLE, EDWARD T. Notice of Senior Executive Service CLEMENT, JOEL P. KELLY, FRANCIS P. Performance Review Board COLANDER, BRANDI ADELE KELLY, KATHERINE P Appointments COMPTON, JEFFREY S. KENDALL, JAMES J. JR. AGENCY: Office of the Secretary, Interior. CONNELL, JAMIE E. KENNA, JAMES G CORDOVA-HARRISON, ELIZABE KIMBALL, SUZETTE M. ACTION: Notice. CRAFF, ROBERT C. KINSINGER, ANNE E. SUMMARY: This notice provides the CRIBLEY, BUD C KLEIN, ELIZABETH A. names of individuals who have been CRUICKSHANK, WALTER D. KNOX, VICTOR W. appointed to serve as members of the CRUZAN, DARREN A. KURTH, JAMES W. Department of the Interior Senior DARNELL, JOSEPH D. LAIRD, JOSHUA RADBILL Executive Service (SES) Performance DAVIS, MARK H LANCE, LINDA L Review Board. DEAN, FRANCIS J. LAPOINTE, TIMOTHY L. DEERINWATER, DANIEL J. LAROCHE, DARRELL WILLIAM DATES: These appointments are effective DICKINSON, WILLIAM K. LAURO, SALVATORE R. upon publication in the Federal DOHNER, CYNTHIA LEE, LORRI J Register. DOUGLAS, JAMES C. LEHNERTZ, CHRISTINE S. FOR FURTHER INFORMATION CONTACT: DREHER, ROBERT GEOFFREY LOFTIN, MELINDA J. Thomas Mulhern, Director, Office of DUTSCHKE, AMY L. LOHOEFENER, RENNE R. Human Resources, Office of the EDSALL, DONNA LYNN LOPEZ, ESTEVAN R Secretary, Department of the Interior, ELLIS, STEVEN A LORDS, DOUGLAS A. 1849 C Street NW., Washington, DC ESQUIVEL, FRANCIS O. LOUDERMILK, WELDON B. 20240, Telephone Number: (202) 208– ESTENOZ, SHANNON A. LUEBKE, THOMAS A 6761. ETHRIDGE, MAX M. LUEDERS, AMY L. SUPPLEMENTARY INFORMATION: The FAETH, LORRAINE V. LYONS, JAMES R members of the Department of the FARBER, MICHAEL D MABRY, SCOTT L. Interior SES Performance Review Board FERRITER, OLIVIA B. MASICA, SUE E. are as follows: FLANAGAN, DENISE A. MCCAFFERY, JAMES G. FORD, JEROME E. MCDOWALL, LENA E Name FORREST, VICKI L. MCKEOWN, MATTHEW J. ALTEMUS, MICHELE J. FRAZER, GARY D. MEHLHOFF, JOHN J. ANDERSON, ALLYSON K. FREEMAN, SHAREE M. MELIUS, THOMAS O ANDREW, JONATHAN M. FREIHAGE, JASON E. MENTORE-SMITH, HOPE Y. APPLEGATE, JAMES D. R. FROST, HERBERT C. MILAKOFSKY, BENJAMIN E ARROYO, BRYAN FULP, TERRANCE J MONACO, JENNIFER ROMERO ATKINSON, KAREN J GALLAGHER, KEVIN T MORRIS, DOUGLAS W. AUSTIN, STANLEY J. GIDNER, JEROLD L. MOSS, ADRIANNE L. AWNI, MUHAMMAD H. GIMBEL, JENNIFER L MULHERN, THOMAS A. BALES, JERAD D. GLENN, DOUGLAS A MULLER, BRUCE C JR BARCHENGER, ERVIN J GLOMB, STEPHEN J. MURILLO, DAVID G. BATHRICK, MARK L. GOKLANY, INDUR M. MURPHY, TIMOTHY M. BAYANI, THERESA WALSH GOLDFUSS, CHRISTINA WHITE MUSSENDEN, PAUL A. BEALL, JAMES W GONZALES-SCHREINER, ROSEA NEDD, MICHAEL D. BEAN, MICHAEL J. GOODWIN, JANET A. NEIMEYER, SARAH C BEARPAW, GEORGE WATIE GOULD, GREGORY J. NEUBACHER, DONALD L.

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O’DELL, MARGARET G. WALSH, NOREEN E. revenue sharing requirements. The ONEILL, KEITH JAMES WARD, JOSEPH M JR expiration date of the Compact was not ORR, L. RENEE WASHBURN, ELIZABETH R extended and remains December 31, ORTIZ, HANKIE P. WASHBURN, JULIA L. 2030. The Secretary took no action on OWENS, GLENDA HUDSON WAYSON, THOMAS C. the Compact within 45 days of its PALMA, JUAN M WEAVER, JESS D. submission by the Tribe and the State. PAYNE, GRAYFORD F. WEBER, WENDI Therefore, the compact is considered to PEREZ, JEROME E WELCH, RUTH L. have been approved, but only to the PETERSON, PENNY LYNN WENK, DANIEL N. extent that the Compact is consistent PIMLEY, LOWELL D. WERKHEISER, WILLIAM H. PINTO, SHARON ANN WHITE, JOHN ETHAN with IGRA. See 25 U.S.C. 2710(d)(8)(C). PLETCHER, MARY F. WHITTINGTON, SAMUEL Q. Dated: December 1, 2014. PRINCE, VENUS MCGHEE WILLIAMS, LC Kevin K. Washburn, PULA, NIKOLAO IULI WILLIAMS, MARGARET C. Assistant Secretary—Indian Affairs. QUINLAN, MARTIN J. WOLF, ROBERT W [FR Doc. 2014–28600 Filed 12–4–14; 8:45 am] QUINT, ROBERT J WOODY, WILLIAM C. RAUCH, PAUL A. WORONKA, THEODORE BILLING CODE 4310–4N–P REYNOLDS, MICHAEL T. YU, DONALD YOON REYNOLDS, THOMAS G. Thomas Mulhern, RIDEOUT, STERLING J. JR DEPARTMENT OF THE INTERIOR Director, Office of Human Resources. ROBERSON, EDWIN L National Park Service ROBERTS, LAWRENCE SCOTT [FR Doc. 2014–28568 Filed 12–4–14; 8:45 am] RODI, JOHN L. BILLING CODE 4334–12–P ROESSEL, CHARLES M. [NPS–WASO–NRNHL–17160; ROSEN, DIANE K. PPWOCRADI0, PCU00RP14.R50000] ROSS, JOHN W DEPARTMENT OF THE INTERIOR ROTH, BARRY N. National Register of Historic Places; Bureau of Indian Affairs ROUNTREE, CARL D. Notification of Pending Nominations RUGEN, CATHERINE E. [DR.5B711.IA000815] and Related Actions RUHS, JOHN F RUSS, DAVID P. Indian Gaming Nominations for the following RYAN, MICHAEL J. properties being considered for listing AGENCY: Bureau of Indian Affairs, or related actions in the National SALERNO, BRIAN M Interior. SALOTTI, CHRISTOPHER P. Register were received by the National SARRI, KRISTEN JOAN ACTION: Notice of Tribal-State Class III Park Service before November 7, 2014. SCHNEIDER, MARGARET N. Gaming Compact taking effect. Pursuant to section 60.13 of 36 CFR part SCHOCK, JAMES H. SUMMARY: This notice publishes the 60, written comments are being SHEEHAN, DENISE E. Class III Amended and Restated Tribal- accepted concerning the significance of SHOLLY, CAMERON H State Compact between the Viejas Band the nominated properties under the SHOPE, THOMAS D. of Kumeyaay Indians 1 and the State of National Register criteria for evaluation. SIMMONS, SHAYLA F. California taking effect. Comments may be forwarded by United SIMPSON, DONALD A DATES: Effective December 5, 2014. States Postal Service, to the National SINGER, MICHELE F. Register of Historic Places, National FOR FURTHER INFORMATION CONTACT: SLACK, JAMES J. Park Service, 1849 C St. NW., MS 2280, SMILEY, KARLA J. Paula L. Hart, Director, Office of Indian Gaming, Office of the Deputy Assistant Washington, DC 20240; by all other SMITH, MICHAEL R. carriers, National Register of Historic SOGGE, MARK K. Secretary—Policy and Economic Places, National Park Service, 1201 Eye SONDERMAN, DEBRA E. Development, Washington, DC 20240, SOUZA, PAUL (202) 219–4066. St. NW., 8th floor, Washington, DC 20005; or by fax, 202–371–6447. Written SPEAKS, STANLEY M. SUPPLEMENTARY INFORMATION: Under STEVENS, BARTHOLOMEW S. section 11 of the Indian Gaming or faxed comments should be submitted STEWARD, JAMES D. Regulatory Act (IGRA), Public Law 100– by December 22, 2014. Before including SUAZO, RAYMOND 497, 25 U.S.C. 2701 et seq., the your address, phone number, email TABER, TERESA RENEE Secretary of the Interior shall publish in address, or other personal identifying TAYLOR, WILLIE R. the Federal Register notice of approved information in your comment, you TEITZ, ALEXANDRA ELIZABET Tribal-State compacts for the purpose of should be aware that your entire THOMPSON, THOMAS D engaging in Class III gaming activities comment—including your personal THORNHILL, ALAN D. on Indian lands. The Amended and identifying information—may be made THORSEN, KIMBERLEY A. Restated Tribal-State Compact publicly available at any time. While THORSON, ROBYN (Compact) between the State of you can ask us in your comment to TOOTHMAN, STEPHANIE S. California (State) and the Viejas Band of withhold your personal identifying TSCHUDY, DEBORAH GIBBS Kumeyaay Indians (Tribe) modifies the information from public review, we TUGGLE, BENJAMIN N. cannot guarantee that we will be able to UBERUAGA, DAVID V. 1 The Tribe is identified as the Viejas (Baron do so. VELA, RAYMOND DAVID Long) Group of Capitan Grande Band of Mission VELASCO, JANINE M. Indians of the Viejas Reservation in the Department’s List of Indian Entities Recognized and VOGEL, ROBERT A. Eligible to Receive Services from the United States WAINMAN, BARBARA W. Bureau of Indian Affairs, 79 FR 4748, 4749 (January WALKER, WILLIAM T. 29, 2014).

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Dated: November 17, 2014. Providence County SUMMARY: The Bureau of Reclamation is J. Paul Loether, Edgewood Historic District—Taft Estate Plat proposing to charge and retain fees for Chief, National Register of Historic Places/ (Boundary Increase), (Edgewood overnight camping at Stony Gorge National Historic Landmarks Program. Neighborhood, Cranston, R.I. MPS), E. side Reservoir. Special Recreation Event of Narragansett Blvd. between Windsor Rd. ILLINOIS authorization fees are also proposed to & Ocean Ave., Cranston, 14001078 be retained under this authority. Cook County VIRGINIA DATES: Submit written comments on the Polish National Alliance Headquarters, Fairfax County new fee site on or before June 3, 2015. (Ethnic (European) Historic Settlement in New fees are scheduled to begin on this Great Falls Park Historic District, Bounded by the city of Chicago 1860–1930 MPS), 1514– date. Public meeting dates and locations 1520 W. Division St., Chicago, 14001063 Potomac R., Georgetown Pike & River Bend Robertson, John, Jr., House, 145 W. Main St., Rd., Great Falls, 14001079 will be announced locally. ADDRESSES: Send written comments on Barrington, 14001064 WYOMING Strauss, Jesse L., Estate, 110 Maple Hill Rd., the proposed new fee site to Brian Glencoe, 14001065 Converse County Person, Area Manager, Northern Du Page County Dorr Ranch, Approx. 5 mi. NE. of Woody California Area Office, Bureau of Creek & Steinle Rds., Bill, 14001080 Reclamation, 16349 Shasta Dam Coffeen, William and Helen, House, 306 S. Boulevard, Shasta Lake, California Garfield, Hinsdale, 14001066 A request for removal has been received for the following resources: 96019. Kane County IOWA FOR FURTHER INFORMATION CONTACT: Elgin Downtown Commercial District, Boone County Richard Robertson, Chief, Water and Roughly bound by Division, Villa Center, Lands Division, P.O. Box 988, Willows, Fulton & Grove, Elgin, 14001067 Boone Bridge, Old US 30 over Des Moines R., California 95988–0988; or call 530–934– Boone, 98000761 Whiteside County 1383. Information about proposed fee Martin House, 707 10th Ave., Fulton, Pottawattamie County changes can also be found on the 14001068 Hancock Savings Bank, 311 Main St., Bureau of Reclamation, Northern Hancock, 83000401 IOWA California Area Office Web site: http:// Scott County www.usbr.gov/mp/ncao. Lee County SUPPLEMENTARY INFORMATION: The Cook, Clarissa C., Library—Blue Ribbon Park-to-Park Residential Historic District, News Building, 528 Brady St., Davenport, proposed fee for overnight camping will 400–1100 blks. of Ave. F & 400–1100 blks. 83002415 be $15 per site per night for all non- of Ave. E, Fort Madison, 14001069 Lend-A-Hand Club, 105 S. Main St., group site camping. Group site MARYLAND Davenport, 84001459 overnight fees will be $75. Interagency Petersen’s, J. H. C., Sons Wholesale Building, Baltimore Independent city Senior Passes will be accepted for 122–124 W. River Dr., Davenport, individual overnight camping. An Brewers Hill Historic District, Roughly 83002484 analysis of the nearby Federal and state bounded by Eastern Ave., S. Conkling, S. Riepe Drug Store—G. Ott Block, 403 W. 2nd recreation offerings with similar Haven & Dillon Sts., Baltimore, 14001070 St., Davenport, 83002493 Schauder Hotel, 126 W. River Dr., Davenport, amenities shows that the proposed fees MISSOURI 83002495 are reasonable and typical of similar St. Louis Independent city Schick’s Express and Transfer Co., 118–120 sites in the area. Funds from fees will General Electric Supply Corporation W. River Dr., Davenport, 83002497 be used for the continued operation, Building, 2653 Locust St., St. Louis Young, Col. Joseph, Block, 502 Brady St., maintenance, and improvements of the (Independent City), 14001071 Davenport, 83002526 reservoir area recreation amenities and Washington County related programs. NEW YORK The Federal Lands Recreation Johnson, Thomas, Polygonal Barn, (Iowa Rensselaer County Round Barns: The Sixty Year Experiment Enhancement Act (Title VII, Pub. L. Marsh-Link-Pollock Farm, 66 White Church TR), Off IA 114, Wellman, 86001451 108–447) directed the Secretary of the Ln., Brunswick, 14001072 Interior to publish a 6-month advance Winneshiek County notice in the Federal Register whenever OHIO Big Stone Mills, 113 N. Main St., Spillville, new recreation fee areas are established. Cuyahoga County 09000516 Once public involvement is complete, Hubbard Cooke Block, 2206–2220 Superior [FR Doc. 2014–28537 Filed 12–4–14; 8:45 am] these new fees will be reviewed by the Viaduct, Cleveland, 14001073 BILLING CODE 4312–51–P Bureau of Reclamation Mid-Pacific Liquid Carbonic Corporation Dry Ice Plant, Regional Director prior to a final 1318 W. 58th St., Cleveland, 14001074 decision and implementation. People Hamilton County DEPARTMENT OF THE INTERIOR wanting to reserve these recreation sites would need to do so through the St. Aloysius-on-the-Ohio, 134 Whipple & Bureau of Reclamation 6207, 6214 & 6218 Portage Sts., 6206 National Recreation Reservation Service Gracely Dr., Cincinnati, 14001075 [RR02331000, 14XR0680A4, at www.recreation.gov, or by calling 1– RX.00224994.2000000] 877–444–6777 when it becomes OREGON available. Multnomah County Notice of Proposed New Fee Site, Stony Gorge Reservoir, Elk Creek, Public Disclosure Rutherford House, 833 NE. Shaver St., Portland, 14001076 California; Federal Lands Recreation Before including your address, phone Enhancement Act number, email address, or other RHODE ISLAND AGENCY: Bureau of Reclamation, personal identifying information in your Kent County Interior. comment, you should be aware that your entire comment—including your Cedar Hill, 4157 Post Rd., Warwick, ACTION: Notice. 14001077 personal identifying information—may

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be made publicly available at any time. Building, is cancelled. Parties to this the Department of Commerce While you can ask us in your comment review should respond to any written (‘‘Commerce’’) of affirmative to withhold your personal identifying questions posed by the Commission in preliminary determinations in the information from public review, we their posthearing briefs, which are due investigations under sections 703(b) or cannot guarantee that we will be able to to be filed on December 12, 2014. 733(b) of the Act, or, if the preliminary do so. For further information concerning determinations are negative, upon Dated: December 1, 2014. this review see the Commission’s notice notice of affirmative final determinations in those investigations Brian Person, cited above and the Commission’s Rules of Practice and Procedure, part 201, under sections 705(a) or 735(a) of the Area Manager, Northern California Area Act. Parties that filed entries of Office. subparts A through E (19 CFR part 201), and part 207, subparts A and C (19 CFR appearance in the preliminary phase of [FR Doc. 2014–28569 Filed 12–4–14; 8:45 am] part 207). the investigations need not enter a BILLING CODE 4332–90–P Authority: This review is being conducted separate appearance for the final phase under authority of title VII of the Tariff Act of the investigations. Industrial users, of 1930; this notice is published pursuant to and, if the merchandise under INTERNATIONAL TRADE section 207.62 of the Commission’s rules. investigation is sold at the retail level, COMMISSION representative consumer organizations By order of the Commission. have the right to appear as parties in [Investigation No. 731–TA–1020 (Second Issued: December 2, 2014. Review)] Commission antidumping and Lisa R. Barton, countervailing duty investigations. The Barium Carbonate From China; Secretary to the Commission. Secretary will prepare a public service Revised Schedule for the Subject [FR Doc. 2014–28574 Filed 12–4–14; 8:45 am] list containing the names and addresses Review BILLING CODE 7020–02–P of all persons, or their representatives, who are parties to the investigations. AGENCY: United States International Trade Commission. INTERNATIONAL TRADE Background ACTION: Notice. COMMISSION On October 16, 2014, a petition was filed with the Commission and [Investigation Nos. 701–TA–524–525 and DATES: Effective December 2, 2014. 731–TA–1260–1261 (Preliminary)] Commerce by American Cast Iron Pipe Company, Birmingham, Alabama; FOR FURTHER INFORMATION CONTACT: Energex, a division of JMC Steel Group, Keysha Martinez (202–205–2136) or Certain Welded Line Pipe From Korea Chicago, Illinois; Maverick Tube Douglas Corkran (202–205–3057), Office and Turkey Corporation, Houston, Texas; Northwest of Investigations, U.S. International Determinations Pipe Company, Vancouver, Washington; Trade Commission, 500 E Street SW., 1 Stupp Corporation, Baton Rouge, Washington, DC 20436. Hearing- On the basis of the record developed Louisiana; Tex-Tube Company, impaired persons can obtain in the subject investigations, the United Houston, Texas; TMK IPSCO, Houston, information on this matter by contacting States International Trade Commission Texas; and Welspun Tubular LLC USA, the Commission’s TDD terminal on 202– (‘‘Commission’’) determines, pursuant to sections 703(a) and 733(a) of the Little Rock, Arkansas, alleging that an 205–1810. Persons with mobility industry in the United States is impairments who will need special Tariff Act of 1930 (19 U.S.C. 1671b(a) and 1673b(a)) (‘‘the Act’’), that there is materially injured or threatened with assistance in gaining access to the material injury by reason of subsidized Commission should contact the Office a reasonable indication that an industry in the United States is materially imports of certain welded line pipe from of the Secretary at 202–205–2000. Korea and Turkey and LTFV imports of General information concerning the injured by reason of imports from Korea and Turkey of certain welded line pipe, certain welded line pipe from Korea and Commission may also be obtained by Turkey. Accordingly, effective October accessing its internet server (http:// provided for in subheadings 7305.11, 7305.12, 7305.19, and 7306.19 of the 16, 2014, the Commission instituted www.usitc.gov). The public record for countervailing duty investigation Nos. this review may be viewed on the Harmonized Tariff Schedule of the United States, that are alleged to be sold 701–TA–524–525 and antidumping Commission’s electronic docket (EDIS) duty investigation Nos. 731–TA–1260– at http://edis.usitc.gov. in the United States at less than fair value (‘‘LTFV’’), and that are allegedly 1261 (Preliminary). SUPPLEMENTARY INFORMATION: Notice of the institution of the subsidized by the governments of Korea Background.—On July 24, 2014, the Commission’s investigations and of a and Turkey. Commission established a schedule for public conference to be held in the conduct of this review (79 FR 44864, Commencement of Final Phase connection therewith was given by August 1, 2014). Subsequently, counsel Investigations posting copies of the notice in the Office for the domestic interested party filed a Pursuant to section 207.18 of the of the Secretary, U.S. International request to appear at the hearing and for Commission’s rules, the Commission Trade Commission, Washington, DC, consideration of cancellation of the also gives notice of the commencement and by publishing the notice in the hearing. Counsel indicated a willingness of the final phase of its investigations. Federal Register of October 23, 2013 (79 to submit written testimony and The Commission will issue a final phase FR 63438). The conference was held in responses to any Commission questions notice of scheduling, which will be Washington, DC, on November 6, 2014, in lieu of an actual hearing. No other published in the Federal Register as and all persons who requested the party filed a timely request to appear at provided in section 207.21 of the opportunity were permitted to appear in the hearing. Consequently, the public Commission’s rules, upon notice from person or by counsel. hearing in connection with this review, The Commission transmitted its scheduled to begin at 9:30 a.m. on 1 The record is defined in sec. 207.2(f) of the determinations in these investigations to December 3, 2014, at the U.S. Commission’s Rules of Practice and Procedure (19 the Secretary of Commerce on December International Trade Commission CFR 207.2(f)). 1, 2014. The views of the Commission

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are contained in USITC Publication submitter, and responses thereto, will be television DMAs across the United 4505 (December 2014), entitled Certain posted on the Department of Justice, States. Through various local services Welded Line Pipe from Korea and Antitrust Division’s internet Web site, agreements, Nexstar sells the advertising Turkey: Investigation Nos. 701–524–525 filed with the Court and, under certain for all of the television stations owned and 731–1260–1261 (Preliminary). circumstances, published in the Federal by Mission, which Nexstar effectively By order of the Commission. Register. Comments should be directed controls. 2. In Evansville, Indiana, Nexstar Issued: December 1, 2014. to Scott A. Scheele, Chief, Telecommunications & Media owns and operates WEHT, an ABC Lisa R. Barton, Enforcement Section, Antitrust broadcast network affiliate. As the Secretary to the Commission. Division, Department of Justice, owner-operator of that station, Nexstar [FR Doc. 2014–28533 Filed 12–4–14; 8:45 am] Washington, DC 20530 (telephone: 202– sells WEHT’s advertising. Pursuant to a BILLING CODE 7020–02–P 514–5621). local services agreement, Nexstar also sells the advertising of WTVW, a CW Patricia A. Brink, broadcast network affiliate in Evansville DEPARTMENT OF JUSTICE Director of Civil Enforcement. that is owned by Mission. Accordingly, WEHT and WTVW do not meaningfully Antitrust Division IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF compete with one another for COLUMBIA advertisers. United States v. Nexstar Broadcasting 3. In Evansville, CCA owns and Group, Inc., Mission Broadcasting, UNITED STATES OF AMERICA, operates WEVV, a CBS broadcast Inc., Communications Corporation of Department of Justice, Antitrust Division network affiliate. WEVV also operates a America and Silver Point Capital Fund, 450 5th Street N.W., Suite 7000 digital subchannel on which it runs L.P.; Proposed Final Judgment and Washington, D.C. 20530 television programming affiliated with Competitive Impact Statement Plaintiff, the FOX broadcast network. Although v. Notice is hereby given pursuant to the Nexstar and Mission intend to transfer NEXSTAR BROADCASTING GROUP, INC., CCA’s WEVV license to a related third Antitrust Procedures and Penalties Act, 545 E. John Carpenter Freeway, Suite 700 15 U.S.C. 16(b)–(h), that a proposed party, the third party is expected to have Irving, Texas 75062 Nexstar sell its advertising pursuant to Final Judgment, Hold Separate MISSION BROADCASTING, INC., Stipulation and Order, and Competitive a local services or similar agreement. 30400 Detroit Road Nexstar would likely have effective Impact Statement have been filed with Westlake, Ohio 44145 control of this third party as it does of the United States District Court for the CORPORATION OF AMERICA, District of Columbia in United States of Mission. 700 Saint John Street 4. Currently, Nexstar (on behalf of America v. Nexstar Broadcasting Group, Suite 300 WEHT and WTVW) and CCA (on behalf Inc., Mission Broadcasting, Inc., Lafayette, Louisiana 70501 of WEVV) compete for the business of Communications Corporation of and local and national advertisers that seek America and Silver Point Capital Fund, SILVER POINT CAPITAL FUND, L.P., spot advertising on broadcast television L.P., Civil Action No. 1:14–cv–02007. 2 Greenwich Plaza, 1st Floor stations in the Evansville, Indiana DMA. On November 26, 2014, the United Greenwich, Connecticut 06830 Advertisers benefit from this States filed a Complaint alleging that Defendants. competition. Nexstar’s proposed acquisition of Case: 1:14–cv–02007 5. If consummated, Nexstar’s Communications Corporation of COMPLAINT acquisition of control of CCA’s America (CCA), by the acquisition of advertising would result in Nexstar control of WEVV–TV in Evansville, The United States of America, acting controlling the sale of advertising for Indiana, would violate Section 7 of the under the direction of the Attorney three out of four major broadcast Clayton Act, 15 U.S.C. 18. The proposed General of the United States, brings this network affiliates (WEHT (ABC) and Final Judgment, filed the same time as civil action to enjoin the proposed WEVV (CBS & FOX)) and a fourth the Complaint, requires Nexstar to acquisition of Communications network affiliation (WTVW (CW)) in the divest WEVV–TV to Bayou City Corporation of America (CCA), a Evansville, Indiana DMA. Nexstar’s Broadcasting Evansville, Inc. or an wholly-owned subsidiary of Silver Point already high market share of spot alternative buyer approved by the Capital Fund, L.P., by Nexstar advertising in the DMA would increase United States. Broadcasting, Inc. (Nexstar) and Mission from approximately 42 to 60 percent. Copies of the Complaint, proposed Broadcasting, Inc. (Mission) (Nexstar 6. The transaction would eliminate Final Judgment and Competitive Impact and Mission are referred to collectively head-to-head competition between Statement are available for inspection at as the Buyers), and to obtain other Nexstar and CCA and all the benefits the Department of Justice, Antitrust equitable relief. The transaction would from this competition. Unless the Division, Antitrust Documents Group, likely lessen competition substantially transaction is blocked, it will lead to 450 Fifth Street NW., Suite 1010, in the sale of broadcast television spot higher prices for broadcast television Washington, DC 20530 (telephone: 202– advertising in the Evansville, Indiana spot advertising in the Evansville, 514–2481), on the Department of Designated Marketing Area (DMA) of Indiana DMA in violation of Section 7 Justice’s Web site at http:// the United States in violation of Section of the Clayton Act, 15 U.S.C. 18. www.usdoj.gov/atr, and at the Office of 7 of the Clayton Act, 15 U.S.C. 18. The the Clerk of the United States District United States alleges as follows: II. JURISDICTION AND VENUE Court for the District of Columbia. 7. The United States brings this action I. NATURE OF THE ACTION Copies of these materials may be pursuant to Section 15 of the Clayton obtained from the Antitrust Division 1. Pursuant to a Stock Purchase Act, as amended, 15 U.S.C. 25, to upon request and payment of the Agreement dated April 24, 2013, prevent and restrain Defendants from copying fee set by Department of Justice Nexstar and Mission will acquire all of violating Section 7 of the Clayton Act, regulations. the issued and outstanding voting 15 U.S.C. 18. Public comment is invited within 60 securities of CCA for $270 million. Both 8. Nexstar and CCA sell broadcast days of the date of this notice. Such Nexstar and CCA own or operate many television spot advertising, a comments, including the name of the broadcast television stations in multiple commercial activity that substantially

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affects, and is in the flow of, interstate television advertising, which are sold by olds) with greater frequency, or to target commerce. The Court has subject-matter the major television networks and narrow geographic areas within a DMA. jurisdiction over this action pursuant to producers of syndicated programs on a 17. Typically, advertisers do not Section 15 of the Clayton Act, 15 U.S.C. nationwide basis and broadcast in every consider internet-based media to be a 25, and 28 U.S.C. 1331, 1337(a), and geographic area where the network or substitute for broadcast television spot 1345. syndicated program is aired. advertising. Although online video 9. Nexstar transacts business and is 15. Broadcast television spot distributors (OVDs) such as Netflix and found in the District of Columbia. advertising possesses a unique Hulu are important sources of video Defendants have consented to venue combination of attributes that sets it programming, as with cable television and personal jurisdiction in this apart from advertising using other types advertising, the local video advertising District. Therefore, venue is proper in of media. Television combines sight, of OVDs lacks the reach of broadcast this District under Section 12 of the sound, and motion, thereby creating a television spot advertising. And non- Clayton Act, 15 U.S.C. 22, and 28 U.S.C. more memorable advertisement. video internet advertising (e.g., Web site 1391(c). Venue is also proper in the Moreover, of all media, broadcast banner advertising) lacks the important District of Columbia for defendant television spot advertising reaches the combination of sight, sound, and motion Nexstar under 28 U.S.C. 1391(d). largest percentage of all potential that gives television its impact. Consequently, the typical local media III. THE DEFENDANTS customers in a particular target geographic market and is therefore advertiser purchases internet-based 10. Nexstar, a Delaware corporation especially effective in introducing, advertising primarily as a supplement to with headquarters in Irving, Texas, establishing, and maintaining the image broadcast television spot advertising. owns or operates 72 broadcast television of a product or service. For a significant 18. Consequently, a small but significant increase in the price of stations located in 41 DMAs in 18 states. number of advertisers, broadcast broadcast television spot advertising is Nexstar reported revenues of $378 television spot advertising, because of unlikely to cause a sufficient number of million for 2013. its unique attributes, is an advertising broadcast television spot advertising 11. Mission, a Delaware corporation medium for which there is no close customers to switch enough of their with headquarters in Westlake, Ohio, substitute. Advertisers generally do not advertising purchases to other media owns 17 broadcast television stations. consider other media, such as radio, such that the price increase would be Nexstar receives substantially all of newspapers, or outdoor billboards, to be unprofitable. Mission’s available cash and is deemed desirable substitutes for broadcast to have a controlling interest in Mission 19. The sale of broadcast television television advertising. None of these spot advertising is a line of commerce under generally accepted accounting media can provide the important principles. Accordingly, Mission’s under Section 7 of the Clayton Act and combination of sight, sound, and motion a relevant product market for purposes economic incentives are aligned with that makes television unique and Nexstar’s. of analyzing the proposed transaction impactful as a medium for advertising. under Section 7 of the Clayton Act. 12. CCA, a Delaware corporation with 16. Like broadcast television, headquarters in Lafayette, Louisiana, subscription television channels, such B. The Evansville, Indiana DMA Is the owns or operates 25 broadcast television as those carried over cable or satellite Relevant Geographic Market stations in 10 DMAs throughout television, combine elements of sight, 20. A Designated Marketing Area or Louisiana, Texas, and Indiana. CCA sound, and motion, but they are not DMA is a geographic unit defined by reported revenues of $98.3 million for generally considered within the A.C. Nielsen Company, a firm that 2012. advertising industry as a desirable surveys television viewers and furnishes 13. Silver Point Capital Fund, L.P., substitute for broadcast television spot broadcast television stations, based in Greenwich, Connecticut, advertising for two important reasons. advertisers, and advertising agencies in controls and is the ultimate parent First, satellite, cable, and other a particular area with data to aid in entity of CCA. subscription content delivery systems evaluating audience size and IV. TRADE AND COMMERCE do not generally have the ‘‘reach’’ of composition. The Evansville, Indiana broadcast television. Typically in the DMA encompasses 21 counties in A. Broadcast Television Spot United States, broadcast television can Indiana, Kentucky, and Illinois. Signals Advertising Is a Relevant Product reach well over 90% of homes in a from broadcast television stations Market DMA, while cable television often located in the Evansville, Indiana DMA 14. Broadcast television stations reaches fewer homes. Second, because reach viewers located throughout the attract viewers through their subscription services may offer more DMA, but signals from broadcast programming, which is delivered for than 100 channels, they fragment the television stations located outside the free over the air or retransmitted to audience into small demographic DMA reach few viewers within the viewers, mainly through wired cable or segments. Because broadcast television DMA. DMAs are used to analyze other terrestrial television systems and programming typically has higher rating revenues and shares of broadcast through satellite television systems. points than subscription television television stations in the Investing in Broadcast television stations then sell programming, broadcast television is Television BIA Market Report 2014 (1st advertising time to businesses that want generally viewed as providing a much ed.), a standard industry reference. to advertise their products to television easier and more efficient means for an 21. Advertisers use broadcast viewers. Broadcast television ‘‘spot’’ advertiser to reach a high proportion of television stations within the advertising is sold directly by the its target demographic. Generally in the Evansville, Indiana DMA to reach the station itself or through its national industry, media buyers purchase time largest possible number of viewers representative on a localized basis and on subscription television channels not within the entire DMA. Some of these is purchased by advertisers who want to so much as a substitute for broadcast advertisers are located in the Evansville, target potential customers in specific television, but rather to supplement a Indiana DMA and need to reach geographic areas. Spot advertising broadcast television message, to reach a customers there; others are regional or differs from network and syndicated narrow demographic (e.g., 18–24 year national businesses that want to target

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consumers in the Evansville, Indiana post-transaction HHI would be commerce in violation of Section 7 of DMA. Advertising on television stations approximately 5100, representing an the Clayton Act, 15 U.S.C. 18, and outside the Evansville, Indiana DMA is increase of about 1500 points. Under the would likely have the following effects, not an alternative for these advertisers Horizontal Merger Guidelines issued by among others: because such stations cannot be viewed the Department of Justice and Federal (a) Competition in the sale of by the vast majority of potential Trade Commission, mergers resulting in broadcast television spot advertising in customers within the DMA. Thus, if highly concentrated markets (with an the Evansville, Indiana DMA would be there were a small but significant HHI in excess of 2500) with an increase lessened substantially; increase in broadcast television spot in the HHI of more than 200 points are (b) Competition in the Evansville, advertising prices within the Evansville, presumed to be likely to enhance market Indiana DMA between Nexstar and CCA Indiana DMA, advertisers would not power. switch enough advertising purchases to 26. In the Evansville, Indiana DMA, in the sale of broadcast television spot television stations outside the Nexstar and CCA compete head-to-head advertising would be eliminated; and Evansville, Indiana DMA to render the against each other in the sale of (c) The prices for broadcast television price increase unprofitable. broadcast television spot advertising spot advertising in the Evansville, 22. The Evansville, Indiana DMA is a and are close substitutes for a significant Indiana DMA would likely increase. section of the country under Section 7 number of advertisers. Advertisers VI. REQUEST FOR RELIEF of the Clayton Act and a relevant benefit from this competition. The geographic market for the sale of proposed transaction would end this 32. The United States requests: broadcast television spot advertising for competition and thereby adversely (a) That the Court adjudge the the purposes of analyzing the proposed affect a substantial volume of interstate proposed transaction to violate Section transaction under Section 7 of the commerce. 7 of the Clayton Act, 15 U.S.C. 18; Clayton Act. 27. After the transaction, a significant (b) That the Court permanently enjoin number of Evansville, Indiana DMA C. The Transaction Will Lead to Harm and restrain the Defendants from advertisers would not be able to reach to Competition in the Evansville, carrying out the proposed transaction or their desired audiences with equivalent Indiana DMA from entering into or carrying out any efficacy unless they advertised on the other agreement, understanding, or plan 23. Broadcast television stations television stations controlled by by which CCA would be acquired by, compete for advertisers by offering Nexstar. Advertisers would have acquire, or merge with the Buyers; programs that attract viewers to their available only one alternative broadcast stations. Broadcast television stations channel. The transaction, therefore, will (c) That the Court award the United select programs that appeal to the enable Nexstar unilaterally to raise States the costs of this action; and greatest number of viewers and that prices. Given the structure of the (d) That the Court award such other differentiate their stations from other Evansville, Indiana DMA, the relief to the United States as the Court stations by appealing to specific economics of this industry suggest that may deem just and proper. demographic groups. Advertisers, in the remaining major competitor will turn, are interested in using broadcast Respectfully submitted, have substantial incentives to follow television spot advertising to reach a suit. FOR PLAINTIFF UNITED STATES OF large audience, as well as to reach a AMERICA: high proportion of the type of viewers D. Entry /s/ lllllllllllllllllll that are most likely to buy their 28. De novo entry into the Evansville, William J. Baer (D.C. Bar #324723) products. Indiana DMA is unlikely as the Federal Assistant Attorney General 24. By virtue of its ownership and Communications Commission (FCC) operation of WEHT and the existing /s/ lllllllllllllllllll regulates entry through the issuance of Leslie Overton (D.C. Bar #454493) local services agreement with Mission to broadcast television spectrum licenses, sell the advertising of WTVW, Nexstar Deputy Assistant Attorney General which are difficult to obtain. Even if a /s/ lllllllllllllllllll currently controls the advertising of two new license became available, broadcast television stations in the Patricia A. Brink commercial success would come, at Director of Civil Enforcement Evansville, Indiana DMA. Post- best, over a period of many years. Thus, transaction, the market would /s/ lllllllllllllllllll entry into the Evansville, Indiana DMA Scott A. Scheele (D.C. Bar #429061) effectively become a duopoly, with broadcast television spot advertising Chief, Telecom & Media Section Nexstar controlling the advertising of market would not be timely, likely, or lllllllllllllllllll three of the four major network affiliates sufficient to deter post-merger /s/ Lawrence M. Frankel (D.C. Bar #441532) (WEHT (ABC) and WEVV (CBS & FOX)) anticompetitive effects. and a fourth network affiliation (WTVW Assistant Chief, Telecom & Media Section (CW)) in the Evansville, Indiana DMA. E. Absence of Efficiencies /s/ lllllllllllllllllll Nexstar’s market share of broadcast 29. Defendants cannot demonstrate Matthew C. Hammond * television spot advertising revenue in cognizable, merger-specific efficiencies Trial Attorney, Telecom & Media Section. the Evansville, Indiana DMA would that are sufficient to reverse the United States Department of Justice, increase from 42 to 60 percent. A single anticompetitive effects of the proposed Antitrust Division, 450 Fifth Street N.W., television station would control the vast transaction. Suite 7000, Washington, D.C. 20530, Phone: majority of the remaining 40 percent. 202–305–8541, Facsimile: 202–514–6381, 25. Using the Herfindahl-Hirschman V. VIOLATION ALLEGED Email: [email protected]. Index (HHI), a standard measure of 30. The United States hereby repeats * Attorney of Record market concentration (defined and and realleges the allegations of Dated: November 26, 2014 explained in Appendix A), the proposed paragraphs 1 through 29 as if fully set APPENDIX A transaction would increase substantially forth herein. the already high concentration in the 31. The Buyers’ proposed acquisition Herfindahl-Hirschman Index Evansville, Indiana DMA broadcast of CCA would likely lessen competition The tern ‘‘HHI’’ means the Herfindahl- television spot advertising market. The substantially in interstate trade and Hirschman Index, a commonly accepted

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measure of market concentration. The HHI is advertising for all of the television stations may be entered after compliance with the calculated by squaring the market share of owned by Mission, which Nexstar effectively APPA. Entry of the proposed Final Judgment each firm competing in the market and then controls. would terminate this action, except that the summing the resulting numbers. For In Evansville, Indiana, Nexstar owns and Court would retain jurisdiction to construe, example, for a market consisting of four firms operates WEHT, an ABC broadcast network modify, or enforce the provisions of the with shares of 30, 30, 20, and 20 percent, the affiliate. As the owner-operator of that proposed Final Judgment and to punish HHI is 2,600 (302 + 302 + 202 + 202 = 2,600). station, Nexstar sells WEHT’s advertising. violations thereof. The HHI takes into account the relative size Pursuant to a local services agreement, distribution of the firms in a market. It Nexstar also sells the advertising of WTVW, II. DESCRIPTION OF THE EVENTS GIVING approaches zero when a market is occupied a CW broadcast network affiliate in RISE TO THE ALLEGED VIOLATION by a large number of firms of relatively equal Evansville that is owned by Mission. size and reaches its maximum of 10,000 Accordingly, WEHT and WTVW do not A. The Defendants and the Proposed points when a market is controlled by a meaningfully compete with one another for Transaction single firm. The HHI increases both as the advertisers. Nexstar, a Delaware corporation with number of firms in the market decreases and In Evansville, CCA owns and operates headquarters in Irving, Texas, owns or as the disparity in size between those firms WEVV, a CBS broadcast network affiliate. operates 72 broadcast television stations increases. Markets in which the HHI is WEVV also operates a digital subchannel on located in 41 DMAs in 18 states. Nexstar between 1,500 and 2,500 points are which it runs television programming reported revenues of $378 million for 2013. considered to be moderately concentrated, affiliated with the FOX broadcast network. Mission, a Delaware corporation with and markets in which the HHI is in excess Although Nexstar and Mission intend to headquarters in Westlake, Ohio, owns 17 of 2,500 points are considered to be highly transfer CCA’s WEVV license to a related broadcast television stations. Nexstar concentrated. See U.S. Department of Justice third party, the third party is expected to receives substantially all of Mission’s have Nexstar sell its advertising pursuant to & Federal Trade Commission, Horizontal available cash and is deemed to have a Merger Guidelines § 5.3 (2010). Transactions a local services or similar agreement. Nexstar would likely have effective control of this controlling interest in Mission under that increase the HHI by more than 200 generally accepted accounting principles. points in highly concentrated markets third party as it does of Mission. Currently, Nexstar (on behalf of WEHT and Accordingly, Mission’s economic incentives presumptively raise antitrust concerns under are aligned with Nexstar’s. the Guidelines. See id. WTVW) and CCA (on behalf of WEVV) compete for the business of local and CCA, a Delaware corporation with IN THE UNITED STATES DISTRICT COURT national advertisers that seek spot advertising headquarters in Lafayette, Louisiana, owns or FOR THE DISTRICT OF COLUMBIA on broadcast television stations in the operates 25 broadcast television stations in UNITED STATES OF AMERICA, Evansville, Indiana DMA. Advertisers benefit 10 DMAs throughout Louisiana, Texas, and Department of Justice, Antitrust Division from this competition. If consummated, Indiana. CCA reported revenues of $98.3 450 5th Street N.W., Suite 7000 Nexstar’s acquisition of control of CCA’s million for 2012. Silver Point Capital Fund, Washington, D.C. 20530 advertising would result in Nexstar L.P., based in Greenwich, Connecticut, controlling the sale of advertising for three controls and is the ultimate parent entity of Plaintiff, out of four major broadcast network affiliates CCA. v. (WEHT (ABC) and WEVV (CBS & FOX)) and The proposed transaction, as initially NEXSTAR BROADCASTING GROUP, INC., a fourth network affiliation (WTVW (CW)) in agreed to by Defendants, would lessen 545 E. John Carpenter Freeway, Suite 700 the Evansville, Indiana DMA. Nexstar’s competition substantially in broadcast Irving, Texas 75062 already high market share of spot advertising television spot advertising in the Evansville, MISSION BROADCASTING, INC., in the DMA would increase from Indiana DMA as a result of Nexstar’s 30400 Detroit Road approximately 42 to 60 percent. Thus, the acquisition of CCA. This transaction is the Westlake, Ohio 44145 transaction would eliminate head-to-head subject of the Complaint and proposed Final competition between Nexstar and CCA and Judgment filed by the United States on COMMUNICATIONS CORPORATION OF all the benefits from this competition, leading AMERICA, to higher prices for broadcast television spot November 26, 2014. 700 Saint John Street, Suite 300 advertising in the Evansville, Indiana DMA Lafayette, Louisiana 70501 B. Anticompetitive Consequences of the in violation of Section 7 of the Clayton Act, Proposed Transaction and 15 U.S.C. 18. 1. The Relevant Product Market SILVER POINT CAPITAL FUND, L.P., The United States filed a civil antitrust 2 Greenwich Plaza, 1st Floor Complaint on November 26, 2014, seeking to The Complaint alleges that the sale of Greenwich, Connecticut 06830 enjoin the proposed transaction. The broadcast television spot advertising Defendants. Complaint alleges that the likely effect of this constitutes a relevant product market for transaction would be to lessen competition analyzing this transaction under Section 7 of Case: 1:14–cv–02007 substantially for broadcast television spot the Clayton Act. Broadcast television stations advertising in the Evansville, Indiana DMA COMPETITIVE IMPACT STATEMENT attract viewers through their programming, in violation of Section 7 of the Clayton Act, which is delivered for free over the air or Plaintiff United States of America (United 15 U.S.C. 18. This loss of competition likely retransmitted to viewers, mainly through States), pursuant to Section 2(b) of the would result in advertisers paying higher wired cable or other terrestrial television Antitrust Procedures and Penalties Act prices. systems and through satellite television (APPA or the Tunney Act), 15 U.S.C. 16(b)– At the same time the Complaint was filed, systems. Broadcast television stations then (h), files this Competitive Impact Statement the United States also filed a Hold Separate sell advertising time to businesses that want relating to the proposed Final Judgment Stipulation and Order (Hold Separate Order) submitted for entry in this civil antitrust and proposed Final Judgment, which are to advertise their products to television proceeding. designed to eliminate the anticompetitive viewers. Broadcast television ‘‘spot’’ effects of the transaction. Under the proposed advertising is sold directly by the station I. NATURE AND PURPOSE OF THE Final Judgment, which is explained more itself or through its national representative PROCEEDING fully below, Defendants are required to divest on a localized basis and is purchased by Pursuant to a Stock Purchase Agreement WEVV located in the Evansville, Indiana advertisers who want to target potential dated April 24, 2013, Nexstar Broadcasting DMA. Under the terms of the Hold Separate customers in specific geographic areas. Spot Group, Inc. (Nexstar) and Mission Order, Defendants are required to take certain advertising differs from network and Broadcasting Inc. (Mission) will acquire all of steps to ensure that WEVV is operated as a syndicated television advertising, which are the issued and outstanding voting securities competitively independent, economically sold by the major television networks and of Communications Corporation of America viable, and ongoing business concern, that producers of syndicated programs on a (CCA) for $270 million. Both Nexstar and will remain independent and uninfluenced nationwide basis and broadcast in every CCA own or operate many broadcast by the consummation of the transaction, and geographic area where the network or television stations in multiple television that competition is maintained during the syndicated program is aired. Designated Marketing Areas (DMAs) across pendency of the ordered divestiture. Broadcast television spot advertising the United States. Through various local The United States and Defendants have possesses a unique combination of attributes services agreements, Nexstar sells the stipulated that the proposed Final Judgment that sets it apart from advertising using other

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types of media. Television combines sight, 2. The Relevant Geographic Market television stations in the Evansville, Indiana sound, and motion, thereby creating a more The Complaint alleges that the Evansville, DMA. Post-transaction, the market would memorable advertisement. Moreover, of all Indiana DMA constitutes a relevant effectively become a duopoly, with Nexstar media, broadcast television spot advertising geographic market for purposes of analyzing controlling the advertising of three of the four reaches the largest percentage of all potential this acquisition under Section 7 of the major network (WEHT (ABC) and WEVV customers in a particular target geographic Clayton Act. A Designated Marketing Area or (CBS & FOX)) and a fourth network affiliation market and is therefore especially effective in DMA is a geographic unit defined by A.C. (WTVW (CW)) in the Evansville, Indiana introducing, establishing, and maintaining Nielsen Company, a firm that surveys DMA. Nexstar’s market share of broadcast the image of a product or service. For a television viewers and furnishes broadcast television spot advertising revenue in the significant number of advertisers, broadcast television stations, advertisers, and DMA would increase from 42 to 60 percent. television spot advertising, because of its advertising agencies in a particular area with A single television station would control the unique attributes, is an advertising medium data to aid in evaluating audience size and vast majority of the remaining 40 percent. for which there is no close substitute. composition. DMAs are used to analyze Advertisers generally do not consider other Using the Herfindahl-Hirschman Index revenues and shares of broadcast television media, such as radio, newspapers, or outdoor (HHI), a standard measure of market stations in the Investing in Television BIA billboards, to be desirable substitutes for concentration (defined and explained in Market Report 2014 (1st ed.), a standard broadcast television advertising. None of Appendix A to the Complaint), the proposed industry reference. The Evansville, Indiana these media can provide the important transaction would increase substantially the DMA encompasses 21 counties in Indiana, combination of sight, sound, and motion that already high concentration in the Evansville, Kentucky, and Illinois. Signals from makes television unique and impactful as a Indiana DMA broadcast television spot broadcast television stations located in the medium for advertising. advertising market. The post-transaction HHI Evansville, Indiana DMA reach viewers Like broadcast television, subscription throughout the DMA, but signals from would be approximately 5100, representing television channels, such as those carried an increase of about 1500 points. Under the over cable or satellite television, combine broadcast television stations located outside the DMA reach few viewers within the DMA. Horizontal Merger Guidelines issued by the elements of sight, sound, and motion, but Department of Justice and Federal Trade they are not generally considered within the Advertisers can use television stations in the DMA to target the largest possible Commission, mergers resulting in highly advertising industry as a desirable substitute concentrated markets (with an HHI in excess for broadcast television spot advertising for number of viewers within the DMA. Some of of 2500) with an increase in the HHI of more two important reasons. First, satellite, cable, these advertisers are located in the than 200 points are presumed to be likely to and other subscription content delivery Evansville, Indiana DMA and are trying to systems do not generally have the ‘‘reach’’ of reach consumers that live in the DMA; others enhance market power. broadcast television. Typically in the United are regional or national businesses wanting to In the Evansville, Indiana DMA, Nexstar States, broadcast television can reach well target consumers in the Evansville, Indiana and CCA compete head-to-head against each over 90% of homes in a DMA, while cable DMA. Advertising on television stations other in the sale of broadcast television spot television often reaches fewer homes. outside each of the Evansville, Indiana DMA advertising. They are close substitutes for Second, because subscription services may is not an alternative for either local, regional, each other for a significant number of offer more than 100 channels, they fragment or national advertisers, because signals from advertisers. Moreover, advertisers typically the audience into small demographic television stations outside of the DMA reach find it cost-effective to reach their target segments. Because broadcast television relatively few viewers within the DMA. audience by buying time from multiple programming typically has higher rating Thus, advertising on those stations outside stations in a DMA. In negotiating rates with points than subscription television the Evansville, Indiana DMA does not reach any one television station, advertisers benefit programming, broadcast television is a significant number of potential customers from competition between stations because generally viewed as providing a much easier within the DMA. they can put together an ad buy with the and more efficient means for an advertiser to Consequently, a small but significant other stations in the DMA. The proposed reach a high proportion of its target increase in broadcast television spot transaction would end this type of demographic. Generally in the industry, advertising prices within the Evansville, competition between Nexstar and CCA and media buyers purchase time on subscription Indiana DMA would not cause advertisers to thereby adversely affect a substantial volume television channels not so much as a switch enough advertising purchases to of interstate commerce. After the transaction, substitute for broadcast television, but rather television stations outside the Evansville, it is likely that a significant number of to supplement a broadcast television Indiana DMA to render the price increase Evansville, Indiana DMA advertisers would message, to reach a narrow demographic unprofitable. not be able to reach their desired audiences (e.g., 18–24 year olds) with greater frequency, 3. Harm to Competition in the Evansville, with equivalent efficacy unless they or to target narrow geographic areas within Indiana DMA a DMA. advertised on the television stations Typically, advertisers do not consider The Complaint alleges that the proposed controlled by Nexstar. By leaving advertisers internet-based media to be a substitute for acquisition would likely lessen competition with only one alternative broadcast channel, broadcast television spot advertising. substantially in interstate trade and the transaction will enable Nexstar Although online video distributors (OVDs) commerce, in violation of Section 7 of the unilaterally to raise prices. Given the such as Netflix and Hulu are important Clayton Act, 15 U.S.C. 18, and likely would structure of the Evansville, Indiana DMA, the sources of video programming, as with cable have the following effects, among others: economics of this industry suggest that the television advertising, the local video (a) competition in the sale of broadcast remaining major competitor will have advertising of OVDs lacks the reach of television spot advertising in the Evansville, substantial incentives to follow suit. broadcast television spot advertising. And Indiana DMA would be lessened 4. Lack of Countervailing Factors non-video internet advertising (e.g., Web site substantially; banner advertising) lacks the important (b) competition in the Evansville, Indiana The Complaint alleges that entry in the combination of sight, sound, and motion that DMA between Nexstar and CCA in the sale Evansville, Indiana DMA’s broadcast gives television its impact. Consequently, the of broadcast television spot advertising television spot advertising market would not typical local media advertiser purchases would be eliminated; and be timely, likely, or sufficient to prevent any internet-based advertising primarily as a (c) the prices for broadcast television spot anticompetitive effects. New entry is unlikely supplement to broadcast television spot advertising on broadcast television stations since any new station would require a advertising. in the Evansville, Indiana DMA likely would Federal Communications Commission (FCC) Consequently, a small but significant price increase. license, which is difficult to obtain. Even if increase in broadcast television spot By virtue of its ownership and operation of a new station became operational, advertising is unlikely to cause enough WEHT and the existing local services commercial success would come over a advertising customers to switch advertising agreement with Mission to sell the period of many years. In addition, there are purchases to other media to make the price advertising of WTVW, Nexstar currently no merger-specific efficiencies that would increase unprofitable. controls the advertising of two broadcast alleviate the harm from the transaction.

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III. EXPLANATION OF THE PROPOSED The divestiture provisions of the proposed modification, interpretation, or enforcement FINAL JUDGMENT Final Judgment will eliminate the of the Final Judgment. The divestiture requirement of the anticompetitive effects of the transaction in broadcast television spot advertising in the VI. ALTERNATIVES TO THE PROPOSED proposed Final Judgment will eliminate the FINAL JUDGMENT anticompetitive effects of the transaction in Evansville, Indiana DMA. the Evansville, Indiana DMA by establishing The proposed Final Judgment also bars The United States considered, as an a new, independent, and economically viable Nexstar from reacquiring the Divestiture alternative to the proposed Final Judgment, competitor, which will maintain the status Assets for the ten-year period of the decree. a full trial on the merits against Defendants. quo in the DMA. The proposed Final Nexstar can only affiliate with either FOX or The United States could have continued the Judgment requires Defendants to divest the CBS (WEVV’s current network affiliates) a litigation and sought preliminary and Divestiture Assets to Bayou City Broadcasting year or more from the filing of the Complaint, permanent injunctions against the Evansville, Inc. (Bayou City), an acquirer contingent on the United States’ approval in contemplated transaction. The United States selected by Defendants and approved by the its sole discretion. is satisfied, however, that the divestiture of United States, in a manner consistent with assets described in the proposed Final IV. REMEDIES AVAILABLE TO POTENTIAL the Final Judgment and the Hold Separate Judgment will preserve competition for the PRIVATE LITIGANTS Order in this case. If Bayou City is unable to sale of broadcast television spot advertising complete the purchase, the Defendants Section 4 of the Clayton Act, 15 U.S.C. 15, in the Evansville, Indiana DMA. Thus, the would be required to divest the Divestiture provides that any person who has been proposed Final Judgment would achieve all Assets to another buyer, approved by the injured as a result of conduct prohibited by or substantially all of the relief the United United States in its sole discretion. the antitrust laws may bring suit in federal States would have obtained through Defendants are required to use their best court to recover three times the damages the litigation, but avoids the time, expense, and efforts to accomplish the divestitures ordered person has suffered, as well as costs and uncertainty of a full trial on the merits of the by this Final Judgment as expeditiously as reasonable attorneys’ fees. Entry of the Complaint. possible and in such a way as to satisfy the proposed Final Judgment will neither impair United States in its sole discretion that the nor assist the bringing of any private antitrust VII. STANDARD OF REVIEW UNDER THE operations can and will be operated by the damage action. Under the provisions of APPA FOR THE PROPOSED FINAL purchaser as a viable, ongoing business that Section 5(a) of the Clayton Act, 15 U.S.C. JUDGMENT can compete effectively in the relevant 16(a), the proposed Final Judgment has no The Clayton Act, as amended by the APPA, market. Because the transfer of the prima facie effect in any subsequent private requires that proposed consent judgments in Divestiture Assets to Bayou City requires lawsuit that may be brought against antitrust cases brought by the United States Federal Communications Commission (FCC) Defendants. be subject to a sixty-day comment period, approval, Defendants are specifically after which the court shall determine required to use their best efforts to obtain all V. PROCEDURES AVAILABLE FOR whether entry of the proposed Final necessary FCC approvals as expeditiously as MODIFICATION OF THE PROPOSED Judgment ‘‘is in the public interest.’’ 15 possible. The divestiture pursuant to this FINAL JUDGMENT U.S.C. 16(e)(1). In making that determination, Section shall take place within five (5) The United States and Defendants have the court, in accordance with the statute as calendar days of entry of the Final Judgment stipulated that the proposed Final Judgment amended in 2004, is required to consider: or within 90 days of the filing of the may be entered by the Court after compliance (A) the competitive impact of such Complaint, whichever is later. Defendants with the provisions of the APPA, provided judgment, including termination of alleged must take all reasonable steps necessary to that the United States has not withdrawn its violations, provisions for enforcement and accomplish the divestiture quickly and shall consent. The APPA conditions entry upon modification, duration of relief sought, cooperate with prospective purchasers. the Court’s determination that the proposed anticipated effects of alternative remedies In the event that Defendants do not Final Judgment is in the public interest. actually considered, whether its terms are accomplish the divestiture within the periods The APPA provides a period of at least ambiguous, and any other competitive prescribed in the proposed Final Judgment, sixty (60) days preceding the effective date of considerations bearing upon the adequacy of or it becomes apparent that Bayou City is the proposed Final Judgment within which such judgment that the court deems unwilling or unable to complete its purchase any person may submit to the United States necessary to a determination of whether the of the Divestiture Assets, the Final Judgment written comments regarding the proposed consent judgment is in the public interest; provides that the Court will appoint a trustee Final Judgment. Any person who wishes to and selected by the United States to effect the comment should do so within sixty (60) days (B) the impact of entry of such judgment divestiture. The United States may, after of the date of publication of this Competitive upon competition in the relevant market or three months, determine not to seek appointment of a trustee if it believes the Impact Statement in the Federal Register, or markets, upon the public generally and circumstances warrant allowing the the last date of publication in a newspaper individuals alleging specific injury from the Defendants more time. Under such of the summary of this Competitive Impact violations set forth in the complaint circumstances, however, the United States Statement, whichever is later. All comments including consideration of the public benefit, may, at any time, exercise its right to select received during this period will be if any, to be derived from a determination of a trustee for the Court to appoint. If a trustee considered by the United States Department the issues at trial. is appointed, the proposed Final Judgment of Justice, which remains free to withdraw its 15 U.S.C. 16(e)(1)(A) & (B). In considering provides that Defendants will pay all costs consent to the proposed Final Judgment at these statutory factors, the court’s inquiry is and expenses of the trustee. The trustee’s any time prior to the Court’s entry of necessarily a limited one as the government commission will be structured so as to judgment. The comments and the response of is entitled to ‘‘broad discretion to settle with provide an incentive for the trustee based on the United States will be filed with the Court. the defendant within the reaches of the the price obtained and the speed with which In addition, comments will be posted on the public interest.’’ United States v. Microsoft the divestiture is accomplished. After his or U.S. Department of Justice, Antitrust Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); her appointment becomes effective, the Division’s internet Web site and, under see generally United States v. SBC trustee will file monthly reports with the certain circumstances, published in the Commc’ns, Inc., 489 F. Supp. 2d 1 (D.D.C. Court and the United States setting forth his Federal Register. 2007) (assessing public interest standard or her efforts to accomplish the divestiture. Written comments should be submitted to: under the Tunney Act); United States v. U.S. At the end of six (6) months, if the divestiture Scott A. Scheele, Chief, Telecom & Media Airways Group, Inc., No. 13-cv-1236(CKK), has not been accomplished, the trustee and Enforcement Section, Antitrust Division, U.S. 2014–1Trade Cas. (CCH) ¶ 78,748, 2014 U.S. the United States will make Department of Justice, 450 5th Street NW., Dist. LEXIS 57801, at *7 (D.D.C. Apr. 25, recommendations to the Court, which shall Suite 7000, Washington, DC 20530. 2014) (noting court has broad discretion to enter such orders as appropriate, in order to The proposed Final Judgment provides that review adequacy of relief at issue); United carry out the purpose of the trust, including the Court retains jurisdiction over this action, States v. InBev N.V./S.A., No. 08–1965(JR), extending the trust or the term of the trustee’s and the parties may apply to the Court for 2009–2 Trade Cas. (CCH) ¶ 76,736, 2009 U.S. appointment. any order necessary or appropriate for the Dist. LEXIS 84787, at *3, (D.D.C. Aug. 11,

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2009) (noting that court’s review of a consent preferable); Microsoft, 56 F.3d at 1461 (noting this section shall be construed to require the judgment is limited and only inquires ‘‘into the need for courts to be ‘‘deferential to the court to conduct an evidentiary hearing or to whether the government’s determination that government’s predictions as to the effect of require the court to permit anyone to the proposed remedies will cure the antitrust the proposed remedies’’); United States v. intervene.’’ 15 U.S.C. 16(e)(2); see also U.S. violations alleged in the complaint was Archer-Daniels-Midland Co., 272 F. Supp. 2d Airways, 2014 U.S. Dist. LEXIS 57801, at *9 reasonable, and whether the mechanism to 1, 6 (D.D.C. 2003) (noting that the court (indicating that a court is not required to enforce the final judgment are clear and should grant due respect to the United States’ hold an evidentiary hearing or to permit manageable’’).1 prediction as to the effect of proposed intervenors as part of its review under the As the United States Court of Appeals for remedies, its perception of the market APPA). The language wrote into the statute the District of Columbia Circuit has held, structure, and its views of the nature of the what Congress intended when it enacted the under the APPA a court considers, among case). APPA in 1974, as Senator Tunney explained: other things, the relationship between the Courts have greater flexibility in approving ‘‘[t]he court is nowhere compelled to go to remedy secured and the specific allegations proposed consent decrees than in crafting trial or to engage in extended proceedings set forth in the government’s complaint, their own decrees following a finding of which might have the effect of vitiating the whether the decree is sufficiently clear, liability in a litigated matter. ‘‘[A] proposed benefits of prompt and less costly settlement whether enforcement mechanisms are decree must be approved even if it falls short through the consent decree process.’’ 119 sufficient, and whether the decree may of the remedy the court would impose on its Cong. Rec. 24,598 (1973) (statement of Sen. positively harm third parties. See Microsoft, own, as long as it falls within the range of Tunney). Rather, the procedure for the public 56 F.3d at 1458–62. With respect to the acceptability or is ‘within the reaches of interest determination is left to the discretion adequacy of the relief secured by the decree, public interest.’’’ United States v. Am. Tel. & of the court, with the recognition that the a court may not ‘‘engage in an unrestricted Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) court’s ‘‘scope of review remains sharply evaluation of what relief would best serve the (citations omitted) (quoting United States v. proscribed by precedent and the nature of public.’’ United States v. BNS, Inc., 858 F.2d Gillette Co., 406 F. Supp. 713, 716 (D. Mass. Tunney Act proceedings.’’ SBC Commc’ns, 456, 462 (9th Cir. 1988) (quoting United 1975)), aff’d sub nom. Maryland v. United 489 F. Supp. 2d at 11.3 A court may make States v. Bechtel Corp., 648 F.2d 660, 666 States, 460 U.S. 1001 (1983); see also U.S. its public interest determination based on the (9th Cir. 1981)); see also Microsoft, 56 F.3d Airways, 2014 U.S. Dist. LEXIS 57801, at *8 competitive impact statement and response at 1460–62; United States v. Alcoa, Inc., 152 (noting that room must be made for the to public comments alone. U.S. Airways, F. Supp. 2d 37, 40 (D.D.C. 2001); InBev, 2009 government to grant concessions in the 2014 U.S. Dist. LEXIS 57801, at *9. U.S. Dist. LEXIS 84787, at *3. Courts have negotiation process for settlements (citing VIII. DETERMINATIVE DOCUMENTS held that: Microsoft, 56 F.3d at 1461); United States v. [t]he balancing of competing social and Alcan Aluminum Ltd., 605 F. Supp. 619, 622 There are no determinative materials or political interests affected by a proposed (W.D. Ky. 1985) (approving the consent documents within the meaning of the APPA antitrust consent decree must be left, in the decree even though the court would have that were considered by the United States in first instance, to the discretion of the imposed a greater remedy). To meet this formulating the proposed Final Judgment. Attorney General. The court’s role in standard, the United States ‘‘need only Respectfully submitted, lllllllllllllllllll protecting the public interest is one of provide a factual basis for concluding that /s/ insuring that the government has not the settlements are reasonably adequate Matthew C. Hammond breached its duty to the public in consenting remedies for the alleged harms.’’ SBC Trial Attorney, U.S. Department of Justice, to the decree. The court is required to Commc’ns, 489 F. Supp. 2d at 17. Antitrust Division, Telecom & Media, 450 5th determine not whether a particular decree is Moreover, the court’s role under the APPA Street NW., Suite 7000, Washington, DC the one that will best serve society, but is limited to reviewing the remedy in 20530, Phone: 202–305–8541, Fax: 202–514– whether the settlement is ‘‘within the reaches relationship to the violations that the United 6381, Email: [email protected] of the public interest.’’ More elaborate States has alleged in its Complaint, and does Counsel for Plaintiff United States of requirements might undermine the not authorize the court to ‘‘construct [its] America effectiveness of antitrust enforcement by own hypothetical case and then evaluate the Dated: November 26, 2014 consent decree. decree against that case.’’ Microsoft, 56 F.3d Bechtel, 648 F.2d at 666 (emphasis added) at 1459; see also U.S. Airways, 2014 U.S. IN THE UNITED STATES DISTRICT COURT (citations omitted).2 In determining whether Dist. LEXIS 57801, at *9 (noting that the FOR THE DISTRICT OF COLUMBIA a proposed settlement is in the public court must simply determine whether there UNITED STATES OF AMERICA, is a factual foundation for the government’s interest, a district court ‘‘must accord Plaintiff, deference to the government’s predictions decisions such that its conclusions regarding about the efficacy of its remedies, and may the proposed settlements are reasonable); v. not require that the remedies perfectly match InBev, 2009 U.S. Dist. LEXIS 84787, at *20 NEXSTAR BROADCASTING GROUP, INC., the alleged violations.’’ SBC Commc’ns, 489 (‘‘the ‘public interest’ is not to be measured MISSION BROADCASTING, INC., F. Supp. 2d at 17; see also U.S. Airways, 2014 by comparing the violations alleged in the COMMUNICATIONS CORPORATION OF U.S. Dist. LEXIS 57801, at *16 (noting that complaint against those the court believes AMERICA a court should not reject the proposed could have, or even should have, been and remedies because it believes others are alleged’’). Because the ‘‘court’s authority to SILVER POINT CAPITAL FUND, L.P., review the decree depends entirely on the Defendants. 1 The 2004 amendments to the APPA substituted government’s exercising its prosecutorial ‘‘shall’’ for ‘‘may’’ in directing relevant factors for discretion by bringing a case in the first 3 court to consider and amended the list of factors to place,’’ it follows that ‘‘the court is only See United States v. Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000) (noting that the ‘‘Tunney focus on competitive considerations and to address authorized to review the decree itself,’’ and potentially ambiguous judgment terms. Compare 15 Act expressly allows the court to make its public not to ‘‘effectively redraft the complaint’’ to interest determination on the basis of the U.S.C. 16(e) (2004), with 15 U.S.C. 16(e)(1) (2006); inquire into other matters that the United competitive impact statement and response to see also SBC Commc’ns, 489 F. Supp. 2d at 11 comments alone’’); United States v. Mid-Am. (concluding that the 2004 amendments ‘‘effected States did not pursue. Microsoft, 56 F.3d at 1459–60. As this Court confirmed in SBC Dairymen, Inc., No. 73–CV–681–W–1, 1977–1 Trade minimal changes’’ to APPA review). Cas. (CCH) ¶ 61,508, at 71,980, *22 (W.D. Mo. 1977) 2 Communications, courts ‘‘cannot look Cf. BNS, 858 F.2d at 464 (holding that the (‘‘Absent a showing of corrupt failure of the court’s ‘‘ultimate authority under the [APPA] is beyond the complaint in making the public government to discharge its duty, the Court, in limited to approving or disapproving the consent interest determination unless the complaint making its public interest finding, should . . . decree’’); United States v. Gillette Co., 406 F. Supp. is drafted so narrowly as to make a mockery carefully consider the explanations of the 713, 716 (D. Mass. 1975) (noting that, in this way, of judicial power.’’ SBC Commc’ns, 489 F. government in the competitive impact statement the court is constrained to ‘‘look at the overall Supp. 2d at 15. and its responses to comments in order to picture not hypercritically, nor with a microscope, In its 2004 amendments to the APPA, determine whether those explanations are but with an artist’s reducing glass’’). See generally Congress made clear its intent to preserve the reasonable under the circumstances.’’); S. Rep. No. Microsoft, 56 F.3d at 1461 (discussing whether ‘‘the 93–298, at 6 (1973) (‘‘Where the public interest can remedies [obtained in the decree are] so practical benefits of utilizing consent decrees be meaningfully evaluated simply on the basis of inconsonant with the allegations charged as to fall in antitrust enforcement, adding the briefs and oral arguments, that is the approach that outside of the ‘reaches of the public interest’’’). unambiguous instruction that ‘‘[n]othing in should be utilized.’’).

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Case: 1:14–cv–02007 partnership headquartered in Greenwich, acceptable to the United States in its sole Connecticut, its successors and assigns, and discretion, in a manner consistent with this PROPOSED FINAL JUDGMENT its subsidiaries, divisions, groups, affiliates, Final Judgment and the Hold Separate WHEREAS, plaintiff, the United States of partnerships and joint ventures, and their Stipulation and Order in this case. The America, having filed its Complaint on ll, directors, officers, managers, agents, and divestiture pursuant to this Section shall take and plaintiff and defendants Nexstar employees. place within ninety (90) calendar days after Broadcasting Group, Inc. (‘‘Nexstar’’); E. ‘‘Acquirer’’ means BCBE, or another the filing of the Complaint in this matter or Mission Broadcasting, Inc. (‘‘Mission’’); entity to which the defendants divest the five (5) days after notice of entry of this Final Communications Corporation of America Divestiture Assets. Judgment by the Court, whichever is later. (‘‘CCA’’) and Silver Point Capital Fund, L.P., F. ‘‘BCBE’’ means Bayou City Broadcasting The United States, in its sole discretion, may by their respective attorneys, having Evansville, Inc., a Delaware corporation agree to an extension of this time period not consented to the entry of this Final Judgment headquartered in Boston, Massachusetts, its to exceed thirty (30) calendar days, and shall without trial or adjudication of any issue of successors and assigns, and its subsidiaries, notify the Court in such circumstances. fact or law herein, and without this Final divisions, groups, affiliates, partnerships and Defendants shall use their best efforts to Judgment constituting any evidence against joint ventures, and their directors, officers, accomplish the divestiture ordered by this or an admission by any party with respect to managers, agents, and employees. Final Judgment as expeditiously as possible, any issue of law or fact herein; G. ‘‘WEVV–TV’’ means the broadcast including using their best efforts to obtain all AND WHEREAS, defendants have agreed television station located in the Evansville, necessary FCC approvals as expeditiously as to be bound by the provisions of this Final Indiana DMA owned by defendant CCA possible. Judgment pending its approval by the Court; operating on virtual Channel 44. B. In the event that defendants are AND WHEREAS, the essence of this Final H. ‘‘Divestiture Assets’’ means all of the attempting to divest the assets to an Acquirer Judgment is the prompt and certain assets, tangible or intangible, used in the other than BCBE, in accomplishing the divestiture of the Divestiture Assets to assure operation of WEVV–TV, including, but not divestiture ordered by this Final Judgment, that competition is not substantially limited to, all real property (owned or leased) (1) Defendants promptly shall make lessened; used in the operation of the station, all known, by usual and customary means, the AND WHEREAS, the United States broadcast equipment, office equipment, availability of the Divestiture Assets; requires certain divestitures to be made for office furniture, fixtures, materials, supplies, (2) Defendants shall inform any person the purpose of remedying the loss of and other tangible property used in the making inquiry regarding a possible purchase competition alleged in the Complaint; operation of the station; all licenses, permits, of the Divestiture Assets that they are being AND WHEREAS, defendants have authorizations, and applications therefore divested pursuant to this Final Judgment and represented to the United States that the issued by the Federal Communications provide that person with a copy of this Final divestitures required below can and will be Commission (‘‘FCC’’) and other government Judgment; made, and that defendants will later raise no agencies related to that station; all contracts (3) Defendants shall offer to furnish to all claim of hardship or difficulty as grounds for (including programming contracts and prospective Acquirers, subject to customary asking the Court to modify any of the rights), agreements, network affiliation confidentiality assurances, all information divestiture provisions contained below; and documents relating to the Divestiture NOW, THEREFORE, before any testimony agreements, leases and commitments and understandings of defendant CCA relating to Assets customarily provided in a due is taken, without trial or adjudication of any diligence process except such information or issue of fact or law, and upon consent of the the operation of WEVV–TV; all trademarks, service marks, trade names, copyrights, documents subject to the attorney-client parties, it is hereby ORDERED, ADJUDGED, privileges or work-product doctrine; and AND DECREED: patents, slogans, programming materials, and promotional materials relating to WEVV–TV; (4) Defendants shall make available such I. Jurisdiction all customer lists, contracts, accounts, and information to the United States at the same time that such information is made available This Court has jurisdiction over each of the credit records; and all logs and other records to any other person. parties hereto and over the subject matter of maintained by defendant CCA in connection C. Defendants shall provide the Acquirer this action. The Complaint states a claim with WEVV–TV. and the United States information relating to upon which relief may be granted against I. ‘‘DMA’’ means designated market area as defendants under Section 7 of the Clayton defined by A.C. Nielsen Company based the personnel involved in the operation and Act, as amended, 15 U.S.C. 18. upon viewing patterns and used by the management of the Divestiture Assets to Investing In Television BIA Market Report enable the Acquirer to make offers of II. Definitions 2014 (1st ed.). DMAs are ranked according to employment. Defendants shall not interfere As used in this Final Judgment: the number of households therein and are with any negotiations by the Acquirer to A. ‘‘Nexstar’’ means defendant Nexstar used by broadcasters, advertisers and employ or contract with any employee of any Broadcasting Group, Inc., a Delaware advertising agencies to aid in evaluating defendant whose primary responsibility is corporation with its headquarters in Irving, television audience size and composition. the operation or management of the Texas, its successors and assigns, and its Divestiture Assets. III. Applicability subsidiaries, divisions, groups, affiliates, D. Defendants shall permit the Acquirer of partnerships and joint ventures, and their A. This Final Judgment applies to Nexstar, the Divestiture Assets to have reasonable directors, officers, managers, agents, and Mission, CCA, and Silver Point as defined access to personnel and to make inspections employees. above, and all other persons in active concert of the physical facilities of WEVV-TV; access B. ‘‘Mission’’ means defendant Mission or participation with any of them who to any and all environmental, zoning, and Broadcasting, Inc. a Delaware corporation receive actual notice of this Final Judgment other permit documents and information; with its headquarters in Westlake, Ohio, its by personal service or otherwise. and access to any and all financial, successors and assigns, and its subsidiaries, B. If, prior to complying with Sections IV operational, or other documents and divisions, groups, affiliates, partnerships and and V of this Final Judgment, defendants sell information customarily provided as part of joint ventures, and their directors, officers, or otherwise dispose of all or substantially all a due diligence process. managers, agents, and employees. of their assets or of lesser business units that E. Defendants shall warrant to the Acquirer C. ‘‘CCA’’ means Communications include the defendants’ Divestiture Assets, that each asset will be operational on the date Corporation of America, a Delaware they shall require the purchaser to be bound of sale. corporation headquartered in Lafayette, by the provisions of this Final Judgment. F. Defendants shall not take any action that Louisiana, its successors and assigns, and its Defendants need not obtain such an will impede in any way the permitting, subsidiaries, divisions, groups, affiliates, agreement from the Acquirer of the assets operation, or divestiture of the Divestiture partnerships and joint ventures, and their divested pursuant to the Final Judgment. Assets. directors, officers, managers, agents, and G. Defendants shall warrant to the Acquirer employees. IV. Divestitures that there are no material defects in the D. ‘‘Silver Point’’ means Silver Point A. Defendants are ordered and directed to environmental, zoning, or other permits Capital Fund, L.P., a Delaware limited divest the Divestiture Assets to an Acquirer pertaining to the operation of each asset, and

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that following the sale of the Divestiture judgment to assist in the divestiture. entered into negotiations to acquire, or was Assets, defendants will not undertake, Defendants shall inform any person making contacted or made an inquiry about directly or indirectly, any challenges to the an inquiry regarding a possible purchase of acquiring, any interest in the Divestiture environmental, zoning, or other permits the Divestiture Assets that they are being Assets, and shall describe in detail each relating to the operation of the Divestiture divested pursuant to this Final Judgment and contact with any such person. The trustee Assets. provide that person with a copy of this Final shall maintain full records of all efforts made H. Unless the United States otherwise Judgment and contact information for the to divest the Divestiture Assets. consents in writing, the divestiture pursuant trustee. H. If the trustee has not accomplished the to Section IV, or by trustee appointed D. Defendants shall not object to a sale by divestiture ordered under this Final pursuant to Section V of this Final Judgment, the trustee on any ground other than the Judgment within six (6) months after its shall include the entire Divestiture Assets, trustee’s malfeasance. Any such objection by appointment, the trustee shall promptly file and be accomplished in such a way as to defendants must be conveyed in writing to with the Court a report setting forth: (1) The satisfy the United States, in its sole the United States and the trustee within ten trustee’s efforts to accomplish the required discretion, that the Divestiture Assets can (10) calendar days after the trustee has divestiture, (2) the reasons, in the trustee’s and will be used by the Acquirer as part of provided the notice required under Section judgment, why the required divestiture have a viable, ongoing commercial television VI. not been accomplished, and (3) the trustee’s broadcasting business and the divestiture of E. The trustee shall serve at the cost and recommendations. To the extent that such such assets will achieve the purposes of this expense of defendants, on such terms and report contains information that the trustee Final Judgment and remedy the competitive conditions as the United States approves, deems confidential, such report shall not be harm alleged in the Complaint. The including confidentiality requirements and filed in the public docket of the Court. The divestiture, whether pursuant to Section IV conflict of interest certifications. The trustee trustee shall at the same time furnish such or Section V of this Final Judgment: shall account for all monies derived from the report to the United States, which shall have (1) shall be made to an Acquirer that, in sale of the assets sold by the trustee and all the right to make additional the United States’ sole judgment, has the costs and expenses so incurred. After recommendations consistent with the intent and capability (including the approval by the Court of the trustee’s purpose of the trust. The Court thereafter necessary managerial, operational, technical, accounting, including fees for its services yet shall enter such orders as it shall deem and financial capability) of competing unpaid and those of any professionals and appropriate to carry out the purpose of the effectively in the television broadcasting agents retained by the trustee, all remaining Final Judgment, which may, if necessary, business in the Evansville, Indiana DMA; and money shall be paid to defendants and the include extending the trust and the term of (2) shall be accomplished so as to satisfy trust shall then be terminated. The the trustee’s appointment by a period the United States, in its sole discretion, that compensation of the trustee and any requested by the United States. none of the terms of any agreement between professionals and agents retained by the I. If the United States determines that the the Acquirer and defendants gives trustee shall be reasonable in light of the trustee has ceased to act or failed to act defendants the ability unreasonably to raise value of the Divestiture Assets and based on diligently or in a reasonably cost-effective the Acquirer’s costs, to lower the Acquirer’s a fee arrangement providing the trustee with manner, it may recommend the Court efficiency, or otherwise to interfere in the an incentive based on the price and terms of appoint a substitute trustee. ability of the Acquirer to compete effectively. the divestiture and the speed with which it is accomplished, but timeliness is VI. Notice of Proposed Divestiture V. Appointment of Trustee paramount. If the trustee and Defendants are A. Within two (2) business days following A. If either (a) the defendants have not unable to reach agreement on the trustee’s execution of a definitive divestiture divested the Divestiture Assets within the compensation or other terms and conditions agreement, defendants or the trustee, time period specified in Paragraph IV(A), or within fourteen (14) calendar days of whichever is then responsible for effecting (b) the defendants have reason to believe that appointment of the trustee, the United States the divestiture required herein, shall notify BCBE may be unable to complete the may, in its sole discretion, take appropriate the United States of any proposed divestiture purchase of the Divestiture Assets, action, including making a recommendation required by Section IV or V of this Final defendants shall notify the United States of to the Court. Judgment. If the trustee is responsible, it that fact in writing. F. Defendants shall use their best efforts to shall similarly notify defendants. The notice B. If (a) the defendants have not divested assist the trustee in accomplishing the shall set forth the details of the proposed the Divestiture Assets within the time period required divestiture. The trustee and any divestiture and list the name, address, and specified in Paragraph IV(A), or (b) the consultants, accountants, attorneys, and telephone number of each person not United States decides in its sole discretion other persons retained by the trustee shall previously identified who offered or that BCBE is likely to be unable to complete have full and complete access to the expressed an interest in or desire to acquire the purchase of the Divestiture Assets, upon personnel, books, records, and facilities of any ownership interest in the Divestiture application of the United States in its sole the business to be divested, and defendants Assets, together with full details of the same. discretion, the Court shall appoint a trustee shall develop financial and other information B. Within fifteen (15) calendar days of selected by the United States and approved relevant to such business as the trustee may receipt by the United States of such notice, by the Court to effect the divestiture of the reasonably request, subject to reasonable the United States may request from Divestiture Assets. protection for trade secret or other defendants, the proposed Acquirer, any other C. After the appointment of a trustee confidential research, development, or third party, or the trustee if applicable, becomes effective, only the trustee shall have commercial information. Defendants shall additional information concerning the the right to sell the Divestiture Assets. The take no action to interfere with or to impede proposed divestiture, the proposed Acquirer, trustee shall have the power and authority to the trustee’s accomplishment of the and any other potential Acquirer. Defendants accomplish the divestiture to an Acquirer, divestiture. and the trustee shall furnish any additional and in a manner, acceptable to the United G. After his or her appointment, the trustee information requested within fifteen (15) States in its sole discretion at such price and shall file monthly reports with the United calendar days of the receipt of the request, on such terms as are then obtainable upon States and, as appropriate, the Court setting unless the parties shall otherwise agree. reasonable effort by the trustee, subject to the forth the trustee’s efforts to accomplish the C. Within thirty (30) calendar days after provisions of Sections IV, V, and VI of this divestiture ordered under this Final receipt of the notice or within twenty (20) Final Judgment, and shall have such other Judgment. To the extent such reports contain calendar days after the United States has powers as this Court deems appropriate. information that the trustee deems been provided the additional information Subject to Paragraph V(D) of this Final confidential, such reports shall not be filed requested from defendants, the proposed Judgment, the trustee may hire at the cost in the public docket of the Court. Such Acquirer, any third party, and the trustee, and expense of defendants any investment reports shall include the name, address, and whichever is later, the United States, in its bankers, attorneys, or other agents, who shall telephone number of each person who, sole discretion, shall provide written notice be solely accountable to the trustee, during the preceding month, made an offer to defendants and the trustee, if there is one, reasonably necessary in the trustee’s to acquire, expressed an interest in acquiring, stating whether or not it objects to the

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proposed divestiture. If the United States earlier affidavits filed pursuant to this section XI. No Reacquisition provides written notice that it does not within fifteen (15) calendar days after the A. Defendants may not (1) reacquire any object, the divestiture may be consummated, change is implemented. part of the Divestiture Assets, (2) acquire any subject only to defendants’ limited right to D. Defendants shall keep all records of all option to reacquire any part of the Divestiture object to the sale under Paragraph V(D) of efforts made to preserve and divest the Assets or to assign the Divestiture Assets to this Final Judgment. Absent written notice Divestiture Assets until one year after such any other person, (3) enter into any local that the United States does not object to the divestiture has been completed. marketing agreement, joint sales agreement, proposed Acquirer or upon objection by the other cooperative selling arrangement, or X. Compliance Inspection United States, a divestiture proposed under shared services agreement, or conduct other Section IV or Section V shall not be A. For the purposes of determining or business negotiations jointly with the consummated. Upon objection by defendants securing compliance with this Final Acquirer with respect to the Divestiture under Paragraph V(D), a divestiture proposed Judgment, or of any related orders such as Assets, or (4) provide financing or guarantees under Section V shall not be consummated any Hold Separate Order, or of determining of financing with respect to the Divestiture unless approved by the Court. whether the Final Judgment should be Assets, during the term of this Final VII. Financing modified or vacated, and subject to any Judgment. The shared services prohibition does not preclude Defendants from Defendants shall not finance all or any part legally recognized privilege, from time to continuing or entering into agreements in a of any purchase made pursuant to Section IV time duly authorized representatives of the form customarily used in the industry to (1) or V of this Final Judgment. United States Department of Justice, including consultants and other persons share news helicopters or (2) pool generic VIII. Hold Separate retained by the United States, shall, upon video footage that does not include recording Until the divestiture required by this Final written request of an authorized a reporter or other on-air talent, and does not preclude defendants from entering into any Judgment has been accomplished, defendants representative of the Assistant Attorney non-sales-related shared services agreement shall take all steps necessary to comply with General in charge of the Antitrust Division, that is approved in advance by the United the Hold Separate Stipulation and Order and on reasonable notice to defendants, be States in its sole discretion. entered by this Court. Defendants shall take permitted: B. Notwithstanding any prohibition in this no action that would jeopardize the (1) access during defendants’ office hours divestiture ordered by this Court. section, Defendants may acquire an to inspect and copy, or at the option of the affiliation with the FOX or CBS broadcast IX. Affidavits United States, to require defendants to networks serving the Evansville, Indiana provide hard copies or electronic copies of, A. Within twenty (20) calendar days of the DMA during the period of this Final all books, ledgers, accounts, records, data and filing of the Complaint in this matter, and Judgment only if all of the following documents in the possession, custody or every thirty (30) calendar days thereafter conditions are met: until the divestiture has been completed control of defendants, relating to any matters (1) at least one year has elapsed from the under Section IV or V, defendants shall contained in this Final Judgment; and date of the filing of the Complaint in this deliver to the United States an affidavit as to (2) to interview, either informally or on the matter; the fact and manner of their compliance with record, defendants’ officers, employees, or (2) Defendants notify the Department of Section IV or V of this Final Judgment. Each agents, who may have their individual Justice in writing of their intention to acquire such affidavit shall include the name, counsel present, regarding such matters. The the FOX or CBS affiliation in Evansville; and address, and telephone number of each interviews shall be subject to the reasonable (3) the Department of Justice acting in its person who, during the preceding thirty (30) convenience of the interviewee and without sole discretion gives its approval for the days, made an offer to acquire, expressed an restraint or interference by defendants. Defendants to acquire the FOX or CBS interest in acquiring, entered into B. Upon the written request of an affiliation in Evansville. negotiations to acquire, or was contacted or authorized representative the Assistant Within ten (10) business days of receiving made an inquiry about acquiring, any interest Attorney General in charge of the Antitrust notice from the Defendants, the Department in the Divestiture Assets, and shall describe Division, defendants shall submit such will respond in writing giving its approval or in detail each contact with any such person written reports or responses to written requesting additional information from the during that period. interrogatories, under oath if requested, Defendants. Within fifteen (15) business days B. Each such affidavit shall also include a relating to any of the matters contained in of receiving the requested additional description of the efforts defendants have this Final Judgment as may be requested. information, the Department will respond in taken to complete the sale of the Divestiture C. No information or documents obtained writing either giving or withholding its Assets—including efforts to secure regulatory by the means provided in this section shall approval. approvals—and to provide required be divulged by the United States to any XII. Retention of Jurisdiction information to prospective Acquirers, person other than an authorized including the limitations, if any, on such representative of the executive branch of the This Court retains jurisdiction to enable information. Assuming the information set United States, except in the course of legal any party to this Final Judgment to apply to forth in the affidavit is true and complete, proceedings to which the United States is a this Court at any time for further orders and any objection by the United States to party (including grand jury proceedings), or directions as may be necessary or appropriate information provided by defendants, for the purpose of securing compliance with to carry out or construe this Final Judgment, including limitation on information, shall be this Final Judgment, or as otherwise required to modify any of its provisions, to enforce made within fourteen (14) days of receipt of compliance, and to punish violations of its by law. such affidavit. provisions. D. If at the time information or documents C. Within twenty (20) calendar days of the filing of the Complaint in this matter, each are furnished by defendants to the United XIII. Expiration of Final Judgment defendant shall deliver to the United States States, defendants represent and identify in Unless this Court grants an extension, this an affidavit that describes in reasonable writing the material in any such information Final Judgment shall expire ten (10) years detail all actions defendants have taken and or documents to which a claim of protection from the date of its entry. all steps defendants have implemented on an may be asserted under Rule 26(c)(1)(G) of the ongoing basis to comply with Section VIII of Federal Rules of Civil Procedure, and XV. Public Interest Determination this Final Judgment. Each such affidavit shall defendants mark each pertinent page of such Entry of this Final Judgment is in the also include a description of the efforts material, ‘‘Subject to claim of protection public interest. The parties have complied defendants have taken to complete the sale under Rule 26(c)(1)(G) of the Federal Rules with the requirements of the Antitrust of the Divestiture Assets, including efforts to of Civil Procedure,’’ then the United States Procedures and Penalties Act, 15 U.S.C. 16, secure FCC or other regulatory approvals. shall give defendants ten (10) calendar days including making copies available to the Defendants shall deliver to the United States notice prior to divulging such material in any public of this Final Judgment, the an affidavit describing any changes to the legal proceeding (other than a grand jury Competitive Impact Statement, and any efforts and actions outlined in defendants’ proceeding). comments thereon, and the United States’

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responses to comments. Based upon the Benefits Security Administration ensure that any arrangement with a record before the Court, which includes the (EBSA) sponsored information service provider is reasonable and that Competitive Impact Statement and any collection request (ICR) proposal titled, only reasonable compensation is paid comments and responses to comments filed ‘‘Focus Groups for Evaluating the for services. Fundamental to the ability with the Court, entry of this Final Judgment Effectiveness of Employee Retirement is in the public interest. of fiduciaries to discharge these Income Security Act Section 408(b)(2) obligations is obtaining information Date: llllllllllllllllll Disclosure Requirements,’’ to the Office sufficient to enable them to make Court approval subject to procedures of of Management and Budget (OMB) for informed decisions about an employee Antitrust Procedures and Penalties Act, 15 review and approval for use in benefit plan’s services, the costs of such U.S.C. 16. accordance with the Paperwork services, and the service providers. This lllllllllllllllllllll Reduction Act (PRA) of 1995 (44 U.S.C. ICR is designed to explore current United States District Judge 3501 et seq.). Public comments on the practices and effects of a final regulation [FR Doc. 2014–28585 Filed 12–4–14; 8:45 am] ICR are invited. published in the Federal Register on BILLING CODE 4410–11–P DATES: The OMB will consider all February 3, 2012, to implement section written comments that agency receives 408(b)(2) and to gather information on or before January 5, 2015. about the need for a guide, summary, or DEPARTMENT OF JUSTICE ADDRESSES: A copy of this ICR with similar tool to help a responsible plan applicable supporting documentation; fiduciary navigate through and Foreign Claims Settlement including a description of the likely understand the disclosures. See 77 FR Commission respondents, proposed frequency of 5632. The EBSA intends to use [F.C.S.C. Meeting and Hearing Notice No. response, and estimated total burden information collected from the focus 11–14] may be obtained free of charge from the groups: (1) To assess responsible plan RegInfo.gov Web site at http:// fiduciaries’ experience in receiving the Sunshine Act Meeting www.reginfo.gov/public/do/ disclosures the 408(b)(2) regulations _ The Foreign Claims Settlement PRAViewICR?ref nbr=201408-1210-004 require; (2) to assess the effectiveness of Commission, pursuant to its regulations (this link will only become active on the the disclosures in helping plan (45 CFR part 503.25) and the day following publication of this notice) fiduciaries make decisions; (3) to Government in the Sunshine Act (5 or by contacting Michel Smyth by determine how well plan fiduciaries U.S.C. 552b), hereby gives notice in telephone at 202–693–4129 (this is not understand the disclosures, especially a toll-free number) or by email at DOL_ in the small plan marketplace (100 regard to the scheduling of open _ meetings as follows: PRA [email protected]. participants or less); and (4) to evaluate Tuesday, December 16, 2014: 10:00 Submit comments about this request whether, and how, a guide, summary, or a.m.—Oral hearings on Objection to by mail or courier to the Office of similar tool would help a fiduciary Commission’s Proposed Decisions in Information and Regulatory Affairs, understand the disclosures. The focus Claim Nos. IRQ–I–023 and IRQ–I–024. Attn: OMB Desk Officer for DOL–EBSA, group results will be used to inform and Status: Open. Office of Management and Budget, support a notice of final rulemaking for All meetings are held at the Foreign Room 10235, 725 17th Street NW., the guide requirement. Claims Settlement Commission, 600 E Washington, DC 20503; by Fax: 202– This proposed information collection 395–5806 (this is not a toll-free is subject to the PRA. A Federal agency Street NW., Washington, DC. Requests _ for information, or advance notices of number); or by email: OIRA generally cannot conduct or sponsor a intention to observe an open meeting, [email protected]. Commenters collection of information, and the public are encouraged, but not required, to may be directed to: Patricia M. Hall, is generally not required to respond to send a courtesy copy of any comments Foreign Claims Settlement Commission, an information collection, unless it is by mail or courier to the U.S. 600 E Street NW., Suite 6002, approved by the OMB under the PRA Department of Labor-OASAM, Office of Washington, DC 20579. Telephone: and displays a currently valid OMB the Chief Information Officer, Attn: (202) 616–6975. Control Number. In addition, Departmental Information Compliance notwithstanding any other provisions of Brian M. Simkin, Management Program, Room N1301, law, no person shall generally be subject Chief Counsel. 200 Constitution Avenue NW., to penalty for failing to comply with a [FR Doc. 2014–28663 Filed 12–3–14; 11:15 am] Washington, DC 20210; or by email: collection of information if the [email protected]. BILLING CODE 4410–BA–P collection of information does not FOR FURTHER INFORMATION: Contact display a valid Control Number. See 5 Michel Smyth by telephone at 202–693– CFR 1320.5(a) and 1320.6. For DEPARTMENT OF LABOR 4129 (this is not a toll-free number) or additional information, see the related _ _ by email at DOL PRA [email protected]. notice published in the Federal Register Office of the Secretary Authority: 44 U.S.C. 3507(a)(1)(D). on March 12, 2014 (79 FR 14085). SUPPLEMENTARY INFORMATION: This ICR Interested parties are encouraged to Agency Information Collection seeks PRA authority for focus groups to send comments to the OMB, Office of Activities; Submission for OMB be used for evaluating the effectiveness Information and Regulatory Affairs at Review; Comment Request; Focus of Employee Retirement Income the address shown in the ADDRESSES Groups for Evaluating the Security Act (ERISA) section 408(b)(2) section within thirty (30) days of Effectiveness of Employee Retirement disclosure requirements. The ERISA publication of this notice in the Federal Income Security Act Section 408(b)(2) requires a plan fiduciary, when Register. In order to help ensure Disclosure Requirements selecting and monitoring service appropriate consideration, comments ACTION: Notice. providers and plan investments, to act should mention OMB ICR Reference prudently and solely in the interest of Number 201408–1210–004. The OMB is SUMMARY: The Department of Labor plan participants and beneficiaries. A particularly interested in comments (DOL) is submitting the Employee responsible plan fiduciary must also that:

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• Evaluate whether the proposed American Employment and Training NATIONAL FOUNDATION FOR THE collection of information is necessary Council (Council), as constituted under ARTS AND THE HUMANITIES for the proper performance of the WIA. functions of the agency, including Notice of Proposed Information whether the information will have DATES: The meeting will begin at 9:00 Collection Requests: Let’s Move practical utility; a.m. (Eastern Standard Time) on Museums, Let’s Move Gardens • Evaluate the accuracy of the Wednesday, December 17, 2014, and agency’s estimate of the burden of the continue until 5:00 p.m., that day. The AGENCY: Institute of Museum and proposed collection of information, meeting will reconvene at 9:00 a.m. on Library Services, National Foundation including the validity of the Thursday, December 18, 2014, and for the Arts and the Humanities. methodology and assumptions used; adjourn at 5:00 p.m., that day. The ACTION: Notice, request for comments, • Enhance the quality, utility, and period from 3:30 p.m. to 5:30 p.m., on collection of information. clarity of the information to be December 17, 2014, will be reserved for collected; and participation and comment by members SUMMARY: The Institute of Museum and • Minimize the burden of the of the public. Library Services (IMLS), as part of its collection of information on those who continuing effort to reduce paperwork are to respond, including through the ADDRESSES: The meeting will be held at and respondent burden, conducts a pre- use of appropriate automated, the Bureau of Labor Statistics, Postal clearance consultation program to electronic, mechanical, or other Square Building, 2 Massachusetts Ave. provide the general public and federal technological collection techniques or NE., Washington DC 20212, in the agencies with an opportunity to other forms of information technology, conference center, Rooms 7 and 8. comment on proposed and/or continuing collections of information in e.g., permitting electronic submission of SUPPLEMENTARY INFORMATION: The responses. accordance with the Paperwork meeting will be open to the public. Reduction Act (44 U.S.C. Chapter 35). Agency: DOL–EBSA. Members of the public not present may Title of Collection: Focus Groups for This program helps to ensure that submit a written statement on or before Evaluating the Effectiveness of requested data can be provided in the Employee Retirement Income Security December 10, 2014, to be included in desired format, reporting burden (time Act Section 408(b)(2) Disclosure the record of the meeting. Statements and financial resources) is minimized, Requirements. are to be submitted to Ms. Athena R. collection instruments are clearly OMB ICR Reference Number: 201408– Brown, Designated Federal Officer understood, and the impact of collection 1210–004. (DFO), U.S. Department of Labor, 200 requirements on respondents can be Affected Public: Private Sector— Constitution Avenue NW., Room S– properly assessed. By this notice, IMLS businesses or other for-profits. 4209, Washington, DC 20210. Persons is soliciting comments concerning a Total Estimated Number of who need special accommodations survey to gather information to identify Respondents: 85. should contact Mr. Craig Lewis at (202) museums that are currently or have Total Estimated Number of 693–3384, at least two business days plans to provide interactive experiences Responses: 85. before the meeting. The formal agenda (exhibitions); afterschool, summer and Total Estimated Annual Time Burden: will focus on the following topics: (1) other targeted programs, and food 128 hours. U.S. Department of Labor, Employment service operations that help fight Total Estimated Annual Other Costs and Training Administration Update childhood obesity. The data collection Burden: $0. and the Workforce Innovation and will help to identify best practices and Dated: December 1, 2014. Opportunity Act of 2014; (2) Training collect information about the capacity of Michel Smyth, and Technical Assistance; (3) Council museums to reach the public with important public health messages. Departmental Clearance Officer. and Workgroup Updates and A copy of the proposed information [FR Doc. 2014–28592 Filed 12–4–14; 8:45 am] Recommendations; (4) New Business and Next Steps; and (5) Public collection request can be obtained by BILLING CODE 4510–29–P contacting the individual listed below Comment. in the ADDRESSES section of this notice. DEPARTMENT OF LABOR FOR FURTHER INFORMATION CONTACT: Ms. DATES: Written comments must be Athena R. Brown, DFO, Division of submitted to the office listed in the Employment and Training Indian and Native American Programs, ADDRESSES section below on or before Administration Employment and Training February 5, 2015. Administration, U.S. Department of IMLS is particularly interested in Workforce Investment Act; Native Labor, Room S–4209, 200 Constitution comments that help the agency to: American Employment and Training Avenue NW., Washington, DC 20210. • Evaluate whether the proposed Council, Meeting Telephone number (202) 693–3737 collection of information is necessary AGENCY: Employment and Training (VOICE) (this is not a toll-free number). for the proper performance of the Administration, U.S. Department of functions of the agency, including Portia Wu, Labor. whether the information will have Assistant Secretary, Employment and practical utility; ACTION: Notice of meeting. Training Administration. • Evaluate the accuracy of the SUMMARY: Pursuant to Section 10(a)(2) of [FR Doc. 2014–28566 Filed 12–4–14; 8:45 am] agency’s estimate of the burden of the the Federal Advisory Committee Act BILLING CODE 4501–FR–P proposed collection of information (FACA) (Public Law 92–463), as including the validity of the amended, and Section 166(h)(4) of the methodology and assumptions used; Workforce Investment Act (WIA) [29 • Enhance the quality, utility, and U.S.C. 2911(h)(4)], notice is hereby clarity of the information to be given of the next meeting of the Native collected; and

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• Minimize the burden of the are to respond, including through the Dr. Diana H. Wall Permit No. 2015– collection of information on those who use of appropriate automated electronic, 012 are to respond, including through the mechanical, or other technological Nadene G. Kennedy, use of appropriate automated electronic, collection techniques, or other forms of mechanical, or other technological information technology, e.g., permitting Polar Coordination Specialist, Division of Polar Programs. collection techniques, or other forms of electronic submissions of responses. [FR Doc. 2014–28578 Filed 12–4–14; 8:45 am] information technology, e.g., permitting Agency: Institute of Museum and electronic submissions of responses. Library Services. BILLING CODE 7555–01–P ADDRESSES: Send comments to: Claudia Title: Let’s Move Museums, Let’s Move French, Institute of Museum and Library Gardens. NATIONAL SCIENCE FOUNDATION Services, 1800 M Street NW., 9th Floor, OMB Number: 3137–0084. Washington, DC 20036. Telephone: Agency Number: 3137. Astronomy and Astrophysics Advisory (202) 653–4717. Email: cfrench@ Committee; Notice of Meeting imls.gov or by teletype (TTY/TDD) for Frequency: Annual. persons with hearing difficulty at (202) Affected Public: Museums, state, In accordance with the Federal 653–4614. local, tribal government and not-for- Advisory Committee Act (Pub., L. 92– 463, as amended), the National Science SUPPLEMENTARY INFORMATION: profit institutions. Number of Respondents: 50. Foundation announces the following I. Background meeting: Estimated Time per Respondent: .17. The Institute of Museum and Library Total Annual Costs to Respondents: Name and Committee Code: Astronomy and Astrophysics Advisory Committee Services is the primary source of federal $164. support for the Nation’s 123,000 #13883. Total Annualized to Federal Date and Time: libraries and 35,000 museums. The Government: $4,615 January 28, 2015 9:00 a.m.–5:00 p.m. Institute’s mission is to inspire libraries January 29, 2015 9:00 a.m.–12:00 p.m. and museums to advance innovation, FOR FURTHER INFORMATION CONTACT: Place: National Science Foundation, Room learning and civic engagement. The Claudia French, Institute of Museum 1235, Stafford I Building, 4201 Wilson Blvd., Institute works at the national level and and Library Services, 1800 M Street Arlington, VA 22230. in coordination with state and local NW., 9th Floor, Washington, DC 20036. Type of Meeting: Open. organizations to sustain heritage, Telephone: (202) 653–4717. Email: Contact Person: Dr. Jim Ulvestad, Division culture, and knowledge; enhance [email protected] or by teletype (TTY/ Director, Division of Astronomical Sciences, Suite 1045, National Science Foundation, learning and innovation; and support TDD) for persons with hearing difficulty at (202) 653–4614. 4201 Wilson Blvd., Arlington, VA 22230. professional development. IMLS is Telephone: 703–292–7165. responsible for identifying national Dated: December 2, 2014. Purpose of Meeting: To provide advice and needs for and trends in museum, Kim Miller, recommendations to the National Science library, and information services; Management Analyst. Foundation (NSF), the National Aeronautics and Space Administration (NASA) and the measuring and reporting on the impact [FR Doc. 2014–28572 Filed 12–4–14; 8:45 am] and effectiveness of museum, library U.S. Department of Energy (DOE) on issues BILLING CODE P and information services throughout the within the field of astronomy and astrophysics that are of mutual interest and United States, including programs concern to the agencies. conducted with funds made available by Agenda: To hear presentations of current IMLS; identifying, and disseminating NATIONAL SCIENCE FOUNDATION programming by representatives from NSF, information on, the best practices of NASA, DOE and other agencies relevant to such programs; and developing plans to Notice of Permits Issued Under the astronomy and astrophysics; to discuss improve museum, library and Antarctic Conservation Act of 1978 current and potential areas of cooperation information services of the United between the agencies; to formulate States and strengthen national, State, AGENCY: National Science Foundation recommendations for continued and new areas of cooperation and mechanisms for local, regional, and international ACTION: Notice of permits issued under achieving them. communications and cooperative the Antarctic Conservation of 1978, networks (20 U.S.C. Chapter 72, 20 Public Law 95–541. Dated: December 2, 2014. U.S.C. 9108). Suzanne Plimpton, II. Current Actions SUMMARY: The National Science Acting Committee Management Officer. Foundation (NSF) is required to publish • Evaluate whether the proposed [FR Doc. 2014–28573 Filed 12–4–14; 8:45 am] notice of permits issued under the BILLING CODE 7555–01–P collection of information is necessary Antarctic Conservation Act of 1978. for the proper performance of the This is the required notice. functions of the agency, including whether the information will have FOR FURTHER INFORMATION CONTACT: Li NUCLEAR REGULATORY practical utility; Ling Hamady, ACA Permit Officer, COMMISSION Division of Polar Programs, Rm. 755, • Evaluate the accuracy of the [Docket No. M–52–033–COL; NRC–2008– agency’s estimate of the burden of the National Science Foundation, 4201 0566] proposed collection of information Wilson Boulevard, Arlington, VA 22230. including the validity of the Or by email: [email protected]. In the Matter of DTE Electric Company, methodology and assumptions used; SUPPLEMENTARY INFORMATION: On Combined License for Enrico Fermi • Enhance the quality, utility, and October 30, 2014 the National Science Unit 3; Notice of Hearing clarity of the information to be Foundation published a notice in the AGENCY: Nuclear Regulatory collected; and Federal Register of a permit application Commission. • Minimize the burden of the received. The permit was issued on ACTION: Notice of hearing. collection of information on those who December 1, 2014 to:

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SUMMARY: The U.S. Nuclear Regulatory Atomic Energy Act of 1954, as amended Sections 102(2) (A), (C), and (E) of Commission (NRC or the Commission) (the Act), it will convene an evidentiary NEPA and the applicable regulations in will convene an evidentiary session to session to receive testimony and 10 CFR part 51 have been met; (2) receive testimony and exhibits in the exhibits in the uncontested portion of independently consider the final uncontested portion of this proceeding this proceeding regarding DTE Electric balance among conflicting factors regarding the application of DTE Company’s September 18, 2008, contained in the record of the Electric Company for a combined application for a COL under part 52 of proceeding with a view to determining license (COL) to construct and operate Title 10 of the Code of Federal the appropriate action to be taken; (3) a new nuclear power generation facility Regulations (10 CFR) to construct and determine, after weighing the at the Enrico Fermi Nuclear Plant Unit operate a new nuclear power generation environmental, economic, technical, 3 (Fermi 3). This mandatory hearing facility at the Enrico Fermi Nuclear and other benefits against will concern safety and environmental Plant Unit 3 site in Monroe County, environmental and other costs, and matters relating to the requested COL. Michigan (ADAMS Accession No. considering reasonable alternatives, DATES: The hearing will be held on ML082630034). This mandatory hearing whether the combined license should be February 4, 2015, beginning at 8:30 a.m. will concern safety and environmental issued, denied, or appropriately Eastern Time. For the schedule for matters relating to the requested COL, as conditioned to protect environmental submitting pre-filed documents and more fully described below. Participants values; and (4) determine whether the deadlines affecting Interested in the hearing are not to address any NEPA review conducted by the NRC Government Participants, see Section VI contested issues in their written filings staff has been adequate. of the SUPPLEMENTARY INFORMATION or oral presentations. V. Schedule for Submittal of Pre-Filed section of this document. II. Evidentiary Uncontested Hearing Documents ADDRESSES: Please refer to Docket ID M– The Commission will conduct this No later than January 14, 2015, unless 52–033–COL when contacting the NRC the Commission directs otherwise, the about the availability of information hearing beginning at 8:30 a.m., Eastern Time on February 4, 2015, at the staff and the applicant shall submit a regarding this document. You may list of its anticipated witnesses for the obtain publicly-available information Commission’s headquarters in Rockville, Maryland. The hearing will hearing. related to this document using any of No later than January 14, 2015, unless the following methods: continue on subsequent days, if • necessary. the Commission directs otherwise, the NRC’s Electronic Hearing Docket: applicant shall submit its pre-filed You may obtain publicly available III. Presiding Officer written testimony. The staff submitted documents related to this hearing on its testimony on November 20, 2014. line at http://www.nrc.gov/about-nrc/ The Commission is the presiding officer for this proceeding. The Commission may issue written regulatory/adjudicatory.html. questions to the applicant or the staff • NRC’s Agencywide Documents IV. Matters To Be Considered before the hearing. If such questions are Access and Management System The matter at issue in this proceeding issued, an order containing such (ADAMS): You may obtain publicly is whether the review of the application questions will be issued no later than available documents online in the by the Commission’s staff has been December 30, 2014. Responses to such ADAMS Public Documents collection at adequate to support the findings found questions are due January 14, 2015, http://www.nrc.gov/reading-rm/ in 10 CFR 52.97 and 10 CFR 51.107. unless the Commission directs adams.html. To begin the search, select Those findings are as follows: otherwise. ‘‘ADAMS Public Documents’’ and then select ‘‘Begin Web-based ADAMS Issues Pursuant to the Atomic Energy VI. Interested Government Participants Search.’’ For problems with ADAMS, Act of 1954, as Amended No later than December 19, 2014, any please contact the NRC’s Public With respect to the COL: (1) Whether interested U.S. State, local government Document Room (PDR) reference staff at the applicable standards and body, federally-recognized Indian tribe, 1–800–397–4209, 301–415–4737, or by requirements of the Act and the Canadian Province, local government 1 email to [email protected]. The Commission’s regulations have been body, or First Nation may file with the ADAMS accession number for each met; (2) whether any required Commission a statement of any issues or document referenced in this document notifications to other agencies or bodies questions that the U.S. State, local (if that document is available in have been duly made; (3) whether there government body, Indian tribe, ADAMS) is provided the first time that is reasonable assurance that the facility Canadian Province, local government a document is referenced. body, or First Nation wishes the • will be constructed and will operate in NRC’s PDR: You may examine and conformity with the license, the Commission to give particular attention purchase copies of public documents at provisions of the Act, and the to as part of the uncontested hearing the NRC’s PDR, Room O1–F21, One Commission’s regulations; (4) whether process. Such statement may be White Flint North, 11555 Rockville the applicant is technically and accompanied by any supporting Pike, Rockville, Maryland, 20852. financially qualified to engage in the documentation that the U.S. State, local FOR FURTHER INFORMATION CONTACT: activities authorized; and (5) whether government body, Indian tribe, Glenn Ellmers, Office of the Secretary, issuance of the license will not be Canadian Province, local government U.S. Nuclear Regulatory Commission, inimical to the common defense and body, or First Nation sees fit to provide. Washington, DC 20555–0001, telephone: security or the health and safety of the Any statements and supporting 301–415–0442; email: Glenn.Ellmers@ public. documentation (if any) received by the nrc.gov. Commission using the agency’s E-filing Issues Pursuant to the National SUPPLEMENTARY INFORMATION: Environmental Policy Act (NEPA) of 1 Due to the proximity of the Fermi 3 site to the I. Background 1969 Canadian border, the Commission is expanding the list of interested government participants to include The Commission hereby gives notice With respect to the COL: (1) Canadian Provinces, local governments, and First that, pursuant to Section 189a of the Determine whether the requirements of Nations in this proceeding.

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system 2 by the deadline indicated admitted contentions or pending in 2012 and are listed below. This above will be made part of the record of contested issues), they should be aware workshop—the 4th since 2011—is the proceeding. The Commission will that many of the procedures and rights intended to further develop and support use such statements and documents as applicable to the NRC’s contested the CORs’ activities. appropriate to inform its pre-hearing hearing process due to the inherently • Exposure through the Life Cycle, questions to the staff and applicant, its adversarial nature of such proceedings with Material Characterization. inquiries at the oral hearing, and its are not available in the uncontested decision following the hearing. The hearing. Participation in the NRC’s • Ecotoxicity Testing and Predictive Commission may also request, on or contested hearing process is governed Models, with Material Characterization. about January 7, 2015, that one or more by 10 CFR 2.309 (for persons or entities, • Predictive Modeling for Human particular U.S. States, local government including U.S. States, local Health, with Material Characterization. bodies, Indian tribes, Canadian governments, Indian tribes, Canadian • Provinces, local government bodies, or Provinces, local governments, or First Databases and Ontologies. First Nations send one representative Nations, seeking to file contentions of • Risk Assessment. each to the evidentiary hearing to their own) and 10 CFR 2.315(c) (for • Risk Management and Control. answer Commission questions and/or interested U.S. States, local make a statement for the purpose of governments, Indian tribes, Canadian DATES: Thursday, March 12, 2015, from assisting the Commission’s exploration Provinces, local governments, or First 8:30 a.m. until 6:00 p.m. and Friday, of one or more of the issues raised by Nations seeking to participate with March 13, 2015, from 8:30 a.m. until the U.S. State, local government body, respect to contentions filed by others). 3:30 p.m. Indian tribe, Canadian Province, local Participation in this uncontested ADDRESSES: The workshop will be held government body, or First Nation in the hearing does not affect a U.S. State’s, at Ca’ Foscari University of Venice at pre-hearing filings described above. The local government’s, Indian tribe’s, decision whether to request the Canadian Province’s, local Dorsoduro 3689—30123 in Venice, Italy. presence of a representative of a U.S. government’s, or First Nation’s right to FOR FURTHER INFORMATION CONTACT: For State, local government body, Indian participate in the separate contested information regarding this Notice, tribe, Canadian Province, local hearing process. please contact Stacey Standridge at government body, or First Nation at the Dated at Rockville, Maryland, this 1st day National Nanotechnology Coordination evidentiary hearing to make a statement of December, 2014. Office, by telephone (703–292–8103) or and/or answer Commission questions is For the Nuclear Regulatory Commission. email ([email protected]). solely at the Commission’s discretion. Annette L. Vietti-Cook, Additional information about the The Commission’s request will specify Secretary of the Commission. workshop, including the agenda, is the issue or issues that each [FR Doc. 2014–28610 Filed 12–5–14; 8:45 am] representative should be prepared to posted at http://us-eu.org/ address. BILLING CODE 7590–01–P 2015workshop/. U.S. States, local governments, Indian Registration: Due to space limitations, tribes, Canadian Provinces, local pre-registration for the workshop is governments, and First Nations should OFFICE OF SCIENCE AND required. Registration is on a first-come, TECHNOLOGY POLICY be aware that this evidentiary hearing is first-served basis and will be capped at separate and distinct from the NRC’s National Science and Technology approximately 100 participants. contested hearing process. Issues within Council Registration will open on Thursday, the scope of contentions that have been December 4, 2014. Individuals planning admitted or contested issues pending Notice of Public Meetings: Public to attend the workshop should register before the Atomic Safety and Licensing Meetings of the National Science and online at http://www.sun-fp7.eu/events/ Board or the Commission in a contested Technology Council; Committee on upcoming-events/eu-us-bridging- proceeding for a COL application are Technology; Nanoscale Science, nanoehs-research-efforts-a-joint- outside the scope of the uncontested Engineering, and Technology proceeding for that COL application. In workshop-2015/. Written notices of Subcommittee; National participation by email should be sent to addition, although U.S. States, local Nanotechnology Coordination Office governments, Indian tribes, Canadian [email protected] or mailed to Provinces, local governments, or First ACTION: Notice of public meetings. Stacey Standridge, 4201 Wilson Blvd., Nations participating as described above Stafford II, Suite 405, Arlington, VA may take any position they wish, or no SUMMARY: The National Nanotechnology 22230. Written notices must be received position at all, with respect to issues Coordination Office (NNCO), on behalf by February 15, 2015, to be considered. regarding the COL application or the of the Nanoscale Science, Engineering, Meeting Accomodations: Individuals and Technology (NSET) Subcommittee NRC staff’s associated environmental requiring special accommodation to of the Committee on Technology, review that do fall within the scope of access this public meeting should National Science and Technology the uncontested proceeding (i.e., issues contact Stacey Standridge (telephone that are not within the scope of Council (NSTC) and in collaboration with the European Commission, will 703–292–8103) at least ten business days prior to the meeting so that 2 The process for accessing and using the agency’s hold the 2015 ‘‘EU-U.S.: Bridging E-filing system is described in the March 17, 2009, NanoEHS Research Efforts’’ joint appropriate arrangements can be made. notice of hearing that was issued by the workshop on March 12–13, 2015, in Commission for this proceeding. See Notice of Ted Wackler, Hearing 74 FR 836. Participants who are unable to Venice, Italy. The workshop will bring Deputy Chief of Staff and Assistant Director. use the electronic information exchange (EIE), or together the U.S.-EU Communities of who will have difficulty complying with EIE Research (CORs), which serve as a [FR Doc. 2014–28570 Filed 12–4–14; 8:45 am] requirements in the time frame provided for platform for U.S. and EU scientists to BILLING CODE 3270–F5–P submission of written statements, may provide their statements by electronic mail to hearingdocket@ share information on nanoEHS research. nrc.gov. The six Communities were established

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SECURITIES AND EXCHANGE Dyson, Acting Director/Chief Report, did not claim an exemption COMMISSION Information Officer, Securities and from the Rule 15c3–3 reserve formula Exchange Commission, c/o Remi Pavlik- computation, and reported that they had [SEC File No. 270–146, OMB Control Simon, 100 F Street NE., Washington, a bank loan during at least one quarter No.3235–0134] DC 20549, or by sending an email to of the current year) that require an _ Submission for OMB Review; PRA [email protected]. Comments must aggregate total of 1,373 hours to comply Comment Request be submitted within 30 days of this with the rule. Each of these notice. approximately 61 registered broker- Upon Written Request, Copies Available Dated: December 1, 2014. dealers makes an estimated 45 annual From: U.S. Securities and Exchange Kevin M. O’Neill, responses. Each response takes Commission, Office of FOIA Services, approximately 0.5 hours to complete. Deputy Secretary. Washington, DC 20549–2736. Thus, the total compliance burden per [FR Doc. 2014–28550 Filed 12–4–14; 8:45 am] Extension: year is 1,373 burden hours. Rule 15c1–7. BILLING CODE 8011–01–P An agency may not conduct or Notice is hereby given that pursuant sponsor, and a person is not required to to the Paperwork Reduction Act of 1995 respond to, a collection of information SECURITIES AND EXCHANGE under the PRA unless it displays a (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the COMMISSION currently valid OMB control number. Securities and Exchange Commission The public may view background (‘‘Commission’’) has submitted to the [SEC File No. 270–418, OMB Control No. 3235–0485] documentation for this information Office of Management and Budget collection at the following Web site: (‘‘OMB’’) a request for approval of Submission for OMB Review; www.reginfo.gov. Comments should be extension of the existing collection of Comment Request directed to: (i) Desk Officer for the information provided for in Rule 15c1– Upon Written Request, Copies Available Securities and Exchange Commission, 7 (17 CFR 240.15c1–7) under the Office of Information and Regulatory Securities Exchange Act of 1934 (15 From: Securities and Exchange Commission, Office of FOIA Services, Affairs, Office of Management and U.S.C. 78a et seq.) (‘‘Exchange Act’’). Budget, Room 10102, New Executive Rule 15c1–7 states that any act of a 100 F Street NE., Washington, DC Office Building, Washington, DC 20503, broker-dealer designed to effect 20549–2736. or by sending an email to: Shagufta_ securities transactions with or for a Extension: [email protected]; and (ii) Pamela customer account over which the Rule 15c2–1. Dyson, Acting Director/Chief broker-dealer (directly or through an Notice is hereby given that pursuant Information Officer, Securities and agent or employee) has discretion will to the Paperwork Reduction Act of 1995 Exchange Commission, c/o Remi Pavlik- be considered a fraudulent, (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Simon, 100 F Street NE., Washington, manipulative, or deceptive practice Securities and Exchange Commission DC 20549, or by sending an email to: under the federal securities laws, unless (‘‘Commission’’) has submitted to the [email protected]. Comments must a record is made of the transaction Office of Management and Budget be submitted to OMB within 30 days of immediately by the broker-dealer. The (‘‘OMB’’) a request for approval of this notice. record must include (a) the name of the extension of the previously approved customer, (b) the name, amount, and collection of information provided for in Dated: December 1, 2014. price of the security, and (c) the date Rule 15c2–1, (17 CFR 240.15c2–1), Kevin M. O’Neill, and time when such transaction took under the Securities Exchange Act of Deputy Secretary. place. The Commission estimates that 1934 (15 U.S.C. 78a et seq.). [FR Doc. 2014–28551 Filed 12–4–14; 8:45 am] 446 respondents collect information Rule 15c2–1 (17 CFR 240.15c2–1) BILLING CODE 8011–01–P related to approximately 400,000 prohibits the commingling under the transactions annually under Rule 15c1– same lien of securities of margin 7 and that each respondent would customers (a) with other customers SECURITIES AND EXCHANGE spend approximately 5 minutes on the without their written consent and (b) COMMISSION collection of information for each with the broker or dealer. The rule also [SEC File No. 270–423, OMB Control transaction, for approximately 33,333 prohibits the re-hypothecation of No.3235–0472] aggregate hours per year (approximately customers’ margin securities for a sum 74.7 hours per respondent). in excess of the customer’s aggregate Submission for OMB Review; An agency may not conduct or indebtedness. Pursuant to Rule 15c2–1, Comment Request sponsor, and a person is not required to respondents must collect information Upon Written Request, Copies Available respond to, a collection of information necessary to prevent the re- From: U.S. Securities and Exchange under the PRA unless it displays a hypothecation of customer securities in Commission, Office of FOIA Services, currently valid OMB control number. contravention of the rule, issue and Washington, DC 20549–2736. The public may view the background retain copies of notices of hypothecation documentation for this information of customer securities in accordance Extension: collection at the following Web site: with the rule, and collect written Rule 15c1–6. www.reginfo.gov. Comments should be consents from customers in accordance Notice is hereby given that pursuant directed to: (i) Desk Officer for the with the rule. The information is to the Paperwork Reduction Act of 1995 Securities and Exchange Commission, necessary to ensure compliance with the (‘‘PRA’’) (44 U.S.C. 3501 et seq.), the Office of Information and Regulatory rule and to advise customers of the Securities and Exchange Commission Affairs, Office of Management and rule’s protections. (‘‘Commission’’) has submitted to the Budget, Room 10102, New Executive There are approximately 61 Office of Management and Budget Office Building, Washington, DC 20503 respondents (i.e., broker-dealers that (‘‘OMB’’) a request for approval of or by sending an email to: Shagufta_ conducted business with the public, extension of the existing collection of [email protected]; and (ii) Pamela filed Part II or Part IICSE of the FOCUS information provided for in Rule 15c1–

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6 (17 CFR 240.15c1–6) under the SECURITIES AND EXCHANGE Paragraph (c) of OPRA’s current Securities Exchange Act of 1934 (15 COMMISSION definition of the term ‘‘Nonprofessional’’ specifies that to U.S.C. 78a et seq.) (Exchange Act). [Release No. 34–73712; File No. SR–OPRA– Rule 15c1–6 states that any broker- 2014–03] qualify as a ‘‘Nonprofessional’’ a person dealer trying to sell to or buy from a must not be: ‘‘(i) registered or qualified with the Securities and Exchange customer a security in a primary or Options Price Reporting Authority; Commission, the Commodities Futures secondary distribution in which the Order Approving an Amendment to the Trading Commission, any state broker-dealer is participating or is Plan for Reporting of Consolidated Options Last Sale Reports and securities agency, any securities otherwise financially interested must Quotation Information To Amend exchange/association, or any give the customer written notification of OPRA’s Definition of the term commodities/futures contract market/ the broker-dealer’s participation or ‘‘Nonprofessional’’ association, (ii) engaged as an interest at or before completion of the ‘‘investment adviser,’’ as that term is transaction. The Commission estimates December 1, 2014. defined in the Investment Advisers Act that 446 respondents collect information I. Introduction of 1940 (whether or not registered or annually under Rule 15c1–6 and that qualified under that Act); or (iii) On March 11, 2014, the Options Price each respondent would spend employed by a bank or other Reporting Authority (‘‘OPRA’’) approximately 10 hours annually organization exempt from registration submitted to the Securities and complying with the collection of under Federal and/or state securities Exchange Commission (‘‘Commission’’), information requirement (approximately laws to perform functions that would pursuant to Section 11A of the require you to be so registered or 4,460 hours in aggregate). Securities Exchange Act of 1934 qualified if you were to perform such An agency may not conduct or (‘‘Act’’) 1 and Rule 608 thereunder,2 an sponsor, and a person is not required to amendment to the Plan for Reporting of functions for an organization not so exempt.’’ According to OPRA, a literal respond to, a collection of information Consolidated Options Last Sale Reports reading of this language could lead to under the PRA unless it displays a and Quotation Information (‘‘OPRA the conclusion that a person who works currently valid OMB control number. Plan’’).3 The proposed OPRA Plan outside of the United States as (for Background documentation for this amendment would revise the definition of the term ‘‘Nonprofessional.’’ The example) a securities broker could information collection may be viewed at proposed OPRA Plan amendment was qualify as a ‘‘Nonprofessional,’’ because the following Web site: published for comment in the Federal the person is not covered by clauses (i), www.reginfo.gov. Comments should be Register on August 18, 2014.4 The (ii) or (iii) of Paragraph (c). directed to: (i) Desk Officer for the Commission received no comment OPRA is not aware of any instances in Securities and Exchange Commission, letters in response to the Notice. which an OPRA Vendor has determined Office of Information and Regulatory This order approves the proposed that Subscribers who work outside the Affairs, Office of Management and OPRA Plan amendment. United States qualify to be Budget, Room 10102, New Executive Nonprofessional Subscribers on the II. Description of the Proposal Office Building, Washington, DC 20503 basis of reading the definition of the or by sending an email to: Shagufta_ The purpose of the proposed term ‘‘Nonprofessional’’ in this 6 [email protected]; and (ii) Pamela amendment is to revise the definition of manner. However, OPRA believes that Dyson, Acting Director/Chief the term ‘‘Nonprofessional’’ as that term it is appropriate to modify the language Information Officer, Securities and is used in the ‘‘Addendum for to prevent such a reading. Accordingly, OPRA proposes to modify the current Exchange Commission, c/o Remi Pavlik- Nonprofessionals’’ that is attached to definition by adding a phrase at the Simon, 100 F Street NE., Washington, OPRA’s Electronic Form of Subscriber beginning of paragraph (c) to clarify that DC 20549, or by sending an email to Agreement and its Hardcopy Form of _ Subscriber Agreement.5 the current language applies to persons PRA [email protected]. Comments must who work in the United States and be submitted within 30 days of this 1 15 U.S.C. 78k–1. adding a sentence to paragraph (c) to say notice. 2 17 CFR 242.608. that ‘‘For a natural person who works Dated: December 1, 2014. 3 The OPRA Plan is a national market system plan outside of the United States, a approved by the Commission pursuant to Section ‘Professional’ is a natural person who Kevin M. O’Neill, 11A of the Act and Rule 608 thereunder. See Deputy Secretary. Securities Exchange Act Release No. 17638 (March performs the same functions as someone 18, 1981), 22 SE.C. Docket 484 (March 31, 1981). who would be considered a [FR Doc. 2014–28549 Filed 12–4–14; 8:45 am] The full text of the OPRA Plan is available at ‘Professional’ in the United States.’’ BILLING CODE 8011–01–P http://www.opradata.com. The OPRA Plan provides for the collection and dissemination of last sale and III. Discussion quotation information on options that are traded on the participant exchanges. The twelve participants After careful review, the Commission to the OPRA Plan are BATS Exchange, Inc., BOX finds that the proposed OPRA Plan Options Exchange, LLC, Chicago Board Options amendment is consistent with the Exchange, Incorporated, C2 Options Exchange, Incorporated, International Securities Exchange, requirements of the Act and the rules 7 LLC, Miami International Securities Exchange, LLC, and regulations thereunder. NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, NASDAQ Stock Market LLC, NYSE MKT LLC, 6 According to OPRA, the definition of the term NYSE Arca, Inc., and Topaz Exchange, LLC (d/b/ ‘‘Nonprofessional Subscriber’’ used by the a ISE Gemini). Consolidated Tape Association (‘‘CTA’’), which is 4 See Securities Exchange Act Release No. 72824 substantively similar to OPRA’s definition in almost (August 12, 2014), 79 FR 48780 (‘‘Notice’’). all respects, prevents a similar reading of its 5 These two forms are Attachments B–1 and definition. B–2 to OPRA’s Form of Vendor Agreement and they 7 In approving this proposed OPRA Plan are available on OPRA’s Web site at Amendment, the Commission has considered its www.opradata.com. Continued

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Specifically, the Commission finds that submitted to the Securities and operations are to be allocated separately the proposed OPRA Plan amendment is Exchange Commission (‘‘Commission’’), from the costs of OPRA’s regular-hour consistent with Section 11A of the Act 8 pursuant to Section 11A of the operations and in a somewhat different and Rule 608 thereunder 9 in that it is Securities Exchange Act of 1934 manner. The OPRA Plan currently appropriate in the public interest, for (‘‘Act’’) 1 and Rule 608 thereunder,2 an provides that the costs of OPRA’s the protection of investors and the amendment to the Plan for Reporting of regular-hour operations below a maintenance of fair and orderly markets, Consolidated Options Last Sale Reports specified ceiling 7 and OPRA’s revenues and to remove impediments to, and and Quotation Information (‘‘OPRA from regular-hour operations are both to perfect the mechanisms of, a national Plan’’).3 The proposed OPRA Plan be allocated among the OPRA member market system. The proposed change to amendment would modify Sections 5.4 exchanges on the basis of the relative the definition of the term and 7.1 of the OPRA Plan as they relate number of compared trades in options Nonprofessional is designed to clarify to operations of OPRA outside of contracts traded on each of the OPRA that the term is meant to apply to OPRA’s regular hours of operations.4 member exchanges.8 persons engaged in the same type of The proposed OPRA Plan amendment The current provisions of the OPRA business whether they are located in the was published for comment in the Plan state that, if the OPRA System United States or elsewhere. The Federal Register on August 18, 2014.5 operates outside of OPRA’s regular Commission believes that OPRA’s The Commission received no comment hours, any costs attributable to such proposal is consistent with Section 11A letters in response to the Notice. operation will be allocated to the of the Act 10 and Rule 608 thereunder 11 This order approves the proposed exchange or exchanges that are actually because the proposal is designed to add OPRA Plan amendment. operating during the after-hours period. The OPRA Plan does not make any clarity to OPRA’s existing term and II. Description of the Proposal should therefore help to avoid investor special provision for the allocation of confusion. In addition, the Commission The purpose of the proposed revenues derived from fees for access to notes that the proposed revisions to the amendment is to (1) amend the OPRA OPRA data generated in the course of term ‘‘Nonprofessional’’ will make the Plan so that it provides for the after-hours operations, and the OPRA term used by OPRA consistent with the aggregation of costs for operations of Plan therefore provides that these similar term used by CTA. OPRA outside of its regular hours of revenues will be allocated among the operations (‘‘after-hours operations’’) OPRA member exchanges in the same IV. Conclusion with costs for operations of OPRA way that revenues derived from regular- It is therefore ordered, pursuant to during its regular hours of operations hours operations are allocated. The Section 11A of the Act,12 and Rule 608 (‘‘regular-hours operations’’); and (2) result is that the OPRA Plan currently thereunder,13 that the proposed OPRA state expressly that OPRA may establish provides for the allocation of costs of Plan amendment (SR–OPRA–2014–03) separate fees for access to OPRA data after-hours trading only to the exchange be, and it hereby is, approved. during periods of after-hours or exchanges that are actually operating 6 For the Commission, by the Division of operations. during the after-hours period, but for the Trading and Markets, pursuant to delegated Currently, the OPRA Plan provides allocation of revenues resulting from authority.14 that the costs of OPRA’s after-hour fees for access to quotation and last sale Kevin M. O’Neill, information generated in the course of 1 15 U.S.C. 78k–1. Deputy Secretary. after-hours operations to all of the 2 17 CFR 242.608. [FR Doc. 2014–28546 Filed 12–4–14; 8:45 am] 3 The OPRA Plan is a national market system plan OPRA member exchanges on the basis BILLING CODE 8011–01–P approved by the Commission pursuant to Section of the relative number of compared 11A of the Act and Rule 608 thereunder. See trades in options contracts traded on Securities Exchange Act Release No. 17638 (March each of the OPRA member exchanges in 18, 1981), 22 SE.C. Docket 484 (March 31, 1981). SECURITIES AND EXCHANGE The full text of the OPRA Plan is available at trading during both regular hours and COMMISSION http://www.opradata.com. The OPRA Plan provides outside of regular hours. for the collection and dissemination of last sale and OPRA is therefore proposing to revise [Release No. 34–73711; File No. SR–OPRA– quotation information on options that are traded on the OPRA Plan to provide that the costs 2013–03] the participant exchanges. The twelve participants to the OPRA Plan are BATS Exchange, Inc., BOX of after-hours operations will be Options Price Reporting Authority; Options Exchange, LLC, Chicago Board Options aggregated with the costs of operating Order Approving an Amendment to the Exchange, Incorporated, C2 Options Exchange, the OPRA System during regular hours Incorporated, International Securities Exchange, of operation. As a result of the proposed Plan for Reporting of Consolidated LLC, Miami International Securities Exchange, LLC, Options Last Sale Reports and NASDAQ OMX BX, Inc., NASDAQ OMX PHLX change, the aggregated costs of operating Quotation Information To Amend LLC, NASDAQ Stock Market LLC, NYSE MKT LLC, the System during all hours of operation Sections 5.4 and 7.1 of the OPRA Plan NYSE Arca, Inc., and Topaz Exchange, LLC (d/b/ would be allocated among all of OPRA’s a ISE Gemini). member exchanges, regardless of December 1, 2014. 4 OPRA’s regular hours of operations are from 7:30 a.m. to 6:00 p.m. Eastern time. See Section 5.3 whether any particular exchange I. Introduction of the OPRA Plan. operates its market outside of regular 5 See Securities Exchange Act Release No. 72820 hours. On October 21, 2013, the Options (August 12, 2014), 79 FR 48779 (‘‘Notice’’). In addition, OPRA’s Fee Schedule Price Reporting Authority (‘‘OPRA’’) 6 OPRA does not currently operate outside of its does not currently provide specific fees regular hours of operations. However, according to for access to OPRA data during periods impact on efficiency, competition, and capital OPRA, one of its member exchanges has indicated formation. 15 U.S.C. 78c(f). that it is planning to initiate after-hours trading and 7 8 15 U.S.C. 78k–1. requested that OPRA operate during the after-hours Clause 7.1(a)(iii)(2) of the OPRA Plan provides that costs above a ‘‘specified ceiling’’ are to be 9 17 CFR 242.608. period when its market will be open for trading. The current OPRA Plan provides that the OPRA allocated in accordance with OPRA’s Capacity 10 15 U.S.C. 78k–1. System will operate outside of its regular hours of Guidelines. The ‘‘ceiling’’ is described in Guideline 11 17 CFR 242.608. operation at the request of any one or more of its 7 of the Capacity Guidelines. OPRA is not 12 15 U.S.C. 78k–1. member exchanges. See Section 5.3 of the OPRA proposing any changes in the allocation of costs as 13 17 CFR 242.608. Plan. OPRA is not proposing any changes to Section described in the Capacity Guidelines. 14 17 CFR 200.30–3(a)(29). 5.3 of the OPRA Plan. 8 See Section 7.1 of the OPRA Plan.

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of after-hours operations. Therefore, SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s OPRA is proposing to add a sentence to COMMISSION Statement of the Purpose of, and Section 5.4(d) of the OPRA Plan to state Statutory Basis for, the Proposed Rule expressly that it may establish such [Release No. 34–73705; File No. SR– Change 9 fees. NASDAQ–2014–118] 1. Purpose III. Discussion Self-Regulatory Organizations; The NASDAQ is proposing to amend the fees assessed under Rule 7001(c) for NASDAQ Stock Market LLC; Notice of After careful review, the Commission MPIDs. MPIDs are special numerical Filing and Immediate Effectiveness of finds that the proposed OPRA Plan identifiers assigned to certain broker- amendment is consistent with the Proposed Rule Change To Modify dealers to identify the firms’ transaction requirements of the Act and the rules NASDAQ Rule 7001(c) and quoting activity. NASDAQ and regulations thereunder.10 December 1, 2014. administers the assignment of MPIDs, Specifically, the Commission finds that which may be requested by a broker- the proposed OPRA Plan amendment is Pursuant to Section 19(b)(1) of the dealer for use on NASDAQ systems, consistent with Section 11A of the Securities Exchange Act of 1934 reporting to Financial Industry Act 11 and Rule 608 thereunder 12 in that (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Regulatory Authority (‘‘FINRA’’), or a it is appropriate in the public interest, notice is hereby given that on November combination of the two. NASDAQ for the protection of investors and the 26, 2014, The NASDAQ Stock Market member firms are provided with a maintenance of fair and orderly markets, LLC (‘‘NASDAQ’’ or the ‘‘Exchange’’) Primary MPID upon gaining NASDAQ and to remove impediments to, and filed with the Securities and Exchange membership, but may also request perfect the mechanisms of, a national Commission (‘‘Commission’’) a additional MPIDs. These additional market system. OPRA believes that the proposed rule change as described in MPIDs are called Supplemental MPIDs proposed amendment will better align Items I, II and III below, which Items and may be used by member firms to the provisions of the OPRA Plan relating have been prepared by the Exchange. separate orders or quotes entered into to the allocation of costs of after-hours The Commission is publishing this the NASDAQ system for affiliates, operations with the provisions of the notice to solicit comments on the segregated business units or trading desks, or sponsored access firms. OPRA Plan relating to the allocation of proposed rule change from interested Member firms also may use revenues derived from after-hours persons. Supplemental MPIDs exclusively for trading. The Commission believes that I. Self-Regulatory Organization’s reporting information to facilities of the OPRA’s proposal is consistent with Statement of the Terms of the Substance FINRA, such as the FINRA/NASDAQ 13 Section 11A of the Act and Rule 608 of the Proposed Rule Change Trade Reporting Facility. thereunder.14 Under Rule 7001(c), NASDAQ The Exchange proposes to modify IV. Conclusion provides a Primary MPID at no cost, and NASDAQ Rule 7001(c) concerning Supplemental MPIDs for a fee of $1,000 It is therefore ordered, pursuant to market maker participant identifier 3 per month, per additional identifier. Section 11A of the Act,15 and Rule 608 (‘‘MPID’’) fees. The Exchange proposes The Exchange also provides thereunder,16 that the proposed OPRA to implement the proposed rule change Supplemental MPIDs at no cost if they Plan amendment (SR–OPRA–2013–03) on December 1, 2014. are used exclusively for reporting be, and it hereby is, approved. The text of the proposed rule change information to facilities of FINRA. The Exchange has not modified the fees For the Commission, by the Division of is available at nasdaq.cchwallstreet.com, at assessed for MPIDs since adopting Rule Trading and Markets, pursuant to delegated 7001(c) in July 2010.4 NASDAQ is 17 NASDAQ’s principal office, and at the authority. proposing to eliminate the distinction Commission’s Public Reference Room. Kevin M. O’Neill, between Primary and Supplemental Deputy Secretary. II. Self-Regulatory Organization’s MPIDs and assess a fee of $500 per [FR Doc. 2014–28545 Filed 12–4–14; 8:45 am] Statement of the Purpose of, and month, per identifier. As is currently the BILLING CODE 8011–01–P Statutory Basis for, the Proposed Rule case, NASDAQ will not assess a fee for Change MPIDs used exclusively for reporting to the facilities of FINRA. A consequence In its filing with the Commission, of the proposed change is that some NASDAQ included statements member firms will experience an overall 9 OPRA is also proposing to make a non- concerning the purpose of, and basis for, fee increase. Specifically, a member firm substantive change to Section 5.4(d) of the OPRA the proposed rule change and discussed that currently has only one MPID (a Plan to reflect that the OPRA Fee Schedule is no longer identified as ‘‘Exhibit B’’ to the OPRA Plan any comments it received on the ‘‘Primary MPID’’ under the current rule) but is publicly available on the OPRA Web site proposed rule change. The text of those would now have to pay $500 per month under the ‘‘Fees’’ tab. statements may be examined at the for the MPID under the proposed 10 In approving this proposed OPRA Plan places specified in Item IV below. The change, whereas that member firm pays Amendment, the Commission has considered its Exchange has prepared summaries, set nothing under the current rule. A impact on efficiency, competition, and capital forth in sections A, B, and C below, of member firm that has two MPIDs formation. 15 U.S.C. 78c(f). currently, none of which are [sic] used 11 15 U.S.C. 78k–1. the most significant parts of such statements. exclusively for reporting to the facilities 12 17 CFR 242.608. of FINRA, would experience no change 13 15 U.S.C. 78k–1. in the total monthly fee assessed for its 14 17 CFR 242.608. 1 15 U.S.C. 78s(b)(1). 15 15 U.S.C. 78k–1. 2 17 CFR 240.19b–4. 4 See Securities Exchange Act Release No. 62564 16 17 CFR 242.608. 3 When applied to a market maker, sometimes (July 23, 2010), 75 FR 44830 (July 29, 2010) (SR– 17 17 CFR 200.30–3(a)(29). referred to as a ‘‘maker participant identifier.’’ NASDAQ–2010–089).

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MPIDs.5 A member firm that has three with the fee received. NASDAQ is adjusting the fee to ensure that each or more MPIDs, none of which are [sic] currently provides a Primary MPID at no subscribing member firm pays for the used exclusively for reporting to the cost, while Supplemental MPIDs not benefit received. facilities of FINRA, would experience a used exclusively for reporting to the B. Self-Regulatory Organization’s fee reduction. The Exchange notes that facilities of FINRA are assessed a fee. Statement on Burden on Competition its membership fees will continue to NASDAQ had adopted the remain lower than the analogous fees Supplemental MPID fees in an effort to NASDAQ does not believe that the assessed by the New York Stock help cover the costs of administering proposed rule changes will result in any Exchange for membership.6 MPIDs and to also bring efficiency to burden on competition that is not their use by member firms.9 When it 2. Statutory Basis necessary or appropriate in furtherance adopted the Supplemental MPID fees, of the purposes of the Act, as NASDAQ believes that the proposed NASDAQ noted that it had observed amended.11 NASDAQ does not believe rule change is consistent with the that many member firms subscribed to 7 that the proposed rule change places an provisions of Section 6 of the Act, in multiple MPIDs through which very unnecessary burden on competition general, and with Sections 6(b)(4) and little activity occurred.10 NASDAQ 8 because it more equitably applies the fee 6(b)(5) of the Act, in particular, in that notes that the current fee structure has among subscribers. Specifically, the it provides for the equitable allocation had the desired effect. Accordingly, proposed change ties the fee directly to of reasonable dues, fees and other NASDAQ now believes that reducing the number of MPIDs subscribed and charges among members and issuers and the per MPID fee, yet applying it to all eliminates the free Primary MPID. other persons using any facility or MPIDs, is reasonable as it better aligns NASDAQ notes that, although all system which NASDAQ operates or the fees assessed for MPIDs with the member firms will have to pay a fee for controls, and is not designed to permit costs incurred by NASDAQ while also what is currently known as a Primary unfair discrimination between retaining an incentive to use MPIDs MPID and some member firms will customers, issuers, brokers, or dealers. efficiently. NASDAQ anticipates that experience a fee increase as a result of NASDAQ believes that the proposed the proposed change will result in an simplification and uniform application the proposed change, such a change is overall increase in income received appropriate because it more closely of the fee assessed for MPIDs is an from MPID subscription fees. The equitable allocation of a reasonable fee aligns the subscription fee assessed for Exchange believes that it is reasonable an MPID with the cost incurred by because it removes a distinction from to adjust fees from time to time so that the rule based on the number of MPIDs NASDAQ in administering it and it can continue to make a profit on the ensures that offering the service is held and allocates a lower per MPID fee products and services it offers. Ensuring based strictly on the number of MPIDs profitable to the Exchange. As discussed that its products and services provide above, NASDAQ’s membership fees subscribed. Although the proposed rule the Exchange with a profit allows it change reduces the per MPID fee remain lower than the analogous fees of continue to offer and enhance such the NYSE, and membership fees are assessed, it will result in a higher fee for products and services, such as MPIDs. some member firms that subscribe only subject to competition from other As noted above, the Exchange believes exchanges. Accordingly, if the changes to a Primary MPID currently. The it is more equitable to allocate the fees proposed herein are unattractive to Exchange believes that applying the on a per MPID basis because it better market participants, it is likely that proposed fee to all MPIDs subscribed aligns the fees assessed with the costs NASDAQ will experience a decline in that are used for Exchange trading incurred in offering MPIDs. activity allocates the fee more precisely NASDAQ also believes that the membership and/or order flow as a with the benefit received. NASDAQ proposed rule change is not designed to result. notes that it incurs the same cost in permit unfair discrimination between C. Self-Regulatory Organization’s administering all MPIDs, including member firms because the proposed fee Statement on Comments on the what is currently known as a Primary will be assessed based on the number of Proposed Rule Change Received From MPID. The Exchange believes that the MPIDs subscribed. The Exchange notes Members, Participants, or Others proposed fee is reasonable because it that all member firms will be assessed lowers the fee to a level that more a fee for what is now considered a Written comments were neither closely aligns the costs NASDAQ incurs Primary MPID. As a consequence, solicited nor received. in administering an individual MPID member firms that currently subscribe III. Date of Effectiveness of the only to a Primary MPID and have no Proposed Rule Change and Timing for 5 Such a member firm currently receives the Supplemental MPIDs or only Primary MPID at no cost and the Supplemental Commission Action MPID at $1,000 per month. Under the proposed Supplemental MPIDs used exclusively change, such a member firm would pay $500 per for reporting to the facilities of FINRA, The foregoing change has become month for each of the MPIDs, totaling $1,000 per will experience a fee increase. Other effective pursuant to Section 19(b)(3)(A) month. member firms, however, will either see of the Act,12 and paragraph (f) 13 of Rule 6 The Exchange believes that the New York Stock no increase in fee [sic] or experience a 19b–4, thereunder. At any time within Exchange (‘‘NYSE’’) Trading License Fee is analogous to membership fees of NASDAQ as they fee reduction under the proposed 60 days of the filing of the proposed rule both provide access to the trading facilities of their change. NASDAQ believes that the change, the Commission summarily may respective exchanges. In this regard, NYSE assesses proposed change is not unfairly temporarily suspend such rule change if an annual fee of $40,000 for the first two licenses discriminatory because all subscribing it appears to the Commission that such held by a member organization, and $25,000 for each additional license. See https://www.nyse.com/ member firms will be assessed a fee for action is necessary or appropriate in the publicdocs/nyse/markets/nyse/NYSE_Price_ what is currently known as a Primary public interest, for the protection of List.pdf. By contrast, NASDAQ would assess the MPID. As noted above, all member firms investors, or otherwise in furtherance of proposed monthly fee of $500 per MPID, an annual derive benefit from each MPID used in the purposes of the Act. membership fee of $3,000, and a trading rights fee of $1,000 per month ($12,000 annually). See transacting on NASDAQ, and NASDAQ NASDAQ Rule 7001(a). 11 15 U.S.C. 78f(b)(8). 7 15 U.S.C. 78f. 9 Supra note 4. 12 15 U.S.C. 78s(b)(3)(A). 8 15 U.S.C. 78f(b)(4) and (5). 10 Id. 13 17 CFR 240.19b–4(f)

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IV. Solicitation of Comments For the Commission, by the Division of 2014.3 The Commission received no Trading and Markets, pursuant to delegated comments on the proposal. On October Interested persons are invited to authority.14 15, 2014, pursuant to Section 19(b)(2) of submit written data, views, and Kevin M. O’ Neill, the Act,4 the Commission designated a arguments concerning the foregoing, Deputy Secretary. longer period within which to either including whether the proposed rule [FR Doc. 2014–28534 Filed 12–4–14; 8:45 am] approve the proposed rule change, change is consistent with the Act. BILLING CODE 8011–01–P disapprove the proposed rule change, or Comments may be submitted by any of institute proceedings to determine the following methods: whether to disapprove the proposed SECURITIES AND EXCHANGE rule change.5 This order institutes Electronic Comments COMMISSION proceedings under Section 19(b)(2)(B) of 6 • Use the Commission’s Internet [Release No. 34–73706; File No. SR– the Act to determine whether to comment form (http://www.sec.gov/ NYSEArca–2014–89] approve or disapprove the proposed rules/sro.shtml); or rule change. Self-Regulatory Organizations; NYSE • II. Description of the Proposal Send an email to rule-comments@ Arca, Inc.; Order Instituting sec.gov. Please include File Number SR– Proceedings To Determine Whether To The Exchange proposes to list and NASDAQ–2014–118 on the subject line. Approve or Disapprove Proposed Rule trade shares (‘‘Shares’’) of the Funds Paper Comments Change Relating To Listing and under NYSE Arca Equities Rule 8.600, Trading of Shares of Eight PIMCO which governs the listing and trading of • Send paper comments in triplicate Exchange-Traded Funds Managed Fund Shares.7 to Brent J. Fields, Secretary, Securities December 1, 2014. A. Characteristics and Holdings of the and Exchange Commission, 100 F Street Funds 8 NE., Washington, DC 20549–1090. I. Introduction 1. Investment Objective and Principal On August 15, 2014, NYSE Arca, Inc. All submissions should refer to File Holdings Number SR–NASDAQ–2014–118. This (‘‘NYSEArca’’ or ‘‘Exchange’’) filed with file number should be included on the the Securities and Exchange Each Fund would seek total return subject line if email is used. To help the Commission (‘‘Commission’’), pursuant that exceeds the total return of its equity Commission process and review your to Section 19(b)(1) of the Securities securities index benchmark, and under normal circumstances would seek to comments more efficiently, please use Exchange Act of 1934 (‘‘Act’’ or ‘‘Exchange Act’’) 1 and Rule 19b–4 achieve its investment objective by only one method. The Commission will thereunder,2 a proposed rule change to investing in derivatives overlying its post all comments on the Commission’s list and trade shares of the following benchmark and a portfolio of Fixed Internet Web site (http://www.sec.gov/ eight PIMCO exchange-traded funds, Income Instruments (defined below), rules/sro.shtml). Copies of the pursuant to NYSE Arca Equities Rule which would be managed using an submission, all subsequent 8.600: PIMCO StocksPLUS® Absolute absolute return approach. Typically, the amendments, all written statements Return Exchange-Traded Fund Funds would use derivative instruments with respect to the proposed rule (‘‘StocksPLUS AR Fund’’), PIMCO Small as a substitute for taking a position in change that are filed with the Cap StocksPLUS® AR Strategy Commission, and all written Exchange-Traded Fund (‘‘Small Cap 3 See Securities Exchange Act Release No. 72937 communications relating to the StocksPLUS AR Fund’’), PIMCO (Aug. 27, 2014), 79 FR 52385 (‘‘Notice’’). proposed rule change between the Fundamental IndexPLUS® AR 4 15 U.S.C. 78s(b)(2). Commission and any person, other than Exchange-Traded Fund (‘‘Fundamental 5 See Securities Exchange Act Release No. 73364, 79 FR 62988 (Oct. 21, 2014). The Commission those that may be withheld from the IndexPLUS Fund’’), PIMCO Small determined that it was appropriate to designate a ® public in accordance with the Company Fundamental IndexPLUS AR longer period within which to take action on the provisions of 5 U.S.C. 552, will be Strategy Exchange-Traded Fund (‘‘Small proposed rule change so that it has sufficient time Company Fundamental IndexPLUS to consider the proposed rule change. Accordingly, available for Web site viewing and the Commission designated December 2, 2014 as printing in the Commission’s Public Fund’’), PIMCO EM Fundamental the date by which it should approve, disapprove, ® Reference Room, 100 F Street NE., IndexPLUS AR Strategy Exchange- or institute proceedings to determine whether to Washington, DC 20549 on official Traded Fund (‘‘EM Fundamental disapprove the proposed rule change. 6 15 U.S.C. 78s(b)(2)(B). business days between the hours of IndexPLUS Fund’’), PIMCO International Fundamental IndexPLUS® 7 A Managed Fund Share is a security that 10:00 a.m. and 3:00 p.m. Copies of such represents an interest in an investment company filing also will be available for AR Strategy Exchange-Traded Fund registered under the Investment Company Act of inspection and copying at the principal (‘‘International Fundamental 1940 (15 U.S.C. 80a–1) (‘‘1940 Act’’) organized as an open-end investment company or similar entity offices of the Exchange. All comments IndexPLUS Fund’’), PIMCO EM StocksPLUS® AR Strategy Exchange- that invests in a portfolio of securities selected by received will be posted without change; its investment adviser consistent with its Traded Fund (‘‘EM StocksPLUS Fund’’), investment objectives and policies. In contrast, an the Commission does not edit personal ® and PIMCO International StocksPLUS open-end investment company that issues identifying information from AR Strategy Exchange-Traded Fund Investment Company Units, listed and traded on submissions. You should submit only (Unhedged) (‘‘International StocksPLUS the Exchange under NYSE Arca Equities Rule information that you wish to make 5.2(j)(3), seeks to provide investment results that Fund’’) (each a ‘‘Fund’’ and collectively correspond generally to the price and yield available publicly. All submissions the ‘‘Funds.’’). The proposed rule performance of a specific foreign or domestic stock should refer to File Number SR– change was published for comment in index, fixed income securities index or combination NASDAQ–2014–118, and should be the Federal Register on September 3, thereof. submitted on or before December 26, 8 Additional information regarding the Shares and the Funds, including investment strategy, risks, 2014. 14 17 CFR 200.30–3(a)(12). creation and redemption procedures, portfolio 1 15 U.S.C. 78s(b)(1). holdings, and investment restrictions, is included 2 17 CFR 240.19b–4. in the Notice, supra note 3.

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the underlying asset 9 or as part of a tied to foreign (non-U.S.) countries. The Fixed Income Instruments, subject to strategy designed to reduce exposure to Funds may invest in securities the Fund’s limitations on borrowings. other risks. The Funds may also use denominated in foreign (non-U.S.) Each Fund may invest up to 20% of derivative instruments to enhance currencies and in U.S. dollar- its total assets in ‘‘high yield securities’’ returns. denominated securities of foreign (non- or unrated securities determined by The Exchange states that ‘‘Fixed U.S.) issuers, subject to applicable PIMCO to be of comparable quality Income Instruments’’ may include: limitations set forth in the Notice. With (except that within such limitation, the Securities issued or guaranteed by the respect to the Funds’ absolute return Fund may invest in mortgage-related U.S. Government, its agencies, or investments, each Fund will normally securities rated below B). government-sponsored enterprises limit its foreign currency exposure (from Each Fund may invest up to 20% of (‘‘U.S. Government Securities’’); non-U.S. dollar-denominated securities its assets in mortgage-related and other corporate debt securities of U.S. and or currencies) to 20% of its total assets. asset-backed securities, although this non-U.S. issuers, including convertible With respect to the Funds’ absolute 20% limitation does not apply to securities and corporate commercial return investments, each Fund may securities issued or guaranteed by paper; mortgage-backed and other asset- invest up to 25% of its total assets in Federal agencies and/or U.S. backed securities; inflation-indexed securities and instruments that are government sponsored bonds issued both by governments and economically tied to emerging market instrumentalities. corporations; structured notes, countries. III. Proceedings To Determine Whether including hybrid or ‘‘indexed’’ The Funds may engage in foreign 10 To Approve or Disapprove the securities, and event-linked bonds; currency transactions on a spot (cash) bank capital and trust preferred Proposed Rule Change and Grounds for basis or forward basis, and they may Disapproval Under Consideration securities; loan participations and invest in foreign currency futures 11 assignments; delayed funding loans contracts and options contracts. The The Commission is instituting and revolving credit facilities; bank Funds may enter into these contracts to proceedings pursuant to Section 13 certificates of deposit, fixed time hedge against foreign exchange risk, to 19(b)(2)(B) of the Act to determine deposits and bankers’ acceptances; increase exposure to a foreign currency, whether the proposed rule change repurchase agreements on Fixed Income or to shift exposure to foreign currency should be approved or disapproved. Instruments and reverse repurchase fluctuations from one currency to Institution of such proceedings is agreements on Fixed Income another. Suitable hedging transactions appropriate at this time in view of the Instruments; debt securities issued by may not be available in all legal and policy issues raised by the states or local governments and their circumstances and there can be no proposed rule change, as discussed agencies, authorities and other assurance that the Funds will engage in below. Institution of proceedings does government-sponsored enterprises; such transactions at any given time or not indicate that the Commission has obligations of non-U.S. governments or from time to time. reached any conclusions with respect to their subdivisions, agencies, and any of the issues involved. Rather, as The Funds may, without limitation, government-sponsored enterprises; and described below, the Commission seeks seek to obtain market exposure to the obligations of international agencies or and encourages interested persons to securities in which they primarily supranational entities. The Exchange provide comment on the proposed rule invest by entering into a series of also states that derivative instruments change. purchase and sale contracts. The Funds may include the following: Forwards; Pursuant to Section 19(b)(2)(B) of the may purchase or sell securities on a exchange-traded and over-the-counter Act,14 the Commission is providing when-issued, delayed delivery or (‘‘OTC’’) options contracts; exchange- notice of the grounds for disapproval forward commitment basis and may traded futures contracts; exchange- under consideration. The Commission is engage in short sales. traded and OTC swap agreements; instituting proceedings to allow for exchange-traded and OTC options on 3. Additional Investment Limits additional analysis of, and input from futures contracts; and OTC options on commenters with respect to, the According to the Exchange, each of swap agreements.12 proposed rule change’s consistency with the Funds may invest up to 10% of its Section 6(b)(5) of the Exchange Act, 2. Other Investments total assets in preferred stocks, which requires, among other things, that convertible securities, and other equity- The Funds may invest in securities the rules of a national securities related securities. Each Fund may invest and instruments that are economically exchange be ‘‘designed to prevent up to 20% of its total assets in: (i) fraudulent and manipulative acts and 9 Variable and floating rate securities that The Exchange states that derivatives may be practices, to promote just and equitable purchased with a small fraction of the assets that are not Fixed Income Instruments; (ii) principles of trade,’’ and ‘‘to protect would be needed to purchase the benchmark index floaters and inverse floaters that are not securities directly, so that the remainder of the investors and the public interest.’’ 15 Funds’ assets may be invested in Fixed Income Fixed Income Instruments; (iii) trade Instruments. Accordingly, the Funds generally claims, privately placed and IV. Procedure: Request for Written would not invest directly in benchmark index unregistered securities, exchange-traded Comments component stocks, but the Exchange states that the Funds may invest in stocks and exchange-traded and OTC-traded structured products, The Commission requests that funds. including credit-linked securities and interested persons provide written 10 The Exchange states that such investments will commodity-linked notes; (iv) Brady submissions of their views, data, and constitute only up to 20% of a Fund’s total assets. Bonds; and (v) bank loans. 11 The Exchange states that such investments will arguments with respect to the concerns constitute only up to 20% of a Fund’s total assets. Each Fund may, with up to 20% of its identified above, as well as any other 12 According to the Exchange, all investment total assets, enter into repurchase concerns they may have with the guidelines and limitations will apply to a Fund’s agreements on instruments other than proposal. In particular, the Commission aggregate investment exposure to a particular type Fixed Income Instruments. Each Fund of investment that is the subject of the guideline or may also, with up to 20% of its total 13 limitation, whether such exposure is obtained 15 U.S.C. 78s(b)(2)(B). through direct holdings or through derivative assets, enter into reverse repurchase 14 Id. instruments. See Notice, supra note 3, at 52387. agreements on instruments other than 15 15 U.S.C. 78f(b)(5).

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invites the written views of interested proposed rule change between the 2014.3 The Commission did not receive persons concerning (1) the transparency Commission and any person, other than any comments in response to the and liquidity of the markets for the those that may be withheld from the advance notice. assets in which each Fund would be public in accordance with the On October 28, 2014, OCC filed a permitted to invest a substantial portion provisions of 5 U.S.C. 552, will be withdrawal of its advance notice (SR– of its portfolio and (2) the expected available for Web site viewing and OCC–2014–805) from consideration by effectiveness and efficiency of arbitrage printing in the Commission’s Public the Commission. The Commission is with respect to the market price of the Reference Room, 100 F Street NE., hereby publishing notice of the Funds’ shares and the value of the Washington, DC 20549, on official withdrawal. underlying portfolio assets, given the business days between the hours of By the Commission. transparency and liquidity of the 10:00 a.m. and 3:00 p.m. Copies of such Kevin M. O’Neill, markets for those underlying assets. filings also will be available for Deputy Secretary. Although there do not appear to be inspection and copying at the principal [FR Doc. 2014–28544 Filed 12–4–14; 8:45 am] any issues relevant to approval or office of the Exchange. All comments disapproval which would be facilitated received will be posted without change; BILLING CODE 8011–01–P by an oral presentation of views, data, the Commission does not edit personal and arguments, the Commission will identifying information from SECURITIES AND EXCHANGE consider, pursuant to Rule 19b–4, any submissions. You should submit only COMMISSION request for an opportunity to make an information that you wish to make oral presentation.16 available publicly. All submissions [Release No. 34–73708; File No. SR–MSRB– Interested persons are invited to should refer to File Number SR– 2014–08] submit written data, views, and NYSEArca–2014–89 and should be Self-Regulatory Organizations; arguments regarding whether the submitted on or before December 26, proposal should be approved or Municipal Securities Rulemaking 2014. Rebuttal comments should be Board; Notice of Filing of a Proposed disapproved by December 26, 2014. Any submitted by January 9, 2015. person who wishes to file a rebuttal to Rule Change Consisting of Proposed any other person’s submission must file For the Commission, by the Division of Amendments to MSRB Rules G–1, on Trading and Markets, pursuant to delegated Separately Identifiable Department or that rebuttal by January 9, 2015. 17 Comments may be submitted by any authority. Division of a Bank; G–2, on Standards of the following methods: Kevin M. O’Neill, of Professional Qualification; G–3, on Deputy Secretary. Professional Qualification Electronic Comments [FR Doc. 2014–28547 Filed 12–4–14; 8:45 am] Requirements; and D–13, on Municipal • Use the Commission’s Internet BILLING CODE 8011–01–P Advisory Activities comment form (http://www.sec.gov/ rules/sro.shtml); or December 1, 2014. • Send an email to rule-comments@ SECURITIES AND EXCHANGE Pursuant to Section 19(b)(1) of the sec.gov. Please include File Number SR– COMMISSION Securities Exchange Act of 1934 (the NYSEArca–2014–89 on the subject line. ‘‘Act’’) 1 and Rule 19b-4 thereunder,2 [Release No. 34–73710; File No. SR–OCC– notice is hereby given that on November Paper Comments 2014–805] 18, 2014, the Municipal Securities • Send paper comments in triplicate Rulemaking Board (the ‘‘MSRB’’ or Self-Regulatory Organizations; The to Secretary, Securities and Exchange ‘‘Board’’) filed with the Securities and Options Clearing Corporation; Notice Commission, 100 F Street NE., Exchange Commission (the ‘‘SEC’’ or of Withdrawal of an Advance Notice Washington, DC 20549–1090. ‘‘Commission’’) the proposed rule Concerning Enhancements to the Risk All submissions should refer to File change as described in Items I, II, and Management Framework Applied to the Numbers SR–NYSEArca–2014–89. This III below, which Items have been Clearance of Confirmed Trades file number should be included on the prepared by the MSRB. The Executed in Extended and Overnight subject line if email is used. To help the Commission is publishing this notice to Trading Sessions Commission process and review your solicit comments on the proposed rule comments more efficiently, please use December 1, 2014. change from interested persons. only one method. The Commission will On September 17, 2014, The Options I. Self-Regulatory Organization’s post all comments on the Commission’s Clearing Corporation (‘‘OCC’’) filed with Statement of the Terms of Substance of Internet Web site (http://www.sec.gov/ the Securities and Exchange the Proposed Rule Change rules/sro.shtml). Copies of the Commission (‘‘Commission’’), pursuant The MSRB filed with the Commission submission, all subsequent to Section 806(e)(1) of the Payment, a proposed rule change consisting of amendments, all written statements Clearing, and Settlement Supervision proposed amendments to MSRB Rules with respect to the proposed rule Act of 2010 (‘‘Clearing Supervision G–1, on separately identifiable change that are filed with the Act’’) 1 and Rule 19b–4(n)(1)(i),2 an department or division of a bank; G–2, Commission, and all written advance notice concerning on standards of professional communications relating to the enhancements to the risk management qualification; G–3, on professional framework applied to the clearance of 16 qualification requirements; and D–13, Section 19(b)(2) of the Act, as amended by the confirmed trades executed in extended Securities Act Amendments of 1975, Pub. L. 94–29 on municipal advisory activities (the and overnight trading sessions. Notice (June 4, 1975), grants the Commission flexibility to ‘‘proposed rule change’’). The MSRB is determine what type of proceeding—either oral or of the advance notice was published in notice and opportunity for written comments—is the Federal Register on October 20, appropriate for consideration of a particular 3 See Securities Exchange Act Release No. 73343 proposal by a self-regulatory organization. See (October 14, 2014), 79 FR 62684 (October 20, 2014) Securities Act Amendments of 1975, Senate Comm. 17 17 CFR 200.30–3(a)(57). (SR–OCC–2014–805). on Banking, Housing & Urban Affairs, S. Rep. No. 1 12 U.S.C. 5465(e)(1). 1 15 U.S.C. 78s(b)(1). 75, 94th Cong., 1st Sess. 30 (1975). 2 17 CFR 240.19b–4(n)(1)(i). 2 17 CFR 240.19b–4.

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proposing that these amendments applicable to a particular registration accordance with MSRB rules. The become effective 60 days following the category. proposed rule change amends Rule date of SEC approval. MSRB Rule G–3 establishes G–2 to add a basic requirement that no The text of the proposed rule change classifications and qualification municipal advisor shall engage in is available on the MSRB’s Web site at requirements for associated persons of municipal advisory activities unless www.msrb.org/Rules-and- dealers. The proposed rule change such municipal advisor and every Interpretations/SEC-Filings/2014- would add the following two new natural person associated with such Filings.aspx, at the MSRB’s principal registration classifications for municipal municipal advisor is qualified in office, and at the Commission’s Public advisors under Rule G–3: (a) Municipal accordance with MSRB rules. Reference Room. advisor representatives—those The proposed rule change would also individuals who engage in municipal amend Rule D–13, on municipal II. Self-Regulatory Organization’s advisory activities; and (b) municipal advisory activities, to incorporate SEC Statement of the Purpose of, and advisor principals—those individuals rules by providing that the term Statutory Basis for, the Proposed Rule who engage in the management, ‘‘municipal advisory activities’’ means, Change direction or supervision of the except as otherwise specifically municipal advisory activities of the provided by rule of the Board, the In its filing with the Commission, the municipal advisor and its associated activities described in Section MSRB included statements concerning persons.4 The proposed amendments 15B(e)(4)(A)(i) and (ii) of the Act 5 and the purpose of and basis for the also would require each prospective the rules and regulations promulgated proposed rule change and discussed any municipal advisor representative to take thereunder. In recognition of the new comments it received on the proposed and pass the municipal advisor regulatory scheme for municipal rule change. The text of these statements representative qualification examination advisors, the proposed rule change may be examined at the places specified being developed by the MSRB prior to would amend Rules G–1 and G–3 to in Item IV below. The MSRB has being qualified as a municipal advisor provide that dealers and their municipal prepared summaries, set forth in representative. Qualification as a securities representatives may continue Sections A, B, and C below, of the most municipal advisor representative would to perform financial advisory or significant aspects of such statements. be a prerequisite to qualification as a consultative services for issuers in A. Self-Regulatory Organization’s municipal advisor principal. Each connection with the issuance of Statement of the Purpose of, and municipal advisor would be required to municipal securities, except to the Statutory Basis for, the Proposed Rule designate at least one individual as a extent the municipal securities Change municipal advisor principal who would representatives engaged in the activities be responsible for supervising the must be qualified as municipal advisor 1. Purpose municipal advisory activities of the representatives to perform such Description of the Proposed Rule municipal advisor, and each municipal services. Finally, Rule G–1 also would Change advisor principal would be required to be amended to provide that, for pass the municipal advisor purposes of its municipal advisory The purpose of the proposed rule representative qualification examination activities, the term ‘‘separately change is to establish professional to perform the supervisory activities of identifiable department or division of a qualification requirements for a principal. bank’’ would have the same meaning as municipal advisors and their associated To provide prospective municipal in Securities Exchange Act Rule 15Ba1– persons and to make related changes to advisor representatives with sufficient 1(d)(4).6 select MSRB rules. The MSRB is time to prepare for and take the New Registration Classifications charged with setting professional examination, the MSRB proposes a one- standards and continuing education year grace period for test takers to pass The proposed amendments to Rule G– requirements for municipal advisors. the examination. In addition, given the 3 would create two new registration Specifically, the Act requires associated general view of industry participants classifications: (a) Municipal advisor persons of brokers, dealers and that the 90-day apprenticeship representative and (b) municipal advisor municipal securities dealers (‘‘dealers’’) requirement for municipal securities principal. These classifications are and municipal advisors to pass representatives in Rule G–3 does not consistent with other regulatory examinations as the MSRB may provide any additional benefit, the schemes, including those for broker- establish to demonstrate that such MSRB proposes to eliminate the dealers.7 individuals meet the standards of requirement for municipal securities The new classifications would competence as the MSRB finds representatives and, similarly, does not distinguish between municipal advisor necessary or appropriate in the public propose an apprenticeship requirement representatives who would be qualified interest or for the protection of investors for municipal advisor representatives. to engage in municipal advisory and municipal entities or obligated MSRB Rule G–2 establishes the activities and municipal advisor persons.3 A professional qualification standards of professional qualification principals who would be qualified to examination is intended to determine for dealers and currently provides that engage in and supervise the municipal whether an individual meets the no dealer shall engage in municipal advisory activities of the municipal MSRB’s basic qualification standards for securities activities unless such dealer 5 a particular registration category. The and every natural person associated See Section 15B(e)(4)(A)(i) and (ii) of the Act, 15 examination measures a candidate’s U.S.C. 78o–4(e)(4)(A)(i) and (ii). with such dealer is qualified in 6 17 CFR 240.15Ba1–1(d)(4). knowledge of the business activities, as 7 Examples of these other schemes include the well as the regulatory requirements, 4 The definition of municipal advisor following classifications: Series 7 (General including MSRB rules, rule representative would be substantially identical to Securities Representative) and Series 24 (General interpretations and federal law the category of individuals for whom a Form MA– Securities Principal); Series 42 (Registered Options I is required to be completed as part of a municipal Representative) and Series 4 (Registered Options advisor’s registration with the SEC—natural persons Principal); Series 22 (Direct Participation Programs 3 See Section 15B(b)(2)(A) of the Act, 15 U.S.C. associated with the municipal advisor engaged in Limited Representative) and Series 39 (Direct 78o–4(b)(2)(A). municipal advisory activities on behalf of the firm. Participation Programs Limited Principal).

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advisor and its associated persons. The examinations, individuals who do not experience. The MSRB believes that proposed amendments to Rule G–3 pass the examination would be Congress, through the Act, requires would define a municipal advisor permitted to retake the examination more than reliance on a representation representative as a natural person after 30 days. However, any person who of competence.12 As for those who associated with a municipal advisor, fails the examination three or more suggest they have demonstrated a basic other than a person performing only times in succession would be prohibited competence by passing another clerical, administrative, support or from taking the examination for six qualification examination, the MSRB similar functions.8 months.11 believes the job responsibilities of a The proposed amendments would Prior to the effective date of the municipal advisor professional and the define a municipal advisor principal as examination and prior to the regulations governing such individuals a natural person associated with a commencement of the one-year grace are sufficiently distinct in application as municipal advisor who is directly period, the MSRB will file a study to require that they pass a separate engaged in the management, direction outline describing the topics on the examination. or supervision of the municipal examination, the percentage of the advisory activities, as defined in Rule examination devoted to the topic areas, Waivers D–13, of the municipal advisor. In and the number of questions on the The Board will consider waiving the addition, the proposed amendments to examination. The study outline will also requirement that a municipal advisor Rule G–3 would require each municipal contain reference material and sample representative or municipal advisor advisor to designate at least one examination questions to assist principal pass the municipal advisor municipal advisor principal to be examination takers. The MSRB expects representative qualification examination responsible for the municipal advisory that it will provide more information in extraordinary cases: (1) Where the activities of the municipal advisor.9 about the study outline through a applicant participated in the Further, the proposed rule change webinar or other means, subsequent to development of the municipal advisor would require each municipal advisor the filing of the study outline with the representative qualification examination representative and municipal advisor SEC. A pilot examination is expected to as a member of the Board’s Professional principal to take and pass the municipal be delivered in 2015. The MSRB will Qualifications Advisory Committee advisor representative qualification use the results of the pilot examination (PQAC); or (2) where good cause is examination prior to being qualified as to set the passing grade, which will be shown by an applicant who previously a municipal advisor representative or added to the study outline. qualified as a municipal advisor municipal advisor principal, Uniform Requirement—Grandfathering representative by passing the municipal respectively. The examination is advisor representative qualification discussed in more detail below. The proposed rule change would examination and such qualification require that all persons deemed Grace Period lapsed. The Board will review each municipal advisor representatives under waiver request on its individual merits, To provide for an orderly transition to Rule G–3 pass the qualification taking into consideration relevant facts the new professional qualification examination, regardless of whether such presented by the applicant. For requirements for municipal advisors, persons have passed other MSRB or example, the Board may consider the MSRB proposes that prospective MSRB-recognized examinations (such as granting a waiver for an individual municipal advisor representatives have the Series 52 or 7 examinations), or whose municipal advisor representative one year from the effective date of the previously have been engaged in qualification lapsed but who examination to pass it.10 During this municipal advisory activities. While demonstrated subsequent investment grace period, municipal advisor commenters requested, as discussed professionals could continue to engage industry or related professional below, that the MSRB waive the experience. in municipal advisory activities. The requirement or ‘‘grandfather’’ those grace period is intended to provide individuals who have passed certain Apprenticeship municipal advisor representatives with other professional qualifications MSRB Rule G–3 currently requires a sufficient time to study and take (and, examinations or have experience in municipal securities representative to if necessary retake) the examination providing municipal advisory services, serve an apprenticeship period of 90 without causing undue disruption to the the MSRB believes that the significant days before transacting business with business of the municipal advisor. As is changes that accompany the new any member of the public or receiving the case for all MSRB qualification regulatory regime for municipal compensation for such activities. The advisors dictate that each individual intent of the provision was to ensure 8 Rule D–13 defines municipal advisory activities engaged in municipal advisory activities as the activities described in Section 15B(e)(4)(A)(i) that persons with no prior experience in and (ii) of the Act. Rule D–13 would be amended demonstrate a minimum level of the securities industry would learn from to reflect the SEC’s interpretation of the statutory knowledge of the job responsibilities an experienced professional before definition of municipal advisor. Hence, ‘‘municipal and regulatory requirements by passing conducting business with the public. advisory activities’’ would mean the activities a general qualification examination. described in Section 15B(e)(4)(A)(i) and (ii) of the Regulated entities have provided Act and the rules and regulations promulgated The MSRB has considered this issue feedback that the requirement does not thereunder. carefully and has determined that the provide any additional benefit because 9 MSRB Rule G–44 sets forth the obligation of practice of grandfathering will not the 90-day training period is short and municipal advisors to supervise the municipal effectively ensure a minimum level of advisory activities of the municipal advisor and its the rule provides no specific training associated persons to ensure compliance with competency by those individuals acting requirements. Moreover, the SEC applicable MSRB and SEC rules. Exchange Act as municipal advisor representatives. approved a similar rule change by Release No. 73415 (Oct. 23, 2014), 79 FR 64423 For example, the MSRB has no practical Financial Industry Regulatory Authority (Oct. 29, 2014), File No. SR–MSRB–2014–06, means to determine whether an available at http://www.sec.gov/rules/sro/msrb/ 2014/34-73415.pdf. individual is competent based on 12 See Exchange Act Release No. 70462 at 6 (Sept. 10 The MSRB will announce the effective date of 20, 2013), 78 FR 67467 at 67469 (Nov. 12, 2013) the municipal advisor representative qualification 11 See MSRB Rule G–3(f), proposed MSRB Rule (‘‘SEC Final Registration Rule’’) and Section examination at a later date. G–3(g) in Exhibit 5. 15B(b)(2)(A) of the Act, 15 U.S.C. 78o–4(b)(2)(A).

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(FINRA) in eliminating the This provision provides the MSRB regulations governing the conduct of apprenticeship requirement established with authority to establish standards of such persons. under prior New York Stock Exchange competence as the MSRB finds Section 15B(b)(2)(L)(iv) of the Act 17 (NYSE) Rule 345 for certain registered necessary to carry out its regulatory requires that rules adopted by the Board persons, noting that the change would duties. It also provides that, in not impose a regulatory burden on small permit its member firms to determine, connection with the definition and municipal advisors that is not necessary consistent with their supervisory application of such standards, the or appropriate in the public interest and obligations, the extent and duration of MSRB may appropriately classify for the protection of investors, the initial training of such registered municipal advisors and their associated municipal entities, and obligated persons.13 The MSRB believes that persons, specify that all or any portion persons, provided that there is robust dealers and municipal advisors should of such standards shall be applicable to protection of investors against fraud. determine the length and nature of the any such class, and require persons in The MSRB believes that the proposed initial training for newly registered any such class to pass an examination rule change is consistent with this persons, consistent with the approach regarding such standards of provision. While the proposed rule taken by FINRA. Consequently, the competence. change would affect all municipal MSRB proposes to eliminate the advisors, including small municipal Professional qualification apprenticeship requirement for advisors, it would be a necessary and examinations are an established means municipal securities representatives and appropriate regulatory burden in order for determining the basic competency of proposes no such requirement for to establish the baseline competence of individuals in a particular class. The municipal advisor representatives. those individuals engaged in municipal proposed rule change would require advisory activities, and it also would Technical Amendments individuals who engage in or supervise promote compliance with MSRB rules. municipal advisory activities to pass The MSRB is amending Rule G– While there will be one-time costs such an examination. The MSRB associated with preparing for and taking 3(a)(ii) to correctly re-letter G–3(a)(ii)(D) believes that requiring prospective as G–3(a)(ii)(C). the municipal advisor representative municipal advisor representatives to qualification examination, the MSRB Effective Date pass a basic qualification examination does not believe that such costs will will protect investors, municipal impose a regulatory burden on small The MSRB is proposing that these entities and obligated persons by municipal advisors that is not necessary amendments become effective 60 days ensuring such representatives have a or appropriate to protect investors, following the date of SEC approval. The basic understanding of the role of a municipal entities and obligated effective date and the compliance date municipal advisor representative and persons. A discussion of the economic of the municipal advisor representative the rules and regulations governing such analysis of the proposed rule change qualification examination will be individuals. and its impact on small municipal announced by the MSRB with at least 30 In its final rule on the permanent advisors is provided below. days notice. The one-year grace period registration of municipal advisors, the will extend from the effective date to the B. Self-Regulatory Organization’s SEC noted that ‘‘[t]he new registration compliance date. Statement on Burden on Competition requirements and regulatory standards 2. Statutory Basis are intended to mitigate some of the Section 15B(b)(2)(C) of the Act 18 problems observed with the conduct of requires that MSRB rules not be The MSRB believes that the proposed some municipal advisors, including designed to impose any burden on rule change is consistent with Section competition not necessary or 14 . . . advice rendered by financial 15B(b)(2)(A) of the Act, which advisors without adequate training or appropriate in furtherance of the provides that the MSRB’s rules shall: qualifications. ’’ 15 The municipal purposes of the Act. In determining provide that no municipal securities broker advisor representative qualification whether this standard has been met, the or municipal securities dealer shall effect any examination is consistent with the MSRB has been guided by the Board’s transaction in, or induce or attempt to induce intent to mitigate problems associated recently-adopted policy to more the purchase or sale of, any municipal formally integrate economic analysis security, and no broker, dealer, municipal with advice provided by those individuals without adequate training or into the rulemaking process. In securities dealer, or municipal advisor shall accordance with this policy the Board provide advice to or on behalf of a municipal qualifications. has evaluated the potential impacts of entity or obligated person with respect to Additionally, the MSRB believes that municipal financial products or the issuance the proposed rule change, including in the proposed rule change is consistent comparison to reasonable alternative of municipal securities, unless . . . such with Section 15B(b)(2)(L)(iii) of the municipal securities broker or municipal 16 regulatory approaches. securities dealer and every natural person Act, which provides that the MSRB’s The MSRB does not believe that the associated with such municipal securities rules shall, with respect to municipal proposed rule change would impose any broker or municipal securities dealer meet advisors, provide professional burden on competition not necessary or such standards of training, experience, standards. The proposed rule change appropriate in furtherance of the competence, and such other qualifications as would establish professional standards purposes of the Act, in so far as the the Board finds necessary or appropriate in for those individuals engaged in or proposed rule change merely establishes the public interest or for the protection of supervising municipal advisory baseline professional qualification investors and municipal entities or obligated activities by requiring such individuals persons. standards for all municipal advisors. to demonstrate a basic competency The baseline standard would provide regarding the role of municipal advisor the MSRB assurance that individuals 13 See FINRA Regulatory Notice 08–64 (Oct. representatives and the rules and 2008). Exchange Act Release No. 58103 (Jul. 3, 2008), 73 FR 40403 (Jul. 14, 2008), File No. SR– 17 See Section 15B(b)(2)(L)(iv) of the Act, 15 FINRA–2008–036. 15 See 78 FR 67467 at 67469 (Nov. 12, 2013). U.S.C. 78o–4(b)(2)(L)(iv). 14 See Section 15B(b)(2)(A) of the Act, 15 U.S.C. 16 See Section 15B(b)(2)(L)(iii) of the Act, 15 18 See Section 15B(b)(2)(C) of the Act, 15 U.S.C. 78o–4(b)(2)(A). U.S.C. 78o–4(b)(2)(L)(iii). 78o–4(b)(2)(C).

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who take and pass the municipal taking the examination would be on a draft of the proposed rule change.22 advisor representative qualification incurred only once for each municipal In response, the MSRB received thirty- examination demonstrate a basic advisor representative, assuming the five comment letters.23 The comments, knowledge of the role of a municipal representative passed the examination which are summarized in Section 5 advisor representative and the rules and on the first occasion. below, focused principally on the regulations governing the conduct of The Act provides that MSRB rules qualification examination. individuals engaging in municipal may not impose a regulatory burden on The qualification examination is advisory activities. The MSRB has small municipal advisors that is not intended to determine whether a considered whether it is possible that necessary or appropriate in the public municipal advisor representative meets the costs associated with preparing for interest and for the protection of a minimum level of competency and, in and taking the municipal advisor investors, municipal entities, and general, commenters acknowledged that representative qualification obligated persons provided that there is municipal advisor representatives examination, relative to the baseline of robust protection of investors against should meet or exceed a minimum level no professional qualification fraud.21 The MSRB is sensitive to the of competency. However, several examination, may affect the competitive potential impact of the requirements commenters expressed concerns about landscape by leading some municipal contained in the proposed rule change implementation costs associated with advisors to exit the market, curtail their on small municipal advisors. The MSRB the proposed examination. These activities or consolidate with other understands that some small municipal commenters suggested that the MSRB firms. For example, some municipal advisors and sole proprietors, unlike consider alternatives for determining a advisors may determine to consolidate larger municipal advisory firms, may municipal advisor representative’s with other municipal advisors in order not employ full-time staff to train competency. Although the suggested to benefit from economies of scale (e.g., individuals to take and pass alternatives vary, they fall into two main by leveraging existing resources of a professional qualification examinations categories. First, several commenters larger firm to prepare candidates to take and that the cost of complying with the asked the MSRB to reconsider the scope of the proposed qualification the qualification examination) rather requirements of the proposed rule examination, suggesting the than to incur separately the costs change may be proportionally higher for examination should be administered associated with the proposed rule these smaller firms. To minimize separately or as part of an existing change. Others may exit the market, potential disruption to firms’ business qualification examination. Second, rather than incurring the cost of activities and to allow sufficient time for commenters suggested that municipal preparing for and taking a qualification municipal advisor professionals to advisor professionals be grandfathered examination. study for the examination, the proposed In the SEC Final Registration Rule, the based on either their experience or their rule change would provide covered SEC recognized that municipal advisors existing professional qualifications. registered persons with a one-year grace would incur programmatic costs, These options are discussed in Section including ‘‘costs to meet standards of period to pass the examination. The 5 below. training, experience, competence, and MSRB recognizes that requiring all Commenters expressed concerns other qualifications, as well as individuals engaged in municipal about the costs of preparing for and continuing education requirements, that advisory activities to take the taking a qualification examination. the MSRB may establish in the examination means that many SIFMA offered estimates of the costs to future.’’ 19 Such exits from the market individuals with ongoing business firms and individuals associated with may lead to a reduced pool of municipal obligations would be required to taking the examination. These costs advisors. However, the SEC also noted prepare for and take the examination in included fees per examination, study that the market for municipal advisory addition to fulfilling their business materials, the value of time used to services is likely to remain competitive commitments. The MSRB believes that despite the potential exit of some the one-year grace period would provide 22 See MSRB Notice 2014–08 (Mar. 17, 2014) municipal advisors (including small such individuals with sufficient (March Notice). 23 entity municipal advisors), flexibility to plan their examination Letters were received from Arrow Partners preparation time around their existing (‘‘Arrow’’), Association of Registration Management consolidation of municipal advisors, or (‘‘ARM’’), Bond Dealers of America (‘‘BDA’’), Cedar lack of new entrants into the market.20 and ongoing business obligations. Going Partners, Ltd (‘‘Cedar’’), Central States Capital It is also possible that competition for forward, new municipal advisor Markets (‘‘Central States’’), CFA Institute (‘‘CFA’’), municipal advisory services can be professionals entering the market would Compass Securities Corporation (‘‘Compass’’), be able to study for and take the Dixworks LLC (‘‘Dixworks’’), Fitzgibbon Toigo affected by whether incremental costs Associates (‘‘Fitzgibbon’’), Fortress Group, Inc. associated with the municipal advisor examination before incurring municipal (‘‘Fortress’’), Frank Taylor, George K. Baum & representative qualification examination advisory business commitments. The Company (‘‘George K. Baum’’), Government Credit are passed on to advisory clients. The MSRB believes that the proposed rule Corporation (‘‘GCC’’), Hamersley Partners, LLC (‘‘Hamersley’’), IMMS LLC (‘‘IMMS’’), Investment amount of costs passed on may be change is consistent with the Act’s Company Institute (‘‘ICI’’), Jorge Rosso, Monahan & influenced by the size of the municipal provision with respect to burdens Roth, LLC (‘‘Monahan’’), MVision Private Equity advisory firm. For smaller municipal imposed on small municipal advisors Advisers USA LLC (‘‘MVision’’), National because the financial burden of Association of Independent Public Finance advisors with fewer clients, the Advisors (‘‘NAIPFA’’), New Albany Capital incremental costs associated with the preparing for and taking the Partners, LLC (‘‘New Albany’’), Oyster River Capital qualification examination may represent qualification examination is offset by LP (‘‘Oyster River’’), Perkins Fund Marketing LLC a greater percentage of annual revenues, the need to ensure that municipal (‘‘Perkins’’), Raftelis Financial Consultants, Inc. advisor professionals have a basic level (‘‘Raftelis’’), Securities Industry and Financial and, thus, such advisors may be more Markets Association (‘‘SIFMA’’), Sonja Sullivan, likely to pass those costs along to their of competency. Stacy Havener, Stonehaven, Tessera Capital advisory clients. As noted above, On March 17, 2014, the MSRB Partners (‘‘Tessera’’), Third Party Marketers however, the costs of preparing for and published a request for public comment Association (‘‘3PM’’), Tibor Partners Inc. (‘‘Tibor’’), Timothy D. Wasson, Yuba Group (‘‘Yuba’’), Zions First National Bank, by W. David Hemingway 19 See 78 FR 67467 at 67611 (Nov. 12, 2013). 21 See Section 15B(b)(2)(L)(iv) of the Act, 15 (‘‘Zions Bank I’’), Zions First National Bank, by 20 See 78 FR 67467 at 67630 (Nov. 12, 2013). U.S.C. 78o–4(b)(2)(L)(iv). James G. Livingston (‘‘Zions Bank II’’).

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study for the exam, recordkeeping costs, should be regarded as a minimum supplemental examination for and compliance costs. Although many amount. The costs to the MSRB and previously registered municipal of these costs are unknown, SIFMA FINRA in creating and administering securities professionals that would estimates that the known likely costs to the examination are relevant. However, cover the new municipal advisor individuals and firms will be at least a portion of those costs will likely be material. $5,000 per individual taking the covered by examination fees. Given that SIFMA recommended that the Board examination. In addition, SIFMA noted these fees have been considered as part consider adding questions to the that costs also would be incurred by the of the costs borne by individuals and existing Series 52 qualification MSRB to support development of firms, the relevant costs to the MSRB examination. SIFMA stated that this questions for the new examination and and FINRA would be those costs not alternative would be less burdensome to by FINRA to administer the covered by examination fees. the industry, and would ensure that examination. SIFMA argued that these The BDA estimate of 75,000 test there was no delay in developing costs would ‘‘multiply exponentially’’ takers appears high and inconsistent examination material and administering as potentially thousands of people who with the permanent municipal advisor the examination. SIFMA also stated that are or will be dually registered as registration information received by the examining municipal securities and municipal securities representatives and SEC to date. A more accurate figure has advisory competency in one municipal advisory representatives—or been provided by the SEC, which examination would aid small dealers, will be moving from one classification estimates in the SEC Final Registration many of whom perform both functions to another—will need to take an Rule that municipal advisors will need and are very sensitive to compliance additional qualification examination to submit a new Form MA–I for costs. Further, SIFMA stated that there and incur additional expenses. SIFMA approximately 950 individuals are potentially thousands of individuals suggested that costs could be reduced by annually.25 Using SIFMA’s cost who are dually registered and would broadening the scope of the Series 52 estimate, the total cost to the industry benefit from having a single examination to include questions per year, excluding unknown examination. This is essentially the related to competency as a municipal recordkeeping and compliance costs, same approach as the universal advisor representative. yields an estimate of approximately examination recommended by BDA. BDA estimated costs of up to $4,750,000 in annual costs. Of course, in Consistent with SIFMA’s $100,000 per individual to meet the the first year the costs would be higher recommendation for a single requirements as a municipal securities because those individuals currently qualification examination, ARM also representative and as a municipal engaged in municipal advisory activities suggested that if the MSRB feels that the advisor representative. BDA did not will take the examination. Based on the duties of municipal advisor explain how it arrived at this estimate, initial analysis, the Board expects representatives require additional although it indicated that the figure approximately 3,000 initial examination expertise that additional questions be includes the lost time of municipal takers. This could result in a total cost added to existing examinations rather advisor representatives that could have of $15 million, using SIFMA’s cost than creating entirely new been used serving clients. BDA assumes estimate of $5,000 per person. Most of examinations. The Board maintains there is a need that 75,000 individuals (33,000 this cost will be borne by large dealer- for separate qualification examinations individuals from non-dealer municipal municipal advisors that elect to qualify because the content of such an advisors and 42,000 from dealer- a large number of their associated examination will be designed to meet municipal advisors) would need to take persons as municipal advisor the MSRB’s goal of determining whether the new examination.24 The product of representatives. The MSRB expects that a prospective municipal advisor BDA’s estimated cost per individual and many of these firms will leverage their representative meets the minimum level their estimated number of test takers training resources to lower the cost per of competency required of a municipal yields a total estimated cost in the examination candidate. The MSRB also advisor professional. The examination, billions of dollars. Although BDA believes that the total cost to municipal while covering a variety of municipal admits that it performed a ‘‘back of the advisors to prepare individuals to take advisory activities, will be more targeted envelope’’ assessment of the costs, the the qualification examination will drop than a combined examination that MSRB does not believe this cost significantly after the one-year grace attempts to evaluate the competence of estimate has adequate foundation. period, as the number of examination individuals engaged in varied municipal SIFMA’s estimates of cost per takers decreases and then levels off. securities and municipal advisory individual are better supported. activities. As discussed below, certain Although cost estimates will vary, the C. Self-Regulatory Organization’s Statement on Comments on the commenters take issue with the breadth SIFMA estimates appear to be more of the proposed municipal advisor credible and useful and were considered Proposed Rule Change Received From Members, Participants, or Others representative examination because of by the MSRB. SIFMA notes that there the more limited nature of their will be unknown costs, so their estimate Scope of the Qualification Examination functions. These concerns could be Commenters expressed varying views exacerbated by combining the 24 BDA also expressed concern about the administration of the qualification examination, about the proper scope of a qualification municipal advisor and securities positing that the number of individuals taking the examination. BDA offered three representative examinations. Although a examination would create congestion at alternatives for the Board to consider: combined examination may be less examination centers and may result in professionals (a) Qualifying municipal advisor costly to create and administer, and may unable to complete their required testing. The MSRB is confident that FINRA—assuming it is professionals using the Series 52 place a smaller cost burden on dealers, designated as the administrator of the municipal examination; (b) creating a single, new, such an examination may place a larger advisor representative qualification examination comprehensive examination for all cost burden on non-dealer municipal under Section 15B(c)(7)(A)(iii) of the Act—and the municipal securities and advisor advisors and their associated persons examination centers employed by FINRA have the capacity to accommodate all individuals who will professionals; and (c) creating a who have no need for or interest in be required to take the qualification examination demonstrating competency as a during the one-year grace period and thereafter. 25 See 78 FR 67467 at 67589 (Nov. 12, 2013). municipal securities representative but

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would be required to prepare for and appreciates ICI’s contention that the recognizing a professional qualification pass an examination that included activities of municipal advisors who examination for municipal securities significant content relating to the role provide advice to municipal entities representatives or accepting the self- and regulation of municipal securities regarding municipal fund securities are reported experience of an individual representatives. different than the municipal advisory who worked in a previously unregulated BDA suggests, alternatively, that the activities of traditional municipal environment. While it is self-evident MSRB develop a supplemental advisors. The MSRB also acknowledges that relying on existing qualifications examination for municipal securities that some of the content on the (such as having passed the Series 52 representatives. Under this approach, examination will not be directly related examination) or general experience municipal advisor professionals not to municipal fund securities. would place a smaller cost burden on qualified as municipal securities Nevertheless, the Board believes that firms and individuals than requiring all representatives could take the individuals who engage in municipal individuals engaged in municipal municipal securities representative advisory activities regarding municipal advisory activities to take and pass a qualification examination and fund securities should demonstrate new qualification examination, the municipal advisor supplement or a new knowledge of the rules and regulations MSRB believes such an examination is municipal advisor representative governing municipal advisors by taking necessary to establish a baseline of qualification examination developed by the municipal advisor representative competency for municipal advisors. the MSRB. The net effect of this qualification examination. The Board determined that alternative is a separate examination for grandfathering would not be consistent municipal advisory activities. While a Grandfathering with the intent of Congress and the SEC supplemental examination might ARM suggested that the MSRB in creating a new municipal advisor require fewer questions than a stand- consider grandfathering individuals regulatory regime. The new regulation alone examination, the practicalities of who have corresponding registrations as was created in response to problems maintaining many different a municipal securities representative or that Congress and the SEC observed examinations should not be municipal securities principal on the regarding the activities of municipal underestimated. Moreover, to maintain grounds that these individuals have advisors. Requiring municipal advisor consistency, the MSRB would then need completed more encompassing professionals to take and pass a basic to develop a supplemental examination examinations and that they are qualification examination ensures that for municipal advisors seeking to experienced municipal securities such individuals demonstrate a register as municipal securities professionals whose expertise should be minimum level of understanding of the representatives, which would sufficient to engage in municipal role and responsibilities of municipal necessitate a total of four examinations, advisory activities. SIFMA, BDA and advisors and applicable rules and adding further and unnecessary 3PM also recommended that individuals regulations. complexity to the registration process. who are currently qualified to perform By contrast, grandfathering presumes Lastly, the MSRB believes that existing municipal securities activities be that each municipal advisor municipal securities representatives grandfathered. representative has a basic competency should be proficient on those portions Yuba commented that the Board in the subject matter. Congress of a municipal advisor representative should make the supervisor explicitly called for the development of examination that overlap with the examination available before, or professional standards for municipal municipal securities representative simultaneously with, the representative advisors.28 Given the MSRB’s statutory examination. examination and eliminate the need for obligation to protect investors, In contrast to other commenters, ICI a supervisor to take both examinations. municipal entities and obligated argued against a single general The Board believes it is important that persons that interact with and/or rely on qualification exam. ICI recommended the representative examination be municipal advisor professionals, there that the MSRB create a separate introduced prior to any principal should be a compelling reason to rely on qualification examination for those who examination because the examination their prior experience as evidence of provide advice regarding municipal will determine the basic competency of their competence. Even if an individual fund securities. ICI cites the MSRB’s those individuals who are engaged in passed the Series 7 or 52 examinations, policy on economic analysis that allows municipal advisory activity and have the content was not specifically related for consideration of different rule the most direct impact on municipal to municipal advisory activities or the specifications or differing requirements entities and investors. While the regulation of such activities. While for different market participants. supervisory activities of municipal examinations such as the Series 52 may Alternatively, ICI recommends advisor principals are important, the have some overlapping content, the grandfathering those individuals who MSRB will consider an examination for examination questions being developed have passed the Series 6 examination.26 principals at a later date, and should not for municipal advisor professionals by The Board believes that passing the delay the introduction of an PQAC are being drafted based on the Series 6 examination would examination that has been in particular job responsibilities of demonstrate only a basic competency in preparation for nearly four years. And in municipal advisor professionals and the servicing retail customers who purchase any event, a principal is customarily rules and regulations governing such mutual funds, interests in 529 college required to pass the representative responsibilities. In this regard, the savings plans and variable annuities examination.27 Series 7 and 52 examinations do not and, hence, would not establish an A focused examination for municipal adequately test the specific job individual’s competency as a municipal advisor professionals will likely be more responsibilities of municipal advisor advisor representative. The Board effective in meeting the MSRB’s goal of professionals. determining whether a municipal The focus of the Series 52 26 The Investment Company and Variable advisor representative meets a examination is on underwriting, trading, Contracts Products Representative Qualifications Examination, (Series 6) authorizes individuals to minimum level of competency than sell a limited set of securities products including, 28 See Section 15B(b)(2)(L) of the Act, 15 U.S.C. mutual funds and variable annuities. 27 See MSRB Rule G–3(b)(ii)(B). 78o–4(b)(2)(L).

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research and sales, not municipal same level of analytical competency and administered in 2015 and will enable advisory activities. Approximately one- knowledge of the law.32 the Board to establish a passing score for quarter of the examination covers rules The argument for grandfathering the examination. After a passing score is and regulations applicable to these individuals based on experience is not established, the MSRB will issue a activities and over half of the persuasive because the MSRB has no regulatory notice establishing an examination covers municipal securities way of determining the competence of effective date and compliance date for features and principles relevant to individuals who have been acting as the examination. The grace period will municipal securities activities. There municipal advisors but have been commence on the effective date and are few questions directly related to the unregulated at the federal level. While conclude on the compliance date. job responsibilities of municipal advisor it is likely that many municipal advisor professionals, and those that exist are professionals are experienced and Municipal Advisor Representative generally written from the perspective knowledgeable and have more than a Examination Delivery and as municipal securities representative. basic level of competency, the MSRB is Administration Without significant content related to not in a position to review the Several commenters raised questions the job responsibilities of municipal background and experience of each regarding the administration and advisor professionals, the Board professional to determine whether such delivery of the examination, specifically believes that passing the Series 52 individual is qualified. Qualifying all about retention of the registration examination does not establish an individuals as municipal advisor information for non-dealer municipal individual’s basic competency to representatives based solely on their advisors that are not included in perform municipal advisory activities.29 experience would likely result in the FINRA’s central registration Moreover, the municipal advisor qualification of some individuals who depository.35 Commenters want to regulatory regime is still being could not demonstrate a basic ensure a similar process is in place for developed by the Board, and competency regarding the non-dealer municipal advisors. individuals who have passed the Series responsibilities of municipal advisors Similarly, commenters asked that the 52 examination would not have and the regulations governing municipal MSRB utilize the existing securities demonstrated knowledge of the new advisory activities. industry registration forms (e.g., Form core municipal advisor regulations. Given the new regulatory regime for U4). These issues are beyond the scope Certain commenters urged the Board municipal advisors, the differences in of the proposed rule change. The MSRB to adopt the approach taken by FINRA size and type of municipal advisors, as will address the administration of the when implementing the investment well as the varied experience and examination at a later date. banking representative qualification background of municipal advisor examination (Series 79).30 FINRA professionals, it is important that each Comment on the Implication of Revising grandfathered general securities individual demonstrate a basic Rule G–1 representatives (Series 7 or Series 7 competency. In response to the proposed revisions equivalent) if they opted-in within six Apprenticeship, Grace Period, and to MSRB Rule G–1, Zions Bank (Zions months of the effective date of the Classifications Bank I) commented that the proposed rule.31 FINRA explained that the new amendments should not be interpreted examination would provide a more Commenters broadly supported the or applied in any way that would targeted assessment (than the Series 7 elimination of the apprenticeship preclude a bank, or a separately examination) of the competency of requirement for municipal securities identifiable department or division of a investment banking professionals. Some representatives and not establishing one bank (‘‘SID’’), or a bank affiliate, from 33 commenters further suggested that, if for municipal advisor representatives. engaging in municipal securities and grandfathering is permitted, the MSRB There also was broad support for municipal advisory activities. It is not could ensure that relevant municipal establishing a one-year grace period to the intent of the amendments to advisor content is delivered through the provide municipal advisor preclude banks, SIDS, or bank affiliates continuing education program. While representatives with sufficient time to from engaging in a broad range of continuing education is important, it study and take the examination without municipal securities and/or municipal should not serve as a substitute for a causing undue disruption to the advisory activities, so long as they are 34 basic competency examination unless business of the municipal advisor. properly registered under MSRB rules other alternatives are not feasible. The 3PM, however, suggested that more time and the federal securities laws and Board believes the approach taken by was necessary, and NAIPFA said it otherwise comply with any limitations FINRA (then National Association of could not opine as to whether the one- therein. Securities Dealers, ‘‘NASD’’) in year grace period would be sufficient implementing the research analyst because it was unsure if the study guide III. Date of Effectiveness of the qualification examination (Series 86/87) would be available before the grace Proposed Rule Change and Timing for is a more appropriate analogue. In that period commenced. As noted above, Commission Action instance, no grandfathering was prior to the commencement of the grace Within 45 days of the date of permitted due to the FINRA’s desire that period, the MSRB will file with the SEC publication of this notice in the Federal all research analysts demonstrate the a study outline for the examination and Register or within such longer period of then conduct a pilot examination. The up to 90 days (i) as the Commission may 29 While the Series 52 examination covers pilot examination will likely be concepts related to the activities of a traditional designate if it finds such longer period financial advisor, those concepts are discrete and to be appropriate and publishes its do not extend to the broader set of municipal 32 See NASD Notice to Members 04–25 (Mar. reasons for so finding or (ii) as to which advisory activities that will be covered on the 2004). municipal advisor representative qualification 33 The following commenters were supportive of the self-regulatory organization examination. eliminating the apprenticeship requirement: George consents, the Commission will: 30 The following commenters suggested using K. Baum, SIFMA, Zions Bank II, Yuba and 3PM. FINRA’s approach to grandfathering: BDA, George 34 The following commenters were supportive of 35 The following commenters raised issues K. Baum, SIFMA, and 3PM. the one-year grace period: BDA, New Albany, ICI, regarding the administration and delivery of the 31 See FINRA Regulatory Notice 09–41 (Jul. 2009). SIFMA, Zions Bank II and 3PM. examination: ARM, BDA and George K. Baum.

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(A) By order approve or disapprove For the Commission, pursuant to delegated amendments’’). The MSRB filed the such proposed rule change, or authority.36 proposed rule change under Section (B) institute proceedings to determine Kevin M. O’Neill, 19(b)(3)(A)(iii) of the Exchange Act 4 whether the proposed rule change Deputy Secretary. and Rule 19b–4(f)(6) 5 thereunder as a should be disapproved. [FR Doc. 2014–28543 Filed 12–4–14; 8:45 am] noncontroversial rule change that BILLING CODE 8011–01–P renders the proposal effective upon IV. Solicitation of Comments filing. The proposed rule change will be Interested persons are invited to made operative no earlier than January submit written data, views, and SECURITIES AND EXCHANGE 9, 2015 and no later than January 31, arguments concerning the foregoing, COMMISSION 2015, with the precise effective date in that range to be announced by the including whether the proposed rule [Release No. 34–73707; File No. SR–MSRB– change is consistent with the Act. 2014–09] MSRB in a notice published on the Comments may be submitted by any of MSRB Web site. The text of the proposed rule change the following methods: Self-Regulatory Organizations; Municipal Securities Rulemaking is available on the MSRB’s Web site at Electronic Comments Board; Notice of Filing and Immediate www.msrb.org/Rules-and- Interpretations/SEC-Filings/2014- • Use the Commission’s Internet Effectiveness of a Proposed Rule Change Consisting of Amendments to Filings.aspx, at the MSRB’s principal comment form (http://www.sec.gov/ office, and at the Commission’s Public rules/sro.shtml); or MSRB’s Electronic Municipal Market Access (EMMA) System To Add Reference Room. • Send an email to rule-comments@ Disclosures Related to Municipal sec.gov. Please include File Number SR– II. Self-Regulatory Organization’s Asset-Backed Securities MSRB–2014–08 on the subject line. Statement of the Purpose of, and Statutory Basis for, the Proposed Rule December 1, 2014. Paper Comments Change Pursuant to Section 19(b)(1) of the • Send paper comments in triplicate Securities Exchange Act of 1934 (the In its filing with the Commission, the to Secretary, Securities and Exchange ‘‘Exchange Act’’) 1 and Rule 19b–4 MSRB included statements concerning Commission, 100 F Street NE., thereunder,2 notice is hereby given that the purpose of and basis for the Washington, DC 20549. on November 25, 2014, the Municipal proposed rule change and discussed any comments it received on the proposed All submissions should refer to File Securities Rulemaking Board (the rule change. The text of these statements Number SR–MSRB–2014–08. This file ‘‘MSRB’’ or ‘‘Board’’) filed with the may be examined at the places specified number should be included on the Securities and Exchange Commission in Item IV below. The MSRB has subject line if email is used. To help the (the ‘‘SEC’’ or ‘‘Commission’’) the prepared summaries, set forth in Commission process and review your proposed rule change as described in Sections A, B, and C below, of the most comments more efficiently, please use Items I, II, and III below, which Items significant aspects of such statements. only one method. The Commission will have been prepared by the MSRB. The post all comments on the Commission’s Commission is publishing this notice to A. Self-Regulatory Organization’s Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule Statement of the Purpose of, and rules/sro.shtml). Copies of the change from interested persons. Statutory Basis for, the Proposed Rule submission, all subsequent I. Self-Regulatory Organization’s Change amendments, all written statements Statement of the Terms of Substance of 1. Purpose with respect to the proposed rule the Proposed Rule Change change that are filed with the Pursuant to Section 943 of the Dodd- Commission, and all written The MSRB is filing with the Frank Wall Street Reform and Consumer communications relating to the Commission a proposed rule change Protection Act,6 the SEC adopted new proposed rule change between the consisting of amendments to the rules related to representations and Commission and any person, other than MSRB’s Electronic Municipal Market warranties in ABS. One of these rules, those that may be withheld from the Access (‘‘EMMA’’) system to add Exchange Act Rule 15Ga–1,7 requires, public in accordance with the disclosures related to municipal asset- among other things, certain disclosures backed securities (‘‘ABS’’) required related to municipal ABS to be filed on provisions of 5 U.S.C. 552, will be 3 available for Web site viewing and under Exchange Act Rule 15Ga–1 to be Form ABS–15G. Pursuant to Rule 314 of printing in the Commission’s Public filed on Form ABS–15G to the list of Regulation S–T,8 the SEC identified Reference Room, 100 F Street NE., categories of continuing disclosures that EMMA, in addition to the Electronic Washington, DC 20549 on official EMMA will accept and disseminate Data Gathering, Analysis, and Retrieval business days between the hours of publicly (the ‘‘proposed rule change’’). system (‘‘EDGAR’’), as a venue that a 10:00 a.m. and 3:00 p.m. Copies of the The proposed rule change also makes municipal securitizer may use to make filing also will be available for minor changes of a technical nature, submissions of Form ABS–15G in inspection and copying at the principal including removing outdated language, compliance with Exchange Act Rule office of the MSRB. All comments updating the naming convention used 15Ga–1.9 Accordingly, the proposed received will be posted without change; for published submitter and subscriber rule change consists of amendments to the Commission does not edit personal specification documents and updating the EMMA system to add disclosures identifying information from information concerning how users can related to municipal ABS required submissions. You should submit only access submitter and subscriber information that you wish to make specification documents (‘‘technical 4 15 U.S.C. 78s(b)(3)(A)(iii). 5 available publicly. All submissions 17 CFR 240.19b–4(f)(6). 36 17 CFR 200.30–3(a)(12). 6 Pub. L. 111–203, 124 Stat. 1376 (2010). should refer to File Number SR–MSRB– 1 15 U.S.C. 78s(b)(1). 7 See 17 CFR 240.15Ga–1. 2014–08 and should be submitted on or 2 17 CFR 240.19b–4. 8 17 CFR 232.314. before December 26, 2014. 3 17 CFR 240.15Ga–1. 9 17 CFR 240.15Ga–1.

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under Exchange Act Rule 15Ga–1 10 on compliance with Exchange Act Rule Commission summarily may Form ABS–15G to the list of categories 15Ga–1.15 In identifying EMMA, in temporarily suspend such rule change if of continuing disclosures that EMMA addition to EDGAR, as a venue for the it appears to the Commission that such will accept and disseminate publicly.11 disclosures on Form ABS–15G the SEC action is necessary or appropriate in the stated that ‘‘filing on EMMA will public interest, for the protection of 2. Statutory Basis facilitate use by investors, since the investors, or otherwise in furtherance of The MSRB has adopted the proposed demand, repurchase and replacement the purposes of the Exchange Act. rule change pursuant to Section disclosures will generally be available IV. Solicitation of Comments 15B(b)(2)(C) of the Exchange Act,12 in the same repository where investors which provides that the MSRB’s rules are most likely to look for other Interested persons are invited to shall municipal ABS disclosures.’’ 16 The submit written data, views, and be designed to prevent fraudulent and proposed rule change would facilitate a arguments concerning the foregoing, manipulative acts and practices, to promote requirement that already has been including whether the proposed rule just and equitable principles of trade, to adopted by the SEC and carries the change is consistent with the Exchange foster cooperation and coordination with benefits articulated by the SEC as a Act. Comments may be submitted by persons engaged in regulating, clearing, result of permitting submissions of any of the following methods: settling, processing information with respect to, and facilitating transactions in municipal Form ABS–15G in compliance with Electronic Comments Exchange Act Rule 15Ga–1 17 and Rule securities, to remove impediments to and • Use the Commission’s Internet 314 of Regulation S–T 18 to be provided perfect the mechanism of a free and open comment form http://www.sec.gov/ market in municipal securities, and, in to investors on EMMA with other general, to protect investors and the public rules/sro.shtml; or municipal ABS disclosures. While the • Send an email to rule-comments@ interest. SEC’s adoption of Exchange Act Rule 19 sec.gov. Please include File Number SR– The MSRB believes that the proposed 15Ga–1 and Rule 314 of Regulation S– MSRB–2014–09 on the subject line. rule change is consistent with the T 20 are themselves significant, the Exchange Act because it facilitates the proposed rule change to accommodate Paper Comments implementation of Exchange Act Rule the intended alternative disclosure • Send paper comments in triplicate 15Ga–1.13 In addition, the proposed rule venue of EMMA and to make technical to Secretary, Securities and Exchange change serves to remove impediments to amendments to the EMMA service Commission, 100 F Street NE., and help perfect the mechanism of a would not significantly affect the Washington, DC 20549. free and open market in municipal protection of investors or the public All submissions should refer to File securities and promotes the statutory interest and would not impose any Number SR–MSRB–2014–09. This file mandate of the MSRB to protect significant burden on competition. number should be included on the investors and the public interest. The C. Self-Regulatory Organization’s subject line if email is used. To help the proposed rule change would aid in Statement on Comments on the Commission process and review your making additional information for Proposed Rule Change Received From comments more efficiently, please use making investment decisions more Members, Participants, or Others only one method. The Commission will easily accessible to all participants in post all comments on the Commission’s the municipal securities market on an Written comments were neither Internet Web site (http://www.sec.gov/ equal basis throughout the life of the solicited nor received on the proposed rules/sro.shtml). Copies of the securities without barriers to obtaining rule change. submission, all subsequent such information. Broad access to the III. Date of Effectiveness of the amendments, all written statements disclosures related to municipal ABS Proposed Rule Change and Timing for with respect to the proposed rule required under Exchange Act Rule Commission Action change that are filed with the 15Ga–1 14 on Form ABS–15G through Because the foregoing proposed rule Commission, and all written the continuing disclosure service of change does not: communications relating to the EMMA should assist in preventing (i) Significantly affect the protection proposed rule change between the fraudulent and manipulative acts and of investors or the public interest; Commission and any person, other than practices by improving the opportunity (ii) impose any significant burden on those that may be withheld from the for public investors to access material competition; and public in accordance with the information about issuers and their (iii) become operative for 30 days provisions of 5 U.S.C. 552, will be securities. from the date on which it was filed, or available for Web site viewing and B. Self-Regulatory Organization’s such shorter time as the Commission printing in the Commission’s Public Statement on Burden on Competition may designate, Reference Room, 100 F Street NE., Washington, DC 20549 on official The MSRB does not believe that the it has become effective pursuant to 21 business days between the hours of proposed rule change would impose any Section 19(3)(A) of the Exchange Act 22 10:00 a.m. and 3:00 p.m. Copies of the burden on competition not necessary or and Rule 19(b)–4(f)(6) thereunder. At any time within 60 days of the filing also will be available for appropriate in furtherance of the filing of the proposed rule change, the inspection and copying at the principal purposes of the Exchange Act. The SEC office of the MSRB. All comments identified EMMA as a venue that a 15 Id. received will be posted without change; municipal securitizer may use to make 16 See Exchange Act Release Nos. 33–9175 and the Commission does not edit personal submissions of Form ABS–15G in 34–63741 (January 20, 2011), 76 FR 4489, 4509 identifying information from (January 26, 2011). submissions. You should submit only 10 17 17 CFR 240.15Ga–1. Id. information that you wish to make 11 The proposed rule change also consists of 18 17 CFR 232.314. technical amendments to the EMMA service. 19 17 CFR 240.15Ga–1. available publicly. All submissions 12 15 U.S.C. 78o–4(b)(2)(C). 20 17 CFR 232.314. should refer to File Number SR–MSRB– 13 17 CFR 240.15Ga–1. 21 15 U.S.C. 78s(b)(3)(A). 2014–09 and should be submitted on or 14 Id. 22 17 CFR 240.19b–4(f)(6). before December 26, 2014.

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For the Commission, pursuant to delegated applicable to Customers,4 Professionals5 A. Self-Regulatory Organization’s authority.23 and NOM Market Makers.6 Statement of the Purpose of, and the Kevin M. O’Neill, The text of the proposed rule change Statutory Basis for, the Proposed Rule Deputy Secretary. is available on the Exchange’s Web site Change [FR Doc. 2014–28548 Filed 12–4–14; 8:45 am] at http:// 1. Purpose BILLING CODE 8011–01–P www.nasdaq.cchwallstreet.com, at the The purpose of the proposed rule principal office of the Exchange, and at change is to conform rule text in SECURITIES AND EXCHANGE the Commission’s Public Reference Chapter XV, entitled ‘‘Options Pricing,’’ COMMISSION Room. at Section 2(1) governing the rebates and fees assessed for options orders entered [Release No. 34–73713; File No. SR– II. Self-Regulatory Organization’s NASDAQ–2014–113] Statement of the Purpose of, and into NOM. Specifically, the Exchange Statutory Basis for, the Proposed Rule proposes to amend rule text describing Self-Regulatory Organizations; The Change the volume required to qualify for NASDAQ Stock Market LLC; Notice of certain Customer and Professional Filing and Immediate Effectiveness of In its filing with the Commission, the Penny Pilot Options Rebate to Add Proposed Rule Change Relating to an Exchange included statements Liquidity tiers and also certain NOM Amendment To Conform Rule Text concerning the purpose of and basis for Market Maker Penny Pilot Options the proposed rule change and discussed Rebate to Add Liquidity tiers. December 1, 2014. any comments it received on the With respect to the Customer and Pursuant to Section 19(b)(1) of the proposed rule change. The text of these Professional Tier 8 Penny Pilot Options Securities Exchange Act of 1934 statements may be examined at the Rebate to Add Liquidity, the NOM (‘‘Act’’),1 and Rule 19b-4 thereunder,2 places specified in Item IV below. The Market Maker Tier 6 Penny Pilot notice is hereby given that on November Exchange has prepared summaries, set Options Rebate to Add Liquidity and 18, 2014, The NASDAQ Stock Market forth in sections A, B, and C below, of the $0.02 per contract Tier 8 incentive LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed for the Customer and Professional with the Securities and Exchange the most significant aspects of such statements. Penny Pilot Options Rebate to Add Commission (‘‘SEC’’ or ‘‘Commission’’) Liquidity,7 the Exchange proposes to the proposed rule change as described amend the language which describes the 2011), 76 FR 79268 (December 21, 2011) (SR– in Items I, II, and III below, which Items required national customer volume in have been prepared by NASDAQ. The NASDAQ–2011–169) (notice of filing and immediate effectiveness extension and replacement multiply-listed equity and ETF options Commission is publishing this notice to of Penny Pilot); 67325 (June 29, 2012), 77 FR 40127 classes in a month in these sections. The solicit comments on the proposed rule (July 6, 2012) (SR–NASDAQ–2012–075) (notice of Exchange is proposing to conform this change from interested persons. filing and immediate effectiveness and extension language with current rule text which and replacement of Penny Pilot through December I. Self-Regulatory Organization’s 31, 2012); 68519 (December 21, 2012), 78 FR 136 describes total industry customer equity Statement of the Terms of Substance of (January 2, 2013) (SR–NASDAQ–2012–143) (notice and ETF option average daily volume the Proposed Rule Change of filing and immediate effectiveness and extension (‘‘ADV’’) contracts per day in a month. and replacement of Penny Pilot through June 30, This proposed amendment is non- NASDAQ proposes to modify Chapter 2013); 69787 (June 18, 2013), 78 FR 37858 (June 24, substantive as the two concepts are not XV, entitled ‘‘Options Pricing,’’ at 2013) (SR–NASDAQ–2013–082) (notice of filing different. The Exchange is proposing to Section 2 governing pricing for and immediate effectiveness and extension and replacement of Penny Pilot through December 31, conform the language to avoid NASDAQ members using the NASDAQ confusion. This amendment will not Options Market (‘‘NOM’’), NASDAQ’s 2013); 71105 (December 17, 2013), 78 FR 77530 (December 23, 2013) (SR–NASDAQ–2013–154) amend the manner in which those facility for executing and routing (notice of filing and immediate effectiveness and rebates are paid today. standardized equity and index options. extension and replacement of Penny Pilot through Specifically, NOM proposes to June 30, 2014); and 79 FR 31151 (May 23, 2014), 2. Statutory Basis conform certain language related to 79 FR 31151 (May 30, 2014) (SR–NASDAQ–2014– 056) ((notice of filing and immediate effectiveness The Exchange believes that its Penny Pilot Options3 rebates currently and extension and replacement of Penny Pilot proposal is consistent with Section 6(b) through December 31, 2014). See also NOM Rules, 8 23 17 CFR 200.30–3(a)(12). of the Act in general, and furthers the Chapter VI, Section 5. 9 1 objectives of Section 6(b)(5) of the Act 15 U.S.C. 78s(b)(1). 4 The term ‘‘Customer’’ applies to any transaction 2 17 CFR 240.19b–4. that is identified by a Participant for clearing in the in particular, in that it is designed to 3 The Penny Pilot was established in March 2008 Customer range at The Options Clearing promote just and equitable principles of and in October 2009 was expanded and extended Corporation (‘‘OCC’’) which is not for the account trade, to remove impediments to and through December 31, 2014. See Securities of broker or dealer or for the account of a perfect the mechanism of a free and Exchange Act Release Nos. 57579 (March 28, 2008), ‘‘Professional’’ (as that term is defined in Chapter open market and a national market 73 FR 18587 (April 4, 2008) (SR–NASDAQ–2008– I, Section 1(a)(48)). 026) (notice of filing and immediate effectiveness 5 The term ‘‘Professional’’ means any person or system, and, in general to protect establishing Penny Pilot); 60874 (October 23, 2009), entity that (i) is not a broker or dealer in securities, investors and the public interest, in that 74 FR 56682 (November 2, 2009) (SR–NASDAQ– and (ii) places more than 390 orders in listed 2009–091) (notice of filing and immediate options per day on average during a calendar month 7 effectiveness expanding and extending Penny Participants that add Customer, Professional, for its own beneficial account(s) pursuant to Pilot); 60965 (November 9, 2009), 74 FR 59292 Firm, Non-NOM Market Maker and/or Broker- Chapter I, Section 1(a)(48). All Professional orders (November 17, 2009) (SR–NASDAQ–2009–097) Dealer liquidity in Penny Pilot Options and/or Non- (notice of filing and immediate effectiveness adding shall be appropriately marked by Participants. Penny Pilot Options of 1.25% or more of national seventy-five classes to Penny Pilot); 61455 6 The term ‘‘NOM Market Maker’’ means a customer volume in multiply-listed equity and ETF (February 1, 2010), 75 FR 6239 (February 8, 2010) Participant that has registered as a Market Maker on options classes in a month will receive an (SR–NASDAQ–2010–013) (notice of filing and NOM pursuant to Chapter VII, Section 2, and must additional $0.02 per contract Penny Pilot Options immediate effectiveness adding seventy-five classes also remain in good standing pursuant to Chapter Customer Rebate to Add Liquidity for each to Penny Pilot); 62029 (May 4, 2010), 75 FR 25895 VII, Section 4. In order to receive NOM Market transaction which adds liquidity in Penny Pilot (May 10, 2010) (SR–NASDAQ–2010–053) (notice of Maker pricing in all securities, the Participant must Options in that month. filing and immediate effectiveness adding seventy- be registered as a NOM Market Maker in at least one 8 15 U.S.C. 78f(b). five classes to Penny Pilot); 65969 (December 15, security. 9 15 U.S.C. 78f(b)(5).

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the amendments will provide greater rule change, at least five business days For the Commission, by the Division of clarity to the pricing of these options. prior to the date of filing of the Trading and Markets, pursuant to delegated 12 The Exchange believes that the proposed rule change. authority. amendments provide greater specificity Kevin M. O’Neill, and conform word usage with respect to IV. Solicitation of Comments Deputy Secretary. rebates and incentives offered by NOM. Interested persons are invited to [FR Doc. 2014–28584 Filed 12–4–14; 8:45 am] The Exchange is not proposing to submit written data, views, and BILLING CODE 8011–01–P amend the pricing, rather the Exchange arguments concerning the foregoing, believes the amendments make clear including whether the proposed rule that the terms national customer volume change is consistent with the Act. SMALL BUSINESS ADMINISTRATION and total industry volume are Comments may be submitted by any of equivalent. Data Collection Available for Public the following methods: Comments B. Self-Regulatory Organization’s Electronic Comments Statement on Burden on Competition ACTION: 60-Day notice and request for The Exchange does not believe that • Use the Commission’s Internet comments. the proposed rule change will impose comment form (http://www.sec.gov/ SUMMARY: The Small Business rules/sro.shtml); or any burden on competition that is not Administration (SBA) intends to request necessary or appropriate in furtherance • Send an email to rule-comments@ approval, from the Office of of the purposes of the Act. The sec.gov. Please include File Number SR– Management and Budget (OMB) for the amendments to the options pricing are NASDAQ–2014–113 on the subject line. collection of information described non-substantive and merely seek to below. The Paperwork Reduction Act Paper Comments conform rule text to make clear that the (PRA) of 1995, 44 U.S.C. Chapter 35 same standard of measure is being • Send paper comments in triplicate requires federal agencies to publish a applied to determine the qualifications notice in the Federal Register for the volume tiers and incentives. to Secretary, Securities and Exchange Commission, 100 F Street NE., concerning each proposed collection of C. Self-Regulatory Organization’s Washington, DC 20549–1090. information before submission to OMB, Statement on Comments on the and to allow 60 days for public Proposed Rule Change Received From All submissions should refer to File comment in response to the notice. This Members, Participants, or Others Number SR–NASDAQ–2014–113. This notice complies with that requirement. file number should be included on the DATES: Submit comments on or before No written comments were either subject line if email is used. To help the solicited or received. February 3, 2015. Commission process and review your ADDRESSES: Send all comments to Craig III. Date of Effectiveness of the comments more efficiently, please use Heilman, Director of Veteran Programs, Proposed Rule Change and Timing for only one method. The Commission will Office of Veteran Business Commission Action post all comments on the Commission’s Development, Small Business Internet Web site (http://www.sec.gov/ Because the foregoing proposed rule Administration, 409 3rd Street, 5th change does not: (i) Significantly affect rules/sro.shtml). Copies of the Floor, Washington, DC 20416. the protection of investors or the public submission, all subsequent FOR FURTHER INFORMATION CONTACT: interest; (ii) impose any significant amendments, all written statements Tyrenna Tolbert, Program Support burden on competition; and (iii) become with respect to the proposed rule Specialist, Office of Veteran Business operative for 30 days from the date on change that are filed with the Development, [email protected], which it was filed, or such shorter time Commission, and all written 202–205–7526, or Curtis B. Rich, as the Commission may designate, it has communications relating to the Management Analyst, 202–205–7030, become effective pursuant to Section proposed rule change between the [email protected]. Commission and any person, other than 19(b)(3)(A)(ii) of the Act 10 and SUPPLEMENTARY INFORMATION: Boots to subparagraph (f)(6) of Rule 19b–4 those that may be withheld from the Business is an entrepreneurial thereunder.11 public in accordance with the education initiative offered by the U.S. At any time within 60 days of the provisions of 5 U.S.C. 552, will be Small Business Administration (SBA) as filing of the proposed rule change, the available for Web site viewing and a career track within the Department of Commission summarily may printing in the Commission’s Public Defense’s revised Training Assistance temporarily suspend such rule change if Reference Room, 100 F Street NE., Program called Transition Goals, Plans, it appears to the Commission that such Washington, DC 20549, on official Success (Transition GPS). The action is: (i) Necessary or appropriate in business days between the hours of curriculum provides valuable assistance the public interest; (ii) for the protection 10:00 a.m. and 3:00 p.m. Copies of the to transitioning service members of investors; or (iii) otherwise in filing also will be available for exploring self-employment furtherance of the purposes of the Act. inspection and copying at the principal opportunities by leading them through If the Commission takes such action, the office of the Exchange. All comments the key steps for evaluating business Commission shall institute proceedings received will be posted without change; concepts and the foundational to determine whether the proposed rule the Commission does not edit personal knowledge required for developing a should be approved or disapproved. The identifying information from business plan. Participants are also Exchange has provided the Commission submissions. You should submit only introduced to SBA resources available written notice of its intent to file the information that you wish to make to help access startup capital and proposed rule change, along with a brief available publicly. All submissions additional technical assistance. description and text of the proposed should refer to File Number SR– This form facilitates online NASDAQ–2014–113, and should be registration for the Boots to Business 10 15 U.S.C. 78s(b)(3)(a)(ii). submitted on or before December 26, 11 17 CFR 240.19b–4(f)(6). 2014. 12 17 CFR 200.30–3(a)(12).

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course for eligible service members and EIDL Loan Application Deadline Date: including the use of automated their spouses. The information collected 02/16/2015. collection techniques or other forms of provides pertinent data to the ADDRESSES: Submit completed loan information technology. Mail, email, or management and participation of the applications to: U.S. Small Business fax your comments and course in addition to assisting Administration, Processing and recommendations on the information instructors to better tailor the individual Disbursement Center, 14925 Kingsport collection(s) to the OMB Desk Officer classes based on the experience and Road, Fort Worth, TX 76155. and SSA Reports Clearance Officer at interests of the participants. FOR FURTHER INFORMATION CONTACT: A. the following addresses or fax numbers. Solicitation of Public Comments: Escobar, Office of Disaster Assistance, (OMB), Office of Management and SBA is requesting comments on (a) U.S. Small Business Administration, Budget, Attn: Desk Officer for SSA, Whether the collection of information is 409 3rd Street SW., Suite 6050, Fax: 202–395–6974, Email address: necessary for the agency to properly Washington, DC 20416. [email protected]. perform its functions; (b) whether the SUPPLEMENTARY INFORMATION: The notice burden estimates are accurate; (c) (SSA), Social Security Administration, of the Administrative EIDL disaster OLCA, Attn: Reports Clearance whether there are ways to minimize the declaration for the State of Colorado, burden, including through the use of Director, 3100 West High Rise, 6401 dated 05/14/2014 is hereby amended to Security Blvd., Baltimore, MD 21235, automated techniques or other forms of establish the incident period for this information technology; and (d) whether Fax: 410–966–2830, Email address: disaster as beginning 01/13/2014 and [email protected]. there are ways to enhance the quality, continuing through 06/12/2014. utility, and clarity of the information. All other information in the original Or you may submit your comments Summary of Information Collection: declaration remains unchanged. online through www.regulations.gov, Title: Boots to Business Registration. (Catalog of Federal Domestic Assistance referencing Docket ID Number [SSA– Description of Respondents: 2014–0074]. Transitioning service members and Number 59002) spouses. Dated: November 26, 2014. I. The information collection below is Total Estimated Annual Responses: Maria Contreras-Sweet, pending at SSA. SSA will submit it to 10,000. Administrator. OMB within 60 days from the date of this notice. To be sure we consider your Total Estimated Annual Hour Burden: [FR Doc. 2014–28514 Filed 12–4–14; 8:45 am] 1,667 hours. comments, we must receive them no BILLING CODE 8025–01–P later than February 3, 2015. Individuals Curtis B. Rich, can obtain copies of the collection Management Analyst. instruments by writing to the above SOCIAL SECURITY ADMINISTRATION [FR Doc. 2014–28512 Filed 12–4–14; 8:45 am] email address. BILLING CODE 8025–01–P [Docket No. SSA–2014–0074] Application for Mother’s or Father’s Insurance Benefits—20 CFR 404.339– Agency Information Collection 404.342, 20 CFR 404.601–404.603— SMALL BUSINESS ADMINISTRATION Activities: Proposed Request and 0960–0003. Section 202(g) of the Social Comment Request [Disaster Declaration #13985] Security Act provides for the payment The Social Security Administration of monthly benefits to the widow or Colorado Disaster #CO–00068 (SSA) publishes a list of information widower of an insured individual if the Declaration of Economic Injury collection packages requiring clearance surviving spouse is caring for the deceased worker’s child (who is entitled AGENCY: U.S. Small Business by the Office of Management and to Social Security benefits). SSA uses Administration. Budget (OMB) in compliance with the information on Form SSA–5–BK to ACTION: Amendment 1. Public Law 104–13, the Paperwork Reduction Act of 1995, effective October determine an individual’s eligibility for SUMMARY: This is an amendment of the 1, 1995. This notice includes revisions mother’s or father’s insurance benefits. Economic Injury Disaster Loan (EIDL) and an extension of OMB-approved The respondents are individuals caring declaration for the State of COLORADO, information collections. for a child of the deceased worker who dated 05/14/2014. SSA is soliciting comments on the is applying for mother’s or father’s Incident: Red Mountain Pass accuracy of the agency’s burden insurance benefits under the Old Age, Rockslide. estimate; the need for the information; Survivors, and Disability Insurance Incident Period: 01/13/2014 and its practical utility; ways to enhance its program (OASDI). continuing through 06/12/2014. quality, utility, and clarity; and ways to Type of Request: Revision of an OMB- Effective Date: 11/26/2014. minimize burden on respondents, approved information collection.

Total Average estimated Modality of completion Number of Frequency of burden per annual respondents response response burden (minutes) (hours)

SSA–5–F6 (paper) ...... 1,611 1 15 403 MCS ...... 26,045 1 15 6,511 MCS/Signature Proxy ...... 26,044 1 14 6077

Total ...... 53,700 ...... 12,991

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II. SSA submitted the information 1. Letter to Employer Requesting use Form SSA–L725 to request monthly collections below to OMB for clearance. Information About Wages Earned by earnings information from the Your comments regarding the Beneficiary—20 CFR 416.703, 404.801 & recipient’s employer. We then use the information collections would be most 404.820—0960–0034. Social Security earnings data to determine whether the useful if OMB and SSA receive them 30 disability recipients receive payments recipient is engaging in SGA, since work days from the date of this publication. based on their inability to engage in after a recipient becomes entitled to To be sure we consider your comments, substantial gainful activity (SGA) benefits can cause a cessation of we must receive them no later than because of a physical or mental disability. The respondents are January 5, 2015. Individuals can obtain condition. If the recipients work, SSA businesses that employ Social Security copies of the OMB clearance package by must evaluate and determine if they disability recipients. writing to OR.Reports.Clearance@ continue to meet the disability Type of Request: Revision of an OMB- ssa.gov. requirements of the law. Therefore, we approved information collection.

Estimated Average total Modality of completion Number of Frequency of burden per annual respondents response response burden (minutes) (hours)

SSA–L725 ...... 150,000 1 40 100,000

2. Letter to Employer Requesting Wage determining SSI eligibility and payment for SSI applicants and recipients. The Information—0960–0138. SSA must amounts. SSA uses Form SSA–L4201 to respondents are employers of SSI establish and verify wage information collect wage data from employers. SSA applicants and recipients. for Supplemental Security Income (SSI) uses the information to determine Type of Request: Revision of an OMB- applicants and recipients when eligibility and proper payment amounts approved information collection.

Estimated Average total Modality of completion Number of Frequency of burden per annual respondents response response burden (minutes) (hours)

SSA–L4201 ...... 133,000 1 30 66,500

3. Statement of Living Arrangements, maintenance in the form of food and and recipients receive. The respondents In-Kind Support, and Maintenance—20 shelter provided by other persons. SSA are individuals who apply for SSI CFR 416.1130–416.1148—0960–0174. uses Form SSA–8006–F4 to determine if payments, or who complete an SSI SSA determines SSI payment amounts in-kind support and maintenance exists eligibility redetermination. based on applicants’ and recipients’ for SSI applicants and recipients. This Type of Request: Revision of an OMB- needs. We measure individuals’ needs, information also assists SSA in approved information collection. in part, by the amount of income they determining the income value of in-kind receive, including in-kind support and support and maintenance SSI applicants

Estimated Average total Modality of completion Number of Frequency of burden per annual respondents response response burden (minutes) (hours)

SSA–8006–F4 ...... 173,380 1 7 20,228

4. Claimant’s Recent Medical history as the claimant proceeds appropriate. During the hearing, the ALJ Treatment—20 CFR 404.1512 and through the appeals process. ALJs must offers any completed questionnaires as 416.912—0960–0292. When Disability obtain the information to update and exhibits and may use them to: (1) Determinations Services (DDS) deny a complete the record and to verify the Refresh the claimant’s memory, and (2) claim at the reconsideration level, the accuracy of the information. Through shape their questions. The respondents claimant has a right to request a hearing this process, ALJs can ascertain whether are claimant’s requesting hearings on before an administrative law judge the claimant’s situation has changed. entitlement to OASDI benefits or SSI (ALJ). For the hearing, SSA asks the The ALJs and hearing office staff use the payments. claimant to complete and return the response to make arrangements for HA–4631 if the claimant’s file does not consultative examination(s) and the Type of Request: Revision of an OMB- reflect a current, complete medical attendance of an expert witness(es), if approved information collection.

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Average Number of Frequency of burden per Estimated total Modality of completion respondents response response annual burden (minutes) (hours)

HA–4631 ...... 200,000 1 10 33,333

5. Certification of Low Birth Weight local field offices (FO) and the DDS on information to determine disability and for SSI Eligibility of Funds You Provided behalf of infants with low birth weight. continuing disability. The respondents to Another and Statement of Funds You FOs use the form as a protective filing are hospitals and claimants who have Received—20 CFR 416.931, statement and the medical information information identifying low birth weight 416.926a(m), and 416.924—0960–0720. to make presumptive disability findings, babies and their medical conditions. Hospitals and claimants use Form SSA– which allow expedited payment to Type of Request: Revision of an OMB- 3380 to provide medical information to eligible claimants. DDSs use the medical approved information collection.

Average Number of Frequency of burden per Estimated total Modality of completion respondents response response annual burden (minutes) (hours)

SSA–3380 ...... 28,125 1 15 7,031

6. Request to Show Cause for Failure notify the claimant of the hearing, or (2) failure to appear at the hearing, the ALJ to Appear—20 CFR 404.938, 20 CFR an unexpected event occurred without will schedule a supplemental hearing; if 416.1438, and 20 CFR 404.957(a)(ii)— sufficient time for the claimant to not, the ALJ will make a claims 0960–0794. When claimants who request a postponement. The claimants eligibility determination based on the requested a hearing before an ALJ fail to can use paper Form HA–L90 to provide claimants’ evidence of record. appear at their scheduled hearing, the their reason for not appearing at their Respondents are claimants, or their ALJ may reschedule the hearing if the scheduled hearings; or the claimants’ representatives, seeking to establish claimants establish good cause for representatives can use Electronic good cause for failure to appear at a missing the hearings. To establish good Records Express to submit the HA–L90 scheduled hearing before an ALJ. cause, claimants must show one of the online. If the ALJ determines the Type of Request: Extension of an following: (1) SSA did not properly claimants established good cause for OMB-approved information collection.

Average Number of Frequency of burden per Estimated total Modality of completion respondents response response annual burden (minutes) (hours)

HA–L90 (paper or Electronic Records Express) ...... 40,000 1 10 6,667

Dated: December 2, 2014. Reform Act for the 21st Century (AIR The request to release property may Faye Lipsky, 21). be reviewed in person at this same location. Reports Clearance Officer, Social Security DATES: Comments must be received on Administration. or before January 5, 2015. SUPPLEMENTARY INFORMATION: The FAA [FR Doc. 2014–28562 Filed 12–4–14; 8:45 am] ADDRESSES: Comments on this invites public comment on the request BILLING CODE 4191–02–P application may be mailed or delivered to release property at the Eufaula to the FAA at the following address: Mr. Municipal Airport under the provisions Glenn A Boles, Manager, Federal of the AIR 21. On November 18, 2014, the FAA Aviation Administration, Southwest DEPARTMENT OF TRANSPORTATION determined that the request to release Region, Airports Division, AR/OK property at Eufaula Municipal Airport Federal Aviation Administration Airports Development Office, ASW– submitted by the City of Eufaula met the 630, Fort Worth, Texas 76137. Notice of Intent To Rule on Request To procedural requirements of the Federal In addition, one copy of any aviation Regulations, Part 155. The FAA Release Airport Property at Eufaula comments submitted to the FAA must Municipal Airport, Eufaula, Arkansas may approve the request, in whole or in be mailed or delivered to The Honorable part, no later than January, 2015. AGENCY: Federal Aviation Selina Jayne-Dornan, Mayor of Eufaula The following is a brief overview of Administration (FAA), DOT. at the following address: City of Eufaula, the request: The City of Eufaula requests Oklahoma, 64 Memorial Drive, Eufaula, ACTION: Notice of Request to Release the release of 14.68 acres of airport OK 74432. Airport Property. property valued at $29,360.00. The FOR FURTHER INFORMATION CONTACT: Mrs release of property will allow for the SUMMARY: The FAA proposes to rule and Kathy Franklin, Program Manager, sale of the property to the Oklahoma invites public comment on the release of Federal Aviation Administration, AR/ Department of Transportation for the land at Eufaula Municipal Airport under OK Airports Development Office, ASW– development of an industrial facility for the provisions of Section 125 of the 630, 2601 Meacham Blvd., Fort Worth, maintenance activities. The City of Wendell H. Ford Aviation Investment Texas 76137. Eufaula will use the $29,360.00

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resulting from the sale to fund SUPPLEMENTARY INFORMATION: §§ 431.35(a) and 431.35(b)(1)(i),2 which construction of a pilots lounge and in turn prohibit an Ec for debris in Background ¥ restrooms which are not presently excess of 30 × 10 6 for both launch and available at the airport. Lockheed and ULA are private reentry combined. Any person may inspect the request commercial space flight companies. On February 27, 2014, ULA petitioned in person at the FAA office listed above Lockheed entered into a contract with the FAA for waivers of these provisions under FOR FURTHER INFORMATION the National Aeronautics and Space because the projected risk from debris ¥ CONTACT. Administration (NASA) to provide the during launch was 164 × 10 6, and the In addition, any person may, upon first orbital flight test for NASA’s Orion projected risk from debris during request, inspect the application, notice Multi-Purpose Crew Vehicle (Orion) reentry was less than 1 × 10¥6—for a and other documents germane to the Program. Lockheed has contracted with total-mission debris risk of application in person at the Eufaula ULA to provide launch services for the approximately 165 × 10¥6. The FAA Municipal Airport. mission. issued a waiver and, on March 10, 2014, The FAA is responsible for licensing, Issued in Fort Worth, Texas, on November gave notice in the Federal Register. 18, 2014. among other things, the launch of a Notice of Waiver, Mar. 10, 2014 (79 FR launch vehicle and the reentry of a Byron K. Huffman, 13375). This initial waiver allowed a reentry vehicle, under authority granted maximum-allowable E value for ULA Acting Manager, Airports Division. c to the Secretary of Transportation by 51 and Lockheed’s proposed mission of [FR Doc. 2014–28611 Filed 12–4–14; 8:45 am] U.S.C. Subtitle V, chapter 509 (Chapter 165 × 10¥6,3 based on the risk increase BILLING CODE P 509), and delegated to the FAA’s the launch operators requested. Administrator and Associate On November 3, 2014, ULA and Administrator for Commercial Space Lockheed transmitted to the FAA the DEPARTMENT OF TRANSPORTATION Transportation. mission’s final trajectory and an The mission at issue in this notice is Federal Aviation Administration updated risk analysis. Since that time, Orion Exploration Flight Test 1, which ULA and Lockheed have continued to Office of Commercial Space is scheduled to launch from Cape submit updated risk information, as it Transportation; Amended Waiver for Canaveral Air Force Station in Florida becomes available, to the FAA. Launch and Mission Risk in early December. The mission tests the According to these documents, it is Orion Multi-Purpose Crew Vehicle in an necessary for ULA and Lockheed to AGENCY: Federal Aviation un-crewed, limited-capability modify the mission’s launch trajectory, Administration (FAA), DOT. configuration, and serves as a stepping for two reasons: To lower the mission’s ACTION: Notice of amended waiver. stone towards a crew-capable vehicle maximum heating temperature that would enable human exploration constraint, and to adjust the flight SUMMARY: This notice concerns an missions beyond Earth orbit. The azimuth to be the same as what was amendment to a waiver related to the mission is comprised of a launch, which flown in previous missions. On launch and reentry of an Orion Multi- is conducted by ULA, and a reentry, November 20, 2014, in light of the Purpose Crew Vehicle. On March 10, which is conducted by Lockheed. The changed mission trajectory, ULA 2014, the FAA issued United Launch launch vehicle is ULA’s Delta IV Heavy petitioned for an amendment to its Alliance (ULA) and Lockheed Martin ¥6 launch vehicle, which consists of a waiver to allow an Ec of 207 × 10 for (Lockheed) waivers to certain risk Common Booster Core (CBC) as the first debris from launch. On November 21, requirements of the FAA’s regulations. stage with two additional strap-on CBCs 2014, Lockheed petitioned for an Since that time, changes to the mission’s and a Delta IV Cryogenic Second Stage amendment to its waiver to allow total flight plan have increased its risk (DCSS). The first burn of the DCSS mission risk of 208 × 10¥6. profile. After analyzing this updated places the Orion and the DCSS in orbit, Using ULA’s updated trajectory, the risk profile, the FAA finds that the and a second DCSS burn places the FAA calculates the debris-related Ec for analysis underlying the original waiver Orion into a highly elliptical, negative- failure during the de-orbit burn, after decisions still applies. The FAA, perigee trajectory, to simulate the the first 120 seconds, increases to 76 × therefore, amends its original waiver to thermal conditions and high reentry 10¥6 from 53 × 10¥6. In addition, permit launch risk from debris of 217 × speeds the module would experience ¥ calculations by the FAA and the United 10 6 and total mission risk from debris returning from missions beyond Earth States Air Force indicate an increased × ¥6 of up to 218 10 . orbit. After separating from the DCSS, debris risk, from launch to orbital FOR FURTHER INFORMATION CONTACT: For the Orion module reenters over the insertion, of approximately 30 × 10¥6 technical questions concerning this eastern Pacific Ocean, splashing down above original estimates. As a result, the waiver, contact Charles P. Brinkman, 231 nautical miles west of Baja FAA calculates that overall launch risk Aerospace Engineer, AST–200, Office of California, Mexico.1 increases from 164 × 10¥6 to 217 × Commercial Space Transportation Section 417.107(b)(1) of Title 14 of the 10¥6, and total mission risk increases (AST), Federal Aviation Administration, Code of Federal Regulations (14 CFR) from 165 × 10¥6 to 218 × 10¥6. The 800 Independence Avenue SW., prohibits, in relevant part, the launch of FAA believes these risk figures best Washington, DC 20591; telephone (202) a launch vehicle if the expected casualty × ¥6 267–7715; email: phil.brinkman@ (Ec) rate for the flight exceeds 30 10 2 Although the module is a reentry vehicle and faa.gov. For legal questions concerning for impacting inert and explosive debris not a reusable launch vehicle, 14 CFR 435.33 this waiver, contact Benjamin Jacobs, (debris). Section 435.35 establishes incorporates and applies § 431.43 to all reentry acceptable risk for reentry vehicles, and vehicles. Attorney-Advisor, Regulations Division 3 Our March 2014 Notice correctly identified the (AGC–210), Office of the Chief Counsel, requires operators to comply with total mission debris risk as 165 × 10¥6, but when Federal Aviation Administration, 800 breaking down the sources of that risk, we listed Independence Avenue SW., 1 We note that, due to the unique characteristics four risk factors adding up to a total of only 164 of this mission, FAA regulations require us to × 10¥6. 79 FR at 13376. This breakdown mistakenly Washington, DC 20591; telephone (202) account for risks that are typically not included in omitted the debris risk related from controlled 267–7240; email: benjamin.jacobs@ our § 417.107 analysis—namely, the uncontrolled disposal of the upper stage, with an Ec of < 1 × faa.gov. reentry of an upper stage after orbital insertion. 10¥6.

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capture the uncertainties due to weather health and safety, or the safety of SUMMARY: In compliance with the and the inability to perform significant property. Paperwork Reduction Act of 1995, this mitigation at the launch site on the day notice announces that the renewal 2. Public Interest of launch. Information Collection Requests (ICR) The FAA looks to its enabling statute abstracted below are being forwarded to A. Analysis of the Updated Risk to determine how Congress has defined the Office of Management and Budget Assessment the public interest. The FAA (OMB) for review and comment. The The FAA’s original waiver analyzed implements the agency’s statutory ICR describes the nature of the ULA and Lockheed’s proposals using mandate to encourage the development information collection and its expected the waiver criteria established by our of commercial space capabilities and the burden. The Federal Register notice statutory and regulatory framework. continuous improvement of the safety of with a 60-day comment period soliciting Section 50905(b)(3) allows the FAA to launch vehicles designed to carry comments on the following collection of waive a license requirement if the passengers. 51 U.S.C. 50901(b). information was published on waiver (1) will not jeopardize public As with their initial petition, ULA September 5, 2014 (79 FR 56616). health and safety, and safety of and Lockheed’s petition for an amended DATES: Comments must be submitted on property; (2) is in the public interest; waiver are consistent with the public or before January 5, 2015. and (3) will not jeopardize national interest because the test flight is FOR FURTHER INFORMATION CONTACT: Mr. security and foreign policy interests of necessary to the development of Robert Brogan, Office of Planning and the United States. See also 49 CFR NASA’s human-missions capability Evaluation Division, RRS–21, Federal 404.5(b). We reapply those same criteria beyond Earth orbit. Railroad Administration, 1200 New here. D. National Security and Foreign Policy Jersey Ave. SE., Mail Stop 25, 1. Public Health and Safety, and Safety Interests Washington, DC 20590 (Telephone: (202) 493–6292), or Ms. Kimberly of Property The FAA has not identified any Toone, Office of Information national security or foreign policy The FAA’s initial waiver examined Technology, RAD–20, Federal Railroad implications associated with amending ULA and Lockheed’s proposal in Administration, 1200 New Jersey Ave. this waiver. comparison with the historically SE., Mail Stop 35, Washington, DC acceptable launch risk levels at other Summary and Conclusion 20590 (Telephone: (202) 493–6132). Federal agencies to determine whether The FAA determines that amending (These telephone numbers are not toll- the mission would fall within those the waivers associated with this mission free.) parameters. The rationale for our will not jeopardize public health and SUPPLEMENTARY INFORMATION: The approval of ULA and Lockheed’s prior safety or safety of property. In addition, Paperwork Reduction Act of 1995 waiver requests applies equally to their amending the waivers is in the public (PRA), Public Law 104–13, sec. 2, 109 revised risk assessment. Although the interest because it accomplishes the Stat. 163 (1995) (codified as revised at FAA’s regulations prohibit debris risk in goals of Chapter 509 and does not 44 U.S.C. 3501–3520), and its × ¥6 excess of 30 10 , a waiver is unduly increase risk to the public. implementing regulations, 5 CFR part warranted in this case because the Finally, amending the waivers will not 1320, require Federal agencies to issue United States Government’s experience jeopardize national security and foreign two notices seeking public comment on conducting other space missions with policy interests of the United States. information collection activities before × ¥6 risk in excess of 100 10 The FAA therefore amends its prior OMB may approve paperwork packages. demonstrates that the risks of this waivers of the requirements of 14 CFR 44 U.S.C. 3506, 3507; 5 CFR 1320.5, mission are consistent with the public 417.107(b)(1) and 431.35(b)(1)(i) for 1320.8(d)(1), 1320.12. On September 5, health and safety, and the safety of launch and mission risk, respectively, to 2014, FRA published a 60-day notice in property. As we stated in our March 10, ¥6 allow launch risk of an Ec of 217 × 10 the Federal Register soliciting comment 2014, Notice of Waiver, the United and total mission risk of 218 × 10¥6. on ICR that the agency is seeking OMB States Government has repeatedly approval. See 79 FR 56616. FRA Issued in Washington, DC, on November accepted risk for government launches received no comments in response to ¥ 26, 2014. in excess of the FAA’s 30 × 10 6, this notice. without negative consequences for Kenneth Wong, Before OMB decides whether to safety. 79 FR at 13376. The Space Licensing and Evaluation Division Manager. approve these proposed collections of Shuttle, for example, used a debris risk [FR Doc. 2014–28614 Filed 12–4–14; 8:45 am] information, it must provide 30 days for ¥ criterion of 200 × 10 6 for launch risk BILLING CODE 4910–13–P public comment. 44 U.S.C. 3507(b); 5 to the public. See NASA’s CFR 1320.12(d). Federal law requires Implementation Plan for Space Shuttle OMB to approve or disapprove Return to Flight and Beyond, Vol. 1 DEPARTMENT OF TRANSPORTATION paperwork packages between 30 and 60 Final Edition, at 2–39 (May 15, 2007). In days after the 30 day notice is Federal Railroad Administration addition, in 2005, the U.S. Air Force published. 44 U.S.C. 3507 (b)-(c); 5 CFR accepted risk levels in a government [Docket No. FRA–2014–0011–N–22] 1320.12(d); see also 60 FR 44978, 44983, ¥ launch ranging from 145 to 317 × 10 6. Aug. 29, 1995. OMB believes that the 30 Dept. of the Air Force Memorandum, Proposed Agency Information day notice informs the regulated Overflight Risk Exceedance Waiver for Collection Activities; Comment community to file relevant comments Titan IV B–30, Mission (Apr. 4, 2005). Request and affords the agency adequate time to × ULA’s updated launch risk of 217 AGENCY: Federal Railroad digest public comments before it ¥6 10 is still less than the risk levels Administration (FRA), Department of renders a decision. 60 FR 44983, Aug. previously approved for a government Transportation (DOT). 29, 1995. Therefore, respondents should launch. Accordingly, granting a waiver submit their respective comments to ACTION: Notice and request for of §§ 417.107(b)(1) and 431.35(b)(1)(i) in OMB within 30 days of publication to comments. this case does not jeopardize the public best ensure having their full effect. 5

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CFR 1320.12(c); see also 60 FR 44983, Affected Public: Businesses 21103(a)(4), which, in part, requires a Aug. 29, 1995. (Railroads). train employee to receive 48 hours off The summary below describes the Form(s): N/A. duty after initiating an on-duty period nature of the information collection Annual Estimated Burden: 8 hours. for 6 consecutive days. Specifically, CN, request (ICR) and the expected burden. Addressee: Send comments regarding BLET, and SMART seek a waiver to The revised request is being submitted this information collections to the Office allow a train employee to initiate an on- for clearance by OMB as required by the of Information and Regulatory Affairs, duty period, each day, for 6 consecutive PRA. Office of Management and Budget, 725 days followed by 24 hours off duty. In Title: Identification of Cars Moved in Seventeenth Street NW., Washington, support of the request, CN, BLET, and Accordance with Order 13528. DC 20503, Attention: FRA Desk Officer. SMART explained that CN has operated OMB Control Number: 2130–0506. Comments may also be sent via email to these schedules of 6 consecutive on- Abstract: This collection of OMB at the following address: oira_ duty periods followed by 24 hours off information identifies a freight car being [email protected]. duty successfully since 2002. CN, BLET, moved within the scope of Order 13528 Comments are invited on the and SMART indicate that these (now codified at under 49 CFR 232.3). following: Whether the proposed schedules have not had an adverse Otherwise, an exception will be taken, collections of information are necessary impact on safety. and the car will be set out of the train for the proper performance of the CN provided work schedules for the and not delivered. The information that functions of the Department, including employees covered by the waiver, must be recorded is specified at 49 CFR whether the information will have which shows them reporting for work 232.3(d)(3), which requires that a car be practical utility; the accuracy of the within pre-set 4-hour calling spreads properly identified by a card attached to Department’s estimates of the burden of with a regular rest day. CN also each side of the car and signed stating the proposed information collections; provided an analysis of the most current that such movement is being made ways to enhance the quality, utility, and 12-month period of train-employee on- under authority of the Order. Section clarity of the information to be duty human factor-related accidents and 232.2(d)(3) does not require retaining collected; and ways to minimize the injuries. CN indicates that its analyses cards or tags. When a car bearing a tag burden of the collections of information revealed that of the 22 human factor- for movement under this provision on respondents, including the use of related accidents involving CN arrives at its destination, the tags are automated collection techniques or employees in the preceding 12 months, simply removed. This requirement/ other forms of information technology. none involved employees covered under record comes into play only when a A comment to OMB is best assured of the waiver working 6 consecutive days railroad finds it necessary to move having its full effect if OMB receives it followed by 24 hours off duty. Finally, equipment as specified above. FRA within 30 days of publication of this CN said that all employees covered by estimates that approximately 400 cars notice in the Federal Register. the waiver were provided information per year are moved under this Order. Authority: 44 U.S.C. 3501–3520. about the waiver extension petition, and Request: Extension without change of that there were no objections to the Issued in Washington, DC, on December 1, a currently approved information 2014. waiver extension by these employees. collection. A copy of the petition, as well as any Rebecca Pennington, Affected Public: Businesses written communications concerning the (Railroads). Chief Financial Officer. petition, is available for review online at Form(s): N/A. [FR Doc. 2014–28506 Filed 12–4–14; 8:45 am] www.regulations.gov and in person at Annual Estimated Burden: 67 hours. BILLING CODE 4910–06–P the U.S. Department of Transportation’s Title: U.S. Locational Requirement for (DOT) Docket Operations Facility, 1200 New Jersey Avenue SE., W12–140, Dispatching U.S. Rail Operations. DEPARTMENT OF TRANSPORTATION OMB Control Number: 2130–0556. Washington, DC 20590. The Docket Abstract: Part 241 requires, in the Federal Railroad Administration Operations Facility is open from 9 a.m. absence of a waiver, that all dispatching to 5 p.m., Monday through Friday, of railroad Operations that occurs in the [Docket Number FRA–2009–0074] except Federal Holidays. United States be performed in this Interested parties are invited to Petition for Waiver of Compliance country, with a minor exception. A participate in these proceedings by railroad is allowed to conduct In accordance with Part 211 of Title submitting written views, data, or extraterritorial dispatching from Mexico 49 Code of Federal Regulations, this comments. FRA does not anticipate or Canada in emergency situations, but document provides the public notice scheduling a public hearing in only for the duration of the emergency. that by a document dated October 14, connection with these proceedings since A railroad relying on the exception must 2014, the Canadian National Railway the facts do not appear to warrant a provide written notification of its action Company (CN), Brotherhood of hearing. If any interested party desires to the FRA Regional Administrator of Locomotive Engineers and Trainmen an opportunity for oral comment, they each FRA region in which the railroad (BLET), and International Association of should notify FRA, in writing, before operation occurs; such notification is Sheet Metal, Air, Rail and the end of the comment period and not required before addressing the Transportation Workers (SMART), have specify the basis for their request. emergency situation. The information jointly petitioned the Federal Railroad All communications concerning these collected under this rule will be used as Administration (FRA) for an extension proceedings should identify the part of FRA’s oversight function to of their waiver of compliance from appropriate docket number and may be ensure that extraterritorial dispatchers certain provisions of the Federal hours submitted by any of the following comply with applicable safety of service laws contained at 49 U.S.C. methods: regulations. 21103(a)(4). FRA assigned the petition • Web site: http:// Request: Extension without change of Docket Number FRA–2009–0074. www.regulations.gov. Follow the online a currently approved information In their petition, CN, BLET, and instructions for submitting comments. collection. SMART seek relief from 49 U.S.C. • Fax: 202–493–2251.

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• Mail: Docket Operations Facility, public comment on proposed stakeholders on the Agency’s services U.S. Department of Transportation, 1200 collections of information, including will be unavailable. New Jersey Avenue SE., W12–140, extensions and reinstatement of The Agency will only submit a Washington, DC 20590. previously approved collections. collection for approval under this • Hand Delivery: 1200 New Jersey DATES: Written comments should be generic clearance if it meets the Avenue SE., Room W12–140, submitted by February 3, 2015. following conditions: Washington, DC 20590, between 9 a.m. • The collections are voluntary; and 5 p.m., Monday through Friday, ADDRESSES: You may submit comments • The collections are low-burden for except Federal Holidays. [identified by Docket No. DOT–OST– respondents (based on considerations of Communications received by January 200X–XXXX] through one of the total burden hours, total number of 20, 2015 will be considered by FRA following methods: respondents, or burden-hours per • before final action is taken. Comments Federal eRulemaking Portal: http:// respondent) and are low-cost for both received after that date will be www.regulations.gov. Follow the online the respondents and the Federal considered as far as practicable. instructions for submitting comments. Government; Anyone is able to search the • Fax: 1–202–493–2251 • The collections are non- electronic form of any written • Mail or Hand Delivery: Docket controversial and do not raise issues of communications and comments Management Facility, U.S. Department concern to other Federal agencies; received into any of our dockets by the of Transportation, 1200 New Jersey • Any collection is targeted to the name of the individual submitting the Avenue SE., West Building, Room W12– solicitation of opinions from comment (or signing the document, if 140, Washington, DC 20590, between 9 respondents who have experience with submitted on behalf of an association, a.m. and 5 p.m., Monday through the program or may have experience business, labor union, etc.). In Friday, except on Federal holidays. with the program in the near future; • accordance with 5 U.S.C. 553(c), DOT FOR FURTHER INFORMATION CONTACT: Personally identifiable information solicits comments from the public to Walter Culbreath, 202–366–1566, Office (PII) is collected only to the extent better inform its processes. DOT posts necessary and is not retained; of the Chief Information Officer, U.S. • these comments, without edit, including Department of Transportation, 1200 Information gathered is intended to any personal information the New Jersey Avenue SE., Washington, be used only internally for general commenter provides, to DC 20590. service improvement and program management purposes and is not www.regulations.gov, as described in SUPPLEMENTARY INFORMATION: intended for release outside of the the system of records notice (DOT/ALL– OMB Control Number: 2127–0682 14 FDMS), which can be viewed at agency (if released, the agency must Title: Generic Clearance for the www.dot.gov/privacy. See also http:// indicate the qualitative nature of the Collection of Qualitative Feedback on www.regulations.gov/#!privacyNotice information); Agency Service Delivery • for the privacy notice of regulations.gov. Information gathered will not be Type of Review: Renewal of an used for the purpose of substantially Issued in Washington, DC, on December 1, information collection. informing influential policy decisions; 2014. Abstract: The proposed information and Ron Hynes, collection activity provides a means to • Information gathered will yield Director, Office of Technical Oversight. garner qualitative customer and qualitative information; the collections [FR Doc. 2014–28518 Filed 12–4–14; 8:45 am] stakeholder feedback in an efficient, will not be designed or expected to BILLING CODE 4910–06–P timely manner, in accordance with the yield statistically reliable results or used Administration’s commitment to as though the results are generalizable to improving service delivery. the population of study. DEPARTMENT OF TRANSPORTATION This feedback will provide insights Feedback collected under this generic into customer or stakeholder clearance provides useful information, National Highway Traffic Safety perceptions, experiences and but it does not yield data that can be Administration expectations, provide an early warning generalized to the overall population. [Docket No. DOT–NHTSA–2014–0122] of issues with service, or focus attention This type of generic clearance for on areas where communication, training qualitative information will not be used Notice and Request for Comments or changes in operations might improve for quantitative information collections AGENCY: National Highway Traffic delivery of products or services. These that are designed to yield reliably Safety Administration (NHTSA), collections will allow for ongoing, actionable results, such as monitoring Department of Transportation (DOT). collaborative and actionable trends over time or documenting ACTION: Notice and request for communications between the Agency program performance. Such data uses comments. and its customers and stakeholders. It require more rigorous designs that will also allow feedback to contribute address: The target population to which SUMMARY: The Department of directly to the improvement of program generalizations will be made, the Transportation (DOT) invites public management. sampling frame, the sample design comments about our intention to request The solicitation of feedback will target (including stratification and clustering), the Office of Management and Budget areas such as: Timeliness, the precision requirements or power (OMB) approval to renew an appropriateness, accuracy of calculations that justify the proposed information collection. Before a Federal information, courtesy, efficiency of sample size, the expected response rate, agency can collect certain information service delivery, and resolution of methods for assessing potential non- from the public, it must receive issues with service delivery. Responses response bias, the protocols for data approval from the Office of Management will be assessed to plan and inform collection, and any testing procedures and Budget (OMB). Under procedures efforts to improve or maintain the that were or will be undertaken prior to established by the Paperwork Reduction quality of service offered to the public. fielding the study. Depending on the Act of 1995, before seeking OMB If this information is not collected, vital degree of influence the results are likely approval, Federal agencies must solicit feedback from customers and to have, such collections may still be

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eligible for submission for other generic company, has filed a verified notice of railroads already controlled by GWI, the mechanisms that are designed to yield exemption pursuant to 49 CFR newly acquired railroads will expand quantitative results. 1180.2(d)(2), to acquire control of the the presence of GWI’s affiliates in As a general matter, information following Class III rail carriers: Arkansas Arkansas. collections will not result in any new Midland Railroad Company, Inc. GWI states that no interchange system of records containing privacy (AKMD), The Prescott and Northwestern commitment is being imposed as part of information and will not ask questions Railroad Company (PNW), and Warren this transaction but that one of the of a sensitive nature, such as sexual & Saline Railroad Company (WSR) Acquired Railroads, AKMD, has an behavior and attitudes, religious beliefs, (collectively, the Acquired Railroads).2 existing lease agreement with UP that and other matters that are commonly The Acquired Railroads are currently includes an interchange commitment.6 considered private. owned and under the common control GWI notes that this existing Affected Public: Individuals and of Pinsly Railroad Company (Pinsly).3 commitment is part of AKMD’s lease of Households, Businesses and GWI has submitted to the Board a several lines from UP 7 and was Organizations, State, Local or Tribal redacted, public version of its Stock negotiated as part of the overall Government. Purchase Agreement with Pinsly.4 economic package in the original lease Estimated number of Respondents: GWI states that: (1) The Acquired transactions. Because GWI is acquiring 162,350. Railroads do not connect with any of control of AKMD through a stock Frequency: Once per request. GWI’s subsidiary railroads; 5 (2) the purchase, GWI states that there will be Number of Responses: 162,350. proposed transaction is not part of a no effect on AKMD’s operating rights Estimated Total Annual Burden: series of anticipated transactions to under the UP Lease. 83,191. connect the Acquired Railroads and any The earliest the transaction could be Public Comments Invited: You are of GWI’s subsidiary railroads; and (3) consummated is December 20, 2014, the asked to comment on any aspect of this the proposed transaction does not effective date of the exemption (30 days information collection, including (a) involve a Class I rail carrier. The after the exemption was filed). The Whether the proposed collection of proposed transaction is therefore parties expect to consummate the information is necessary for the exempt from the prior approval transaction shortly after the exemption Department’s performance; (b) the requirements of 49 U.S.C. 11323 becomes effective, assuming all other accuracy of the estimated burden; (c) pursuant to 49 CFR 1180.2(d)(2). conditions to closing have been satisfied ways for the Department to enhance the Through its verified notice of by that time. Under 49 U.S.C. 10502(g), the Board quality, utility and clarity of the exemption, GWI seeks to acquire all of may not use its exemption authority to information collection; and (d) ways the issued and outstanding stock of the relieve a rail carrier of its statutory that the burden could be minimized Acquired Railroads from Pinsly. GWI states that the proposed transaction obligation to protect the interests of its without reducing the quality of the would allow the Acquired Railroads to employees. Because the transaction collected information. The agency will take advantage of the administrative, involves the control of one or more summarize and/or include your financial, marketing, and operational Class III rail carriers and two Class II rail comments in the request for OMB’s support that GWI could provide, which carriers, the transaction is subject to the clearance of this information collection. would, in turn, promote the ability of labor protective requirements of 49 Authority: The Paperwork Reduction Act the Acquired Railroads to provide safe U.S.C. 11326(a) and New York Dock of 1995; 44 U.S.C. Chapter 35, as amended; and efficient service to their shippers. Railway—Control—Brooklyn Eastern and 49 CFR 1:48. GWI claims that, although the Acquired District Terminal, 360 I.C.C. 60 (1979). Kevin Mahoney, Railroads do not connect with any of the If the verified notice contains false or Director, Office of Corporate Customer misleading information, the exemption Services. FD 35800 (STB served Mar. 27, 2014). GWI provides is void ab initio. Petitions to revoke the with its verified notice of exemption a map showing [FR Doc. 2014–28542 Filed 12–4–14; 8:45 am] exemption under 49 U.S.C. 10502(d) the locations of the GWI-controlled railroads. may be filed at any time. The filing of BILLING CODE 4910–59–P 2 AKMD connects with WSR at Warren, Ark. See Pinsly R.R.—Control Exemption—Warren & Saline a petition to revoke will not River R.R., FD 35293 (STB served Nov. 3, 2009). automatically stay the effectiveness of The Board has previously issued notices of the exemption. Petitions to stay must be DEPARTMENT OF TRANSPORTATION exemption under 49 CFR 1180.2(d)(2) where some of the railroads to be acquired connect with each filed by December 12, 2014 (at least Surface Transportation Board other. See, e.g., SteelRiver Infrastructure Partners— Control Exemption—Patriot Rail (SteelRiver), FD 6 GWI states that it does not believe that the [Docket No. FD 35877] 35622 (STB served May 23, 2012); Patriot Woods Board’s interchange commitment disclosure R.R.—Acquis. & Operation Exemption— requirements are intended to apply to equity Genesee & Wyoming Inc.—Acquisition Weyerhaeuser NR Co., Weyerhaeuser Woods R.R. control transactions in which no new interchange of Control Exemption (Including Operating Div., FD 35431 (STB served Nov. 5, 2010) commitment is being imposed as part of the Existing Interchange Commitment)— (authorizing two of the railroads later involved in transaction. Without waiving that argument, GWI SteelRiver to connect with each other). provides, in its verified notice and a confidential Arkansas Midland Railroad Company, 3 The Acquired Railroads own and operate rail appendix, information about the interchange Inc., The Prescott and Northwestern lines solely within the State of Arkansas. commitment that GWI notes ‘‘would be required’’ Railroad Company, and Warren & 4 With its verified notice of exemption, GWI filed under 49 CFR 1180.4(g)(4)(i). Saline River Railroad Company under seal an unredacted version of its Stock 7 Under this lease, as supplemented (UP Lease), Purchase Agreement and a motion for protective AKMD operates the North Little Rock Branch in Genesee & Wyoming Inc. (GWI),1 a order to allow limited access to that agreement and North Little Rock, the Warren Branch between other materials GWI has filed under seal. That Dermott and Warren, and the Cypress Bend Branch publicly traded non-carrier holding motion is being addressed separately. between McGehee and Cypress Bend. See also Ark. 5 According to GWI, AKMD and one of GWI’s Midland R.R.—Lease & Operation Exemption— 1 Most recently, GWI was authorized to control existing subsidiaries, Little Rock & Western Union Pac. R.R., FD 33908 (STB served Aug. 23, Rapid City, Pierre & Eastern Railroad, Inc. (RCP&E), Railway, L.P. (LRWN) both interchange with Union 2000); Ark. Midland R.R.—Change in Operators in common control with other carriers in GWI’s Pacific Railroad Company (UP) in the same yard in Exemption—Line of Union Pac. R.R., FD 34567 corporate family, upon RCP&E’s becoming a Class Little Rock, Ark. GWI states, however, that neither (STB served Nov. 17, 2004); and Ark. Midland II carrier. See Genesee & Wyo. Inc.—Continuance in AKMD nor LRWN have the right to use any UP R.R.—Lease & Operation Exemption—Union Pac. Control Exemption—Rapid City, Pierre & E. R.R., facilities to connect with each other. R.R., FD 34714 (STB served Aug. 30, 2005).

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seven days before the exemption ADDRESSES: Communications Division, 165(i)(2), a covered institution is becomes effective). Office of the Comptroller of the required to submit to the Board of An original and ten copies of all Currency, Mailstop 2–3, Attention: Governors of the Federal Reserve pleadings, referring to Docket No. FD 1557–0319, 400 7th St. SW., System (Board) and to its primary 35877, must be filed with the Surface Washington, DC 20219. In addition, financial regulatory agency a report at Transportation Board, 395 E Street SW., comments may be sent by fax to (571) such time, in such form, and containing Washington, DC 20423–0001. In 465–4326 or by electronic mail to such information as the primary addition, a copy of each pleading must [email protected]. You may financial regulatory agency may be served on: Eric M. Hocky, Clark Hill personally inspect and photocopy require.5 On October 9, 2012, the OCC PLC, One Commerce Square, 2005 comments at the OCC, 400 7th St. SW., published in the Federal Register a final Market Street, Suite 1000, Philadelphia, Washington, DC 20219. For security rule implementing the section 165(i)(2) PA 19103. reasons, the OCC requires that visitors annual stress test requirement.6 This Board decisions and notices are make an appointment to inspect rule describes the reports and available on our Web site at comments. You may do so by calling information collections required to meet WWW.STB.DOT.GOV. (202) 649–6700. Upon arrival, visitors the reporting requirements under Decided: December 2, 2014. will be required to present valid section 165(i)(2). These information By the Board, Rachel D. Campbell, government-issued photo identification collections will be given confidential Director, Office of Proceedings. and to submit to security screening in treatment (5 U.S.C. 552(b)(4)). Raina S. White, order to inspect and photocopy In 2012, the OCC first implemented Clearance Clerk. comments. the reporting templates referenced in the final rule. See 77 FR 49485 (August [FR Doc. 2014–28571 Filed 12–4–14; 8:45 am] FOR FURTHER INFORMATION CONTACT: You 16, 2012) and 77 FR 66663 (November BILLING CODE 4915–01–P can request additional information from 6, 2012). The OCC is now revising them Johnny Vilela or Mary H. Gottlieb, OCC as described below. The OCC proposed Clearance Officers, (202) 649–5490, for these revisions on September 10, 2014.7 DEPARTMENT OF THE TREASURY persons who are deaf or hard of hearing, The OCC received one comment and is TTY, (202) 649–5597, Legislative and adopting the revisions as final, with Office of the Comptroller of the Regulatory Activities Division, Office of Currency some adjustments described below. the Comptroller of the Currency, 400 7th The OCC intends to use the data St. SW., Washington, DC 20219. In Agency Information Collection collected to assess the reasonableness of addition, copies of the templates Activities: Revision of an Approved the stress test results of covered referenced in this notice can be found Information Collection; Comment institutions and to analyze forward- on the OCC’s Web site under News and Request; Company-Run Annual Stress looking regarding a covered institution’s Test Reporting Template and Issuances (http://www.occ.treas.gov/ capital adequacy. The OCC also may use Documentation for Covered tools-forms/forms/bank-operations/ the results of the stress tests to Institutions With Total Consolidated stress-test-reporting.html). determine whether additional analytical Assets of $50 Billion or More Under the SUPPLEMENTARY INFORMATION: The OCC techniques and exercises could be Dodd-Frank Wall Street Reform and is requesting comment on the following appropriate to identify, measure, and Consumer Protection Act revision to an approved information monitor risks at the covered institution. collection: The stress test results are expected to AGENCY: Office of the Comptroller of the Title: Company-Run Annual Stress support ongoing improvement in a Currency, Treasury (OCC). Test Reporting Template and covered institution’s stress testing ACTION: Notice. Documentation for Covered Institutions practices with respect to its internal with Total Consolidated Assets of $50 SUMMARY: The OCC, as part of its assessments of capital adequacy and Billion or More under the Dodd-Frank continuing effort to reduce paperwork overall capital planning. Wall Street Reform and Consumer and respondent burden, invites the The OCC recognizes that many Protection Act. general public and other Federal covered institutions with total OMB Control No.: 1557–0319. agencies to comment on a revision to consolidated assets of $50 billion or Description: Section 165(i)(2) of the this information collection, as required more are required to submit reports Dodd-Frank Wall Street Reform and by the Paperwork Reduction Act of using the Comprehensive Capital Consumer Protection Act 1 (Dodd-Frank 1995. An agency may not conduct or Analysis and Review (CCAR) reporting Act) requires certain financial 8 sponsor, and a respondent is not form FR Y–14A. The OCC also companies, including national banks required to respond to, an information recognizes the Board has modified the and Federal savings associations, to collection unless it displays a currently FR Y–14A reporting form, and to the conduct annual stress tests 2 and valid Office of Management and Budget extent practical the OCC will keep its requires the primary financial regulatory (OMB) control number. Currently, the reporting requirements consistent with agency 3 of those financial companies to OCC is soliciting comment concerning a the Board’s FR Y–14A in order to issue regulations implementing the revision to a regulatory reporting minimize burden on covered stress test requirements.4 A national 9 requirement for national banks and institutions. Therefore, the OCC is bank or Federal savings association is a Federal savings associations titled, revising its reporting requirements to ‘‘covered institution’’ and therefore ‘‘Company-Run Annual Stress Test remain consistent with the Board’s FR subject to the stress test requirements if Reporting Template and Documentation Y–14A for covered institutions with its total consolidated assets are more for Covered Institutions with Total total consolidated assets of $50 billion than $10 billion. Under section Consolidated Assets of $50 Billion or 5 More under the Dodd-Frank Wall Street 12 U.S.C. 5365(i)(2)(B). 1 Pub. L. 111–203, 124 Stat. 1376, July 2010. 6 77 FR 61238 (October 9, 2012). Reform and Consumer Protection Act.’’ 2 12 U.S.C. 5365(i)(2)(A). 7 79 FR 53835. DATES: Comments must be received by 3 12 U.S.C. 5301(12). 8 http://www.federalreserve.gov/reportforms. January 5, 2015. 4 12 U.S.C. 5365(i)(2)(C). 9 79 FR 64026 (Oct. 27, 2014).

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or more. Furthermore, the OCC is Losses and CCR Losses, and line item 61 two columns would be added to collect revising the Scenario schedule, which (Counterparty Incremental Default information for the Securities AFS OCI collects information on scenario Losses) is being removed. by Portfolio worksheet that would allow variables beyond those provided by changes in market value to be Revisions to RWA and Capital regulators. The purpose of this revision distinguished from changes in portfolio Worksheets is to require further clarity on the allocation for each projected quarter: definitions of the additional scenario To better align the collection of Beginning Fair Market Value and Fair variables as well as information on how regulatory capital components with the Value Rate of Change, which is the the additional scenario variables are Board’s FR Y–14A, the OCC is weighted average percent change in fair used by covered institutions. modifying the definitions of the items value over the quarter. Finally, to on the Capital—DFAST worksheet to reduce reporting burden and increase Revisions To Reporting Templates for refer to or mirror the definitions that efficiency in reporting, the nine sub- Institutions With $50 Billion or More in appear on revisions to the FR Y–14A. asset categories of Domestic Non- Assets Respondents are required to apply the Agency Residential Mortgage-Backed The revisions to the DFAST–14A appropriate transition provisions to all Securities (RMBS) are being removed reporting templates consist of adding transition-affected items of the Capital— from the same worksheet, and the data items, deleting data items, DFAST schedule consistent with available-for-sale and held-to-maturity redefining existing data items, and revisions to regulatory capital rules. portions of the Securities OTTI by renumbering data items. These changes With regard to the RWA worksheets, the Portfolio worksheet are being combined would provide additional information to standardized approach RWA and market with the addition of a column to enhance the ability of the OCC to RWA items of the General RWA identify AFS amounts versus HTM analyze the validity and integrity of worksheet have been changed in amounts. firms’ projections and increase accordance with proposed consistency between the FR Y–14A modifications to Schedule RC–R of the Revisions to Trading Worksheet reporting templates and DFAST–14A Call Report 10 and modifications to the Because credit valuation adjustment reporting templates. The OCC has FR Y–14A that are currently being (CVA) losses are modeled separately conducted a thorough review of the considered, and moved to a separate from trading portfolio losses, the OCC is changes and believes that the worksheet (Standardized RWA). These requiring that the profit (loss) amount incremental burden of these changes is changes include both the modification related to CVA hedges be reported justified given the need for this data to and addition of items, for an overall separately from other trading activity. properly conduct the OCC’s supervisory addition of 12 items. Additionally, the Revisions to Counterparty Risk responsibilities related to the stress computed items one through five of the Worksheet testing. current Advanced RWA worksheet are being removed. To allow respondents to use Summary Schedule alternative methodologies for estimating The OCC is making a number of Revisions to Retail Repurchase losses related to the default of issuers changes to the Summary schedule to Worksheet and counterparties, the requirement of better assess covered institutions’ Due to recent activity by respondents using the incremental default risk (IDR) calculation of risk-weighted assets involving settlements related to their methodology are being removed. (RWA) and certain other items detailed representation and warranty (R&W) Accordingly, line items 1, 1a and 1b below. Please note that all line item liabilities related to residential (Trading Incremental Default Losses, numbers referenced in this Notice refer mortgages, the OCC will collect Trading Incremental Default Losses to the existing reporting schedules, not additional detail about the R&W from securitized products, and Trading the revised reporting schedules. Because liabilities. Specifically, line items are Incremental Default Losses from other the changes add and delete some data being added that collect the unpaid credit sensitive instruments) are items, line-item numbering between the principal balance (UPB) of loans modified to be Issuer Default Losses. existing and templates may be different covered by completed settlements for Additionally, line items 3 (Counterparty (e.g., Income Statement item 125, Total which liability remains and for which Incremental Default Losses) and 3a Other Losses, in the existing reporting no liability remains by vintage (Impact of CCR IDR Hedges) are being template is now item 124 in the beginning with 2004, as well as total removed, line item 4 (Other CCR Losses) template). settlement across vintages, for the are modified to be CCR Losses, and the line item Effect of CCR Hedges is being Revisions to Income Statement following categories of loans: Loans sold added. Worksheet to Fannie Mae, loans sold to Freddie Mac, loans insured by the U.S. In order to accurately collect Regulatory Capital Instruments government, loans securitized with Schedule information for the Income Statement, monoline insurance, loans secured the OCC is changing items 127 and 128 without monoline insurance, and whole Changes to the Regulatory Capital (Realized Gains/Losses on available-for- loans sold. Instruments schedule are consistent sale securities and held-to-maturity with changes to the FR Y–14A. securities, including OTTI) to be Revisions to Securities Worksheets Specifically, the OCC is (1) adding an reported items instead of being equal to Because covered bonds have unique item that collects employee stock the total amounts on the Securities characteristics relative to other asset compensation to the four quarterly OTTI by Portfolio worksheet. categories currently on this worksheet, redemption/repurchase and issuance Additionally, for consistency with the OCC is adding a separate covered activity sub-sections; (2) adding 18 changes to the Counterparty Risk bond category to the Securities items to the general risk-based capital Worksheet described below, items 59 worksheets to evaluate respondents’ rules section and 28 items to the revised and 62 (Trading Incremental Default projections of these assets. Additionally, regulatory capital section; and (3) Losses and Other CCR Losses) would be changing the capital balance items in modified to be Trading Issuer Default 10 70 FR 35634 (June 23, 2014). the general risk-based capital rules

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section and the revised regulatory period of risk (MPOR) under the global required to administer different capital section from reported items to market shocks from worksheets 1(a)– statutory and regulatory requirements. formulas to permit the capital balance 1(e); (4) removing the column LGD Therefore, some differences exist items to be automatically computed Derived from Unstressed PD on the EE between the final DFAST–14A reporting using the new items. profile by CP worksheet; and (5) adding templates and FR Y–14A. The revised templates include changes to some line Regulatory Capital Transitions columns to worksheet 1(e) to collect items in order to match the FR Y–14A Schedule both gross and net stressed and unstressed current exposure to CCPs. as much as possible. With respect to the Similar to the changes being made to additional information required on the Scenario Schedule the RWA and Capital worksheets of the DFAST–14A Scenario schedule, the Summary schedule, changes to the Additional scenario variables, which OCC believes that additional scenario Regulatory Capital Transitions schedule are collected on this schedule, are key variables are key model inputs that are will better align the collection of drivers in projection methodologies. critical to assessing the reasonableness regulatory capital components with The OCC is revising the Scenario of a covered institution’s model-based revisions to the FR Y–14A and proposed schedule to further clarify the estimates. Accordingly, the final revised revisions to Schedule RC–R of the Call definitions of the additional scenario templates require submission of this Report. The OCC is (1) aligning the variables as well as to gather further additional information. The revised definitions of the items on the Capital information on how the additional templates also contain various Composition worksheet to be consistent scenario variables are used by covered technical, syntax, and reference with the FR Y–14A; (2) modifying the institutions. It is expected that this changes. RWA General worksheet to align with additional clarity and information will Type of Review: Revision. revisions to the FR Y–14A, including assist in comparing information in this Affected Public: Businesses or other changing the name to Standardized schedule across covered institutions. for-profit. RWA and modifying, removing and Estimated Number of Respondents: adding items for a net increase of 15 The OCC is (1) providing additional guidance on the syntax for naming 23. items; (3) modifying, adding and Estimated Total Annual Burden: removing items on the Advanced RWA additional scenario variables to increase the comparability of additional scenario 16,466 hours. worksheet to align with the Advanced The OCC recognizes that the Board RWA worksheet on the Summary variables across covered institutions; (2) adding a column to explicitly capture has estimated 67,848 hours for bank schedule, for a net increase of 21 items; holding companies to prepare the and (4) revising the Leverage Exposure the ‘‘unit of measure’’ of the additional scenario variables, e.g., basis points, reporting schedules submitted for the worksheet in accordance with changes FR Y–14A. The OCC believes that the to the supplementary leverage percentages, dollars; (3) adding a column to explicitly capture the systems the covered institutions use to requirement, for a net increase of ten prepare the FR Y–14A reporting items. frequency of the variable, e.g., monthly or 3-month average; and (4) adding schedules will also be used to prepare Counterparty Credit Risk Schedule multiple columns to understand where the reporting schedules described in this notice. Comments submitted in Significant additions are being made the additional scenario variables are response to this notice will be to the CCR schedule to more adequately used in modeling. These last additional summarized and included in the request and accurately capture exposure columns align with the methodology for OMB approval. All comments will information related to derivatives and documentation framework described in become a matter of public record. securities financing transactions (SFTs) Appendix A of the instructions. Comments continue to be invited on: used in supervisory loss estimates and Supporting Documentation (a) Whether the collection of supervisory activities. These additions information is necessary for the proper The instructions provide that banks would remediate deficiencies performance of the functions of the must provide a comprehensive discovered in the current collection OCC, including whether the information inventory of models used in the related to exposure, including a lack of has practical utility; projection of losses, revenues, expenses, information regarding collateral, asset (b) The accuracy of the OCC’s balances, and RWAs. Additionally, the types, and total exposure to a given estimate of the burden of the collection instructions provide that covered counterparty. of information; The OCC is (1) adding a worksheet institutions must submit written (c) Ways to enhance the quality, that collects the derivative exposures at procedures or other documentation that utility, and clarity of the information to a legal-entity netting-agreement level for outlines internal controls and processes be collected; the top 25 non-central clearing used to ensure the accuracy of the (d) Ways to minimize the burden of counterparties (non-CCP) and non-G–7 submissions the collection on respondents, including counterparties, as well as all CCPs and Technical Changes through the use of automated collection the G–7 counterparties that includes a techniques or other forms of information breakout of collateral into cash and non- The OCC received one comment technology; and cash, and exposures into 14 asset letter. The commenter expressed (e) Estimates of capital or start-up categories; (2) changing the current SFT concerns about certain differences costs and costs of operation, sub-schedule to collect exposures and between the DFAST–14A reporting maintenance, and purchase of services collateral separately at a counterparty templates and the FR Y–14A reporting to provide information. legal-entity netting-agreement level for form used by the Board, particularly the the top 25 non-CCP and non-G–7 additional information on the DFAST– Dated: December 2, 2014. counterparties as well as all CCPs and 14A Scenario schedule. While the OCC Stuart Feldstein, the G–7 counterparties and adding asset has attempted to keep the DFAST–14A Director, Legislative and Regulatory Activities sub-categories for a total of 30 specific reporting templates very similar to the Division. asset types; (3) removing all columns FR Y–14A, the OCC supervises different [FR Doc. 2014–28575 Filed 12–4–14; 8:45 am] with the bank specification of margin legal entities than the Board and is BILLING CODE P

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DEPARTMENT OF THE TREASURY Cairo, Egypt; nationality Saudi Arabia; Type of Review: Revision of a Passport B 751550; alt. Passport E currently approved collection. Office of Foreign Assets Control 976177 issued 06 Mar 2004 expires 11 Abstract: VA Form 27–2008 is used Jan 2009; alt. Passport A 848526 (Saudi for the sole purpose of gathering the Unblocking of a Specially Designated Arabia) expires 29 Mar 2001 necessary information to determine Global Terrorist Pursuant to Executive (individual) [SDGT]. eligibility for issuance of a burial flag to Order 13224 Dated: November 26, 2014. the next-of-kin or friend of a deceased AGENCY: Office of Foreign Assets John E. Smith, Veteran. An agency may not conduct or Control, Treasury. Acting Director, Office of Foreign Assets sponsor, and a person is not required to ACTION: Notice. Control. respond to a collection of information [FR Doc. 2014–28598 Filed 12–4–14; 8:45 am] SUMMARY: The Treasury Department’s unless it displays a currently valid OMB BILLING CODE 4810–AL–P Office of Foreign Assets Control (OFAC) control number. The Federal Register is removing from the List of Specially Notice with a 60-day comment period Designated Nationals and Blocked soliciting comments on this collection DEPARTMENT OF VETERANS Persons (SDN List) the name of one of information was published on August AFFAIRS individual whose property and interests 26, 2014, at page 50987. in property have been unblocked [OMB Control No. 2900–0013] Affected Public: Individuals or pursuant to Executive Order 13224 of households. September 23, 2001, ‘‘Blocking Property Agency Information Collection Estimated Annual Burden: 162,500 and Prohibiting Transactions With (Application for United States Flag for hours. Persons Who Commit, Threaten To Burial Purposes): Activity Under OMB Estimated Average Burden per Commit, or Support Terrorism.’’ Review Respondent: 15 minutes. Frequency of Response: One-time. DATES: OFAC’s actions described in this AGENCY: Veterans Benefits notice are effective November 26, 2014. Estimated Number of Respondents: Administration, Department of Veterans 650,000. FOR FURTHER INFORMATION CONTACT: Affairs. Dated: December 2, 2014. Associate Director for Global Targeting, ACTION: Notice. tel.: 202/622–2420, Assistant Director By direction of the Secretary. for Sanctions Compliance & Evaluation, SUMMARY: In compliance with the Crystal Rennie, tel.: 202/622–2490, Assistant Director Paperwork Reduction Act (PRA) of 1995 Department Clearance Officer, Department of for Licensing, tel.: 202/622–2480, Office (44 U.S.C. 3501–3521), this notice Veterans Affairs. of Foreign Assets Control, or Chief announces that the Veterans Benefits [FR Doc. 2014–28558 Filed 12–4–14; 8:45 am] Counsel (Foreign Assets Control), tel.: Administration (VBA), Department of BILLING CODE 8320–01–P 202/622–2410, Office of the General Veterans Affairs, will submit the Counsel, Department of the Treasury collection of information abstracted (not toll free numbers). below to the Office of Management and DEPARTMENT OF VETERANS SUPPLEMENTARY INFORMATION: Budget (OMB) for review and comment. AFFAIRS The PRA submission describes the [OMB Control No. 2900—NEW (10–10139)] Electronic and Facsimile Availability nature of the information collection and The SDN List and additional its expected cost and burden; it includes Proposed Information Collection information concerning OFAC sanctions the actual data collection instrument. (PACT Evaluating Peer Notifications To programs are available from OFAC’s DATES: Comments must be submitted on Improve Statin Medication Adherence Web site (www.treasury.gov/ofac). or before January 5, 2015. Among Patients With Coronary Artery Certain general information pertaining ADDRESSES: Submit written comments Disease); Comment Request to OFAC’s sanctions programs is also on the collection of information through AGENCY: available via facsimile through a 24- www.Regulations.gov, or to Office of Veterans Health hour fax-on-demand service, tel.: 202/ Information and Regulatory Affairs, Administration, Department of Veterans 622–0077. Office of Management and Budget, Attn: Affairs. ACTION: Notice. Notice of OFAC Action VA Desk Officer; 725 17th St. NW., Washington, DC 20503 or sent through SUMMARY: The Veterans Health On September 11, 2014, OFAC electronic mail to oira_submission@ Administration (VHA), Department of unblocked the property and interests in omb.eop.gov. Please refer to ‘‘OMB Veterans Affairs (VA), is announcing an property of the following individual Control No. 2900–0013’’ in any opportunity for public comment on the pursuant to E.O. 13224, ‘‘Blocking correspondence. Property and Prohibiting Transactions proposed collection of certain With Persons Who Commit, Threaten To FOR FURTHER INFORMATION CONTACT: information by the agency. Under the Commit, or Support Terrorism.’’ All Crystal Rennie, Enterprise Records Paperwork Reduction Act (PRA) of property and interests in property of the Service (005R1B), Department of 1995, Federal agencies are required to individual that are in or hereafter come Veterans Affairs, 810 Vermont Avenue publish notice in the Federal Register within the United States or the NW., Washington, DC 20420, (202) 632– concerning each proposed collection of possession or control of United States 7492 or email [email protected]. information, including each new persons are now unblocked. Please refer to ‘‘OMB Control No. 2900– collection, and allow 60 days for public 0013.’’ comment in response to the notice. This Individual SUPPLEMENTARY INFORMATION: notice solicits comments on the 1. AL–QADI, Yasin Abdullah Title: Application for United States information needed to evaluate the Ezzedine (a.k.a. KADI, Shaykh Yassin Flag for Burial Purposes, VA Form 27– project aims to enhance PACT Abdullah; a.k.a. KAHDI, Yasin), Jeddah, 2008. implementation by evaluating the Saudi Arabia; DOB 23 Feb 1955; POB OMB Control Number: 2900–0013. effects of the VA PACT initiative and by

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test new, innovative strategies for evaluating how best to use these Administration (10B4), Department of patient care that can be spread if proven technologies and engage different Veterans Affairs, 810 Vermont Avenue effective. support providers (family/friends/or NW., Washington, DC 20420 or email: DATES: Written comments and peers) to improve medication [email protected]. Please refer to recommendations on the proposed adherence. ‘‘OMB Control No. 2900—NEW (Using collection of information should be Affected Public: Individuals or Peer Mentors to Support PACT Team received on or before February 3, 2015. households. Efforts to Improve Diabetes)’’ in any ADDRESSES: Submit written comments Estimated Annual Burden: 336 correspondence. During the comment on the collection of information through burden hours. period, comments may be viewed online Federal Docket Management System Estimated Average Burden per through the FDMS. (FDMS) at www.Regulations.gov; or Respondent: 90 minutes. FOR FURTHER INFORMATION CONTACT: Audrey Revere, Office of Regulatory and Frequency of Response: Once Audrey Revere at (202) 461–5694. Administrative Affairs, Veterans Health annually. SUPPLEMENTARY INFORMATION: Under the Estimated Number of Respondents: Administration (10B4), Department of PRA of 1995 (Public Law 104–13; 44 224. Veterans Affairs, 810 Vermont Avenue U.S.C. 3501–3521), Federal agencies NW., Washington, DC 20420 or email: By direction of the Secretary. must obtain approval from the Office of [email protected]. Please refer to Crystal Rennie, Management and Budget (OMB) for each ‘‘OMB Control No. 2900—NEW (PACT Department Clearance Officer, Department of collection of information they conduct Evaluating Peer Notifications to Improve Veterans Affairs. or sponsor. This request for comment is Statin Medication Adherence among [FR Doc. 2014–28556 Filed 12–4–14; 8:45 am] being made pursuant to Section Patients with Coronary Artery Disease)’’ BILLING CODE 8320–01–P 3506(c)(2)(A) of the PRA. in any correspondence. During the With respect to the following comment period, comments may be collection of information, VHA invites viewed online through the FDMS. DEPARTMENT OF VETERANS comments on: (1) Whether the proposed collection of information is necessary FOR FURTHER INFORMATION CONTACT: AFFAIRS for the proper performance of VHA’s Audrey Revere at (202) 461–5694. [OMB Control No. 2900—NEW (10–10138)] functions, including whether the SUPPLEMENTARY INFORMATION: Under the information will have practical utility; Proposed Information Collection PRA of 1995 (Public Law 104–13; 44 (2) the accuracy of VHA’s estimate of (Using Peer Mentors To Support PACT U.S.C. 3501–3521), Federal agencies the burden of the proposed collection of Team Efforts To Improve Diabetes); must obtain approval from the Office of information; (3) ways to enhance the Comment Request Management and Budget (OMB) for each quality, utility, and clarity of the collection of information they conduct AGENCY: Veterans Health information to be collected; and (4) or sponsor. This request for comment is Administration, Department of Veterans ways to minimize the burden of the being made pursuant to Section Affairs. collection of information on 3506(c)(2)(A) of the PRA. ACTION: Notice. respondents, including through the use With respect to the following of automated collection techniques or collection of information, VHA invites SUMMARY: The Veterans Health the use of other forms of information comments on: (1) Whether the proposed Administration (VHA), Department of technology. collection of information is necessary Veterans Affairs (VA), is announcing an Titles: Using Peer Mentors to Support for the proper performance of VHA’s opportunity for public comment on the PACT Team Efforts to Improve Diabetes, functions, including whether the proposed collection of certain VA Form 10–10138. information will have practical utility; information by the agency. Under the OMB Control Number: 2900—NEW. (2) the accuracy of VHA’s estimate of Paperwork Reduction Act (PRA) of Type of Review: New data collection. the burden of the proposed collection of 1995, Federal agencies are required to Abstract This project is being information; (3) ways to enhance the publish notice in the Federal Register conducted under the auspices of the quality, utility, and clarity of the concerning each proposed collection of VISN 4 Demonstration Lab, which was information to be collected; and (4) information, including each new funded by Patient Care Services to ways to minimize the burden of the collection, and allow 60 days for public assess the Patient Aligned Care Team collection of information on comment in response to the notice. This (PACT) model of care for Veterans. respondents, including through the use notice solicits comments on the There is considerable interest in and of automated collection techniques or information collection needed to urgency to implement the PACT the use of other forms of information evaluate the project aims to enhance model—reflecting both a desire to technology. PACT implementation by evaluating the improve health care for Veterans and to Titles: PACT Evaluating Peer effects of the VA PACT initiative and by sustain the VA’s leadership in health Notifications to Improve Statin test new, innovative strategies for care quality. CEPACT aims to contribute Medication Adherence among Patients patient care that can be spread if proven to these goals by evaluating the effects with Coronary Artery Disease, VA Form effective. of the VA PACT initiative and by test 10–10139. new, innovative strategies for patient DATES: Written comments and OMB Control Number: 2900—NEW. care that can be spread if proven recommendations on the proposed Type of Review: New data collection. effective. Abstract: Despite the importance of collection of information should be Affected Public: Individuals or medication adherence, we have few received on or before February 3, 2015. households. effective tools to help patients improve ADDRESSES: Submit written comments Estimated Annual Burden: 1,473 taking their medications. One strategy to on the collection of information through burden hours. improve medication adherence is using Federal Docket Management System Estimated Average Burden per newer technology to make engagement (FDMS) at www.Regulations.gov; or Respondent: 147 minutes. with patients significantly easier and Audrey Revere, Office of Regulatory and Frequency of Response: Once more immediate. These studies Administrative Affairs, Veterans Health annually.

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Estimated Number of Respondents: By direction of the Secretary. 600. Crystal Rennie, Dated: December 2, 2014. Department Clearance Officer, Department of Veterans Affairs. [FR Doc. 2014–28557 Filed 12–4–14; 8:45 am] BILLING CODE 8320–01–P

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Part II

Securities and Exchange Commission

17 CFR Parts 240, 242, and 249 Regulation Systems Compliance and Integrity; Final Rule

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SECURITIES AND EXCHANGE will supersede and replace aspects of III. Overview COMMISSION those policy statements codified in Rule IV. Description of Adopted Regulation SCI 301(b)(6) under the Exchange Act, and Form SCI 17 CFR Parts 240, 242, and 249 applicable to significant-volume ATSs A. Definitions Establishing the Scope of Regulation SCI—Rule 1000 [Release No. 34–73639; File No. S7–01–13] that trade NMS stocks and non-NMS 2 1. SCI Entities stocks. Regulation SCI will require SCI a. SCI Self-Regulatory Organization or SCI RIN 3235–AL43 entities to establish written policies and SRO procedures reasonably designed to Regulation Systems Compliance and b. SCI Alternative Trading System ensure that their systems have levels of c. Plan Processor Integrity capacity, integrity, resiliency, d. Exempt Clearing Agency Subject to ARP AGENCY: Securities and Exchange availability, and security adequate to 2. SCI Systems, Critical SCI Systems, and Commission. maintain their operational capability Indirect SCI Systems and promote the maintenance of fair a. Overview ACTION: Final rule and form; final rule b. SCI Systems amendment; technical amendment. and orderly markets, and that they operate in a manner that complies with c. Critical SCI Systems d. Indirect SCI Systems (Proposed as ‘‘SCI SUMMARY: The Securities and Exchange the Exchange Act. It will also require Security Systems’’) Commission (‘‘Commission’’) is SCI entities to mandate participation by 3. SCI Events adopting new Regulation Systems designated members or participants in a. Systems Disruption Compliance and Integrity (‘‘Regulation scheduled testing of the operation of b. Systems Compliance Issue SCI’’) under the Securities Exchange Act their business continuity and disaster c. Systems Intrusion of 1934 (‘‘Exchange Act’’) and recovery plans, including backup B. Obligations of SCI Entities—Rules 1001– conforming amendments to Regulation systems, and to coordinate such testing 1004 1. Policies and Procedures to Achieve ATS under the Exchange Act. on an industry- or sector-wide basis with other SCI entities. In addition, Capacity, Integrity, Resiliency, Regulation SCI will apply to certain self- Availability and Security—Rule 1001(a) regulatory organizations (including Regulation SCI will require SCI entities 2. Policies and Procedures to Achieve registered clearing agencies), alternative to take corrective action with respect to Systems Compliance—Rule 1001(b) trading systems (‘‘ATSs’’), plan SCI events (defined to include systems 3. SCI Events: Corrective Action; processors, and exempt clearing disruptions, systems compliance issues, Commission Notification; Dissemination agencies (collectively, ‘‘SCI entities’’), and systems intrusions), and notify the of Information—Rule 1002 and will require these SCI entities to Commission of such events. Regulation a. Triggering Standard comply with requirements with respect SCI will further require SCI entities to b. Corrective Action—Rule 1002(a) c. Commission Notification—Rule 1002(b) to the automated systems central to the disseminate information about certain SCI events to affected members or d. Dissemination of Information—Rule performance of their regulated activities. 1002(c) DATES: Effective date: February 3, 2015. participants and, for certain major SCI 4. Notification of Systems Changes—Rule Compliance date: The applicable events, to all members or participants of 1003(a) compliance dates are discussed in the SCI entity. In addition, Regulation 5. SCI Review—Rule 1003(b) Section IV.F of this release. SCI will require SCI entities to conduct 6. SCI Entity Business Continuity and a review of their systems by objective, Disaster Recovery Plans Testing FOR FURTHER INFORMATION CONTACT: qualified personnel at least annually, Requirements for Members or David Liu, Senior Special Counsel, submit quarterly reports regarding Participants—Rule 1004 Office of Market Supervision, at (312) completed, ongoing, and planned C. Recordkeeping, Electronic Filing on 353–6265, Heidi Pilpel, Senior Special material changes to their SCI systems to Form SCI, and Access—Rules 1005–1007 Counsel, Office of Market Supervision, 1. Recordkeeping—Rules 1005–1007 the Commission, and maintain certain at (202) 551–5666, Sara Hawkins, 2. Electronic Filing and Submission of books and records. Finally, the Special Counsel, Office of Market Reports, Notifications, and Other Commission also is adopting Supervision, at (202) 551–5523, Yue Communications—Rule 1006 modifications to the volume thresholds Ding, Special Counsel, Office of Market 3. Access to the Systems of an SCI Entity in Regulation ATS 3 for significant- D. Form SCI Supervision, at (202) 551–5842, David volume ATSs that trade NMS stocks and E. Other Comments Received Garcia, Special Counsel, Office of non-NMS stocks, applying them to SCI F. Effective Date and Compliance Dates Market Supervision, at (202) 551–5681, ATSs (as defined below), and moving V. Paperwork Reduction Act and Elizabeth C. Badawy, Senior this standard from Regulation ATS to VI. Economic Analysis Accountant, Office of Market VII. Regulatory Flexibility Act Certification adopted Regulation SCI for these asset Supervision, at (202) 551–5612, VIII. Statutory Authority and Text of classes. Division of Trading and Markets, Amendments Securities and Exchange Commission, Table of Contents I. Introduction 100 F Street NE., Washington, DC 20549–7010. I. Introduction The U.S. securities markets attract a II. Background wide variety of issuers and broad SUPPLEMENTARY INFORMATION: Regulation A. Automation Review Policy Inspection investor participation, and are essential SCI will, with regard to SCI entities, Program for capital formation, job creation, and supersede and replace the Commission’s B. Recent Events economic growth, both domestically current Automation Review Policy and across the globe. The U.S. securities (‘‘ARP’’), established by the 1989) (‘‘ARP I Release’’ or ‘‘ARP I’’) and 29185 (May markets have been transformed by Commission’s two policy statements, 9, 1991), 56 FR 22490 (May 15, 1991) (‘‘ARP II regulatory and related technological each titled ‘‘Automated Systems of Self- Release’’ or ‘‘ARP II’’ and, together with ARP I, the ‘‘ARP Policy Statements’’). developments in recent years. They Regulatory Organizations,’’ issued in 2 See 17 CFR 242.301(b)(6). See also Securities have, among other things, substantially 1989 and 1991.1 Regulation SCI also Exchange Act Release No. 40760 (December 8, enhanced the speed, capacity, 1998), 63 FR 70844 (December 22, 1998) (‘‘ATS 1 See Securities Exchange Act Release Nos. 27445 Release’’). efficiency, and sophistication of the (November 16, 1989), 54 FR 48703 (November 24, 3 17 CFR 242.300–303 (‘‘Regulation ATS’’). trading functions that are available to

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market participants.4 At the same time, and communications techniques create evolution of the markets to become these technological advances have the opportunity for more efficient and significantly more dependent upon generated an increasing risk of effective market operations’’ 10 and ‘‘[i]t sophisticated, complex and operational problems with automated is in the public interest and appropriate interconnected technology; the current systems, including failures, disruptions, for the protection of investors and the successes and limitations of the ARP delays, and intrusions. Given the speed maintenance of fair and orderly markets Inspection Program; a significant and interconnected nature of the U.S. to assure . . . the economically efficient number of, and lessons learned from, securities markets, a seemingly minor execution of securities transactions.’’ 11 recent systems issues at exchanges and systems problem at a single entity can In addition, Sections 6(b), 15A, and other trading venues,15 increased quickly create losses and liability for 17A(b)(3) of the Exchange Act impose concerns over ‘‘single points of failure’’ market participants, and spread rapidly obligations on national securities in the securities markets; 16 and the across the national market system, exchanges, national securities views of a wide variety of commenters potentially creating widespread damage associations, and clearing agencies, received in response to the SCI and harm to market participants, respectively, to be ‘‘so organized’’ and Proposal. including investors. ‘‘[have] the capacity to . . . carry out The Commission received 60 This transformation of the U.S. the purposes of [the Exchange Act].’’ 12 comment letters on the proposal from securities markets has occurred in the In March 2013, the Commission national securities exchanges, registered absence of a formal regulatory structure proposed Regulation Systems securities associations, registered governing the automated systems of key Compliance and Integrity (‘‘Regulation clearing agencies, ATSs, broker-dealers, market participants. Instead, for over SCI’’) 13 to require certain key market institutional and individual investors, two decades, Commission oversight of participants to, among other things: (1) industry trade groups, software and the technology of the U.S. securities Have comprehensive policies and technology vendors, and academics.17 markets has been conducted primarily procedures in place to help ensure the Commenters generally supported the pursuant to a voluntary set of principles robustness and resiliency of their goals of the proposal, but as further articulated in the Commission’s ARP technological systems, and also that discussed below, some expressed 5 Policy Statements, applied through the their technological systems operate in concern about various specific elements Commission’s Automation Review compliance with the federal securities of the proposal, and recommended Policy inspection program (‘‘ARP laws and with their own rules; and (2) certain modifications or clarifications. 6 Inspection Program’’). provide certain notices and reports to After careful review and Section 11A(a)(2) of the Exchange the Commission to improve consideration of the comment letters, Act,7 enacted as part of the Securities Commission oversight of securities Acts Amendments of 1975 (‘‘1975 market infrastructure. As discussed in 15 See Proposing Release, supra note 13, at 8 Amendments’’), directs the further detail below and in the SCI 18085–91 for a further discussion of these Commission, having due regard for the Proposal, Regulation SCI was proposed developments and infra Section II.B (discussing public interest, the protection of to update, formalize, and expand the recent events related to technology issues). In addition, prior to issuing the Proposing Release, in investors, and the maintenance of fair Commission’s ARP Inspection Program, October 2012 the Commission convened a and orderly markets, to use its authority and, with respect to SCI entities, to roundtable entitled ‘‘Technology and Trading: under the Exchange Act to facilitate the supersede and replace the Commission’s Promoting Stability in Today’s Markets’’ establishment of a national market ARP Policy Statements and rules (‘‘Technology Roundtable’’). The Technology system for securities in accordance with Roundtable examined the relationship between the regarding systems capacity, integrity operational stability and integrity of the securities the Congressional findings and and security in Rule 301(b)(6) of market and the ways in which market participants objectives set forth in Section 11A(a)(1) Regulation ATS.14 design, implement, and manage complex and of the Exchange Act.9 Among the A confluence of factors contributed to interconnected trading technologies. See Securities findings and objectives in Section the Commission’s proposal of Exchange Act Release No. 67802 (September 7, 2012), 77 FR 56697 (September 13, 2012) (File No. 11A(a)(1) is that ‘‘[n]ew data processing Regulation SCI and to the Commission’s 4–652) and Technology Roundtable Transcript, current determination that it is available at: http://www.sec.gov/news/other 4 See Securities Exchange Act Release No. 61358 necessary and appropriate at this time to webcasts/2012/ttr100212-transcript.pdf. A webcast (January 14, 2010), 75 FR 3594, 3598 (January 21, address the technological of the Roundtable is available at: www.sec.gov/ 2010) (Concept Release on Equity Market news/otherwebcasts/2012/ttr100212.shtml. As Structure). vulnerabilities, and improve noted in the Proposing Release, the Commission 5 While participation in the ARP Inspection Commission oversight, of the core believes that the information presented at the Program is voluntary, the underpinnings of ARP I technology of key U.S. securities Technology Roundtable further highlighted that and ARP II are rooted in Exchange Act markets entities, including national quality standards, testing, and improved response requirements. See infra notes 7–12 and mechanisms are among the issues needing very accompanying text. securities exchanges and associations, thoughtful and focused attention in today’s 6 See infra Section II.A (discussing the ARP significant alternative trading systems, securities markets. See Proposing Release, supra Inspection Program). See also supra note 1. The clearing agencies, and plan processors. note 13, at 18090–91 for further discussion of the ARP Inspection Program has historically been These considerations include: the Technology Roundtable. administered by the Commission’s Division of 16 See infra Section IV.A.2.c (discussing single Trading and Markets. In February 2014, to points of failure in the securities markets in 10 consolidate the inspection function of the group Section 11A(a)(1)(B) of the Exchange Act, 15 conjunction with the adopted term ‘‘critical SCI with the Commission’s Office of Compliance U.S.C. 78k–1(a)(1)(B). system’’). Inspections and Examinations (‘‘OCIE’’), the ARP 11 Section 11A(a)(1)(C)(i) of the Exchange Act, 15 17 Comments received on the proposal are Inspection Program was transitioned to OCIE and U.S.C. 78k–1(a)(1)(C)(i). available on the Commission’s Web site, available has been renamed the Technology Controls Program 12 See Sections 6(b)(1), 15A(b)(2), and 17A(b)(3) at: http://www.sec.gov/comments/s7-01-13/ (‘‘TCP’’). However, for ease of reference to the of the Exchange Act, 15 U.S.C. 78f(b)(1), 78o– s70113.shtml. See Exhibit A for a citation key to the historical ARP Inspection Program, relevant 3(b)(2), 78q–1(b)(3), respectively. See also Section comment letters cited in this release. portions of the SCI Proposal, and references in 2 of the Exchange Act, 15 U.S.C. 78b, and Section Upon request from some commenters, the comment letters, this Release will continue to use 19 of the Exchange Act, 15 U.S.C. 78s. Commission extended the comment period for an the terms ARP, ARP Inspection Program, and ARP 13 Securities Exchange Act Release No. 69077 additional 45 days in order to give the public staff, unless the context otherwise requires. (March 8, 2013), 78 FR 18083 (March 25, 2013) additional time to comment on the matters 7 15 U.S.C. 78k–1(a)(2). (‘‘Proposing Release’’ or ‘‘SCI Proposal’’). addressed by the SCI Proposal. See Securities 8 Pub. L. 94–29, 89 Stat. 97 (1975). 14 See 17 CFR 242.301(b)(6) and ATS Release, Exchange Act Release No. 69606 (May 20, 2013), 78 9 15 U.S.C. 78k–1(a)(1). supra note 2. FR 30803 (May 23, 2013).

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the Commission is adopting Regulation ARP entities, monitors planned mandatory.25 In addition, as more fully SCI (‘‘Rule’’) and Form SCI (‘‘Form’’) significant system changes, and discussed in the SCI Proposal, the with certain modifications from the SCI responds to reports of system failures, evolution of the U.S. securities markets Proposal, as discussed below, to disruptions, and other systems problems in recent years to become almost respond to concerns expressed by of ARP entities. The goal of the ARP entirely electronic and highly commenters and upon further inspections is to evaluate whether an dependent on sophisticated trading and consideration by the Commission of the ARP entity’s controls over its other technology, including complex more appropriate approach to further information technology resources in and interconnected routing, market the goals of the national market system nine general areas, or information data, regulatory, surveillance and other by strengthening the technology technology ‘‘domains,’’ 22 is consistent systems, has posed challenges for the 26 infrastructure of the U.S. securities with ARP and industry guidelines. Such ARP Inspection Program. markets. guidelines are identified by ARP staff B. Recent Events II. Background from a variety of information technology A series of high-profile recent events publications that ARP staff believes A. Automation Review Policy Inspection involving systems-related issues further Program reflects industry standards for securities highlights the need for market market participants.23 At the conclusion participants to bolster the operational For over two decades, the of an ARP inspection, ARP staff integrity of their automated systems in Commission’s ARP Inspection Program typically issues a report to the ARP this area. In the SCI Proposal, the has helped the Commission oversee the entity with an assessment of the ARP Commission identified several systems technology infrastructure of the U.S. entity’s information technology program problems experienced by SROs and securities markets. This voluntary for its key systems, including any ATSs that garnered significant public information technology review program recommendations for improvement.24 attention and illustrated the types and was developed by staff of the risks of systems issues affecting today’s Commission to implement the Because the ARP Inspection Program markets.27 Since Regulation SCI’s Commission’s ARP Policy Statements was established pursuant to proposal in March 2013, additional issued in 1989 and 1991.18 Through Commission policy statements rather systems problems among market these Policy Statements, the than Commission rules, participation in participants have occurred, further Commission articulated its views on the and compliance with the ARP underscoring the importance of steps that SROs should take with regard Inspection Program by ARP entities is bolstering the robustness of U.S. market to their automated systems, set forth voluntary. As such, despite its general infrastructure to help ensure its recommendations for how SROs should success in working with SROs to stability, integrity, and resiliency. conduct independent reviews, and improve their automated systems, there In particular, since Regulation SCI’s provided that SROs should notify the are certain limitations with the ARP proposal, disruptions have continued to Commission of material systems Inspection Program. In particular, occur across a variety of market changes and significant systems because of the voluntary nature of the 19 participants. For example, with respect problems. In 1998, the Commission ARP Inspection Program, the to the options markets, some exchanges adopted Regulation ATS which, among Commission is constrained in its ability have delayed the opening of trading,28 other things, imposed by rule certain to assure compliance with ARP aspects of the ARP Policy Statements on standards. The Government 25 See GAO, Financial Market Preparedness: 20 significant-volume ATSs. Further, Accountability Office (‘‘GAO’’) has Improvements Made, but More Action Needed to Commission staff subsequently identified the voluntary nature of the Prepare for Wide-Scale Disasters, Report No. GAO– 04–984 (September 27, 2004). GAO cited instances provided additional guidance regarding ARP Inspection Program as a limitation various aspects of the ARP Inspection in which the GAO believed that entities and recommended that the Commission participating in the ARP Inspection Program failed Program through letters to ARP entities, make compliance with ARP guidelines to adequately address or implement ARP staff including recommendations regarding recommendations as the reasoning behind its recommendation to make compliance with ARP reporting planned systems changes and 22 systems issues to the Commission.21 These information technology ‘‘domains’’ guidelines mandatory. include: application controls; capacity planning; 26 See Proposing Release, supra note 13, at Under the ARP Inspection Program, computer operations and production environment 18087–89. Commission staff (‘‘ARP staff’’) controls; contingency planning; information 27 See id. at 18089–90. The Proposing Release also conducts inspections of the trading and security and networking; audit; outsourcing; discussed the effects of Superstorm Sandy on the related systems of national securities physical security; and systems development U.S. securities exchanges, noting certain methodology. Each domain itself contains exchanges and associations, certain weaknesses in business continuity and disaster subcategories. For example, ‘‘contingency recovery planning that were highlighted by the ATSs, clearing agencies, and plan planning’’ includes business continuity, disaster event. See id. at 18091. processors (collectively ‘‘ARP entities’’), recovery, and pandemic planning, among other 28 On April 25, 2013, the Chicago Board Options attends periodic technology briefings by things. See id. at 18086. Exchange, Inc. (‘‘CBOE’’) delayed the opening of 23 See id. at 18086–87. trading on its exchange for over three hours due to 24 In addition, Commission staff conducts 18 what CBOE described as an internal ‘‘software bug.’’ See ARP Policy Statements, supra note 1. For inspections of SROs, as part of the Commission’s See CBOE Information Circular IC13–036, April 29, a detailed discussion of the ARP Policy Statements, oversight of them. Unlike ARP inspections, 2013, available at: http://www.cboe.com/publish/ see Proposing Release, supra note 13, at 18085–86. however, which focus on information technology InfoCir/IC13-036.pdf. During this time, while 19 See ARP Policy Statements, supra note 1. controls, such Commission staff primarily conducts trading in many products was able to continue on 20 See 17 CFR 242.301(b)(6) and ATS Release, risk-based examinations of securities exchanges, the other options exchanges, trading was supra note 2. FINRA, and other SROs to evaluate whether they completely halted for those products that are singly- 21 In June 2001, staff from the Division of Market and their member firms are complying with the listed on CBOE, including options on the S&P 500 Regulation sent a letter to the SROs and other Exchange Act, the rules thereunder, and SRO rules, Index and the CBOE Volatility Index (‘‘VIX’’). participants in the ARP Inspection Program as applicable. As part of the Commission’s oversight Trading was able to resume by approximately 1:00 regarding Guidance for Systems Outage and System of the SROs, Commission staff also reviews systems p.m. ET, though some residual systems problems Change Notifications (‘‘2001 Staff ARP Interpretive compliance issues reported to Commission staff. continued. Specifically, certain auction Letter’’). See Proposing Release, supra note 13, at The information gained from the Commission staff mechanisms were unavailable for the remainder of 18087, n. 35. The 2001 Staff ARP Interpretive Letter review of reported systems compliance issues helps the day and some of the trade data from April 25 is available at: http://www.sec.gov/divisions/ to inform its examination risk-assessments for was erroneously re-transmitted to OCC on April 26. marketreg/sroautomation.shtml. SROs. See id. at 18087. See id. and CBOE System Status notifications for

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halted trading,29 or experienced other affected trading off of national securities have not been limited to systems errors as a result of systems issues,30 exchanges, including an incident where disruptions, but have also included and trading in options was halted due FINRA halted trading in all OTC equity allegations of systems compliance to a systems issue with the securities securities due to a lack of availability of issues.34 information processor for options quotation information resulting from a Systems issues are not unique to the market information.31 Systems issues connectivity issue experienced by an U.S. securities markets, with similar have also impacted consolidated market ATS.33 Systems issues during this time incidents occurring in the U.S. data in the equities markets, including commodities markets as well as foreign one incident that led to a trading halt in to the backup system. See ‘‘NASDAQ OMX markets.35 However, the Commission all securities listed on a particular Provides Updates on Events of August 22, 2013,’’ exchange.32 Systems issues have also by NASDAQ OMX (August 29, 2013), available at: to its primary data center in New Jersey. See ‘‘OTC http://www.nasdaqomx.com/newsroom/ Markets Group Issues Statement on OTC Link® ATS pressreleases/pressrelease? Trading on November 7, 2013,’’ OTC Disclosure & April 25, 2013, available at: http://www.cboe.com/ messageId=1204807&displayLanguage=en; and News Service, November 7, 2013, available at: aboutcboe/systemstatus/search.aspx. CBOE Nasdaq Market System Status notifications for http://www.otcmarkets.com/stock/OTCM/news/ subsequently reported that preliminary staging August 22, 2013, available at: https:// OTC-Markets-Group-Issues-Statement-on-OTC- work related to a planned reconfiguration of CBOE’s www.nasdaqtrader.com/Trader.aspx?id= Linkreg-ATS-Trading-on-November-7- systems in preparation for extended trading hours MarketSystemStatusSearch. 2013?id=71144. on the CBOE Futures Exchange and CBOE options Nasdaq experienced another outage related to the 34 For example, in June 2013, the Commission exchange ‘‘exposed and triggered a design flaw in SIP on September 4, 2013. This incident lasted only charged CBOE and its affiliate (C2 Options the existing messaging infrastructure several minutes and affected only a subset of Exchange, Incorporated (‘‘C2’’)) for various systemic configuration.’’ See CBOE Information Circular Nasdaq-listed securities. See ‘‘NASDAQ OMX breakdowns in their regulatory and compliance IC13–036, April 29, 2013, available at: http:// Issues Statement on the Securities Information responsibilities as self-regulatory organizations, www.cboe.com/publish/InfoCir/IC13-036.pdf. Processor,’’ by NASDAQ OMX (September 4, 2013), 29 including failure to enforce the federal securities On November 1, 2013, Nasdaq halted trading available at: http://ir.nasdaqomx.com/ laws and Commission rules. See Securities on the Nasdaq Options Market (‘‘NOM’’) for more releasedetail.cfm?ReleaseID=788700. Exchange Act Release No. 69726, In the Matter of than five hours through the close of the trading day. The SIP consolidates quotation information and Chicago Board Options Exchange, Incorporated and Nasdaq stated that the halt was a result of ‘‘a transaction reports from market centers and C2 Options Exchange, Incorporated (settled action: significant increase in order entries which inhibited disseminates such consolidated information to June 11, 2013), available at: http://www.sec.gov/ the system’s ability to accept orders and market participants pursuant to the Commission- litigation/admin/2013/34-69726.pdf (‘‘CBOE disseminate quotes on a subset of symbols.’’ As approved Joint Self-Regulatory Organization Plan Order’’). CBOE and C2 consented to an Order Nasdaq stated, Nasdaq determined that it was in the Governing the Collection, Consolidation and Instituting Administrative and Cease-and-Desist best interest of market participants and investors to Dissemination of Quotation and Transaction Proceedings Pursuant to Sections 19(h) and 21C of cancel all orders on the NOM book and continue Information for Nasdaq-Listed Securities Traded on the Securities Exchange Act of 1934, Making the market halt through the close. See Nasdaq Exchanges on an Unlisted Trading Privilege Basis, Findings, and Imposing Sanctions and a Cease-and- Market System Status Updates for November 1, available at: http://www.utpplan.com/. See Desist Order. In the CBOE Order, among other 2013, available at: https://www.nasdaqtrader.com/ generally Rule 608 of Regulation NMS, 17 CFR charges, the Commission stated that ‘‘CBOE’s Trader.aspx?id=MarketSystemStatusSearch. 242.608 (‘‘Filing and amendment of national market automated surveillance programs for manually 30 On April 29, 2014, NYSE Arca and NYSE Amex system plans’’). handled trades were ineffective’’ and that ‘‘CBOE Options experienced a systems issue that resulted More recently, on October 30, 2014, according to failed to maintain a reliable or accurate audit trail in numerous complex orders booking at incorrect the NYSE, a network hardware failure impacted the of orders’’ on its trading facility. See id. at 11, 13. prices. In some cases, this resulted in erroneous fill Consolidated Tape System, Consolidated Quote In addition, in May 2014, the Commission reports, all of which were subsequently nullified. System, and Options Price Reporting Authority data sanctioned the New York Stock Exchange LLC See Trader Update to All NYSE Amex Options and feeds at the primary data center. Exchanges (‘‘NYSE’’) and two of its affiliated exchanges (NYSE NYSE Arca Options Participants, ‘‘Erroneous experienced issues publishing and receiving trades Arca, Inc. (‘‘NYSE Arca’’), NYSE MKT LLC (‘‘NYSE Complex Order Executions,’’ dated April 29, 2014, and quotes as a result. After investigation of the MKT’’)) for alleged failure to comply with their _ _ available at: http://www1.nyse.com/pdfs/2014 04 issue, the Securities Industry Automation responsibilities as self-regulatory organizations to ______29 NYSE Amex and Arca Options Erroneous Corporation (‘‘SIAC’’) (the processor for the affected conduct their business operations in accordance _ _ Complex Order Executions.pdf. data feeds) switched over to the secondary data with Commission-approved exchange rules and the 31 On September 16, 2013, options market trading center for these data feeds and normal processing federal securities laws. See Securities Exchange Act was halted for approximately 20 minutes due to a subsequently resumed. The exchanges then Release No. 72065, In the Matter of New York Stock systems issue with the Options Price Reporting connected to the secondary data center as provided Exchange LLC, NYSE Arca, Inc., NYSE MKT LLC, Authority (‘‘OPRA’’), the securities information for in SIAC’s business continuity plan. See ‘‘Service and Archipelago Securities, L.L.C. (settled action: processor for options market information that Advisory—CTA Update,’’ by NYSE (October 30, May 1, 2014), available at: http://www.sec.gov/ disseminates option quotation and last sale 2014), available at: https://markets.nyx.com/nyse/ litigation/admin/2014/34-72065.pdf (‘‘NYSE information to market data vendors. OPRA reported market-status/view/13467 and ‘‘NMS SIP market Order’’). NYSE, NYSE Arca, NYSE MKT, and that it experienced problems processing quotes as wide issue,’’ by NYSE (October 30, 2014), available Archipelago Securities consented to an Order a result of a software issue originating from a at: https://markets.nyx.com/nyse/market-status/ Instituting Administrative and Cease-and-Desist limited rollout of certain software upgrades. See view/13465. Proceedings Pursuant to Sections 19(h) and 21C of Notice to All OPRA Market Data Recipients from 33 On November 7, 2013, FINRA halted trading for the Securities Exchange Act of 1934, Making OPRA, LLC, dated September 18, 2013, available at: over 31⁄2 hours in all OTC equity securities due to Findings, and Imposing Sanctions and a Cease-and- http://www.opradata.com/specs/16-sept-2013-opra- a lack of availability of quotation information Desist Order. In the NYSE Order, the Commission outage.pdf. resulting from a connectivity issue experienced by cited various instances of NYSE systems not 32 On August 22, 2013, the NASDAQ Stock OTC Markets Group Inc.’s OTC Link ATS. See operating in compliance with their effective rules, Market LLC (‘‘Nasdaq’’) halted trading in all ‘‘Market-Wide Quotation and Trading Halt for all such as NYSE’s block trading facility not Nasdaq-listed securities for more than three hours OTC Equity Securities,’’ FINRA Uniform Practice functioning in accordance with applicable rules; after the Nasdaq UTP Securities Information Advisory, UPC #47–13, November 7, 2013, available NYSE distributing an automated feed of closing Processor (‘‘SIP’’), the single source of consolidated at: http://www.finra.org/web/groups/industry/@ip/@ order imbalance information to its floor brokers at market data for Nasdaq-listed securities, was unable comp/@mt/documents/upcnotices/p381590.pdf; an earlier time than specified in NYSE rules; and to process quotes from exchanges for dissemination ‘‘Quotation and Trading Halt for OTC Equity NYSE failing to execute certain orders in locked to the public. According to Nasdaq, a sequence of Securities,’’ FINRA Uniform Practice Advisory, markets contrary to exchange rules. See id. In the events created a spike in message traffic volume UPC #48–13, November 7, 2013, available at: http:// NYSE Order, the Commission stated that the into the SIP exceeding the SIP’s capacity and www.finra.org/web/groups/industry/@ip/@comp/@ exchanges ‘‘lacked comprehensive and consistently- causing the system to fail. Nasdaq cited ‘‘more than mt/documents/upcnotices/p381593.pdf; ‘‘OTC applied policies and procedures for . . . evaluating 20 connect and disconnect sequences from NYSE Markets Group Issues Statement on OTC Link® ATS whether business operations were being conducted Arca’’ and a ‘‘stream of quotes for inaccurate Trading on November 7, 2013,’’ OTC Disclosure & fully in accordance with existing exchange rules symbols from NYSE Arca’’ as events contributing to News Service, November 7, 2013, available at: and the federal securities laws.’’ Id. at 3. the systems problem. Nasdaq noted that the stream http://www.otcmarkets.com/stock/OTCM/news/ 35 See, e.g., Jacob Bunge, Bradley Hope, and Leslie of messages, which was 26 times greater than usual OTC-Markets-Group-Issues-Statement-on-OTC- Josephs, ‘‘Technical Glitch Hits CME Trading,’’ activity, degraded the system and exceeded its Linkreg-ATS-Trading-on-November-7-2013? Wall St. J., April 8, 2014; Jeremy Grant, ‘‘Glitch capacity, ultimately resulting in the failure. Nasdaq id=71144. OTC Markets Group subsequently Delays Singapore Derivative Trade,’’ Fin. Times, stated that these events exposed a flaw in the SIP’s reported that a network outage at one of its core April 9, 2013; Tamsyn Parker, ‘‘NZX Trading software code which prevented a successful failover network providers caused the lack of connectivity Continued

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believes that it is critical that key U.S. Panelists discussed, among other topics, measures such as testing, risk securities market participants bolster the scope and nature of cybersecurity assessments, adoption of consistent best their operational integrity to prevent, to threats to the financial industry; how practices and standards, and the extent reasonably possible, these market participants can effectively information sharing. types of events, which can not only lead manage cybersecurity threats, including III. Overview to tangible monetary losses,36 but which public and private sector coordination commenters believe to have the efforts and information sharing; the role The Commission acknowledges that potential to reduce investor confidence that government should play to promote the nature of technology and the level in the U.S. markets.37 cybersecurity in the financial markets of sophistication and automation of The SCI Proposal also noted that the and market infrastructure; cybersecurity current market systems prevent any risks associated with cybersecurity, and disclosure issues faced by public measure, regulatory or otherwise, from how to protect against systems companies; and the identification of completely eliminating all systems intrusions, are increasingly of concern appropriate best practices and standards disruptions, intrusions, or other systems to all types of entities.38 On March 27, with regard to cybersecurity. Although issues.41 However, given the issues 2014, the Commission conducted a the views of panelists varied, many outlined above, the Commission Cybersecurity Roundtable emphasized the significant risk that believes that the adoption of, and (‘‘Cybersecurity Roundtable’’).39 The cybersecurity attacks pose to the compliance by SCI entities with Cybersecurity Roundtable addressed the financial markets and market Regulation SCI, with the modifications cybersecurity landscape and infrastructure today and the need to from the SCI Proposal as discussed cybersecurity issues faced by effectively manage that risk through below, will advance the goals of the participants in the financial markets national market system by enhancing today, including exchanges, broker- TaaSera, Inc.; Andy Roth, Partner and Co-Chair, the capacity, integrity, resiliency, dealers, investment advisers, transfer Global Privacy and Security Group, Dentons US availability, and security of the agents and public companies.40 LLP; Ari Schwartz, Acting Senior Director for automated systems of entities important Cybersecurity Programs, National Security Council, The White House; Adam Sedgewick, Senior to the functioning of the U.S. securities Resumes After Technical Glitch,’’ The New Zealand Information Technology Policy Advisor, national markets, as well as reinforce the Herald, July 1, 2013; Matt Clinch, ‘‘Flash Crash: Institute of Standards and Technology; and Larry requirement that such systems operate Israel Stocks Hit by Typo,’’ CNBC.com, available at: Zelvin, Director, National Cybersecurity and in compliance with the Exchange Act http://www.cnbc.com/id/100986999; and Ksenia Communications Integration Center, U.S. Galouchko, ‘‘Moscow Exchange Halts Derivatives Department of Homeland Security. and rules and regulations thereunder, Trading for Almost an Hour,’’ Bloomberg, The second panel discussed public company thus strengthening the infrastructure of November 13, 2013. disclosure of cybersecurity risks and incidents, and the U.S. securities markets and 36 See, e.g., Proposing Release, supra note 13 panelists included: Peter Beshar, Executive Vice improving its resilience when (discussing systems issues affecting the initial President and General Counsel, Marsh & McLennan technological issues arise. In this public offerings (‘‘IPO’’) of BATS Global Markets, Companies, Inc.; David Burg, Global and U.S. Inc. and Facebook, Inc.). In a rule change approved Advisor Cyber Security Leader, respect, Regulation SCI establishes an by the Commission in March 2013, Nasdaq PricewaterhouseCoopers LLP; Roberta Karmel, updated and formalized regulatory implemented a $62 million accommodation Centennial Professor of Law, Brooklyn Law School; framework, thereby helping to ensure program to compensate certain members for their Jonas Kron, Senior Vice President, Director of losses in connection with the Facebook IPO. Shareholder Advocacy, Trillum Asset Management more effective Commission oversight of Securities Exchange Act Release No. 69216 (March LLC; Douglas Meal, Partner, Ropes & Gray LLP; and such systems. 22, 2013), 78 FR 19040 (March 28, 2013). In its Leslie T. Thornton, Vice President and General As proposed, Regulation SCI would quarterly earnings announcement for the second Counsel, WGL Holdings, Inc. and Washington Gas have applied to ‘‘SCI entities’’ quarter of 2013, UBS reported a $356 million loss Light Company. (estimated in the SCI Proposal to be 44 tied to Facebook’s IPO, while The Knight Capital The third panel addressed cybersecurity issues Group and Citadel Investment Group claimed losses faced by the securities markets, and panelists entities), a term which would have of $30 million to $35 million and Citigroup cited included: Mark G. Clancy, Managing Director and included all self-regulatory losses close to $20 million. See Michael J. De La Corporate Information Security Officer, The organizations (excluding security Merced, ‘‘Behind the Huge Facebook Loss at UBS,’’ Depository Trust and Clearing Corporation; Mark futures exchanges), ATSs that exceed N.Y. Times, July 21, 2012. See also Angel Letter at Graff, Chief Information Security Officer, Nasdaq 15 (stating that catastrophic failures in exchange OMX; Todd Furney, Vice President, Systems specified volume thresholds, plan systems are extremely costly in terms of direct Security, Chicago Board Options Exchange; processors for market data NMS plans, losses to participants and result in reduced investor Katheryn Rosen, Deputy Assistant Secretary, Office and certain exempt clearing agencies. confidence in markets); and Better Markets Letter at of Financial Institutions Policy, Department of the 2 (citing to the systems related problems at Knight The most significant elements of the SCI Treasury; Thomas Sinnott, Managing Director, 42 Capital, Direct Edge, BATS, and during the Global Information Security, CME Group; and Proposal would have required each Facebook IPO that resulted in investor or company Aaron Weissenfluh, Chief Information Security SCI entity to: losses). Officer, BATS Global Markets, Inc. • Implement policies and procedures 37 See, e.g., Angel2 Letter at 2; Sungard Letter at The final panel discussed how broker-dealers, 2; Better Markets Letter at 2; Leuchtkafer Letter at reasonably designed to ensure that its investment advisers, and transfer agents address ‘‘SCI systems’’ and ‘‘SCI security 3; FSI Letter at 3; and Angel Letter at 10, 15. cybersecurity issues, and panelists included: John 38 See Proposing Release, supra note 13, at Denning, Senior Vice President, Operational Policy systems’’ have levels of capacity, 18089–90. Integration, Development and Strategy, Bank of integrity, resiliency, availability, and 39 See Securities Exchange Act Release No. 71742 America/Merrill Lynch; Jimmie H. Lenz, Senior security, adequate to maintain the SCI (March 19, 2014), 79 FR 16071 (March 24, 2014) Vice President, Chief Risk and Credit Officer, Wells entity’s operational capability and (File No. 4–673). A webcast of the Cybersecurity Fargo Advisors LLC; Mark R. Manley, Senior Vice Roundtable is available at: http://www.sec.gov/ President, Deputy General Counsel and Chief news/otherwebcasts/2014/cybersecurity-roundtable- Compliance Officer, AllianceBernstein L.P.; Marcus 41 See, e.g., October 2, 2012 remarks by Dr. Nancy 032614.shtml. Prendergast, Director and Corporate Information Leveson, Professor of Aeronautics and Astronautics 40 The first panel discussed the cybersecurity Security Officer, ITG; Karl Schimmeck, Managing and Professor of Engineering Systems, MIT, landscape, and panelists included: Cyrus Amir- Director, Financial Services Operations, Securities Technology Roundtable (stating, for example, that Mokri, Assistant Secretary for Financial Industry and Financial Markets Association; Daniel ‘‘it is impossible to build totally secure software Institutions, Department of the Treasury; Mary E. M. Sibears, Executive Vice President, Regulatory systems’’ and ‘‘we’ve learned that we cannot build Galligan, Director, Cyber Risk Services, Deloitte and Operations/Shared Services, FINRA; John Reed an unsinkable ship and cannot build unfailable Touche LLP; Craig Mundie, Member, President’s Stark, Managing Director, Stroz Friedberg; Craig software’’), available at: http://www.sec.gov/news/ Council of Advisors on Science and Technology; Thomas, Chief Information Security Officer, otherwebcasts/2012/ttr100212-transcript.pdf. Senior Advisor to the Chief Executive Officer, Computershare; and David G. Tittsworth, Executive 42 Each provision of the SCI Proposal is described Microsoft Corporation; Javier Ortiz, Vice President, Director and Executive Vice President, Investment in further detail below in Section IV. See also Strategy and Global Head of Government Affairs, Adviser Association. Proposing Release, supra note 13, at Section III.

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promote the maintenance of fair and proposed definitions; (ii) costs • Refining the scope of SCI entity orderly markets, with deemed associated with the scope of the members and participants that would be compliance for policies and procedures proposed rule, including its reporting required to participate in mandatory that are consistent with current SCI obligations; (iii) publications designated business continuity/disaster recovery industry standards, including identified on Table A as proposed examples of plan testing; and information technology publications ‘‘current SCI industry standards;’’ (iv) • Eliminating the proposed listed on proposed Table A; proposed entity safe harbor for systems requirement that SCI entities provide • Implement policies and procedures compliance policies and procedures; (v) Commission representatives reasonable reasonably designed to ensure that its breadth of the proposed mandatory access to their systems because the systems operate in the manner intended, testing requirements; and (vi) proposed Commission can adequately assess an including in compliance with the access provision.43 SCI entity’s compliance with Regulation federal securities laws and rules, and The Commission has carefully SCI through existing recordkeeping the entity’s rules and governing considered the views of commenters in requirements and examination documents, with safe harbors from crafting Regulation SCI to meet its goals authority, as well as through the new liability for SCI entities and individuals; to strengthen the technology recordkeeping requirement in Rule 1005 • Upon any ‘‘responsible SCI infrastructure of the securities markets of Regulation SCI. personnel’’ becoming aware of the and improve its resilience when In addition, the Commission notes occurrence of an ‘‘SCI event’’ (defined to technology falls short. Many of these that proposed Regulation SCI consisted include systems disruptions, systems modifications are intended to further of a single rule (Rule 1000) that compliance issues, and systems focus the scope of the requirements included subparagraphs ((a) through (f)) intrusions), begin to take appropriate from the proposal and to lessen the addressing the various obligations of the corrective action, including mitigating costs and burdens on SCI entities, while rule. However, for clarity and potential harm to investors and market still allowing the Commission to simplification, adopted Regulation SCI integrity and devoting adequate achieve its goals. While Section IV is renumbered as Rules 1000 through resources to remedy the SCI event as below provides a detailed discussion of 1007, as follows: soon as practicable; the changes the Commission has made • • Adopted Rule 1000 (which Report to the Commission the to the SCI Proposal in adopting corresponds to proposed Rule 1000(a)) occurrence of any SCI event; and notify Regulation SCI today,44 broadly contains definitions for terms used in its members or participants of certain speaking, the key changes include: Regulation SCI; types of SCI events; • Refining the scope of the proposal • • Adopted Rule 1001 (proposed Rules Notify the Commission 30 days in by, among other things, revising certain 1000(b)(1)–(2)) contains the policies and advance of ‘‘material systems changes’’ key definitions (including the definition procedures requirements for SCI entities (subject to an exception for exigent of SCI systems and the definition of SCI relating to both operational capability circumstances) and provide semi-annual ATS to exclude ATSs that trade only and the maintenance of fair and orderly summary progress reports on such municipal securities or corporate debt markets, as well as systems compliance; material systems changes; securities (together, ‘‘fixed-income • Adopted Rule 1002 (proposed Rules • Conduct an annual review, to be ATSs’’)), refining the reporting 1000(b)(3)–(5)) contains the obligations performed by objective, qualified framework for SCI events, and replacing of SCI entities with respect to SCI personnel, of its compliance with the proposed 30-day advanced reporting events, which include corrective action, Regulation SCI and submit a report of requirement for material systems Commission notification, and such annual review to its senior changes with a quarterly reporting information dissemination; management and to the Commission; requirement; • Adopted Rule 1003 (proposed Rules • Designate those of its members or • Modifying the proposal to 1000(b)(6)–(8)) contains requirements participants that would be required to differentiate certain obligations and relating to material systems changes and participate in the testing (to occur at requirements, including tailoring certain SCI reviews; least annually) of its business continuity obligations based on the criticality of a • Adopted Rule 1004 (proposed Rule and disaster recovery plans, and system (by, for example, adopting a new 1000(b)(9)) contains requirements coordinate such testing with other SCI defined term ‘‘critical SCI system’’ for relating to business continuity and entities on an industry- or sector-wide which heightened requirements will disaster recovery testing; basis; and apply), and based on the significance of • Adopted Rule 1005 (proposed Rule • Meet certain other requirements, an event (such as adopting a new including maintaining records related to defined term ‘‘major SCI event’’ for 1000(c)) contains requirements relating compliance with Regulation SCI and purposes of the dissemination to recordkeeping; • Adopted Rule 1006 (proposed Rule providing Commission representatives requirements, and establishing differing 1000(d)) contains requirements relating reasonable access to its systems to reporting obligations for SCI events that to electronic filing and submission; assess compliance with the rule. have had no or a de minimis impact on • The Commission received substantial the SCI entity’s operations or on market Adopted Rule 1007 (proposed Rule comment on the SCI Proposal from a participants); 1000(e)) contains requirements for wide range of entities. Commenters • Modifying the proposed policies service bureaus. generally expressed support for the and procedures requirements relating to IV. Description of Adopted Regulation goals of the rule, but many suggested both operational capability and the SCI and Form SCI that the SCI Proposal’s scope was maintenance of fair and orderly markets, unnecessarily broad and could be more as well as systems compliance; A. Definitions Establishing the Scope of tailored to lower compliance costs and Regulation SCI—Rule 1000 still achieve the goal of reducing 43 A more detailed discussion of commenters’ A series of definitions set forth in significant technology risk in the views can be found below in Section IV. Rule 1000 relate to the scope of 44 The Economic Analysis, infra Section VI, markets. Broadly speaking, the areas of discusses the economic effects, including the costs Regulation SCI. These include the concern garnering the greatest comment and benefits, of the provisions of Regulation SCI, as definitions for ‘‘SCI entity’’ (as well as included the: (i) Breadth of certain key adopted. the types of entities that are SCI entities,

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namely ‘‘SCI SRO,’’ SCI ATS,’’ ‘‘plan Another commenter stated that the where there is no redundancy built into processor,’’ and ‘‘exempt clearing Commission should potentially expand the marketplace, among others.56 Some agency subject to ARP’’), ‘‘SCI systems’’ the definition of SCI entity to also commenters identified specific (and related definitions for ‘‘indirect SCI include dark pools if they met the functions that they believed to be highly systems’’ and ‘‘critical SCI systems’’), volume thresholds of ATSs.50 critical to the functioning of the and ‘‘SCI event’’ (as well as the types of Other commenters believed that the securities markets and thus pose the events that constitute SCI events, scope of the definition should be more greatest risk to the markets in the event namely ‘‘systems disruption,’’ ‘‘systems limited.51 For example, one commenter of a systems issue, including securities compliance issue,’’ and ‘‘systems suggested that the definition should information processing, clearance and intrusion’’).45 only include those entities that are settlement systems, and trading of systemically important to the exclusively listed securities, among 1. SCI Entities functioning of the U.S. securities others.57 Regulation SCI imposes requirements markets and should utilize volume After careful consideration of the on entities meeting the definition of thresholds for exchanges and ATSs to comments, the Commission has ‘‘SCI entity’’ under the rule. Proposed make this determination.52 determined to adopt the overall scope of Rule 1000(a) defined ‘‘SCI entity’’ as an Several commenters advocated the entities covered by Regulation SCI as ‘‘SCI self-regulatory organization, SCI adoption of a ‘‘risk-based’’ approach, proposed.58 As discussed below, the alternative trading system, plan which would entail categorizing market Commission continues to believe that it processor, or exempt clearing agency participants based on the criticality of is appropriate and would further the subject to ARP.’’ 46 The Commission is the functions performed rather than goals of the national market system to adopting the definition of ‘‘SCI entity’’ applying Regulation SCI to all ‘‘SCI subject all SROs (excluding securities in Rule 1000 as proposed.47 entities’’ equally.53 Some commenters futures exchanges), ATSs meeting Some commenters discussed the suggested replacing the term ‘‘SCI certain volume thresholds with respect definition of SCI entity generally and entity’’ with categories of participants to NMS stocks and non-NMS stocks advocated for an expansion of the based on potential market impact or (discussed further below), plan proposed definition, asserting that including in the definition only those processors, and certain exempt clearing additional categories of market participants that are essential to agencies to the requirements of participants may have the potential to continuous market-wide operation or Regulation SCI. The Commission impact the market in the event of a that are the sole providers of a service believes that this definition systems issue.48 For example, one in the securities markets.54 Other appropriately includes those entities commenter suggested that the definition commenters agreed with the proposed that play a significant role in the U.S. of ‘‘SCI entity’’ be extended to include scope of the term ‘‘SCI entity,’’ but securities markets and/or have the the ATS and broker-dealer entities believed that the various requirements potential to impact investors, the overall covered by the Regulation NMS under the rule should be tiered based on market, or the trading of individual definition of a ‘‘trading center.’’ 49 risk profiles.55 Several commenters securities.59 identified various factors that should be While some commenters supported 45 Rule 1000 contains additional defined terms considered in conducting a risk- expanding the definition of SCI entity to that are discussed in subsequent sections below. assessment such as whether an entity is encompass various other types of See infra Section IV.B.3 (discussing the definition a primary listing market, is the sole of ‘‘responsible SCI personnel’’), Section IV.B.3.d entities, the Commission has (discussing ‘‘major SCI event’’ and deletion of the market where the security is traded, or determined not to expand the scope of proposed definition of ‘‘dissemination SCI event’’), performs a monopoly or utility type role entities subject to Regulation SCI at this Section IV.B.4 (discussing deletion of the proposed time. As noted in the SCI Proposal, definition for ‘‘material systems change’’), Section 50 See CoreOne Letter at 7–9. CoreOne Regulation SCI is based, in part, on the IV.B.5 (discussing ‘‘SCI review’’ and ‘‘senior recommended that the Commission require dark management’’), and Section IV.C.2 (discussing pools to publicly disclose their aggregate volume in ARP Inspection Program, which has ‘‘electronic signature’’). a manner similar to disclosures made by exchanges included the voluntary participation of 46 See proposed Rule 1000(a) and Proposing and ATSs. CoreOne stated that, once dark pools all active registered clearing agencies, Release supra note 13, at Section III.B.1. publicly disclose their volumes, it would be easier all registered national securities 47 Proposed Rule 1000(a) also defined each of the to evaluate whether dark pools should be included terms within the definition of SCI entity for the as SCI entities. Id. exchanges, the only registered national purpose of designating specifically the entities that 51 See, e.g., KCG Letter at 6–8; ITG Letter at 2– securities association—Financial would be subject to Regulation SCI. As described 4; and CME Letter at 2–5. Industry Regulatory Authority in the Sections IV.A.1.a–d below, the Commission 52 See ITG Letter at 2–4, 7. This commenter (‘‘FINRA’’), one exempt clearing agency, is also adopting these terms as proposed and argued that, alternatively, the Commission could and one ATS.60 The ARP Inspection without modification, with the exception of the impose a lower set of obligations on ‘‘lesser’’ SCI definition of ‘‘SCI ATS,’’ which is being revised to entities. See id., at 9–11. See also infra notes 81– Program has also included the systems exclude ATSs that trade only municipal securities 82 (discussing this commenter’s suggested of entities that process and disseminate or corporate debt securities. thresholds for exchanges) and note 131 (discussing quotation and transaction data on behalf 48 See, e.g., NYSE Letter at 8–9 and Liquidnet this commenter’s recommended thresholds for of the Consolidated Tape Association Letter at 2–3. See also BlackRock Letter at 4 (stating, ATSs). See discussion in Sections IV.A.1.a and among other things, that Regulation SCI should IV.A.1.b (relating to SCI SROs and SCI ATSs, System (‘‘CTA Plan’’), Consolidated extend to any trading platforms that transact respectively). Quotation System (‘‘CQS Plan’’), Joint significant volume because these venues have a 53 See, e.g., BIDS Letter at 5–6; SIFMA Letter at Self-Regulatory Organization Plan meaningful role and impact on the equity market). 4–5; KCG Letter at 2–3, 6–8; Fidelity Letter at See also infra Section IV.E (discussing comments 2–4; UBS Letter at 2–4; and LiquidPoint Letter at 56 regarding the potential inclusion of other types of 2–3. See, e.g., SIFMA Letter at 4 and Fidelity Letter at 3–4. entities, such as broker-dealers generally, within the 54 See, e.g., BIDS Letter at 3–6; Direct Edge Letter 57 scope of Regulation SCI). at 1–2; and KCG Letter at 2–3, 6–8. Specifically, See, e.g., SIFMA Letter at 4; Direct Edge Letter 49 Specifically, Section 600(b)(78) of Regulation Direct Edge stated that SCI entities should include at 1–2; and KCG Letter at 2–3. NMS includes within the definition of a ‘‘trading Commission-registered exchanges, securities 58 But see infra Section IV.A.1.b (discussing center’’ ‘‘an ATS, an exchange market maker, an information processors under approved NMS plans revisions to the definition of ‘‘SCI ATS’’). OTC market maker, or any other broker or dealer for market data, and clearance and settlement 59 See infra Sections IV.A.1.a–d (discussing more that executes orders internally by trading as systems. specifically each category of entity included within principal or crossing orders as agent.’’ 17 CFR 55 See, e.g., SIFMA Letter at 4 and Fidelity Letter the definition of ‘‘SCI entity’’). 242.600(b)(68). See NYSE Letter at 8–9. at 3–4. 60 See Proposing Release, supra note 13, at 18086.

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Governing the Collection, mandatory requirements of Regulation significant role in the U.S. securities Consolidation, and Dissemination of SCI at this time given the potential costs markets and/or has the potential to Quotation and Transaction Information of compliance. This approach will impact investors, the overall market, or for Nasdaq-Listed Securities Traded on enable the Commission to monitor and the trading of individual securities, and Exchanges on an Unlisted Trading evaluate the implementation of thus should be subject to the Privileges Basis (‘‘Nasdaq UTP Plan’’), Regulation SCI, the risks posed by the requirements of Regulation SCI. and Options Price Reporting Authority systems of other market participants, Accordingly, the Commission does not (‘‘OPRA Plan’’).61 Significant-volume and the continued evolution of the agree that it should adopt a ‘‘risk-based’’ ATSs have also been subject to certain securities markets, such that it may approach to further limit the categories aspects of the ARP Policy Statements consider, in the future, extending the of market participants subject to pursuant to Regulation ATS.62 In types of requirements in Regulation SCI Regulation SCI. The Commission addition, one entity that has been to additional categories of market believes that limiting the applicability granted an exemption from registration participants, such as non-ATS broker- of Regulation SCI to only the most as a clearing agency has been subject to dealers, security-based swap dealers, systemically important entities posing the ARP Inspection Program pursuant to investment advisers, investment the highest risk to the markets is too the conditions of the exemption order companies, transfer agents, and other limited of a category of market issued by the Commission.63 The scope key market participants. As noted in the participants, as it would exclude certain of the definition of SCI entity is SCI Proposal, should the Commission entities that, in the Commission’s view, intended to largely reflect the historical decide to propose to apply some or all have the potential to pose significant reach of the ARP Inspection Program of the requirements of Regulation SCI to risks to the securities markets should an and existing Rule 301 of Regulation additional types of entities, the SCI event occur. However, the ATS, while also expanding the coverage Commission will issue a separate Commission believes it is appropriate to to certain additional entities that the release discussing such a proposal and incorporate risk-based considerations in Commission believes play a significant seeking public comment.67 various other aspects of Regulation SCI. role in the U.S. securities markets and/ With respect to another commenter’s Consistent with the views of some or have the potential to impact recommendation regarding dark pools, commenters advocating that the investors, the overall market, or the to the extent that this commenter requirements of Regulation SCI should trading of individual securities. The intended its comment to refer to ATSs, be tailored to the specific risk-profile of Commission acknowledged in the SCI ATSs would be included within the a particular entity or particular Proposal that there may be other scope of Regulation SCI if they met the system,70 the Commission notes that categories of entities not included applicable volume thresholds discussed Regulation SCI, as proposed, was within the definition of SCI entity that, below.68 To the extent that this intended to incorporate a consideration given their increasing size and commenter intended its comment to of risk within its requirements and importance, could pose risks to the refer to other types of non-ATS dark believes it is appropriate to more 64 market should an SCI event occur. venues where broker-dealers internalize explicitly incorporate risk However, as discussed in further detail order flow, the Commission notes that it considerations in various provisions of 65 below, the Commission believes that, has determined not to extend the scope adopted Regulation SCI. For example, as at this time, the entities included within of Regulation SCI to other types of discussed in further detail below, the the definition of SCI entity, because of broker-dealers at this time for the requirement to have reasonably their current role in the U.S. securities reasons discussed below.69 designed policies and procedures markets and/or their level of trading The Commission has also determined relating to operational capability was activity, have the potential to pose the not to further limit the scope of entities designed to permit SCI entities to take most significant risk in the event of a subject to Regulation SCI as suggested a risk-based approach in developing systems issue. Although some by some commenters. As discussed in their policies and procedures based on commenters suggested that Regulation more detail below, the Commission the criticality of a particular system.71 In SCI should cover a greater range of continues to believe that each of the addition, the Commission believes that market participants,66 the Commission identified categories of entities plays a it is appropriate to further incorporate a believes that it is important to move risk-based approach into other aspects forward now on rules that will 67 See Proposing Release, supra note 13, at 18138. of the regulation, and thus, as discussed meaningfully enhance the technology 68 See infra Section IV.A.1.b (discussing below, is adopting a new term—‘‘critical standards and oversight of key markets definition of ‘‘SCI ATS’’). This commenter also SCI systems’’—to identify systems that and market infrastructure. Further, the recommended that the Commission require dark the Commission believes should be Commission believes that a measured pools to publicly disclose their aggregate volume to make it easier to evaluate whether dark pools subject to heightened requirements in approach that takes an incremental should be included as SCI entities, and supported certain areas.72 Further, the Commission expansion from the entities covered FINRA’s plans to require such trading volume has determined that certain other under the ARP Inspection Program is an disclosures. The Commission notes that FINRA appropriate method for imposing the recently adopted new Rule 4552, which requires definitions (such as the definition of each ATS to report to FINRA weekly volume ‘‘SCI systems’’), and certain information regarding transactions in NMS stocks requirements of the rule (such as 61 See infra note 196 and accompanying text. and OTC equity securities, and FINRA makes such 62 See Rule 301(b)(6) of Regulation ATS, 17 CFR information publicly available on its Web site. See Commission notification for SCI events 242.301(b)(6). Securities Exchange Act Release No. 71341 (January and material systems changes), should 63 See Proposing Release, supra note 13, at 17, 2014), 79 FR 4213 (January 24, 2014) (approving be scaled back and refined consistent 18096–97. See also infra Section IV.A.1.d FINRA Rule 4552 requiring each ATS to report to with a risk-based approach, as discussed (discussing the inclusion in Regulation SCI of FINRA weekly volume information and number of exempt clearing agencies subject to ARP). securities transactions). The Commission also notes 64 See Proposing Release, supra note 13, at that all ATSs (including dark pool ATSs) are 70 See supra note 55 and accompanying text. 18138–39. required under Regulation ATS to provide the 71 See infra Section IV.B.1 (discussing the policies 65 See infra Sections IV.A.1.a-d (discussing more Commission with quarterly trading volume and procedures requirement under adopted Rule specifically each category of entity included within information. See Rule 301(b)(9) of Regulation ATS, 1001(a)). the definition of ‘‘SCI entity’’). 17 CFR 242.301(b)(9). 72 See infra Section IV.A.2.c (discussing the 66 See supra notes 48–50 and accompanying text. 69 See infra text accompanying notes 121–125. definition of ‘‘critical SCI systems’’).

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below. The Commission believes that Securities Rulemaking Board proposed definition of SCI SRO in Rule these modifications, further (‘‘MSRB’’).77 The definition, however, 1000(a) included all national securities incorporating risk-based considerations excluded an exchange that lists or trades exchanges registered under Section 6(b) in the requirements and scaling back security futures products that is notice- of the Exchange Act, all registered certain requirements, provide the proper registered with the Commission as a securities associations, all registered balance between requiring that the national securities exchange pursuant to clearing agencies, and the MSRB.79 The appropriate entities are subject to Section 6(g) of the Exchange Act, as well definition of ‘‘SCI self-regulatory baseline standards for systems capacity, as any limited purpose national organization’’ or ‘‘SCI SRO’’ is being integrity, resiliency, availability, securities association registered with the adopted in Rule 1000 as proposed.80 security, and compliance, while Commission pursuant to Exchange Act One commenter suggested that the reducing the overall burden of the rule Section 15A(k).78 Accordingly, the rule should include volume thresholds for all SCI entities, which is consistent for exchanges.81 Specifically, this with, and responsive to, the views of with a more complex risk profile, such as clearing commenter recommended that, with those commenters that the Commission security-based swaps. See Securities Exchange Act regard to exchanges, the definition Release No. 71699 (Mar. 12, 2014), 79 FR 16865 should include only those exchanges take a more risk-based approach to SCI (March 26, 2014) (‘‘Covered Clearing Agencies entities. Proposal’’). Regulation SCI and proposed Rule that have five percent or more of average 17Ad–22(e)(17) are intended to be consistent and daily dollar volume in at least five NMS a. SCI Self-Regulatory Organization or complementary. See also Covered Clearing stocks for four of the previous six SCI SRO Agencies Proposal, 79 FR at 16866, n.1 and months.82 Another commenter asked accompanying text (discussing the Commission’s Proposed Rule 1000(a) defined ‘‘SCI consideration of the relevant international the Commission to adopt certain self-regulatory organization,’’ or ‘‘SCI standards). specific exceptions to the definition of SRO,’’ to be consistent with the 77 15 U.S.C. 78c(a)(26). As noted in the Proposing SCI SRO and SCI entity for entities that Release, historically, the ARP Inspection Program are dually registered with the CFTC and definition of ‘‘self-regulatory did not include the MSRB, but instead focused on organization’’ set forth in Section entities having trading, quotation and transaction Commission where the CFTC is the 3(a)(26) of the Exchange Act.73 This reporting, and clearance and settlement systems entity’s ‘‘primary regulator’’ and for any definition covered all national securities more closely connected to the equities and options entity that does not play a ‘‘significant markets. The Commission believes that it is role’’ in the markets subject to the exchanges registered under Section 6(b) appropriate to apply Regulation SCI to the MSRB, 74 Commission’s jurisdiction and that of the Exchange Act, registered particularly given the fact that the MSRB is the only securities associations,75 registered SRO relating to municipal securities and is a key cannot have a ‘‘significant impact’’ on clearing agencies,76 and the Municipal provider of consolidated market data for the the markets subject to the Commission’s municipal securities market. Accordingly, as jurisdiction.83 proposed, the term ‘‘SCI SRO’’ included the MSRB. 73 The Commission does not believe that See 15 U.S.C. 78c(a)(26): ‘‘The term ‘self- In 2008, the Commission amended Rule 15c2–12 to regulatory organization’ means any national designate the MSRB as the single centralized a trading volume threshold is securities exchange, registered securities disclosure repository for continuing municipal association, or registered clearing agency, or (solely securities disclosure. In 2009, the MSRB established for addressing risk controls relating to automated for purposes of sections 19(b), 19(c), and 23(b) of the Electronic Municipal Market Access system systems). this title) the Municipal Securities Rulemaking (‘‘EMMA’’). EMMA now serves as the official 79 For any SCI SRO that is a national securities Board established by section 15B of this title.’’ repository of municipal securities disclosure, exchange, any facility of such national securities 74 Currently, these registered national securities providing the public with free access to relevant exchange, as defined in Section 3(a)(2) of the exchanges are: (1) BATS Exchange, Inc. (‘‘BATS’’); municipal securities data, and is the central Exchange Act, 15 U.S.C. 78c(a)(2), also is covered (2) BATS Y-Exchange, Inc. (‘‘BATS–Y’’); (3) Boston database for information about municipal securities because such facilities are included within the Options Exchange LLC (‘‘BOX’’); (4) CBOE; (5) C2; offerings, issuers, and obligors. Additionally, the definition of ‘‘exchange’’ in Section 3(a)(1) of the (6) Chicago Stock Exchange, Inc. (‘‘CHX’’); (7) MSRB’s Real-Time Transaction Reporting System Exchange Act, 15 U.S.C. 78c(a)(1). EDGA Exchange, Inc. (‘‘EDGA’’); (8) EDGX (‘‘RTRS’’), with limited exceptions, requires 80 The Commission notes that NSX ceased trading Exchange, Inc. (‘‘EDGX’’); (9) International municipal bond dealers to submit transaction data as of the close of business on May 30, 2014. See Securities Exchange, LLC (‘‘ISE’’); (10) Miami to the MSRB within 15 minutes of trade execution, Securities Exchange Act Release No. 72107 (May 2, International Securities Exchange, LLC (‘‘MIAX’’); and such near real-time post-trade transaction data 2014), 79 FR 27017 (May 12, 2014) (Notice of Filing (11) NASDAQ OMX BX, Inc. (‘‘Nasdaq OMX BX’’); can be accessed through the MSRB’s EMMA Web and Immediate Effectiveness of Proposed Rule (12) NASDAQ OMX PHLX LLC (‘‘Nasdaq OMX site. While pre-trade price information is not as Change To Cease Trading on Its Trading System) Phlx’’); (13) Nasdaq; (14) National Stock Exchange, readily available in the municipal securities market, (‘‘NSX Trading Cessation Notice’’). In the NSX Inc. (‘‘NSX’’); (15) NYSE; (16) NYSE MKT; (17) the Commission’s Report on the Municipal Trading Cessation Notice, NSX stated: ‘‘[T]he NYSE Arca; and (18) ISE Gemini, LLC (‘‘ISE Securities Market also recommended that the Exchange will continue to be registered as a Gemini’’). Commission and MSRB explore the feasibility of national securities exchange and will continue to 75 FINRA is the only registered national securities enhancing EMMA to collect best bids and offers retain its status as a self-regulatory organization[;]’’ association. from material ATSs and make them publicly and further, that it ‘‘shall file a proposed rule 76 Currently, there are seven clearing agencies available on fair and reasonable terms. See Report change pursuant to Rule 19b–4 of the Exchange Act (Depository Trust Company (‘‘DTC’’); Fixed Income on the Municipal Securities Market (July 31, 2012), prior to any resumption of trading on the Exchange Clearing Corporation (‘‘FICC’’); National Securities available at: http://www.sec.gov/news/studies/2012/ pursuant to Chapter XI (Trading Rules).’’ Because Clearing Corporation (‘‘NSCC’’); Options Clearing munireport073112.pdf. The Commission believes NSX remains a national securities exchange Corporation (‘‘OCC’’); ICE Clear Credit; ICE Clear that the MSRB’s SCI systems currently are limited registered under Section 6(b) of the Exchange Act, Europe; and CME) with active operations that are to those operated by or on behalf of the MSRB that it continues to meet the definition of SCI entity, and registered with the Commission. The Commission directly support market data (i.e., currently limited is counted as an SCI entity for purposes of this notes that in 2012 it adopted Rule 17Ad–22, which to the EMMA, RTRS, and SHORT systems). As release. requires registered clearing agencies to have discussed more fully below, the EMMA, RTRS, and 81 See ITG Letter at 10. This commenter also effective risk management policies and procedures SHORT systems referenced by the MSRB in its suggested similar revised thresholds for SCI ATSs. in place. See Securities Exchange Act Release No. comment letter would be market data systems See also infra note 131 and accompanying text. 68080 (October 22, 2012), 77 FR 66220 (November within the definition of SCI systems because they Although only one commenter specifically 2, 2012) (‘‘Clearing Agency Standards Release’’). provide or directly support price transparency. See commented on the proposed inclusion of SCI SROs The Commission believes that Regulation SCI, to infra note 253 and accompanying text. within the scope of Regulation SCI, as discussed the extent it addresses areas of risk management 78 See 15 U.S.C. 78f(g); 15 U.S.C. 78o-3(k). These above, some commenters believed that Regulation similar to those addressed by Rule 17Ad–22(d)(4), entities are security futures exchanges and the SCI should generally take a more risk-based or complements Rule 17Ad–22(d)(4). National Futures Association, for which the CFTC tiered approach generally which, in some cases, Additionally, on March 12, 2014, the Commission serves as their primary regulator. See generally would affect which entities (including SCI SROs) proposed rules that would apply to SEC-registered CFTC Concept Release on Risk Controls and System would be subject to Regulation SCI. See supra notes clearing agencies that have been designated as Safeguards for Automated Trading Environments, 53–56 and accompanying text. systemically important by the Financial Stability 78 FR 56542 (September 12, 2013) (‘‘CFTC Concept 82 See ITG Letter at 10. Oversight Council or that are involved in activities Release’’) (describing the CFTC’s regulatory scheme 83 See CME Letter at 2.

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appropriate for SCI SROs that are While the CFTC is responsible for ‘‘significant role’’ in the markets subject exchanges, but instead believes that overseeing such an entity with regard to to the Commission’s jurisdiction and Regulation SCI should apply to all SCI its futures activities, it does not have that cannot have a ‘‘significant impact’’ SROs. The threshold suggested by the oversight responsibility for the entity’s on the markets subject to the commenter would exclude from securities-related activities and systems. Commission’s jurisdiction.88 While the Regulation SCI those exchanges with While the commenter stated that it (as Commission disagrees with excluding volumes below the suggested threshold; a dual registrant) is already subject to SROs from coverage as discussed above, however, the Commission believes that similar requirements to adopt controls the Commission notes that it is revising all exchanges play a significant role in and procedures with regard to the proposed definition of SCI systems our securities markets. For example, all operational risk and reliability, security, to clarify that the term SCI systems stock exchanges are subject to a variety and capacity of its systems pursuant to encompasses only those systems that, of specific public obligations under the CFTC regulations, the Commission with respect to securities, directly Exchange Act, including the again notes that such requirements do support trading, clearance and requirements of Regulation NMS which, not apply to such an entity’s securities- settlement, order routing, market data, among other things, designates the best related systems as such systems are market regulation, or market bid or offer of such exchanges to be outside of the CFTC’s jurisdiction and, surveillance, as discussed below.89 protected quotations.84 Accordingly, as such, such systems would not be Accordingly, the Commission believes every exchange may have a protected subject to inspection and examination this change should address the quotation that can obligate market by the CFTC for compliance with such commenter’s concerns about the participants to send orders to that requirements.87 Further, Regulation SCI requirements applying to entities whose exchange. Among other reasons, given imposes a notification framework to systems cannot affect the markets that market participants may be inform the Commission of SCI events subject to the Commission’s required to send orders to any one of the and material systems changes, as well as jurisdiction, i.e., the U.S. securities exchanges at any given time if such other requirements unique to Regulation markets. exchange is displaying the best bid or SCI. Accordingly, the Commission b. SCI Alternative Trading System offer, the Commission believes that it is believes that such entities should be important that the safeguards of subject to the requirements of Proposed Rule 1000(a) defined the Regulation SCI apply equally to all Regulation SCI. In addition, as noted term ‘‘SCI alternative trading system,’’ exchanges irrespective of trading above, this commenter also asked the or ‘‘SCI ATS,’’ as an alternative trading volume. Commission to create an exception for system, as defined in § 242.300(a), With regard to one commenter’s any entity that does not play a which during at least four of the suggestion to except from the definition preceding six calendar months, had: (1) of SCI SRO those entities dually which trading facilities and intermediaries that are With respect to NMS stocks—(i) five registered with the CFTC and already registered with either the Commission or percent or more in any single NMS Commission where the CFTC is the the CFTC may register with the other agency on an stock, and 0.25 percent or more in all 85 expedited basis for the limited purpose of trading entity’s ‘‘primary regulator,’’ the security futures products. A ‘‘notice registrant’’ is NMS stocks, of the average daily dollar Commission disagrees that such entities then subject to primary oversight by one agency, volume reported by an effective should be relieved from the and is exempted under the CFMA from all but transaction reporting plan, or (ii) one requirements of Regulation SCI solely certain specified provisions of the laws percent or more, in all NMS stocks, of 86 administered by the other agency. See Section because they are dually registered. 6(g)(4) and Section 15A(k)(3)–(4) (enumerating the the average daily dollar volume reported provisions of the Exchange Act from which a by an effective transaction reporting 84 See generally 17 CFR 242.600–612. In addition, notice-registered exchange and limited purpose plan; (2) with respect to equity as the commenter’s suggested thresholds would national securities association, respectively, are apply only with respect to exchanges that trade exempted). Given this, the Commission believes securities that are not NMS stocks and NMS stocks, national securities exchanges that do that it is appropriate to defer to the CFTC regarding for which transactions are reported to a not trade NMS stocks (i.e., options exchanges) the systems integrity of these entities). See also self-regulatory organization, five percent would also be excluded from Regulation SCI under generally CFTC Concept Release, supra note 78. or more of the average daily dollar the commenter’s suggestion. The Commission This regulatory scheme does not apply outside of believes that it would be inappropriate to exclude the specific contexts of security futures exchanges volume as calculated by the self- options exchanges from the requirements of and associations. In contrast, entities that are regulatory organization to which such Regulation SCI, because technology risks are registered with both the Commission and the CFTC transactions are reported; or (3) with equally applicable to such exchanges, as evidenced in other capacities, such as clearing agencies, are respect to municipal securities or by recent significant technology incidents affecting subject to a full set of regulations by each regulator. the options markets. See supra notes 28–31 and The Exchange Act and Commodity Exchange Act do corporate debt securities, five percent or accompanying text. As such, systems issues at not exempt these entities, due to any dual more of either—(i) the average daily options exchanges can pose significant risks to the regulatory scheme, from any provisions of the laws dollar volume traded in the United markets, and the Commission believes that the administered by the Commission and, as discussed States, or (ii) the average daily inclusion of options exchanges within the scope of further below, the Commission believes they should Regulation SCI is necessary to achieve the goals of not be afforded an exclusion from Regulation SCI. transaction volume traded in the United 90 Regulation SCI. 87 The Commission notes that, to the extent that States. 85 See supra note 83 and accompanying text. such an entity’s systems for its functions that fall The proposed definition would have 86 The commenter notes that the Commission has in the purview of the Commission (relating to modified the thresholds currently proposed to exclude from the definition of SCI SRO securities and securities-based swaps) and that fall those exchanges that list or trade security futures in the purview of the CFTC (relating to futures and appearing in Rule 301(b)(6) of products that are notice-registered with the swaps) are integrated, it believes that the focus of Regulation ATS that apply to Commission pursuant to Section 6(g), as well as the CFTC’s exams and inspections of such systems significant-volume ATSs.91 Specifically, limited purpose national securities associations would be on such systems’ functionality related to registered with the Commission pursuant to non-securities-related activities, such as swaps or 88 Exchange Act Section 15A(k). See Proposing futures, and not those related to securities activities. See supra note 83 and accompanying text. Release, supra note 13, at 18093, n. 97 and Thus, the Commission believes that the potential 89 See adopted Rule 1000 (emphasis added). See accompanying text. The Commission notes that examination and inspection of such integrated also infra Section IV.A.2.b (discussing the such entities are subject to the joint jurisdiction of systems by both the CFTC and SEC does not definition of ‘‘SCI systems’’). the Commission and the CFTC. To avoid support the exclusion of the SCI entities operating 90 See proposed Rule 1000(a) and Proposing duplicative regulation, however, the CFMA such systems, or the systems themselves, from the Release, supra note 13, at Section III.B.1. established a system of notice registration under scope of Regulation SCI. 91 17 CFR 242.301(b)(6).

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the proposed definition would have: should be covered by Regulation SCI.94 entities, it stated that the SCI Proposal’s Used average daily dollar volume For example, some commenters failure to capture certain entities (such thresholds, instead of an average daily suggested that the term ‘‘SCI ATS’’ as clearing firms, market makers, block share volume threshold, for ATSs that should include all ATSs, because these positioners, and order routing firms) trade NMS stocks or equity securities commenters believed that they have the that it believed could have a greater that are not NMS stocks (‘‘non-NMS potential to negatively impact the impact on market stability in the event stocks’’); used alternative average daily market in the event of a systems issue.95 of a systems issue, while including dollar and transaction volume-based Moreover, one commenter stated that ATSs, demonstrates that the proposal is tests for ATSs that trade municipal the Commission should not distinguish arbitrary, capricious, and unfairly securities or corporate debt securities; between ATSs based on calculated discriminatory in nature.103 lowered the volume thresholds thresholds because an ATS might limit applicable to ATSs for each category of trading on its system so as to avoid After careful consideration of the asset class; and moved the proposed being subject to the requirements of comment letters, the Commission thresholds to Regulation SCI. In Regulation SCI.96 continues to believe that the inclusion particular, with respect to NMS stocks, Conversely, other commenters stated of ATSs that trade NMS stocks and non- the Commission proposed to change the that fewer, or even no, ATSs should be NMS stocks in Regulation SCI is volume threshold from 20 percent of covered.97 Such commenters generally appropriate.104 The Commission average daily volume in any NMS stock argued that there are key differences believes that certain of those ATSs play such that an ATS that traded NMS between ATSs and exchanges, and thus, an important role in today’s securities stocks that met either of the following ATSs should be regulated differently markets, and thus should be subject to two alternative threshold tests would be from exchanges and not be included in the safeguards and obligations of subject to the requirements of proposed Regulation SCI with exchanges.98 The Regulation SCI. As noted in the SCI Regulation SCI: (i) Five percent or more differences identified by commenters Proposal, the equity markets have in any NMS stock, and 0.25 percent or included: ATSs’ relative market shares evolved significantly over recent years, more in all NMS stocks, of the average and sizes; the fact that ATSs are already resulting in an increase in the number daily dollar volume reported by an subject to various regulations as broker- of trading centers and a reduction in the effective transaction reporting plan; or dealers (including Rule 15c3–5 under concentration of trading activity.105 As (ii) one percent or more, in all NMS the Exchange Act, various FINRA rules, such, even smaller trading centers, such stocks, of the average daily dollar and Regulation ATS); and certain as certain higher-volume ATSs, now volume reported by an effective fundamental economic differences collectively represent a significant transaction reporting plan. With respect between the two types of entities source of liquidity for NMS stocks and to non-NMS stocks, municipal (including that exchanges can gain some ATSs have similar and, in some securities, and corporate debt securities, revenue from listing and market data, cases, greater trading volume than some the Commission proposed to reduce the have self-clearing, and have a protected national securities exchanges, with no 99 standard from 20 percent to five percent quote). One commenter argued that, if single national securities exchange for these types of securities,92 the same the Commission were to include ATSs executing more than approximately 19 percentage threshold for such types of in Regulation SCI, it should treat ATSs percent of volume in NMS stocks in securities that triggers the fair access and SROs equally by allowing ATSs to today’s securities markets.106 provisions of Rule 301(b)(5) of have the same benefits of SROs, Accordingly, the Commission believes 93 Regulation ATS. including allowing ATSs to derive an that ATSs meeting certain volume The proposed definition of ‘‘SCI ATS’’ income stream from contributions to the thresholds can play a significant role in is being adopted substantially as SIP, have access to clearing, and have the securities markets and, given their immunity from lawsuits.100 Other proposed with regard to ATSs trading heavy reliance on automated systems, commenters also noted that, although NMS stocks and ATSs trading non-NMS have the potential to significantly ATSs have an increasingly large, stocks, with the addition of a six-month impact investors, the overall market, compliance period for entities satisfying collective market share, ATSs have not the thresholds in the definition for the contributed to any of the recent major systems issues that have impacted the 103 See id. first time, as discussed in more detail 104 101 Given the inclusion of ATSs that trade NMS below. However, for the reasons market. stocks and non-NMS stocks within the scope of discussed below, the Commission has Another commenter stated that the Regulation SCI, Regulation ATS is also being determined to exclude from the SCI Proposal unfairly discriminated amended to remove paragraphs (b)(6)(i)(A) and definition of ‘‘SCI ATS’’ ATSs that trade against ATSs by including them within (b)(6)(i)(B) of Rule 301 so that Rule 301(b)(6) will the definition of SCI entity.102 no longer apply to ATSs trading NMS stocks and only municipal securities or corporate non-NMS stocks. However, as described below, the debt securities and accordingly, such Specifically, although this commenter Commission has determined to exclude ATSs that ATSs will not be subject to the did not believe that Regulation SCI trade only municipal securities or corporate debt requirements of Regulation SCI. should be expanded to include more securities from the scope of Regulation SCI, and such ATSs will remain subject to the requirements of Rule 301(b)(6) if they meet the volume thresholds Inclusion of ATSs Generally 94 See, e.g., NYSE Letter at 9–10; Lauer Letter at therein. 17 CFR 242.301(b)(6). See supra notes 14 4; and CoreOne Letter at 7–8. Many commenters provided comment and 20 and accompanying text. 95 See, e.g., NYSE Letter at 9–10; and Lauer Letter 105 See Proposing Release, supra note 13, at on the inclusion of ATSs within the at 4. 18094. scope of Regulation SCI. Some 96 See, e.g., NYSE Letter at 9–10. 106 See market volume statistics reported by commenters believed that more ATSs 97 See, e.g., BIDS Letter at 3; ITG Letter at 3; KCG BATS, available at: http://www.batstrading.com/ Letter at 8; and OTC Markets Letter at 9. market_summary/ (no single stock exchange 98 92 See proposed Rule 1000(a). See, e.g., BIDS Letter at 3; ITG Letter at 3; KCG executed more than approximately 19 percent 93 See Rule 301(b)(5) of Regulation ATS under the Letter at 9, 14–17; TMC Letter at 2; and OTC during the second quarter of 2014, with Nasdaq Exchange Act. 17 CFR 242.301(b)(5). In addition, as Markets Letter at 9. having the highest market share of 18.6 percent). In 99 noted above, the proposed rule used alternative Id. comparison, according to data from Form ATS–R average daily dollar and transaction volume-based 100 See OTC Markets Letter at 9. for the second quarter of 2014, approximately 18 tests for ATSs that trade municipal securities or 101 See ITG Letter at 4; and BIDS Letter at 3. percent of consolidated NMS stocks dollar volume corporate debt securities. 102 See ITG Letter at 9. took place on ATSs.

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and the trading of individual securities have a significant impact on the market determined to include ATSs within the should an SCI event occur. in the event of a future systems issue.109 scope of Regulation SCI because of their Commenters identified certain Other commenters noted the role as markets and a potential differences between exchanges and competitive environment of ATSs and significant source of liquidity. With ATSs, which commenters argued argued that, if one ATS experiences a regard to the FINRA rules identified by justified different treatment under systems issue and becomes temporarily commenters, the Commission does not Regulation SCI for ATSs or exclusion of unavailable, trading can be easily believe that these rules, even when ATSs from the regulation completely.107 rerouted to other venues.110 The considered in combination with Rule While the Commission recognizes that Commission acknowledges that a 15c3–5, are an appropriate substitute for there are some fundamental differences temporary outage at an ATS (or at a SCI the comprehensive approach in between ATSs and exchanges, including SRO, for that matter) may not lead to a Regulation SCI for ATSs in their role as certain of those identified by widespread systemic disruption. markets.115 Finally, as noted above, commenters, the Commission does not However, the Commission notes that agree that all ATSs should be excluded Regulation SCI is not designed to solely procedures-based rules that are designed to address from Regulation SCI because, as address system issues that cause the risks presented by the pervasive use of widespread systemic disruption, but technology in today’s markets.The policies and discussed above, it believes that there procedures required by Regulation SCI apply are certain significant-volume ATSs that also to address more limited systems broadly to technology that supports trading, have the potential to significantly malfunctions and other issues that can clearance and settlement, order routing, market data, market regulation, and market surveillance impact investors, the overall market, or harm market participants or create compliance issues.111 and, among other things, address their overall the trading of individual securities capacity, integrity, resilience, availability, and should an SCI event occur. At the same Some commenters also stated that security. Rule 15c3–5, by contrast, is more narrowly time, the risk-based considerations inclusion of ATSs is not necessary focused on those technology and other errors that because ATSs are already subject to can create some of the more significant risks to permitted in adopted Regulation SCI sufficient regulations as broker-dealers, broker-dealers and the markets, namely those that may result in the systems of those ATSs arise when a broker-dealer enters orders into an citing Rule 15c3–5 under the Exchange that are subject to Regulation SCI (i.e., exchange or ATS, including when it provides Act, various FINRA rules, and SCI ATSs) being subject to less stringent sponsored or direct market access to customers or Regulation ATS.112 While the other persons, where the consequences of such an requirements than the systems of SROs Commission acknowledges that these error can rapidly magnify and spread throughout or other SCI entities in certain areas. For the markets. See also infra note 115 (discussing rules similarly impose requirements example, as discussed in further detail FINRA rules applicable to broker-dealers). The related to the capacity, integrity and/or below, the Commission is adopting a Commission will continue to monitor and evaluate security of a broker-dealer’s systems and the risks posed by broker-dealer systems to the definition of ‘‘critical SCI systems,’’ are designed to address some of the market and the implementation of the Market which are a subset of SCI systems that Access Rule, and may consider extending the types same concerns that Regulation SCI is of requirements in Regulation SCI to additional are subject to certain heightened intended to address, the Commission requirements under Regulation SCI. market participants in the future. notes that these rules generally take a 115 For example, NASD Rule 3010(b)(1) requires This definition is intended to capture different approach than Regulation SCI. a member to establish, maintain, and enforce those systems that are core to the For example, the obligations of an ATS written procedures to supervise the types of business in which it engages and to supervise the functioning of the securities markets or under Rule 15c3–5 address vulnerability that represent ‘‘single points of failure’’ activities of registered representatives, registered in the national market system that relate principals, and other associated persons that are and thus, pose the greatest risk to the specifically to market access,113 whereas reasonably designed to achieve compliance with markets. The Commission believes that, Regulation SCI is designed to further the applicable securities laws and regulations. This rule as currently constituted, relative to the goals of the national market system relates to policies and procedures to achieve systems of SCI SROs, the systems of SCI compliance with applicable securities laws and more broadly by helping to ensure the regulations, and thus the Commission believes that ATSs generally would not fall within capacity, integrity, resiliency, this requirement is broadly related to adopted Rule this category of critical SCI systems, and availability, and security of the 1001(b) regarding policies and procedures to ensure thus such SCI ATSs would not be automated systems of entities important systems compliance. However, the Commission subject to the more stringent notes that, unlike adopted Rule 1001(b), which to the functioning of the U.S. securities focuses on ensuring that an entity’s systems operate requirements that would be applicable markets.114 Thus, the Commission has in compliance with the Exchange Act, the rules and to the critical SCI systems of other SCI regulations thereunder and the entity’s rules and entities. The Commission also notes that 109 The Commission also notes that, as discussed governing documents, this NASD rule does not other requirements under Regulation above, in November 2013, a systems issue at OTC specifically address compliance of the systems of FINRA members. Further, the Commission does not SCI are designed to be consistent with Link ATS led FINRA to halt trading in all OTC securities for over three hours. See supra note 33 believe this provision covers more broadly policies a risk-based approach. The Commission and accompanying text. and procedures akin to those in adopted Rule 1001(a) that are designed to ensure that SCI systems believes that this approach recognizes 110 See ITG Letter at 3; and KCG Letter at 9. have levels of capacity, integrity, resiliency, the different roles played by different 111 The Commission notes that each ATS provides availability, and security adequate to maintain the SCI systems at various SCI entities and, different services in terms of, among other things, SCI entity’s operation capability and promote fair where permitted, allows each SCI entity, pricing, latency, and order fills to meet investors’ and orderly markets. Similarly, while FINRA Rule specific needs. Thus, for example, an ATS outage 3130 relates to adopted Rule 1001(b) regarding including SCI ATSs, to tailor the could interfere with the supply of certain services applicable requirements accordingly. policies and procedures to ensure systems that investors demand and, thus, could impose compliance in that it requires a member’s chief While some commenters noted that costs on investors. compliance officer to certify that the member has ATSs have not contributed to any of the 112 See supra notes 98–99 and accompanying text. in place written policies and procedures reasonably recent high-profile systems issues,108 113 See Securities Exchange Act Release No. designed to achieve compliance with applicable 63241 (November 3, 2010), 75 FR 69792 (November FINRA rules, MSRB rules, and federal securities the Commission does not believe that 15, 2010) (‘‘Market Access Release’’). laws and regulations, it does not specifically the relative lack of high-profile systems 114 The Commission notes that Rule 15c3–5 address compliance of the systems of FINRA issues at ATSs to date is an indication focuses on addressing the particular risks that arise members, and does not require similar policies and that ATSs do not have the potential to when broker-dealers provide electronic access to procedures to those in adopted Rule 1001(a) exchanges or ATSs and therefore does not address regarding operational capability of SCI entities. the same range of technology-related issues as Further, while FINRA Rule 4530 imposes a 107 See supra notes 98–99 and accompanying text. Regulation SCI is designed to address. Both Rule reporting regime for, among other things, 108 See supra note 101 and accompanying text. 15c3–5 and Regulation SCI are policies and Continued

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Rule 301(b)(6) of Regulation ATS above, the Commission believes it is Commission and enforcing those rules imposed by rule certain aspects of the appropriate to subject all national and the federal securities laws with ARP Policy Statements on significant- securities exchanges to the requirements respect to their members—that do not volume ATSs. As described in detail of Regulation SCI regardless of trading apply to other market participants, herein, Regulation SCI seeks to expand volume.117 In contrast, in recognition of including ATSs.120 Although SRO and upon, update, and modernize the the more limited role that certain ATSs non-SRO markets are subject to different requirements of the ARP Policy may play in the securities markets and regulatory regimes, with a different mix Statements and Rule 301(b)(6), by, for the costs that will result from of benefits and obligations, the example, expanding the requirements to compliance with the requirements of the Commission believes it is appropriate to a broader set of systems, imposing new regulation, the Commission believes subject them to comparable requirements for information that it is appropriate to adopt volume requirements for purposes of Regulation dissemination regarding SCI events, and thresholds, as discussed below, to SCI given the importance of assuring requiring Commission notification for identify those ATSs that have the that the technology of key trading additional types of events, among potential to significantly impact the centers, regardless of regulatory status, others. Accordingly, the Commission market should an SCI event occur, is reliable, secure, and functions in believes that, for SCI ATSs, the existing therefore warranting inclusion within compliance with the law.121 At the same broker-dealer rules and regulations the scope of the regulation. One time, while questions have been raised identified by commenters are commenter, in advocating for the as to whether the broader regulatory complemented by the requirements of application of the regulation to all regimes for exchanges and ATSs should Regulation SCI (other than Rule ATSs, stated that the Commission be harmonized, the Commission does 301(b)(6), which will no longer apply to should not adopt volume thresholds not believe it appropriate to delay ATSs that trade NMS stocks and non- because ATSs may limit trading so as to implementing Regulation SCI or NMS stocks), and do not serve as avoid being subject to the requirements necessary to resolve these issues before substitutes for the regulatory framework of Regulation SCI.118 The Commission proceeding with Regulation SCI. The being adopted today. does not believe that the possibility of Commission notes that ATSs have the The Commission also believes that, some ATSs structuring their business to ability to apply for registration as a SRO unlike with respect to exchanges, it is fall below the thresholds of the rule is should they so wish and, if such appropriate that Regulation SCI not a sufficient justification for applying the application were to be approved by the apply to all ATSs. Exchanges, as self- rule to all ATSs. The Commission notes Commission, such entities could assume regulatory organizations, play a special that, to the extent that an ATS limits its the additional responsibilities that are role in the U.S. securities markets, and trading so as not to reach the volume imposed on SROs, as well as avail as such, are subject to certain thresholds for SCI ATSs, it would have themselves of the same benefits. requirements under the Exchange Act less potential to impact investors and As noted above, one commenter and are able to enjoy certain unique the market and may appropriately not objected to the regulation’s inclusion of benefits.116 Accordingly, as discussed be subject to the requirements of the ATSs while excluding certain other rules. As discussed further below, the entities that the commenter believed compliance issues and other events where a Commission believes that the dual similarly had the potential to impact the member has concluded or should have reasonably dollar volume threshold for NMS stocks market, concluding that the proposal concluded that a violation of securities or other enumerated law, rule, or regulation of any domestic being adopted today is appropriately was therefore arbitrary, capricious, and or foreign regulatory body or SRO has occurred, the designed to ensure that ATSs that have unfairly discriminatory in nature.122 At Commission notes that these reporting requirements either the potential to significantly the same time, this commenter stated are different in several respects from the impact the market as a whole or the that it did not recommend that Commission notification requirements relating to systems compliance issues (e.g., scope, timing, potential to significantly impact the additional entities be included within content, the recipient of the reports) and, market for a single NMS stock (and have the scope of the regulation.123 First, as importantly, would not cover reporting of systems some impact on the market as a whole noted above, the Commission has disruptions or systems intrusions that did not also at the same time) will be subject to the determined to include ATSs meeting the involve a violation of a securities law, rule, or regulation. In addition, FINRA Rule 4370 generally requirements of Regulation SCI. Thus, adopted volume thresholds within the requires that a member maintain a written only those ATSs that limit their trading scope of Regulation SCI because of their continuity plan identifying procedures relating to so as to fall below both the single NMS unique role as markets rather than an emergency or significant business disruption, stock threshold and the broad NMS because of their role as traditional which is akin to adopted Rule 1001(a)(2)(v) requiring policies and procedures for business stocks threshold will not be subject to broker-dealers. All broker-dealers are continuity and disaster recovery plans. Unlike the requirements of Regulation SCI. subject to Rule 15c3–5 and other FINRA Regulation SCI, however, the FINRA rule does not As noted above, one commenter rules as noted by some commenters, include the requirement that the business asserted that, if ATSs are subject to the which impose certain requirements continuity and disaster recovery plans be reasonably designed to achieve next business day same requirements of Regulation SCI as resumption of trading and two-hour resumption of exchanges, they similarly should be 120 See supra Section IV.A.1.a (discussing the critical SCI systems following a wide-scale entitled to the benefits afforded to definition of ‘‘SCI SRO’’); see also Section 19(b) of the Exchange Act, 15 U.S.C. 78s(b)(1), and Section disruption, nor does it require the functional and SROs.119 The Commission notes that, as performance testing and coordination of industry or 6(b) of the Exchange Act, 15 U.S.C. 78f(b). Because sector-testing of such plans, which the Commission discussed above, SROs are subject to a these important regulatory responsibilities are believes to be instrumental in achieving the goals variety of obligations as self-regulatory imposed upon SROs, SROs also are afforded certain of Regulation SCI with respect to SCI entities. organizations under the Exchange Act— unique benefits, such as immunity from private liability with respect to their regulatory functions 116 See supra Section IV.A.1.a (discussing the including filing proposed rules with the definition of ‘‘SCI SRO’’) and infra notes 120–121 and the ability to receive market data revenue. See and accompanying text. As identified by one supra note 116 and accompanying text. commenter, benefits afforded to SROs include, considered when determining whether to register as 121 But see discussion supra regarding potentially among others, the ability to receive market data a national securities exchange or as a broker-dealer different requirements for ATSs and exchanges, revenue and immunity from private liability for acting as an ATS). including those relating to SCI ATSs and critical regulatory activities. See supra note 100. See also 117 See supra notes 81–83 and accompanying text. SCI systems. ATS Release, supra note 2, at 70902–03 (discussing 118 See supra notes 95–96 and accompanying text. 122 See supra note 103 and accompanying text. generally some of the obligations and benefits to be 119 See supra note 100 and accompanying text. 123 See supra note 103 and accompanying text.

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related to the capacity, integrity and/or percent threshold under Regulation ATS over a longer term.136 For example, two security of a broker-dealer’s systems for purposes of Regulation SCI or asked commenters stated that the rule should appropriately tailored to their role as the Commission to provide further utilize a 12-month measurement broker-dealers. Further, as noted above, explanation as to why the current period.137 Conversely, another the scope of Regulation SCI is rooted in threshold under Regulation ATS should commenter generally opposed the the historical reach of the ARP be altered.128 One commenter agreed thresholds stating that all ATSs should Inspection Program and Rule 301 of with the Commission that the 20 be subject to the rule, but noted that if Regulation ATS (which applies to percent threshold currently in the rule includes a trading volume significant-volume ATSs).124 The Regulation ATS might be too high, and metric, the measurement period should Commission acknowledged in the SCI suggested using a threshold for ATSs be much shorter (such as two to four Proposal that there may be other trading NMS stocks of five percent or weeks).138 In addition, one commenter categories of broker-dealers not more of the volume in all NMS stocks stated that the measurement should be included within the definition of SCI during a 12-month period, to be based on number of shares traded rather entity that, given their increasing size determined once a year in the same than dollar value.139 and importance, could pose a significant given month.129 Another commenter Two commenters also suggested that risk to the market should an SCI event suggested that the Commission apply its ATSs should be given six months after 125 occur. The Commission solicited ATS threshold for NMS stocks to only meeting the given threshold in the comment on whether there are the 500 most active securities.130 An definition of SCI ATS to come into additional categories of market additional recommendation by one compliance with Regulation SCI.140 participants that should be subject to all commenter with regard to NMS stocks The Commission is adopting the or some of the requirements of was to include only those ATSs with thresholds for ATSs that trade NMS Regulation SCI and noted that, were the five percent or more of at least five NMS stocks and non-NMSs stock as Commission to decide to apply the stocks with an aggregate average daily proposed. In setting the thresholds for requirements of Regulation SCI to such share volume greater than 500,000 Regulation SCI, the Commission additional entities, it would issue a shares and 0.25 percent or more of all believes it is establishing an appropriate separate release outlining such a NMS stocks for four of the previous six and reasonable scope for the application proposal and the rationale therefor.126 months, or those ATSs that have three of the regulation. Although commenters As discussed above, the Commission percent or more of all NMS stocks in provided various suggestions for believes that, at this time, the entities different thresholds, nothing persuaded four of the previous six months.131 included within the scope of Regulation the Commission that these suggestions Another commenter suggested retaining SCI, because of their current role in the would better accomplish the goals of Rule 301(b)(6) as part of Regulation U.S. securities markets and/or their Regulation SCI than the thresholds the ATS, but amending the rule by lowering level of trading activity, have the Commission is adopting. As discussed the average daily volume threshold to potential to pose the most significant below, the Commission has analyzed 2.5 percent.132 risk in the event of a systems issue. the number of entities it believes are Further, the Commission believes that a One commenter requested likely to be covered by the thresholds it measured approach that takes an clarification on the phrase ‘‘0.25 percent is establishing. The Commission incremental expansion from the entities or more in all NMS stocks, of the recognizes that these thresholds covered under the ARP Inspection average daily dollar volume reported by ultimately represent a matter of Program is an appropriate method for an effective transaction reporting judgment by the Commission as it takes imposing the mandatory requirements plan.’’ 133 Because there is more than the step of promulgating Regulation SCI, of Regulation SCI at this time. As such, one transaction reporting plan, this and the Commission intends to monitor while the Commission believes that the commenter asked whether the proposed these thresholds to determine whether types of entities subject to Regulation volume thresholds would be calculated they continue to be appropriate. SCI as adopted are appropriate, the per plan or calculated based on all NMS With regard to the threshold for ATSs Commission may consider extending volume.134 trading NMS stocks, the Commission the types of requirements in Regulation Some commenters provided has determined to adopt this threshold SCI to additional market participants in suggestions with regard to the proposed as proposed. After careful consideration the future. measurement methodology for the of the comments, the Commission SCI ATS Thresholds thresholds.135 A few commenters argued continues to believe that this threshold is an appropriate measure of when a Several commenters discussed the that the proposed time period measurement of ‘‘at least four of the market is of sufficient significance so as specific proposed volume thresholds for to warrant the protections and SCI ATSs, and many offered what they preceding six calendar months’’ is requirements of Regulation SCI.141 The believed to be more appropriate cumbersome to apply in practice and alternative methods for including ATSs believed that the time period should be 136 See, e.g., BIDS Letter at 6; and KCG Letter at 127 within Regulation SCI. For example, 19. 128 some commenters urged the See, e.g., Direct Edge Letter at 2; and KCG 137 See BIDS Letter at 6; and KCG Letter at 19. Letter at 10–11. Commission to retain the existing 20 138 See Lauer Letter at 4–5. 129 See SIFMA Letter at 6. 139 See BIDS Letter at 6. 130 See BIDS Letter at 6. 124 See supra notes 60–67 and accompanying text. 140 See KCG Letter at 19; and SIFMA Letter at 7. 131 See ITG Letter at 10. 125 See Proposing Release, supra note 13, at 141 The numerical thresholds in the definition of 132 18138–39. See OTC Markets Letter at 11. This commenter SCI ATS reflect an informed assessment by the 126 See id. also suggested leaving in place the existing five Commission, based on qualitative and quantitative percent average daily share volume threshold for 127 See, e.g., Direct Edge Letter at 2; SIFMA Letter analysis, of the likely economic consequences of the the display requirement of Rule 301(b)(3) under at 6–7; BIDS Letter at 6; ITG Letter at 10; and OTC specific numerical thresholds included in the Regulation ATS. Markets Letter at 11. But see BlackRock Letter at 4 definition. In making such assessment and, in turn, 133 (agreeing with the Commission’s approach in the See SIFMA Letter at 6–7. selecting the numerical thresholds, in addition to SCI Proposal of lowering the thresholds for SCI 134 See SIFMA Letter at 6–7. considering the views of commenters, the ATSs from the thresholds in Rule 301(b)(6) of 135 See, e.g., BIDS Letter at 6; KCG Letter at 19; Commission has reviewed relevant data. See infra Regulation ATS). SIFMA Letter at 7; and Lauer Letter at 4–5. notes 150 and 175 and accompanying text.

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Commission is, however, making one resulting in trading activity in stocks Commission believes that technical modification in response to a being more dispersed among a variety of approximately 12 ATSs trading NMS commenter to clarify that the threshold trading centers. For example, in today’s stocks would exceed the adopted will be calculated based on all NMS markets, national securities exchanges, thresholds and fall within the definition volume, rather than on a per plan once the predominant type of venue for of SCI entity, accounting for basis.142 The Commission agrees with trading stocks, each account for no more approximately 66 percent of the dollar the commenter that the proposed than approximately 19 percent of volume market share of all ATSs trading language should be clarified and, as volume in NMS stocks.147 By way of NMS stocks.151 The Commission such, the threshold language within the contrast, based on data collected from acknowledges that its analysis of the definition of ‘‘SCI ATS’’ in Rule 1000 is ATSs pursuant to FINRA Rule 4552 for FINRA ATS data did not reveal an being revised to refer to ‘‘applicable 18 weeks of trading in 2014, the trading obvious threshold level above which a effective transaction reporting plans,’’ volume of ATSs accounted for particular subset of ATSs may be rather than ‘‘an effective transaction approximately 18 percent of the total considered to have a significant impact reporting plan.’’ 143 dollar volume in NMS stocks, with no on individual NMS stocks or the overall Under the adopted definition of SCI individual ATS executing more than market, as compared to another subset ATS, with regard to NMS stocks, an five percent.148 Given this dispersal of of ATSs. However, for the following ATS will be subject to Regulation SCI if, trading volume among an increasing reasons, the Commission continues to during at least four of the preceding six number of trading venues, the believe that the adopted thresholds for calendar months, it had: (i) Five percent increasingly interconnected nature of ATSs trading NMS stock are an or more in any single NMS stock, and the markets, and the increasing reliance appropriate measure to identify those 0.25 percent or more in all NMS stocks, on a variety of automated systems, the ATSs that should be subject to the of the average daily dollar volume Commission believes that there is a requirements of Regulations SCI. First, reported by applicable effective heightened potential for systems issues by imposing both a single NMS stock transaction reporting plans, or (ii) one originating from a number of sources to threshold and an all NMS stocks percent or more, in all NMS stocks, of significantly affect the market. Due to threshold in the first prong of the the average daily dollar volume reported these developments, the Commission definition, the thresholds will help to by applicable effective transaction believes that the 20 percent threshold as ensure that Regulation SCI will not reporting plans.144 The Commission adopted in Regulation ATS is no longer apply to an ATS that has a large volume continues to believe that this threshold an appropriate measure for determining in a small NMS stock and little volume will identify those ATSs that could have those entities that can have a significant in all other NMS stocks. At the same a significant impact on the overall impact on the market and thus should time, the Commission believes that market or that could have a significant be subject to the protections of inclusion of the dual-prong dollar impact on a single NMS stock and some Regulation SCI. Rather, the Commission volume thresholds is appropriate. impact on the market as a whole at the believes that lower volume thresholds Specifically, it will require not only that same time.145 are appropriate, and as noted in the SCI ATSs that have significant trading While some commenters advocated Proposal, the Commission believes that volume in all NMS stocks are subject to for thresholds higher than those the adopted thresholds would include the requirements of Regulation SCI, but proposed and/or retaining the 20 ATSs having NMS stock dollar volume also that ATSs that have large trading percent threshold in Regulation ATS,146 comparable to or in excess of the NMS volume in a single NMS stock and could as the Commission discussed in the SCI stock dollar volume of certain national significantly affect the market for that Proposal, the securities markets have securities exchanges subject to stock are also covered by the safeguards significantly evolved since the time of Regulation SCI.149 of Regulation SCI provided they have the adoption of Regulation ATS, Based on data collected from ATSs levels of trading in all NMS stocks that pursuant to FINRA Rule 4552 for 18 could allow such ATSs to also have 142 See supra note 134 and accompanying text. As weeks of trading in 2014,150 the some impact on the market as a whole. noted above, this commenter asked the Commission The Commission also believes that, as for clarification on this aspect of the rule. 147 See supra note 106. 143 discussed further below, the adopted Because the threshold has two prongs, one of 148 See infra note 150. thresholds will also appropriately which is based on all NMS volume, it is necessary 149 See Proposing Release, supra note 13, at to specify that there is more than one transaction 18094. capture not only ATSs that have reporting plan that would be applicable in 150 See Securities Exchange Act Release No. significant trading volume in active calculating all NMS stock trading volume. At the 71341 (January 17, 2014), 79 FR 4213 (January 24, same time, since the other prong of the threshold stocks, but also those that have 2014) (approving FINRA Rule 4552 requiring each is based on the trading volume of single NMS significant trading volume in less active ATS to report to FINRA weekly volume information stocks, it is necessary to also add the term and number of securities transactions). Commission stocks. The Commission believes that a ‘‘applicable’’ before the term ‘‘transaction reporting staff analyzed FINRA ATS data for the period of systems issue at an ATS that is a plans’’ as only one transaction reporting plan would May 19, 2014 through September 19, 2014. The be applicable per security. The definition of significant market for the trading of a recently available FINRA ATS data is consistent less actively traded stock could ‘‘eligible securities’’ in each of the transaction with the OATS data used in the SCI Proposal. In reporting plans are mutually exclusive, ensuring addition, the analysis of FINRA ATS data examines similarly impose significant risks to the that each security is subject to only one transaction a threshold of trading volume over four out of six market for such securities, because a reporting plan. See CTA Plan, available at: http:// time periods, each period defined as a period of www.nyxdata.com/cta; and Nasdaq UTP Plan, systems outage at such a venue could three consecutive weeks as a rough approximation significantly impede the ability to trade available at: http://www.utpplan.com. of the threshold test on four out of the preceding 144 But see infra notes 169–170 and six calendar months as prescribed in the definition accompanying text (discussing a six-month of SCI ATS. The Commission noted in the SCI ATS data offers useful insights. See Proposing compliance period for SCI entities satisfying the Proposal that the staff analysis of OATS data may Release, supra note 13, at 18094. thresholds for the first time). overestimate the number of ATSs that may meet the 151 According to the FINRA ATS data, during this 145 Under the adopted thresholds, because of the proposed thresholds. While the calculation based time period, a total of 44 ATSs traded NMS stocks. requirement to meet the threshold for at least four on FINRA ATS data may not overestimate the The Commission notes that the number of ATSs of the preceding six calendar months, inactive and number of ATSs as much as the data analysis in the exceeding the adopted thresholds, and the newly operating ATSs would not be included in the proposal, it could still overestimate the number of percentage of volume of trading in NMS stocks that definition of SCI ATS. See infra note 152. ATSs that would meet the thresholds. Nevertheless, they represent, may change over time in response 146 See supra note 128 and accompanying text. the Commission believes the analysis of FINRA to market and competitive forces.

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such securities, thereby having a the scope of Regulation SCI.153 While share volume greater than 500,000,156 significant impact on the market for the Commission recognizes that some of the Commission disagrees that the such less-actively traded securities. In the suggested alternatives could have threshold should be structured to addition, the Commission continues to certain benefits, it also believes that capture only ATSs that have significant believe that thresholds that account for each recommended standard also has trading volume in active stocks. Rather, 66 percent of the dollar volume market corresponding limitations, and thus the first prong of the adopted threshold share of all ATSs trading NMS stocks is believes that the adopted thresholds are is designed to capture any ATS that has a reasonable level that would not an appropriate measure for identifying five percent or more of the trading exclude new entrants to the ATS those ATSs that should be subject to volume of any NMS stock, irrespective market.152 Further, as noted above, the Regulation SCI. First, as described of how actively traded it is, so that thresholds would include ATSs having above, the Commission believes that Regulation SCI can effectively address NMS stock dollar value comparable to adopting a two-prong standard is risks relating to the trading of all NMS the NMS stock dollar volume of the necessary to identify those ATSs that, in stocks, and not only the most active of equity exchanges subject to Regulation the event of a systems issue, could have NMS stocks. If the Commission were to SCI. Finally, the Commission believes a significant impact on the overall apply the threshold only to the 500 most that the adopted thresholds are market or that could have a significant active NMS stocks or stocks only with appropriate to help ensure that entities impact on a single NMS stock and some average daily share volumes greater than that have determined to participate (in impact on the market as a whole at the 500,000, an ATS that, for example, more than a limited manner) in the same time. The Commission notes that served as the primary venue for the national market system as markets that several of the thresholds suggested by trading of less actively traded NMS bring buyers and sellers together, are commenters lacked such a dual-prong stocks, but had negligible market share subject to the requirements of standard (and, in particular, the prong for more actively traded NMS stocks, Regulation SCI. relating to individual NMS stocks) and would not be subject to Regulation SCI. As noted above, several commenters thus do not provide the advantages However, an SCI event that resulted in provided specific suggestions for associated with the adopted threshold an outage of such an ATS could have a alternative standards for determining in protecting the trading venues for a significant impact on the market for which ATSs should be included within single NMS stock. With regard to one such less actively traded NMS stocks. commenter’s suggestion that the first As such, failure to include such an ATS 152 Consistent with the Commission’s statement prong of the threshold should, among within the scope of Regulation SCI in the SCI Proposal, the Commission has considered other things, consider five NMS stocks, would be contrary to the goals of the barriers to entry and the promotion of competition in setting the threshold such that new ATSs trading rather than a single stock, the regulation. Finally, with regard to one NMS stocks would be able to commence operations Commission does not believe the commenter’s suggestion to retain Rule without, at least initially, being required to comply commenter has provided any clear 301(b)(6) as part of Regulation ATS and with—and thereby not incurring the costs rationale for this standard.154 As amend the threshold to 2.5 percent,157 associated with—Regulation SCI. See Proposing Release, supra note 13, at n. 102. In particular, a discussed, the purpose of the first prong as discussed throughout this release, new ATS could engage in limited trading in any is to identify significant trading venues Regulation SCI is intended to expand one NMS stock or all NMS stocks, until it reached (or markets) for a single security where upon the requirements of Rule 301(b)(6) an average daily dollar volume of five percent or a systems disruption could have a and to supersede and replace such more in any one NMS stock and 0.25 percent or more in all NMS stocks, or one percent in all NMS significant effect on the market for that requirements for ATSs that trade NMS stocks, over four of the preceding six months. security, and setting the threshold to stocks.158 For the reasons noted above, Because a new ATS could begin trading in NMS consider five NMS securities could the Commission believes it is stocks for at least three months (i.e., less than four potentially exclude trading venues that appropriate to include ATSs meeting of the preceding six months), and conduct such trading at any dollar volume level without being host large trading activity for a single the adopted volume thresholds within subject to Regulation SCI, and would have to NMS security. Additionally, the the scope of Regulation SCI, and the exceed the specified volume levels for the requisite Commission notes that the suggested Commission does not believe it is period to become so subject, the Commission alternative approach would be unlikely appropriate to retain Rule 301(b)(6) as believes that these thresholds should not prevent a new ATS entrant from having the opportunity to to have any significant practical effect part of Regulation ATS, thereby initiate and develop its business. Further, the when used in conjunction with the subjecting ATSs to a separate and Commission notes that, as discussed below, it is second prong of the threshold, which differing set of regulatory requirements adopting an additional six-month compliance looks at trading across all NMS stocks, than other SCI entities with regard to period (in addition to the general nine-month compliance period from the Effective Date of because the second prong would likely systems capacity, integrity, resiliency, Regulation SCI afforded to all SCI entities) for ATSs capture an ATS with five percent or availability, security, and newly meeting the thresholds, so that once an ATS more volume in five NMS stocks. With compliance.159 For all of the reasons meets the threshold, it will have six months from regard to one commenter’s suggestion to discussed above, the Commission does that time to become fully compliant with Regulation SCI. See infra Section IV.F (discussing apply the threshold to only the 500 most not believe that any of the alternative effective dates and compliance periods). The active NMS stocks 155 and another standards suggested by commenters Commission believes that, for ATSs that have newly commenter’s suggestion to include only would better capture those entities that entered the market, this additional compliance stocks with an aggregate average daily period will give such ATSs additional opportunity 156 to develop and grow their business without See supra note 131 and accompanying text. incurring the costs of compliance with Regulation 153 See supra notes 127–132 and accompanying 157 See supra note 132 and accompanying text. SCI during this time. This additional compliance text. 158 But see infra notes 189–192 and period should also provide such ATSs with time to 154 See supra note 131 and accompanying text. accompanying text (discussing the Commission’s plan on how they would meet the requirements of This commenter argued generally that the determination to retain the applicability of Rule Regulation SCI, and could also potentially allow thresholds should be revised so as to only include 301(b)(6) to fixed-income ATSs). SCI ATSs to become more equipped to bear the cost those entities that would have an ‘‘immediate and 159 The Commission notes that, with regard to the of Regulation SCI once compliance is required, and substantial impairment of a functioning specific threshold level suggested by this thus not significantly discourage new ATSs from marketplace.’’ However, the commenter did not commenter (2.5%), the Commission believes the entering the market and growing. See infra Section explain why it advocated the use of five NMS adopted thresholds to be an appropriate measure to VI.C.1.c (discussing further barriers to entry and the stocks, rather than a single NMS stock. See ITG identify those ATSs that should be subject to the potential effects on competition of the adopted Letter at 9. requirements of Regulations SCI for the reasons thresholds). 155 See supra note 130 and accompanying text. discussed above. See supra note 141.

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have the potential to pose significant could (and if large enough, likely the ATS would meet the threshold only risk to the market. would) skew the overall trading volume for one month, rather than the four One commenter urged the for that time period, causing an ATS to months required by the rule. On the Commission to utilize number of shares meet the volume thresholds and thus other hand, a threshold based on an traded rather than dollar value, stating become subject to Regulation SCI even average over 12 months could be that while most of the world uses value though the overall risk posed by the skewed by the occurrence of one large traded, available data for the U.S. equity ATS does not warrant it. Further, the spike in trading that results in the markets is share-based.160 The Commission believes that such a shorter overall average for the 12-month period Commission disagrees with this time measurement period could provide being increased to such a level that it commenter and notes that daily dollar more barriers to entry for ATSs, because meets the volume threshold levels. volume is readily available from a new ATSs would not have as long of a Thus, contrary to one commenter’s number of sources, including the time period to develop their business suggestion that a 12-month period SIPs.161 prior to having to incur the costs of would require ‘‘a sustained trading level The time measurement period for compliance associated with being at the threshold,’’ 168 the Commission ATSs that trade NMS stocks and non- subject to the requirements of believes that the structure of the NMS stocks is also being adopted as Regulation SCI.166 This potential to adopted measurement period test (i.e., proposed. Thus, ATSs will be subject to incur such costs almost immediately four out of six months) may be a better Regulation SCI only if they meet the after the initial start of operations could indicator of actual sustained trading numerical thresholds for at least four of act as a barrier to entry for some new levels at the threshold warranting the 162 the preceding six months. The ATSs. protections of the rule. Further, the Commission notes that the adopted time Other commenters recommended a Commission believes that 12 months is measurement period is consistent with longer measurement period, such as 12 a less appropriate time measurement the current standard in Rule 301(b)(6) of months.167 The Commission does not period than the period adopted because, 163 Regulation ATS. The Commission believe, however, that a longer time for example, an ATS could have believes that this time measurement period is necessary or more appropriate significant trading volume early on period is an appropriate time period to identify those entities that play a during such a time period such that it over which to evaluate the trading significant role in the market for a may pose significant risk to the markets volume of an ATS and should help to particular asset class and/or that have in the event of a systems issue at such ensure that it does not capture ATSs the potential to significantly impact an ATS without being subject to with relatively low trading volume that investors or the market, warranting Regulation SCI for a significant period may have had an anomalous increase in inclusion in the scope of Regulation of time. The Commission believes that trading on a given day or few days. SCI. The Commission believes that the the adopted time period strikes an Contrary to concerns raised by some adopted time measurement period appropriate balance between being a commenters,164 under this time provides sufficient trading history data long enough period so as to not be measurement methodology, an ATS so as to indicate an ATS’s significance triggered by atypical periods of would not qualify as an SCI entity to the market, and that the structure of increased trading or a few occurrences simply by trading a single large block of the test (i.e., requiring an ATS to meet of very large trades, while also not an illiquid security during one month the threshold for four out of six months) causing unnecessary delay in requiring (or even two or three months). While ensures sustainability of such trading that ATSs playing an important role in one commenter suggested that the time levels. In addition, modifying the time the market are subject to Regulation SCI. measurement period be shorter and measurement period to 12 months (and Finally, as discussed further in recommended a period of two to four thus eliminating the four out of six Section IV.F, the Commission agrees weeks,165 the Commission believes that month measurement period) would with commenters that it is appropriate this could cause ATSs to fall within the make such a measure more susceptible to provide ATSs meeting the volume scope of the definition solely as a result to capturing ATSs that have a major but thresholds in the definition of SCI ATS of an atypical, short-term increase in isolated spike in trading during a single for the first time a period of time before trading or a small number of large block month. Specifically, as noted above, a they are required to comply with trades that is not reflective of ATSs’ single anomalous large increase in Regulation SCI.169 Thus, consistent with general level of trading. Specifically, trading volume during one month (or the recommendation of these with such a short period of such a spike in two or three months) commenters, the Commission is revising measurement, a short-term spike in could never result in an ATS becoming the definition of SCI ATS to provide trading volume uncharacteristic of an subject to Regulation SCI solely as a that an SCI ATS will not be required to ATS’s overall trading volume history result of such a spike in trading, because comply with the requirements of 160 Regulation SCI until six months after See supra note 139 and accompanying text. 166 See supra note 152 and accompanying text. 161 See also Proposing Release, supra note 13, at See also infra Section VI.C.1.c (discussing barriers satisfying any of the applicable 18094 (stating that the use of dollar thresholds may to entry and the effects on competition of the thresholds in the definition of SCI ATS better reflect the economic impact of trading adopted thresholds and time measurement period for the first time.170 activity). for SCI ATSs). 162 See adopted Rule 1000 (definition of ‘‘SCI 167 See supra notes 136–137 and accompanying ATSs Trading Non-NMS Stocks ATS’’). The Commission notes that if an ATS that text. One of these commenters noted that the ‘‘four was not previously subject to Regulation SCI meets out of the preceding six months’’ measurement is Some commenters addressed whether the SCI ATS volume threshold for four consecutive cumbersome to apply in practice. See KCG Letter Regulation SCI should apply to ATSs months, it would become subject to Regulation SCI at 19. The Commission does not believe this trading non-NMS stocks.171 Specifically, at the end that four-month period. However, as measurement period to be overly cumbersome to discussed further below, such an ATS would have apply in practice, as it would require only that an 168 an additional six months from that time to comply ATS undertake an assessment once at the end of See KCG Letter at 19. See also supra notes with the requirements of Regulation SCI. See infra each month as to whether the ATSs had exceeded 136–137 and accompanying text. text accompanying notes 169–170. the volume thresholds set forth in the rule and then 169 See supra note 140 and accompanying text. 163 17 CFR 242.301(b)(6). make a determination at the end of a six month 170 See Rule 1000 (definition of SCI ATS). 164 See, e.g., BIDS Letter at 6. period whether the ATS met this threshold for four 171 See, e.g., OTC Markets Letter at 7; SIFMA 165 See supra note 138 and accompanying text. out of the six preceding months. Letter at 7; TMC Letter at 1–3 (asserting that retail

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one commenter stated that the rules of the dollar volume market share of all being adopted today, to ensure that they should apply only to trading in NMS ATSs trading non-NMS stocks.176 These continue to be appropriate. securities because non-NMS stock thresholds reflect an assessment by the The Commission notes that adoption trading—which is dispersed among Commission, based on qualitative and of a higher threshold for non-NMS broker-dealers—does not have a single quantitative analysis, of the likely stocks than for NMS stocks reflects the point of failure and is therefore less consequences of the specific Commission’s acknowledgement of susceptible to rapid, widespread issues quantitative thresholds included in the certain differences between the two that occur as a result of a high degree definition. From this analysis and in markets. In particular, as noted in the of linkage or inter-dependency.172 conjunction with considering the views SCI Proposal, while the Commission Another commenter stated that, with of commenters, the Commission has believes that similar concerns about the respect to non-NMS stocks (as well as derived what it believes to be an trading of NMS stocks on ATSs apply to municipal securities and corporate debt appropriate threshold to identify those the trading of non-NMS stocks, the securities), the proposed five percent ATSs that should be subject to the Commission also believes that certain threshold was too low and would requirements of Regulation SCI. characteristics of the market for non- unnecessarily include ATSs for these NMS stocks, such as the lower degree of product types that are ‘‘not systemic to As discussed above, one commenter automation, electronic trading, and maintaining fair, orderly, and efficient objected to the inclusion of ATSs interconnectedness, generally result in markets’’ and asked the Commission to trading non-NMS stocks within the 177 an overall lower risk to the market in further study the appropriate threshold scope of Regulation SCI. This the event of a systems issue.181 In for these ATSs.173 commenter argued that non-NMS particular, the Commission believes that With regard to equity securities that trading is not susceptible to the issues a systems issue at an SCI entity that are not NMS stocks and for which that Regulation SCI is designed to trades non-NMS stocks would not be as transactions are reported to a self- address because such trading is likely to have as significant or regulatory organization, the adopted dispersed among broker-dealers and widespread an impact as readily as a thresholds remain unchanged from the does not create the types of single points systems issue at an SCI entity that trades SCI Proposal. Thus, for such securities, of failure that pose widespread systemic NMS stocks. Therefore, the Commission 178 an ATS will be subject to the risk. First, as noted above, while the believes that there is less risk of market requirements of Regulation SCI if, Commission is particularly concerned impact in the markets for those during four of the preceding six with systems issues that pose the securities at this time. As such, the calendar months, it had five percent or greatest risk to our markets and have the Commission has determined not to more of the average daily dollar volume potential to cause the most widespread adopt the same, more stringent, as calculated by the self-regulatory effects and damage (such as those that thresholds that would trigger the organization to which such transactions are single points of failure), Regulation 174 requirements of Regulation SCI that the are reported. The Commission SCI is intended to address a broader set Commission is adopting for ATSs continues to believe that this threshold of risks of systems issues. Accordingly, trading NMS stocks. The Commission will appropriately identify ATSs that the adopted threshold for non-NMS also believes that imposition of a play a significant role in the market for stock ATSs is designed to identify those threshold that is set too low in markets those securities and, thus, should be ATSs that play a significant role in the that lack automation could have the subject to the requirements of market for such securities. Further, the unintended effects of discouraging Regulation SCI. Commission disagrees with the automation in these markets and Using data from the second quarter of commenter’s assertion that trading in discouraging new entrants into these 2014, an ATS executing transactions in non-NMS stocks cannot result in markets. Specifically, it could increase non-NMS stocks at a level exceeding widespread disruptions.179 five percent of the average daily dollar the cost of automation in relation to volume traded in the United States While one commenter stated that the other methods of executing trades, and would be executing trades at a level five percent threshold was too low, this thus market participants might make a exceeding $45.2 million daily.175 Based commenter did not provide an determination that the costs associated on data collected from Form ATS–R for alternative threshold but rather asked with becoming subject to Regulation SCI the second quarter of 2014, the the Commission to further study this preclude a shift to automated trading or Commission estimates that two ATSs issue.180 As noted above, based on the development of a new automated would exceed this threshold and fall qualitative and quantitative analysis, the trading system, particularly given the within the definition of SCI entity, Commission believes the five percent expected lower trading volume when accounting for approximately 99 percent threshold to be an appropriate measure beginning operations. Further, the to determine which ATSs are of Commission notes that it has fixed-income ATSs should not be subject to sufficient significance in the current traditionally provided special Regulation SCI); and KCG Letter at 3, 10–11. market for non-NMS stocks to warrant safeguards with regard to NMS stocks in 172 See OTC Markets Letter at 7. their inclusion within the scope of its rulemaking efforts relating to market 173 See SIFMA Letter at 7. Regulation SCI. The Commission notes structure.182 For these reasons, the 174 However, as noted above, an ATS meeting the Commission believes that it is definition of SCI ATS for the first time will be that it intends to monitor the level of afforded a six-month compliance period. See supra this threshold, and other thresholds appropriate at this time to apply a notes 169–170 and accompanying text. different threshold to ATSs trading 175 In the Proposing Release, the Commission 176 The Commission notes that the number of NMS stocks than those ATSs trading used data from the first six months of 2012 to ATSs exceeding the adopted threshold, and the non-NMS stocks. estimate that an ATS executing transactions in non- percentage of volume of trading in non-NMS stocks NMS stocks at a level exceeding five percent of the that they represent, may change over time in average daily volume traded in the United States 181 See Proposing Release, supra note 13, at response to market and competitive forces. would be executed trades at a level exceeding $31 18096. 177 million daily. See Proposing Release, supra note 13, See supra note 172 and accompanying text. 182 See, e.g., Regulation NMS, 17 CFR 242.600– at n.111 and accompanying text. The Commission 178 See id. 612; Securities Exchange Act Release No. 51808 has updated this estimate using over-the-counter 179 See supra note 33 and accompanying text. (June 9, 2005), 70 FR 27496 (June 29, 2005) reporting facility data available from FINRA. 180 See supra note 173. (Regulation NMS Adopting Release).

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ATSs Trading Fixed-Income Securities meet the twenty percent threshold for Rule 301(b)(6) of Regulation ATS to Several commenters specifically municipal securities or corporate debt fixed-income ATSs that meet the 190 addressed the inclusion of municipal securities provided by that rule. The volume thresholds of that rule and to security and corporate debt security Commission believes that this change is exclude ATSs that trade only municipal ATSs within the scope of Regulation warranted given the unique nature of securities or corporate debt securities SCI, stating that these ATSs should not the current fixed-income markets, as from the scope of Regulation SCI at this be subject to Regulation SCI or that the noted by several commenters. In time. particular, fixed-income markets proposed thresholds should be c. Plan Processor modified.183 These commenters currently rely much less on automation identified differences in the nature of and electronic trading than markets that Under Proposed Rule 1000(a), the 191 fixed-income trading as compared to the trade NMS stocks or non-NMS stocks. term ‘‘plan processor’’ had the meaning markets for NMS securities and In addition, the municipal and set forth in Rule 600(b)(55) of concluded that the thresholds were corporate fixed-income markets tend to Regulation NMS, which defines ‘‘plan inappropriate and would be detrimental be less liquid than the equity markets, processor’’ as ‘‘any self-regulatory to the market for these types of with slower execution times and less organization or securities information securities.184 In particular, commenters complex routing strategies.192 As such, processor acting as an exclusive stated that inclusion of fixed-income the Commission believes that a systems processor in connection with the ATSs and/or the adoption of the issue at a fixed-income ATS would not development, implementation and/or proposed thresholds would impose have as significant or widespread an operation of any facility contemplated unduly high costs on these entities impact as in other markets. Thus, while by an effective national market system 193 given their size, scope of operations, ensuring the capacity, integrity and plan.’’ The Commission is adopting lack of automation, low speed, and security of the systems of fixed-income the definition of ‘‘plan processor’’ as 194 resulting low potential to pose risk to ATSs is important, the benefits of proposed. systems.185 Further, one commenter lowering the threshold applicable to The Commission received no fixed-income ATSs from the current comments on the proposed definition of noted that the cost of compliance for 195 these types of entities would discourage twenty percent threshold in Regulation ‘‘plan processor.’’ As noted in the the shift from manual fixed-income ATS and subjecting such ATSs to the SCI Proposal, the ARP Inspection trading in the OTC markets to more safeguards of Regulation SCI would not Program included the systems of the transparent and efficient automated be as great as for ATSs that trade NMS plan processors of four national market 186 stock or non-NMS stock. As commenters system plans—the CTA Plan, CQS Plan, trading venues. 196 In addition, one commenter stated pointed out, the cost of the requirements Nasdaq UTP Plan, and OPRA Plan. that if retail fixed-income ATSs are of Regulation SCI could be significant 193 included in the final rule, a better for fixed-income ATSs relative to their See 17 CFR 242.600(b)(55). size, scope of operations, and more 194 See proposed Rule 1000(a) and Proposing measurement would be to look at par Release supra note 13, at Section III.B.1. 187 amount traded rather than volume. limited potential for systems risk. The 195 However, some commenters did support the Finally, one commenter requested that Commission is cognizant that lowering overall scope of the term ‘‘SCI entity’’ or agreed the Commission clarify that ATSs the current threshold applicable to specifically that plan processors should be included fixed-income ATSs in Regulation ATS within the definition of that term. See, e.g., Lauer relating to listed-options are not subject Letter at 3 (urging the Commission to expand the to the obligations of proposed and subjecting such ATSs to the scope of entities covered) and KCG Letter at 5–6 Regulation SCI.188 requirements of Regulation SCI could (recommending that Regulation SCI be targeted to While the adopted definition of SCI have the unintended effect of services offered by only one or a few entities, such ATS remains unchanged from the discouraging automation in these as plan processors). In addition, one commenter, although commenting specifically on the definition proposal for NMS stocks and non-NMS markets and discouraging the entry of of ‘‘SCI system,’’ stated that Regulation SCI should stocks, the Commission, after new fixed-income ATSs into the market, be tailored to focus only on systems impacting the considering the views of commenters, which could impede the evolving core functions of the overall market, which should has determined to exclude ATSs that transparency and efficiency of these include the exclusive SIPs that transmit market markets and negatively impact liquidity data. See OTC Markets Letter at 12–13. trade only municipal securities or 196 See ARP I Release, supra note 1, at n. 8 and corporate debt securities from the in these markets. n. 17. Each of the CTA Plan, CQS Plan, Nasdaq UTP definition of SCI ATS at this time.189 For these reasons, the Commission Plan, and OPRA Plan, is a ‘‘national market system Accordingly, such fixed-income ATSs believes that it is appropriate to plan’’ (‘‘NMS Plan’’) as defined under Rule continue to apply the requirements in 600(a)(43) of Regulation NMS under the Exchange will not be subject to the requirements Act, 17 CFR 242.600(a)(43). Rule 600(a)(55) of of Regulation SCI. Rather, fixed-income Regulation NMS under the Exchange Act, 17 CFR ATSs will continue to be subject to the 190 See 17 CFR 242.301(b)(6). 242.600(a)(55), defines a ‘‘plan processor’’ as ‘‘any existing requirements in Rule 301(b)(6) 191 See, e.g., supra notes 183–186 and self-regulatory organization or securities accompanying text (discussing the unique nature of information processor acting as an exclusive of Regulation ATS regarding systems fixed-income trading). See also Tracy Alloway and processor in connection with the development, capacity, integrity and security if they Michael Mackenzie, ‘‘Goldman Retreats from Bond implementation and/or operation of any facility Platform,’’ Fin. Times, February 17, 2014 (noting contemplated by an effective national market 183 See, e.g., SIFMA Letter at 7; TMC Letter at 1– that, despite efforts to make the market for bond system plan.’’ Section 3(a)(22)(B) of the Exchange 3; and KCG Letter at 2–3, 10–11. trades more electronic, large bond trading continues Act, 15 U.S.C. 78c(22)(B), defines ‘‘exclusive to occur overwhelmingly by ‘voice-brokered’ 184 See, e.g., SIFMA Letter at 7; TMC Letter at 1– processor’’ to mean ‘‘any securities information transactions); and Lisa Abramowicz, ‘‘Humans Beat 3; and KCG Letter at 2–3, 10–11. processor or self-regulatory organization which, Machines as Electronic Trading Slows: Credit directly or indirectly, engages on an exclusive basis 185 See, e.g., SIFMA Letter at 7; TMC Letter at 1– Markets,’’ Bloomberg, February 19, 2014 (stating on behalf of any national securities exchange or 3; and KCG Letter at 2–3, 10–11. that a shift in corporate bond transactions to registered securities association, or any national 186 See KCG Letter at 3, 10–11 (noting that the electronic systems is failing to keep up with total securities exchange or registered securities vast majority of fixed-income trades are done in the volume). association which engages on an exclusive basis on OTC markets and only a few ATSs for the fixed- 192 See, e.g., TMC Bonds Letter at 1 (stating that its own behalf, in collecting, processing, or income market have emerged in recent years). fixed-income markets have significantly lower preparing for distribution or publication any 187 See TMC Letter at 1–3. volumes and slower execution times than equity information with respect to (i) transactions or 188 See LiquidPoint Letter at 2–3. markets and have no meaningful connectivity quotations on or effected or made by means of any 189 See supra notes 183–186. between fixed-income ATS participants). facility of such exchange or (ii) quotations

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Although an entity selected as the incidents, the availability of As noted in the SCI Proposal, this processor of an SCI Plan acts on behalf consolidated market data is central to definition of ‘‘exempt clearing agency of a committee of SROs, such entity is the functioning of the securities subject to ARP’’ currently covers one not required to be an SRO, nor is it markets. The unavailability of a system, entity, Omgeo Matching Services—US, required to be owned or operated by an such as a plan processor, that is a single LLC (‘‘Omgeo’’).203 In its comment SRO.197 The Commission believes, point of failure with no backups or letter, Omgeo stated that it believed its however, that the systems of such alternatives can result in a significant inclusion as an SCI entity was entities, because they deal with key impact on the entire national market reasonable because clearing agencies market data, are central features of the system. Accordingly, the Commission that provide matching services, such as national market system 198 and should believes that that it is essential to ensure Omgeo, perform a critical role in the be subject to the same systems standards that the automated systems of the infrastructure of the U.S. financial as SCI SROs. The inclusion of plan entities responsible for the markets in handling large amounts of processors in the definition of SCI entity consolidation and processing of highly confidential proprietary trade is designed to ensure that the processor important market data, namely, plan data.204 Omgeo requested, however, that for an SCI Plan, regardless of its processors, have adequate levels of the Commission clarify that other identity, is independently subject to the capacity, integrity, resiliency, similarly situated clearing agencies requirements of Regulation SCI. The availability, and security.200 would also be subject to the Commission believes that it is important Further, pursuant to its terms, each requirements of Regulation SCI, and for such plan processors to be subject to SCI Plan is required to periodically further requested that the Commission the requirements of Regulation SCI review its selection of its processor, and expand the definition of SCI entity, as because of the important role they serve may in the future select a different applied to clearing agencies, to include, in the national market system: processor for the SCI Plan than its without limitation, any entity providing Operating and maintaining computer current processor.201 Thus, the either matching services or and communications facilities for the definition of ‘‘plan processor’’ covers confirmation/affirmation services for receipt, processing, validating, and any entity selected as the processor for depository eligible securities that settle dissemination of quotation and/or last a current or future SCI Plan.202 in the United States, as contemplated by sale price information generated by the 205 d. Exempt Clearing Agency Subject to FINRA Rule 11860. members of the plan. Recent SIP incidents further ARP The Commission notes that the highlighted the importance of plan Proposed Rule 1000(a) defined the adopted definition of ‘‘exempt clearing processors to the U.S. securities markets term ‘‘exempt clearing agency subject to agency subject to ARP’’ does provide and the necessity of including such ARP’’ to mean ‘‘an entity that has that any entity that receives from the processors within the scope of received from the Commission an Commission an exemption from Regulation SCI.199 As evidenced by the exemption from registration as a registration as a clearing agency under clearing agency under Section 17A of Section 17A of the Act, and whose distributed or published by means of any electronic the Act, and whose exemption contains exemption contains conditions that system operated or controlled by such association.’’ conditions that relate to the relate to the Automation Review As a processor involved in collecting, processing, Commission’s Automation Review Policies or any Commission regulation and preparing for distribution transaction and that supersedes or replaces the quotation information, the processor of each of the Policies, or any Commission regulation CTA Plan, CQS Plan, Nasdaq UTP Plan, and OPRA that supersedes or replaces such Commission’s Automation Review Plan meets the definition of ‘‘exclusive processor;’’ policies.’’ This definition is being Policies (such as Regulation SCI) would and because each acts as an exclusive processor in adopted as proposed. be included within the scope of connection with an NMS Plan, each also meets the Regulation SCI. Therefore, clearing definition of ‘‘plan processor’’ under Rule 600(a)(55) of Regulation NMS, as well as Rule in trading in all Nasdaq-listed securities because of agencies that are similarly situated as 1000(a) of Regulation SCI. For ease of reference, an the SIP’s inability to process quotes. See supra note Omgeo (i.e., those that are subject to an NMS Plan having a current or future ‘‘plan 32 and accompanying text. Also as noted above, on exemption that contains the relevant processor’’ is referred to herein as an ‘‘SCI Plan.’’ October 30, 2014, according to the NYSE, a network conditions) will be subject to Regulation The Commission notes that not every processor of hardware failure impacted the Consolidated Tape 206 an NMS Plan would be a ‘‘plan processor’’ under System, Consolidated Quote System, and Options SCI. The Commission does not Rule 1000, and therefore not every processor of an Price Reporting Authority data feeds at the primary believe, therefore, that an expansion of NMS Plan would be an SCI entity subject to the data center, and SIAC switched over to the the definition as suggested by Omgeo is requirements of Regulation SCI. For example, the secondary data center for these data feeds. See id. necessary to further clarify that processor of the Symbol Reservation System 200 Systems directly supporting functionality associated with the National Market System Plan relating to the provision of consolidated market for the Selection and Reservation of Securities data are included within the definition of ‘‘critical 203 On April 17, 2001, the Commission issued an Symbols (File No. 4–533) would not be a ‘‘plan SCI systems,’’ for which heightened obligations order granting Omgeo an exemption from processor’’ subject to Regulation SCI because it does under Regulation SCI will apply. See adopted Rule registration as a clearing agency subject to certain not meet the ‘‘exclusive processor’’ statutory 1000. See also supra Section IV.A.2.c (discussing conditions and limitations in order that Omgeo definition, as it is not involved in collecting, the definition of ‘‘critical SCI systems’’). might offer electronic trade confirmation and processing, and preparing for distribution 201 See CTA Plan Section V(d) and CQS Plan central matching services. See Global Joint Venture transaction and quotation information. Section V(d), available at: http://www.nyxdata.com/ Matching Services—US, LLC; Order Granting 197 Pursuant to Section 11A of the Exchange Act cta; OPRA Plan Section V, available at: http:// Exemption from Registration as a Clearing Agency, (15 U.S.C. 78k–1), and Rule 609 of Regulation NMS www.opradata.com/pdf/opra_plan.pdf; and Nasdaq Securities Exchange Act Release No. 44188 (April thereunder (17 CFR 242.609), such entities, as UTP Plan Section V, available at: http:// 17, 2001), 66 FR 20494 (April 23, 2001) (File No. ‘‘exclusive processors,’’ are required to register with www.utpplan.com. 600–32) (‘‘Omgeo Exemption Order’’). Because the the Commission as securities information 202 Currently, SIAC is the processor for the CTA Commission granted it an exemption from clearing processors on Form SIP. See 17 CFR 249.1001 Plan, CQS Plan, and OPRA Plan, and Nasdaq is the agency registration, Omgeo is not a self-regulatory (Form SIP, application for registration as a processor for the Nasdaq UTP Plan. SIAC is wholly organization. securities information processor or to amend such owned by NYSE Euronext. Both SIAC and Nasdaq 204 See Omgeo Letter at 2–3. an application or registration). are registered with the Commission as securities 205 See id. 198 See Concept Release on Equity Market information processors, as required by Section 206 Any entity seeking an exemption from Structure, supra note 4, at 3594–95. 11A(b)(1) of the Exchange Act, 15 U.S.C. 78k– registration as a clearing agency is responsible for 199 As noted above, a disruption of the Nasdaq 1(b)(1), and in accordance with Rule 609 of requesting and obtaining such an exemption from SIP on August 22, 2013 resulted in a three hour halt Regulation NMS, 17 CFR 242.609. the Commission.

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similarly situated entities will be subject if they malfunction.209 After careful provide functionality to the securities to the requirements of Regulation SCI. consideration of the comments, and as markets for which the availability of Among the operational conditions discussed more fully below, the alternatives is significantly limited or required by the Commission in the Commission agrees that certain types of nonexistent and without which there Omgeo Exemption Order were several systems included in the proposed would be a material impact on fair and that directly related to the ARP policy definition of SCI systems may be orderly markets.210 As more fully statements.207 For the same reasons that appropriately excluded from the discussed below, systems in this it required Omgeo to abide by the adopted definition. However, because category are those that, if they were to conditions relating to the ARP policy U.S. securities market infrastructure is experience systems issues, the statements set forth in the Omgeo highly interconnected and seemingly Commission believes would be most Exemption Order, the Commission minor systems problem at a single entity likely to have a widespread and believes it is appropriate that Omgeo (or can spread rapidly across the national significant impact on the securities any similarly situated exempt clearing market system, the Commission does markets. agency) should be subject to the not believe it is appropriate to apply In addition, the Commission is requirements of Regulation SCI, and Regulation SCI only to the most critical adopting a definition of ‘‘indirect SCI thus is including any ‘‘exempt clearing SCI systems, as some commenters systems,’’ in place of the proposed agency subject to ARP’’ within the suggested. Instead, the adopted definition of ‘‘SCI security systems.’’ definition of SCI entity. regulation applies to a broader set of ‘‘Indirect SCI systems’’ are subject only systems than urged by some to the provisions of Regulation SCI 2. SCI Systems, Critical SCI Systems, commenters, but a more targeted set of relating to security and intrusions. The and Indirect SCI Systems systems than proposed. In addition, the term ‘‘indirect SCI systems’’ is defined a. Overview adopted approach recognizes that some to mean ‘‘any systems of, or operated by systems pose greater risk than others to or on behalf of, an SCI entity that, if Regulation SCI, as adopted, the maintenance of fair and orderly breached, would be reasonably likely to distinguishes three categories of systems markets if they malfunction. To this pose a security threat to SCI systems’’ of an SCI entity: ‘‘SCI systems;’’ ‘‘critical end, adopted Regulation SCI identifies and, if an SCI entity puts in place SCI systems,’’ and ‘‘indirect SCI three broad categories of systems of SCI appropriate security measures, is systems.’’ The SCI Proposal broadly entities that are subject to the intended to refer to few, if any, systems defined SCI systems to mean ‘‘all regulation: ‘‘SCI systems,’’ ‘‘critical SCI of the SCI entity. computer, network, electronic, systems,’’ and ‘‘indirect SCI systems,’’ b. SCI Systems technical, automated, or similar systems with each category subject to differing SCI Systems Generally of, or operated by or on behalf of, an SCI requirements under Regulation SCI. entity, whether in production, As discussed more fully below, the Proposed Rule 1000(a) defined the development, or testing, that directly adopted definition of ‘‘SCI systems’’ term ‘‘SCI systems’’ to mean ‘‘all support trading, clearance and includes those systems that directly computer, network, electronic, settlement, order routing, market data, support six areas that have traditionally technical, automated, or similar systems regulation, or surveillance.’’ The SCI been considered to be central to the of, or operated by or on behalf of, an SCI Proposal also defined the term SCI functioning of the U.S. securities entity, whether in production, security systems (to which only the markets, namely trading, clearance and development, or testing, that directly provisions of Regulation SCI relating to settlement, order routing, market data, support trading, clearance and security and intrusions would apply) as: market regulation, and market settlement, order routing, market data, ‘‘any systems that share network surveillance. SCI systems are subject to regulation, or surveillance.’’ 211 After resources with SCI systems that, if all provisions of Regulation SCI, except careful consideration of the comments, breached, would be reasonably likely to for certain requirements applicable only the Commission is refining the scope of pose a security threat to SCI to critical SCI systems. the systems covered by the definition of systems.’’ 208 In addition, the Commission is ‘‘SCI systems.’’ As adopted, the term Many commenters stated that the adopting a definition of ‘‘critical SCI ‘‘SCI systems’’ in Rule 1000 means ‘‘all proposed definitions of SCI systems and systems,’’ a subset of SCI systems that computer, network, electronic, SCI security systems were too broad and are subject to certain heightened technical, automated, or similar systems urged the Commission to target systems resilience and information of, or operated by or on behalf of, an SCI that pose the greatest risk to the market dissemination provisions of Regulation entity that, with respect to securities, SCI. Guided significantly by directly support trading, clearance and 207 These conditions require Omgeo to, among commenters’ views on those systems settlement, order routing, market data, other things: Provide the Commission with an audit that are most critical, the Commission is market regulation, or market report addressing all areas discussed in the defining the term ‘‘critical SCI systems’’ surveillance.’’ Commission ARP policy statements; provide annual One commenter generally supported reports prepared by competent, independent audit as SCI systems that: (1) Directly support personnel in accordance with the annual risk functionality relating to: (i) Clearance the proposed definition of SCI systems, assessment of the areas set forth in the ARP policy and settlement systems of clearing and stated that the definition should be statements; report all significant systems outages to agencies; (ii) openings, reopenings, and expanded to include any technology the Commission; provide advance notice of any system that has direct market access.212 material changes made to its electronic trade closings on primary trading markets; confirmation and central matching services; and (iii) trading halts; (iv) initial public In response to this comment, the respond and require its service providers to respond offerings; (v) the provision of Commission believes that many systems to requests from the Commission for additional consolidated market data (i.e., SIPs); or with direct market access are captured information relating to its electronic trade by the adopted definition. However, as confirmation and central matching services, and (vi) exclusively-listed securities; or (2) provide access to the Commission to conduct inspections of its facilities, records and personnel 209 See, e.g., NYSE Letter at 10; Joint SROs Letter 210 See Rule 1000. related to such services. See supra note 203. at 5; Omgeo Letter at 4; KCG Letter at 3; DTCC 211 See proposed Rule 1000(a) and Proposing 208 See proposed Rule 1000(a) and Proposing Letter at 4; FIF Letter at 3; Liquidnet Letter at 3; and Release, supra note 13, at Section III.B.2. Release, supra note 13, at Section III.B.2. OTC Markets Letter at 12–13. 212 See Lauer Letter at 5.

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discussed above, the Commission has Commission regulations;’’ 220 that are respect to securities, that directly determined not to propose to expand reasonably likely to pose a plausible risk support trading, clearance and the scope of Regulation SCI to include to the markets (namely, systems that settlement, order routing, market data, other broker-dealer entities and their route or execute orders, clear and settle market regulation, or market systems at this time.213 trades, or transmit required market surveillance.’’ As such, the adopted Contrary to the commenter who urged data); 221 or that impact the core definition has been limited to apply to expansion of the proposed definition, functions of the overall market, which, production systems that relate to many commenters believed the term to according to the commenter, would securities market functions, and in be too broad and recommended that it include exclusive SIPs that transmit particular to those six functions— be revised in various ways.214 These market data and systems responsible for trading, clearance and settlement, order commenters argued that the definition primary NMS auction markets that set routing, market data, market regulation, was over-inclusive, with some believing daily opening and closing prices.222 In or market surveillance—that that it could potentially apply to all addition, one commenter suggested that traditionally have been considered to be systems of an SCI entity. the term should be defined as a central to the functioning of the U.S. Specifically, several commenters production system that connects to and securities markets, as urged by several recommended that the definition of SCI is part of the electronic network that commenters.227 The Commission systems be revised to include a more comprises the market.223 This believes that systems providing these limited set of systems than proposed.215 commenter also noted that the six functions may pose a significant risk Commenters advocating this general definition should distinguish between to the maintenance of fair and orderly approach provided various suggestions systems that connect to the markets and markets if their capacity, integrity, for the specific standard that they those that are used to run a business.224 reliability, availability or security is believed should apply. For example, Another commenter suggested that, if compromised, and therefore that they among commenters’ recommendations Regulation SCI were to apply only to should be covered by the definition of were suggestions that the definition of exchanges and ATSs, the term should be ‘‘SCI systems.’’ SCI systems should include only those limited to exchange and ATS systems Although some commenters pointed systems: whose failure or degradation operated by the entity and should not to the phrase ‘‘directly support’’ in the would reasonably be expected to have include, for example, brokerage proposed rule as vague and an adverse material impact on the sound systems.225 overbroad,228 the Commission has operation of financial markets; 216 that The Commission is further focusing retained this phrase in the adopted are highly critical to functioning as an the scope of the definition of SCI definition. The term ‘‘directly support,’’ SCI entity; 217 that have the potential to systems in response to these is retained to acknowledge that systems 226 impact the protection of securities comments. The Commission is of SCI entities are complex and highly investors and the maintenance of fair replacing the proposed language interconnected and that the definition of and orderly markets; 218 that directly referring to ‘‘systems . . . whether in SCI systems should not exclude support trading, clearance and production, development, or testing that functionality or supporting systems on settlement, order routing, market data, directly support trading, clearance and which the six identified categories of regulation, or surveillance in real- settlement, order routing, market data, systems rely to remain operational.229 In time; 219 that support the SCI entity’s regulation, or surveillance’’ with the response to comment that the definition ‘‘core functions . . . which the SCI following language: ‘‘systems, with of SCI systems should distinguish entity performs pursuant to applicable between systems that connect to the 220 See DTCC Letter at 4. markets and those that are used to run 221 See NYSE Letter at 3, 10. In addition, this 230 213 a business, the Commission notes See supra Section IV.A.1 (discussing scope of commenter added that the key to whether a SCI entities covered by Regulation SCI) and infra proposed ‘‘supporting’’ function should be included that the adopted definition would not Section IV.E (discussing comments on the inclusion is whether or not it is critical to the proper include systems ‘‘used to run a of broker-dealers generally within the scope of operation of a core functionality. business’’ if they are not within the six Regulation SCI). 222 See OTC Markets Letter at 13. 214 identified categories of market-related See, e.g., NYSE Letter at 10–11; Omgeo Letter 223 See BIDS Letter at 15–16. Thus, this at 3–6; MSRB Letter at 7–9; FIF Letter at 3; ICI Letter commenter argued that, for a venue that does not production systems and not necessary to at 4; BIDS Letter at 15–16; ITG Letter at 5; Liquidnet route orders, the reporting of trade executions to the their continued functioning. Further, Letter at 3; CME Letter at 5; DTCC Letter at 3–5; tape should not be enough to qualify such a system the adopted definition clarifies that SCI OCC Letter at 3–4; Joint SROs Letter at 5; FINRA as an ‘‘SCI system.’’ systems encompass only those systems Letter at 5–10; SIFMA Letter at 8; Oppenheimer 224 See id. Letter at 3; OTC Markets Letter at 12; and Direct that, with respect to securities, directly 225 See Liquidnet Letter at 3. Edge Letter at 2. support trading, clearance and 226 See supra notes 215–218, 220–222, and 224– 215 See, e.g., NYSE Letter at 10; Joint SROs Letter 225, and accompanying text. The definition is not settlement, order routing, market data, at 5; Omgeo Letter at 4; KCG Letter at 3; DTCC limited strictly to real-time systems, however, or market regulation, or market Letter at 4; FIF Letter at 3; Liquidnet Letter at 3; and those that ‘‘connect to’’ and are ‘‘part of the OTC Markets Letter at 12–13. See infra text surveillance. The Commission believes electronic network that comprises the market,’’ accompanying notes 216–225. because those limitations could exclude relevant 216 227 See Omgeo Letter at 4. systems, such as certain market regulation or See supra notes 219–221 and accompanying 217 See KCG Letter at 3. See also ICI Letter at 3 market surveillance systems operated by or on text. and Oppenheimer Letter at 3 (stating generally that behalf of an SCI entity, which the Commission 228 See OCC Letter at 3; and NYSE Letter at 10. the proposed definitions should be revised to more views as integral to one or more of the six functions 229 The Commission notes that it believes that specifically focus on system events that are truly identified in the definition. In response to the specifying that the definition applies to those disruptive to the markets and the systems commenter requesting that ‘‘brokerage’’ systems be systems that ‘‘directly support’’ these core functions themselves that are likely to pose a risk to the fair excluded from the definition of SCI systems, the is necessary so as to not result in a definition that and orderly operation of the markets or participants Commission notes that the adopted definition of is overly broad and would capture systems that in the markets). SCI systems applies to systems that directly support only peripherally or indirectly support these 218 See CME Letter at 5. the enumerated six functions, operated by or on functions. See generally supra notes 214–225 and 219 See Joint SROs Letter at 5. This group of behalf of an SCI entity. The definition therefore accompanying text (discussing comments that commenters further stated that non-real-time would exclude systems, including brokerage urged revisions to the definition of SCI systems). systems should not be included, as they do not systems, that are not operated by or on behalf of an See also infra Section IV.A.2.d (discussing the warrant the level of oversight and added costs that SCI entity. See, respectively, supra notes 219 and definition of ‘‘indirect SCI systems’’). the regulation imposes. 223 and accompanying text. 230 See supra note 224 and accompanying text.

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that this change appropriately responds Some commenters argued that inclusion production systems. Further, subjecting to one commenter’s concerns that the of development and testing systems in these systems to the Commission proposed definition would capture the definition of SCI systems would notification requirements in adopted systems operated by an SCI entity that subject such systems to more Rule 1002(b) could have the unintended have ‘‘practically no relevance or requirements under Regulation SCI than effect of deterring SCI entities from fully relation to SEC markets’’ and suggested was necessary and noted that certain utilizing the testing and development that the definition should be revised to other provisions of Regulation SCI processes to test new systems and include only those systems that would would necessarily include reporting systems changes and develop solutions directly impact a market that was information to the Commission on such to issues prior to implementation of subject to the Commission’s systems, even without their inclusion in such systems or changes in production. jurisdiction. 231 As a result of this the definition of SCI systems.235 For At the same time, the Commission notes modification, if an SCI SRO does not example, one commenter stated that that, in order to have policies and use its systems to conduct business with application of most provisions of procedures reasonably designed to respect to securities, its systems would Regulation SCI to testing and achieve capacity, integrity, resiliency, not fall within the definition of ‘‘SCI development systems would provide availability, and security for SCI systems.’’ Further, if an SCI entity little benefit, and noted that updates systems in accordance with adopted operates systems for the trading of both regarding systems in development and Rule 1001(a), an SCI entity will be futures and securities, only its trading material new features of existing required to have policies and systems for securities would be subject systems could instead be done through procedures that include a program to to the requirements of Regulation the semi-annual reports to the review and keep current systems SCI.232 Commission under proposed Rule development and testing methodology In addition, one commenter urged 1000(b)(8).236 Similarly, one commenter for SCI systems.240 Accordingly, review that the Commission should initially noted that information regarding the of programs relating to systems limit the scope of SCI systems to those status of systems that are in development and testing for SCI systems systems covered by the ARP Policy development and testing would be is within the scope of Regulation SCI, Statements (trading, clearance and captured in the notices regarding and an SCI entity should reasonably settlement, and order routing) and phase material systems changes under expect Commission staff to review such in other types of systems later.233 The proposed Rule 1000(b)(6) and in the processes and systems during the course Commission believes that the adopted updates under proposed Rule of its exams and inspections. In definition of SCI systems obviates the 1000(b)(8).237 Alternatively, this addition, the Commission notes that the need for such an approach, as many commenter suggested that the definition of SCI review in adopted Rule systems for which the commenter urged Commission could require that any 1000 and corresponding requirements a delay in compliance will not be testing errors be corrected (and such for an annual SCI review in adopted covered by the regulation, as adopted. corrections be retested) prior to Rule 1003(b) require an assessment of SCI Systems: Inclusions and Exclusions implementation of those changes in internal control design and production.238 effectiveness, which includes Various commenters objected to The Commission believes that certain development processes.241 Further, if specific categories proposed to be modifications to the elements of the development and testing systems are not included in the definition of SCI proposed definition of SCI systems are appropriately walled off from systems. First, many commenters appropriate. First, in response to production systems, such systems could opposed the proposed inclusion of comments, the reference to development be captured under the definition of development and testing systems in the and testing systems in the proposed indirect SCI systems as discussed below definition, noting that issues in definition of SCI systems has been and be subject to the requirements of development and testing systems would deleted.239 As commenters pointed out, Regulation SCI. If an SCI entity’s have little or no impact on the development and testing systems are development and testing systems are not operations of SCI entities and that such generally designed to identify and walled off from production systems, the systems are designed to identify and address problems before new systems or SCI entity should consider whether its address problems before they are systems changes are introduced into policies and procedures should specify introduced into production systems.234 production systems and, by their nature, safeguards to ensure that its personnel can often experience issues, both can clearly distinguish the development 231 See CME Letter at 5. intentional and unplanned, during the and testing systems from the production 232 However, the Commission notes that, if an SCI testing process. The Commission systems, in order to avoid inadvertent entity has systems that do not relate to securities, and that have not been properly walled off from its believes that systems issues that occur errors that may result in an SCI event. SCI systems for securities, they may be captured by with respect to such systems are less Some commenters also opposed the the definition of ‘‘indirect SCI systems’’ (as likely to have a significant impact on proposed inclusion of regulatory and discussed below) and subject to certain the operations of an SCI entity or on the surveillance systems within the requirements of the rule including those relating to securities markets as a whole than definition of SCI systems or suggested security and intrusions standards. See infra Section IV.A.2.d (discussing definition of ‘‘indirect SCI issues occurring with respect to that the Commission refine or clarify the systems’’). scope of such systems.242 Some of these 233 See MSRB Letter at 9. 235 See MSRB Letter at 7; and DTCC Letter at 4. 234 See NYSE Letter at 11; FINRA Letter at 10–11; 236 See MSRB Letter at 7. 240 See adopted Rule 1001(a) and discussion in Omgeo Letter at 5; DTCC Letter at 4; SIFMA Letter 237 See DTCC Letter at 4. infra Section IV.B.1 (discussing the policies and at 8; BIDS Letter at 16; MSRB Letter at 7–8; OCC 238 See id. procedures requirement under adopted Rule Letter at 5; CME Letter at 6; Joint SROs Letter at 5; 239 Because the Commission is removing 1001(a)). and Direct Edge Letter at 2. One commenter development and testing systems from the 241 See adopted Rule 1000 and 1003(b) and qualified this position by stating that, to the extent definition of SCI systems, the reference to discussion in infra Section IV.B.5 (discussing the that a systems issue in a development and testing production systems in the definition of SCI systems SCI review requirement). The Commission also environment were to give rise to an issue affecting is also being deleted as it is unnecessary to notes that development processes include testing an SCI system, the proposal should apply to that distinguish between development, testing and processes. development and testing environment. See OCC production systems within the definition. See 242 See NYSE Letter at 11; BATS Letter at 5; Letter at 5. adopted Rule 1000 (definition of ‘‘SCI systems’’). MSRB Letter at 8–9; and FINRA Letter at 7–8.

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commenters argued that inclusion of the proposed definition of ‘‘SCI of SCI systems and subject to Regulation such systems was not necessary because systems’’ that some commenters SCI. However, the Commission has these systems do not operate on a real- addressed was the inclusion of market repeatedly emphasized the importance time basis or have a real-time impact on data systems. Specifically, one of consolidated market data to the trading.243 Further, one commenter commenter believed that the inclusion national market system and the suggested that periodic reporting of of all market data systems was too protection of investors 249 and the severe material outages or delays in the broad, and argued that only ‘‘systems impact of its unavailability was operation of regulatory and surveillance that directly support ‘the transmission evidenced by the SIP outage in August systems, pursuant to appropriate of market data as required by the 2013.250 Thus, as discussed below, policies and procedures, would support Exchange Act’’’ should be included, systems directly supporting the goals of Regulation SCI without thus limiting the types of market data functionality related to the provision of imposing undue burdens on SCI entities systems to those relating to consolidated consolidated market data are or raising the risk that market data and excluding those that transmit distinguished by their inclusion in the participants would purposefully direct proprietary market data.247 Although definition of ‘‘critical SCI systems.’’ 251 order flow to SCI entities experiencing the term ‘‘market data’’ is not defined in Further, one commenter questioned regulatory or surveillance systems Regulation SCI, that term generally whether the phrase ‘‘market data issues.244 Another commenter refers to price information for securities, systems’’ was intended to be limited to advocated for replacing the terms both pre-trade and post-trade, such as data-driven systems devoted to price ‘‘regulation’’ and ‘‘surveillance’’ with quotations and transaction reports.248 In transparency or whether the ‘‘market regulation’’ and ‘‘market response to the commenter urging that Commission also intended to include surveillance,’’ respectively, and asked only market data systems relating to document-based systems devoted to the Commission to clarify the difference consolidated data be included, the term public disclosure.252 In response to this between ‘‘regulatory’’ and ‘‘market data’’ does not refer exclusively comment, the Commission notes that ‘‘surveillance’’ systems.245 to consolidated market data, but systems providing or directly In consideration of these comments, includes proprietary market data supporting price transparency are 253 the Commission has determined to limit generated by SCI entities as well. The within the scope of SCI systems. SCI systems to those systems relating to Commission notes that both However, systems solely providing or market regulation and market consolidated and proprietary market directly supporting other types of data, surveillance rather than including all data systems are widely used and relied such as systems used by market regulation and surveillance systems. As upon by a broad array of market participants to submit disclosure proposed, the definition contained no participants, including institutional documents, or systems used by SCI such limitations and could potentially investors, to make trading decisions, entities to make disclosure documents be interpreted to cover systems used for and that if a consolidated or a publicly available, are not within the member regulation and member proprietary market data feed became scope of SCI systems, so long as they do surveillance. The Commission does not unavailable or otherwise unreliable, it not also directly support price believe that inclusion of member could have a significant impact on the transparency. Several commenters also argued that regulation or member surveillance trading of the securities to which it the term SCI systems should not include systems such as those, for example, pertains, and could interfere with the systems operated on behalf of an SCI relating to member registration, capital maintenance of fair and orderly markets. entity by a third party.254 Some of these requirements, or dispute resolution, Therefore, systems of an SCI entity commenters pointed to potential would advance the goals of Regulation directly supporting proprietary market difficulties with meeting the SCI. Issues relating to such systems are data or consolidated market data are both within the scope of the definition requirements of Regulation SCI with unlikely to have the same level of regard to third party systems.255 One impact on the maintenance of fair and orderly markets or an SCI entity’s Audit Trail Adopting Release’’). Although the consolidated audit trail central repository has not 249 See, e.g., Concept Release on Equity Market operational capability as those systems yet been created, the Commission believes that the Structure, supra note 198; and Regulation NMS identified in the definition of SCI consolidated audit trail repository will be a market Adopting Release, supra note 182, at 37503–04. systems. The Commission believes that regulation system that falls within the definition of 250 See supra note 32 and accompanying text. this change will more appropriately SCI systems, and further that it will be an SCI 251 See infra Section IV.A.2.c (discussing capture only those regulatory and system of each SCI SRO that is a member of an definition of ‘‘critical SCI systems’’). approved NMS plan under Rule 613, because it will 252 See MSRB Letter at 8–9 (citing its EMMA surveillance systems that are related to be a facility of each SCI SRO that is a member of Primary Market Disclosure Service and EMMA core market functions, such as trading, such plan. See Consolidated Audit Trail Adopting Continuing Disclosure Service system as an clearance and settlement, order routing, Release, 77 FR at 45774 (stating, ‘‘[T]he central example of a document-based system devoted to and market data.246 Another element of repository will be jointly owned by, and be a public disclosure). facility of, each SRO that is a sponsor of the NMS 253 With regard to this particular comment, the plan.’’). See also SCI Proposing Release, supra note Commission notes that the specific systems 243 See NYSE Letter at 11; and Joint SROs Letter 13, at 18099 (contemplating inclusion of the referenced—the RTRS, EMMA Primary Market at 5. consolidated audit trail central repository as an SCI Disclosure Service, EMMA Continuing Disclosure 244 See NYSE Letter at 11 (citing concerns system). Service and SHORT System—all include pricing regarding the potential that dissemination of 247 See NYSE Letter at 10–11. information for securities, and thus would fall information regarding issues with regulatory or 248 See Exchange Act Section 11A (15 U.S.C. within the definition of ‘‘SCI systems.’’ surveillance systems to members or participants 78K–1(a)(1)(C)(iii)), granting the Commission 254 See Omgeo Letter at 5–6; DTCC Letter at 4; could provide a ‘‘roadmap for violative market authority to assure the availability to brokers, SIFMA Letter at 8–9; BIDS Letter at 16; and BATS behavior’’). dealers, and investors of ‘‘information with respect Letter at 4. See also ITG Letter at 5 (expressing 245 See FINRA Letter at 7–8. to quotations for and transactions in securities’’). concern about the inclusion of systems of third 246 The Commission notes that Rule 613 of See also Regulation of Market Information Fees and parties operated on behalf of an SCI entity and Regulation NMS requires the creation of an NMS Revenues, Securities Exchange Act Release No. systems that are unrelated to the trading operations plan to govern the creation, implementation, and 42208, 64 FR 70613 (December 17, 1999) of an ATS). maintenance of a consolidated audit trail and (describing ‘‘market information’’ as information 255 See, e.g., Omgeo Letter at 5–6; and BATS central repository. See 17 CFR 242.613. See also concerning quotations for and transactions in equity Letter at 4 (arguing that it would be difficult for SCI Securities Exchange Act Release No. 67457 (July 18, securities and options that are actively traded in the entities to ensure compliance by third party 2012), 77 FR 45722 (August 1, 2012) (‘‘Consolidated U.S. markets). Continued

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commenter specifically suggested that not a basis for excluding these systems only fall within the definition of ‘‘SCI the proposal should be limited to those from the definition of SCI systems. systems’’ if it is a system that directly systems under the control of the SCI Instead, if an SCI entity determines to supports any one of the six functions entity.256 Another commenter noted that utilize a third party for an applicable provided in the definition of ‘‘SCI the SCI entity should instead be system, it is responsible for having in systems,’’ not all systems that are responsible for managing these place processes and requirements to facilities of an exchange will be SCI relationships through due diligence, ensure that it is able to satisfy the systems. For example, as noted in the contract terms, and monitoring of third requirements of Regulation SCI for SCI Proposal, the definition of SCI party performance.257 One commenter systems operated on behalf of the SCI systems would apply to systems of also requested that the Commission entity by a third party. The Commission exchange-affiliated routing brokers that clarify how SCI entities should comply believes that it would be appropriate for are facilities of national securities with the oversight of vendor systems as an SCI entity to evaluate the challenges exchanges.263 But a system used for part of Regulation SCI.258 associated with oversight of third-party member regulation that may meet the Although several commenters argued vendors that provide or support its definition of a facility under the that the term SCI systems should not applicable systems subject to Regulation Exchange Act, would not be within the include third-party systems, the SCI. If an SCI entity is uncertain of its scope of the definition of ‘‘SCI systems.’’ Commission continues to believe that, if ability to manage a third-party Another commenter requested a system is operated on behalf of an SCI relationship (whether through due confirmation that internal systems are entity and directly supports one of the diligence, contract terms, monitoring, or excluded from the definition of SCI six key functions listed within the other methods) to satisfy the system.264 The Commission notes that definition of SCI system, it should be requirements of Regulation SCI,259 then the definition of ‘‘SCI system’’ does not included as an SCI system subject to the it would need to reassess its decision to differentiate between ‘‘internal systems’’ requirements of Regulation SCI. The outsource the applicable system to such and those systems accessed by market 265 Commission believes that any system third party.260 For example, if a third- participants or other outside parties. that directly supports one of the six party vendor is unwilling to disclose to The Commission notes that, while some functions enumerated in the definition an SCI entity information regarding the internal systems of an SCI entity may of SCI system is important to the vendor’s intellectual property or not meet the definition of SCI system, it functioning of the U.S. securities proprietary system that the SCI entity does not believe that that all internal markets, regardless of whether it is believes it needs to satisfy the systems (as described by this operated by the SCI entity directly or by requirements of Regulation SCI, as some commenter) would be outside of the 266 a third party. The Commission believes commenters suggested might be the scope of the definition of SCI system. that permitting such systems to be case, an SCI entity will need to reassess Other commenters advocated that SCI entities should be permitted to conduct excluded from the requirements of its relationship with that vendor, their own risk-based assessment to Regulation SCI would significantly because the vendor’s unwillingness to determine which of their systems reduce the effectiveness of the provide necessary information or other should be considered SCI systems.267 regulation in promoting the national assurances would not exclude the One commenter noted that SCI entities market system by ensuring the capacity, outsourced system from the definition should be required to develop and integrity, resiliency, availability, and of SCI systems. Accordingly, the maintain an established methodology security of those systems important to definition of SCI system, as adopted in for identifying which systems qualify as the functioning of the U.S. securities Rule 1000, retains the reference to SCI systems,268 while other commenters markets. Further, if the definition did systems operated ‘‘on behalf of’’ SCI entities. advocated for coordination with the not include systems operated on behalf Commission in establishing criteria to of an SCI entity, the Commission is Finally, some commenters asked for clarification on miscellaneous aspects of be used in conducting such risk-based concerned that some SCI entities might assessments or review by the be inclined to outsource certain of their the definition. For example, one commenter requested that the Commission of an SCI entity’s own risk- systems solely to avoid the requirements based assessment.269 The Commission of Regulation SCI, which would further Commission clarify that the definition of SCI system for purposes of Regulation has carefully considered these undermine the goals of Regulation SCI. comments and generally agrees that The Commission agrees with the SCI is separate and distinct from the definition of a facility set forth in comment that an SCI entity should be 261 263 See Proposing Release, supra note 13, at responsible for managing its Section 3(a)(2) of the Exchange Act. The Commission notes that the term 18099. relationship with third parties operating 264 See FINRA Letter at 10. ‘‘SCI system’’ under Regulation SCI is systems on behalf of the SCI entity 265 See adopted Rule 1000 (definition of SCI through due diligence, contract terms, distinct from the term ‘‘facility’’ in systems). 262 266 and monitoring of third party Section 3(a)(2) of the Exchange Act. In addition, the Commission notes that, while Because a facility of an exchange would certain internal systems may not be ‘‘SCI systems,’’ performance. However, the Commission they may instead meet the definition of ‘‘indirect believes that these methods may not be SCI systems’’ under adopted Rule 1000, if they are 259 See BIDS Letter at 16 (suggesting these sufficient in all cases to ensure that the not properly walled off from SCI systems. However, methods of managing third-party relationships to as discussed below, the Commission is clarifying requirements of Regulation SCI are met comply with the proposed rule). the meaning of this defined term to note that for SCI systems operated by third 260 See FIF Letter at 3 and FINRA Letter at 22– systems that are effectively physically or logically parties. The fact that they might be 23 (requesting Commission guidance on how an SCI separated from SCI systems would be outside of the entity should manage third-party relationships in definition of indirect SCI systems and thus outside sufficient some of the time is therefore the context of adopted Regulation SCI). See also of the scope of Regulation SCI. See infra Section infra notes 851–852 and accompanying text IV.A.2.d (discussing the definition of ‘‘indirect SCI vendors absent their willingness to disclose to SCI (discussing comments on the risk of noncompliance systems’’). entities highly detailed information about their by an SCI entity in connection with reporting SCI 267 See DTCC Letter at 3–5; Omgeo Letter at 5– intellectual property and proprietary systems). events and material systems changes due to 6; and OCC Letter at 3–4. 256 See SIFMA Letter at 9. challenges posed by third-party systems). 268 See Omgeo Letter at 5. 257 See BIDS Letter at 16. 261 See NYSE Letter at 10. 269 See OCC Letter at 3–4; and DTCC Letter at 258 See FIF Letter at 3. 262 See 15 U.S.C. 78c3(a)(2). 3–4.

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certain systems pose greater risk to the and closings on the primary listing Commission believes that it is markets in the event of a systems issue market; (iii) trading halts; (iv) initial appropriate for such critical SCI systems and are of paramount importance to the public offerings; (v) the provision of to be held to heightened requirements functioning of the U.S. securities consolidated market data; or (vi) (as compared to those for SCI systems) markets. Rather than include only those exclusively-listed securities; or (2) related to capacity, integrity, resiliency, in the definition of SCI systems, the provide functionality to the securities availability, and security generally; Commission believes that it is more markets for which the availability of rapid recovery following wide-scale prudent to instead identify these alternatives is significantly limited or disruptions; and disclosure of SCI systems as ‘‘critical SCI systems’’ nonexistent and without which there events. The Commission believes that subject to certain heightened would be a material impact on fair and the definition of critical SCI systems is obligations. Further, adopted Rule orderly markets.’’ appropriately designed to identify those 1001(a) requiring SCI entities to have As noted above, many commenters SCI systems whose functions are critical policies and procedures reasonably advocated for a risk-based approach to to the operation of the markets, designed to ensure that their systems Regulation SCI and either suggested that including those systems that represent have adequate levels of capacity, only the entities or systems that pose potential single points of failure in the integrity, resiliency, availability, and the greatest risk to the markets should securities markets. Systems in this security is consistent with a risk-based be within the scope of the regulation or, category are those that, if they were to approach.270 Specifically, as discussed alternatively, that the requirements of experience systems issues, the in further detail below, an SCI entity Regulation SCI be tailored to the Commission believes would be most may tailor its policies and procedures specific risk-profile of a particular entity likely to have a widespread and based on the relative criticality of a or particular system.275 While the significant impact on the securities given SCI system to the SCI entity and Commission disagrees with commenters markets. to the securities markets generally.271 who suggested that Regulation SCI The first prong of the definition should apply only to ‘‘critical systems,’’ identifies six specific categories of c. Critical SCI Systems as it believes that these are not the only systems that the Commission believes As discussed above, in response to systems that could pose a significant are the most critical to the securities comments, the Commission is risk to the securities markets, the markets, and the most likely to have incorporating a risk-based approach in Commission believes that it is widespread and significant market certain aspects of Regulation SCI.272 To appropriate to hold systems that pose impact should a systems issue occur. that end, the Commission is adopting a the greatest risk to the markets if they These are: clearance and settlement definition of ‘‘critical SCI systems’’ to malfunction to higher standards and systems of clearing agencies; openings, designate SCI systems that the more stringent requirements under reopenings, and closings on the primary Commission believes should be subject Regulation SCI. Recent events have also listing market; trading halts; initial to the highest level of requirements. As demonstrated the importance of certain public offerings; the provision of a subset of ‘‘SCI systems,’’ ‘‘critical SCI critical systems functionality, including consolidated market data (i.e., SIPs); systems’’ are subject to the same those that represent ‘‘single points of and exclusively-listed securities. provisions as ‘‘SCI systems,’’ except that failure’’ to the securities markets, and In the context of suggesting the critical SCI systems are subject to the need for more robust market adoption of a risk-based approach for certain heightened resilience and infrastructure, particularly with regard Regulation SCI, some commenters information dissemination provisions of to critical market systems.276 identified those functions that they Regulation SCI. In these respects, The Commission believes that the believed were most critical to the critical SCI systems are subject to an adoption of the definition of ‘‘critical functioning of the markets. Among increased level of obligation as SCI systems’’ and heightened those identified were clearance and compared to other SCI systems.273 requirements for such systems settlement, opening and closing Rule 1000 defines ‘‘critical SCI recognizes that some systems are critical auctions, IPO auctions, the provision of systems’’ as ‘‘any SCI systems of, or to the continuous and orderly consolidated market data by the SIPs; operated by or on behalf of, an SCI functioning of the securities markets and trading of exclusively-listed entity that: (1) Directly support more broadly and, as such, ensuring securities.277 The Commission agrees functionality relating to: (i) Clearance their capacity, integrity, resiliency, with commenters who characterized and settlement systems of clearing availability, and security is of the these categories of systems as critical. In agencies; 274 (ii) openings, reopenings, utmost importance. Therefore, as addition, as discussed below, the discussed further below, the Commission believes that systems that 270 See adopted Rule 1001(a). See also infra directly support functionality relating to Section IV.B.1 (discussing policies and procedures clearing agency under Section 17A of the Act, and for operational capability). whose exemption contains conditions that relate to 277 See, e.g., Direct Edge Letter at 2 (citing, among 271 See infra Section IV.B.1.a–b (discussing the ARP, or any Commission regulation that supersedes others, SIPs and clearance and settlement systems use of risk-based considerations to tailor policies or replaces such policies, including Regulation as essential to continuous market-wide operation); and procedures for operational capability). SCI). KCG Letter at 2–3 (identifying opening and closing 272 See supra notes 53–56 and accompanying text 275 See supra notes 53–56 and 216–222 and auctions, IPO auctions, trading of exclusively-listed (discussing comments on a risk-based approach). accompanying text (discussing comments on a risk- options, market data consolidators, and settlement 273 See infra Sections IV.B.1.b and IV.B.3.d based approach and limiting SCI systems to only and central clearing as ‘‘single points of failure’’ (discussing the two-hour resumption goal for core or critical systems). that should be subject to heightened regulatory ‘‘critical SCI systems’’ and information 276 See supra Section II.B (describing recent requirements); and SIFMA Letter at 4 (stating that dissemination requirement for ‘‘major SCI events,’’ events involving systems-related issues). In highly critical functions should include primary respectively). particular, the Nasdaq SIP incident, which caused listing exchanges, trading exclusively listed 274 ‘‘Clearance and settlement systems of clearing a disruption in the dissemination of consolidated securities, SIPs, clearance and settlement, agencies’’ includes systems of registered clearing market data in the equity markets and led to a distribution of unique post-trade transparency agencies and exempt clearing agencies subject to trading halt in all Nasdaq-listed stocks for several information, and real-time market surveillance). ARP. See Rule 1000 (definition of ‘‘exempt clearing hours, confirmed that disruptions in systems that Although these commenters were urging that agency subject to ARP,’’ which by its terms would represent single points of failure can have a major Regulation SCI apply only to these critical systems, also include an entity that has received from the and detrimental impact across an entire national as explained above, the Commission believes that Commission an exemption from registration as a market system. such an approach would be too limited.

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trading halts should be included in the Similarly, reliable openings, should be included in the definition of definition of critical SCI systems. reopenings, and closings on primary critical SCI systems. In the event a With respect to ‘‘clearance and listing markets are key to the trading halt is necessary, it is essential settlement systems of clearing establishment and maintenance of fair that the systems responsible for agencies,’’ the clearance and settlement and orderly markets. NYSE and Nasdaq, communicating the trading halt— of securities is fundamental to securities for example, each have an opening cross typically maintained by the primary market activity.278 Clearing agencies for their listed securities that solicits listing market—are robust and reliable perform a variety of services that help trading interest and generates a single so that the trading halt is effective ensure that trades settle on time and at auction price that attracts widespread across the U.S. securities markets. For the agreed upon terms. For example, participation and is relied upon as a example, when there is material ‘‘news clearing agencies compare transaction benchmark by other markets and market pending’’ with respect to an issuer, it is information (or report to members the participants.283 Similar processes are the responsibility of the primary listing results of exchange comparison used, and heavy levels of participation market to call a regulatory halt by operations), calculate settlement typically are generated, at the primary generating a halt message which, when obligations (including net settlement), listing markets in the reopening cross received by other trading centers, collect margin (such as initial and that follows a trading halt.284 Closing requires them to cease trading the variation margin), and serve as a auctions at the primary listing markets security.287 Similar responsibilities are depository to hold securities as also attract widespread participation, placed on the primary listing market certificates or in dematerialized form to and the closing prices they establish are with respect to calling trading halts facilitate automated settlement. Because commonly used as benchmarks, such as under the National Market System Plan of their role, clearing agencies are to value derivative contracts and to Address Extraordinary Market critical central points in the financial generate mutual fund net asset values. Volatility, as well as on plan processors system. A significant portion of As such, during these critical trading to disseminate this information to the securities activity flows through one or periods, market participants rely on the public.288 Thus, systems which more clearing agencies. Clearing processes of the primary listing markets communicate information regarding agencies have direct links to to effect transactions, and establish trading halts provide an essential participants and indirect links to the benchmark prices that are used in a service in the U.S. markets and, should customers of participants. Clearing wide variety of contexts so that the a systems issue occur affecting the agencies are also linked to each other unavailability or disruption of systems ability of an SCI entity to provide such through common participants and, in directly supporting the opening, notifications, the fair and orderly some cases, by operational processes. reopening and closing processes on the functioning of the securities markets Safe and reliable clearing agencies are primary listing markets could have may be significantly impacted. essential not only to the stability of the widespread detrimental effects.285 Companies offer shares of capital securities markets they serve but often In addition, the Commission believes stock to the general public for the first also to payment systems, which may be that systems directly supporting time through the IPO process, in which 286 used by a clearing agency or may functionality relating to trading halts the primary listing market initiates themselves use a clearing agency to are essential to the orderly functioning public trading in a company’s shares. transfer collateral.279 The safety of of the securities markets, and therefore The IPO is conducted exclusively on securities settlement arrangements and that exchange, and secondary market post-trade custody arrangements is also market as the clearance and settlement systems of trading cannot commence on any other clearing agencies as discussed above. exchange until the opening trade is critical to the goal of protecting the 283 See Nasdaq Rule 4752 (Opening Process) and printed on the primary listing market.289 assets of investors from claims by NYSE Rules 115A (Orders at the Opening) and creditors of intermediaries and other 123D (Openings and Halts in Trading). As such, the Commission believes that entities that perform various functions 284 See, e.g., Nasdaq Rule 4753 (Nasdaq Halt and an exchange’s systems that directly Imbalance Crosses) and NYSE Rules 115A (Orders in the operation of the clearing support the IPO process and the at the Opening) and 123D (Openings and Halts in initiation of secondary market trading agency.280 Investors are more likely to Trading). are a critical element of the capital participate in markets when they have 285 For example, press reports indicated that the confidence in the safety and reliability decision to close the New York Stock Exchange in formation process and the effective the wake of Superstorm Sandy, and the resulting of clearing agencies as well as functioning of the securities markets. lack of availability of the NYSE opening and closing The Commission believes that these settlement systems.281 Accordingly, the prices, was a significant contributing cause of the Commission believes ‘‘clearance and unscheduled closure of the U.S. national securities exchanges. See, e.g., Jenny Strasburg, Jonathan 287 See, e.g., CTA Plan Section IX(a), available at: settlement systems of clearing agencies’’ Cheng, and Jacob Bunge, ‘‘Behind Decision to Close http://www.nyxdata.com/cta; National Market are appropriate for inclusion in the Markets,’’ Wall St. J., October 29, 2012. See also System Plan To Address Extraordinary Market definition of critical SCI systems.282 Proposing Release, supra note 13, at 18091 Volatility, Section VII (‘‘Limit Up/Limit Down (discussing the effects of Superstorm Sandy on the Plan’’); NYSE Arca Rule 7.12, BATS Rule 11.18, and EDGA Rule 11.14. See also Securities Exchange Act 278 See Clearing Agency Standards Release, supra securities markets). While other exchanges outside of the path of Superstorm Sandy did not experience Release No. 67091 (May 31, 2012), 77 FR 33498 note 76, at 66220, 66264. (June 6, 2012) (File No. 4–631) (Order Approving, 279 the same risks to their electronic trading systems as See Clearing Agency Standards Release, supra the NYSE and could have otherwise opened for on a Pilot Basis, the National Market System Plan note 76, at 66264. business, the risk that opening and closing prices To Address Extraordinary Market Volatility) (‘‘Limit 280 See id. might not be set by NYSE for its listed securities Up/Limit Down Plan Approval Order’’). 281 See id. contributed to the consensus recommendation of 288 See Limit Up/Limit Down Plan, supra note 282 The Commission notes that systems of SCI market participants that the markets remain closed. 287 and Limit Up/Limit Down Plan Approval entities other than clearing agencies that are used See Jenny Strasburg, Jonathan Cheng, and Jacob Order, supra note 287. in connection with the clearance and settlement of Bunge, ‘‘Behind Decision to Close Markets,’’ Wall 289 See Rule 12f–2 under the Exchange Act, 17 trades are not captured by the definition of ‘‘critical St. J., October 29, 2012. CFR 240.12f–2 (providing that a national securities SCI systems,’’ but rather would fall within the 286 For purposes of clarity, the Commission notes exchange may extend unlisted trading privileges to definition of ‘‘SCI systems,’’ as discussed above. See that the term ‘‘trading halts’’ as used in this context a security when at least one transaction in the supra Section IV.2. The Commission believes that is intended to capture market-wide halts, such as security has been effected on the national securities such systems of other SCI entities, such as SROs regulatory halts, rather than a halt to trading for exchange upon which the security is listed and the and ATSs, do not provide the same critical securities on a particular market (for example, transaction has been reported pursuant to an functions or pose the same level of risk to the caused by a systems issue specific to that market). effective transaction reporting plan).

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systems, which are the sole system.295 It also enables investors to entity.’’ This language mirrors the responsibility of the primary listing monitor the prices at which their orders language in the definitions of SCI market, can adversely affect not only the are executed and serves as a data point system and indirect SCI system, and as IPO of a particular issuer, but may also that helps them to assess whether their discussed above, is intended to cover result in significant monetary losses and orders received best execution.296 systems that are third-party systems harm to investors if they fail.290 As Finally, systems directly supporting operated on behalf of SCI entities.299 noted in the SCI Proposal, systems functionality relating to exclusively- issues affecting the two recent high- listed securities represent single points d. Indirect SCI Systems (Proposed as profile IPOs highlighted how of failure in the securities markets, ‘‘SCI Security Systems’’) disruptions in IPO systems can have a because exclusively-listed securities, by Proposed Rule 1000 defined the term significant impact on the market.291 definition, are listed and traded solely Systems directly supporting the on one exchange.297 As such, a trading ‘‘SCI security systems’’ to mean ‘‘any provision of consolidated market data disruption on the exclusive listing systems that share network resources are also critical to the functioning of market necessarily will disrupt trading with SCI systems that, if breached, U.S. securities markets and represent by all market participants in those would be reasonably likely to pose a potential single points of failure in the securities.298 security threat to SCI systems.’’ 300 As delivery of important market The second prong of the definition is adopted, Regulation SCI includes the information. When Congress mandated a broader catch-all provision intended new term ‘‘indirect SCI systems,’’ in a national market system in 1975, it to capture any SCI systems, beyond place of the proposed term ‘‘SCI security emphasized that the systems for those specifically identified within the systems.’’ The term ‘‘indirect SCI collecting and distributing consolidated first prong of the definition, that provide systems’’ is defined to mean ‘‘any market data would be central features of functionality to the securities markets systems of, or operated by or on behalf the national market system.292 Further, for which the availability of alternatives of, an SCI entity that, if breached, would one of the findings of the recent report is significantly limited or nonexistent be reasonably likely to pose a security by the staffs of the Commission and the and without which there would be a threat to SCI systems.’’ CFTC on the market events of May 6, material impact on fair and orderly As an initial matter, the Commission 2010 was that ‘‘fair and orderly markets markets. The Commission is not aware has determined to replace the proposed require that the standards for robust, of any SCI systems that would fall under term ‘‘SCI security systems’’ with the accessible, and timely market data be set this prong of the critical SCI systems adopted term ‘‘indirect SCI systems’’ 293 quite high.’’ Accurate, timely, and definition at this time, and notes that because it believes that the latter term, this prong of the definition is intended efficient collection, processing, and in using the word ‘‘indirect,’’ better to account for further technology dissemination of consolidated market reflects that it is intended to cover non- advancements and the continual data provides the public with ready SCI systems only if they are not evolution of the securities markets, in access to a comprehensive and reliable appropriately secured and segregated source of information for the prices and recognition that such developments from SCI systems, and therefore could volume of any NMS stock at any time could result in additional or new types indirectly pose risk to SCI systems.301 during the trading day.294 This of systems that would, similar to the The adopted definition of indirect SCI information helps to ensure that the enumerated categories of systems in the systems includes systems ‘‘of, or public is aware of the best displayed first prong of the definition, become so prices for a stock, no matter where they critical to the continuous and orderly operated by or on behalf of’’ of an SCI may arise in the national market functioning of the securities markets entity that, ‘‘if breached, would be such that they should be subject to the reasonably likely to pose a security 290 See, e.g., supra note 36 (discussing the losses requirements of Regulation SCI imposed threat to SCI systems.’’ As discussed associated with Nasdaq’s Facebook IPO). on those systems specifically below, in response to comment that the 291 Specifically, in March 2012, BATS announced enumerated in the first prong of the proposed term would cover too many that a ‘‘software bug’’ caused BATS to shut down systems unrelated to SCI systems, the the IPO of its own stock, and in May 2012, issues definition. with Nasdaq’s trading systems delayed the start of The Commission also notes that the adopted term excludes the phrase trading in the IPO of Facebook, Inc. and some definition applies to those systems ‘‘of, ‘‘share network resources.’’ market participants experienced delays in or operated by or on behalf of, an SCI notifications of whether orders had been filled. See One commenter expressly supported Proposing Release, supra note 13, at 18089; and the definition of SCI security systems Securities Exchange Act Release No. 69655, In the 295 See id. and urged that it be expanded to include Matter of The NASDAQ Stock Market, LLC and 296 See id. Also, as discussed above, the recent any technology system that has direct NASDAQ Execution Services, LLC (settled action: Nasdaq SIP disruption demonstrated that the 302 May 29, 2013), available at: http://www.sec.gov/ availability, accuracy, and reliability of market access. In response to this litigation/admin/2013/34-69655.pdf. Nasdaq and consolidated market data is currently central to the comment, the Commission notes that Nasdaq Execution Services, LLC consented to an functioning of the securities markets, and systems the adopted definition includes any Order Instituting Administrative and Cease-and- issues affecting such systems can result in major technology system of, or operated by or Desist Proceedings Pursuant to Sections 19(h)(1) disruptions to the national market system, and 21C of the Securities Exchange Act of 1934, undermining the maintenance of fair and orderly on behalf of an SCI entity, that has Making Findings, and Imposing Sanctions and a markets. direct market access if that system meets Cease-and-Desist Order. 297 As noted above, commenters identified the the definition’s test: whether a breach of 292 See H.R. Rep. No. 94–229, 94th Cong., 1st systems supporting the trading of exclusively-listed Sess. 93 (1975). See also Concept Release on Equity securities as representing critical points of failure Market Structure, supra note 4, at 3600, and or critical functionality in the securities markets. 299 See supra notes 254–260 and accompanying Proposing Release, supra note 13, at 18108 (each See, e.g., KCG Letter at 2–3; and SIFMA Letter at text. discussing the importance of consolidated market 4. 300 See proposed Rule 1000(a) and Proposing data). 298 For example, as noted above, in April 2013, Release, supra note 13, at Section III.B.2. 293 See Findings Regarding The Market Events Of CBOE delayed the opening of trading on its 301 The Commission also believes that eliminating May 6, 2010, Report Of The Staffs Of The CFTC exchange for over three hours due to an internal the word ‘‘security’’ from the defined term will help And SEC To The Joint Advisory Committee On ‘‘software bug,’’ preventing investors from trading clarify that the term is not limited to systems Emerging Regulatory Issues, September 30, 2010, at in those products that are singly-listed on CBOE, relating only to security of the SCI entity and its 8 (‘‘May 6 Staff Report’’). including options on the S&P 500 Index and the systems (e.g., firewalls, VPNs). 294 See id. VIX. See supra note 28 and accompanying text. 302 See Lauer Letter at 5.

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that system would be reasonably likely Commission believes that it is important greater clarity on the extent to which to pose a security threat to SCI systems. that the provisions of Regulation SCI SCI security systems that are isolated This commenter also suggested that relating to security standards and from production, such as email and the Commission additionally require systems intrusions apply to such intranet sites, raise security issues that SCI entities to have independent systems (i.e., indirect SCI systems). are within the scope of the proposal.316 security audits performed and allow the Many commenters objecting to the After careful consideration of these auditor to have the ability to define proposed definition as too broad comments, the Commission believes which systems should be included and addressed particular elements of the that inclusion of the phrase ‘‘share which can be safely excluded.303 The proposed definition of SCI security network resources’’ in the proposed Commission is not requiring systems or provided specific definition could be interpreted in a ‘‘independent security audits’’ to recommendations for modifications or manner that would include almost any determine which systems would fall limitations to the definition.308 For system that is part of an SCI entity’s within the definition of indirect SCI example, some commenters criticized network. In response to commenters system as suggested by this the use of the phrase ‘‘share network who expressed concern about the commenter,304 because the Commission resources,’’ noting that it was vague and breadth of the proposed definition, the believes its adopted rule requiring an too broad, potentially encompassing Commission has determined to annual SCI review addresses the almost any system of an SCI entity.309 eliminate the phrase ‘‘share network commenter’s request. The Commission Similarly, one commenter stated that resources’’ from the definition, so that notes that the adopted annual SCI the definition of SCI security system the adopted result-oriented test depends review requirement requires that such should include only systems that on whether a system ‘‘if breached, review be performed by objective, ‘‘directly’’ share network resources with would be reasonably likely to pose a qualified personnel, and that it include an SCI system.310 One commenter security threat to SCI systems.’’ As a an assessment of logical and physical argued that the definition should only result, the inquiry into whether any security controls for SCI systems and include those systems that are system is an indirect SCI system will indirect SCI systems. The Commission materially and directly connected to the depend on whether it is effectively believes that an SCI entity is generally trading operations of an SCI entity.311 physically or logically separated from in the best position to assess in the first Several commenters recommended that SCI systems. Systems that are instance which of its systems may fall systems that are logically and/or adequately physically or logically within the definition of indirect SCI physically separated from SCI systems separated (i.e., isolated from SCI systems, and that having an should be excluded from the systems, such that they do not provide independent third party audit to make definition.312 Some commenters vulnerable points of entry into SCI that determination should be optional qualified this position by stating that systems) will not fall within the rather than required at this time. such systems should be excluded, for definition of indirect SCI systems. Contrary to the commenter urging example, as long as SCI entities monitor The Commission believes that having expansion of the proposed definition of those systems for security breaches and adequate separation and security SCI security systems, many commenters have the ability to shut the system off controls should protect SCI systems argued that the proposed definition was if they detect a security breach; 313 or from vulnerabilities caused by other overbroad,305 with several of these same provided that the separation is routinely systems. To the extent that non-SCI commenters suggesting that the term be monitored and has appropriate risk systems are sufficiently walled off from deleted from the rule entirely.306 The controls in place and the system is ‘‘air SCI systems using appropriate security Commission believes that Regulation gapped’’ (i.e., has no point of entry) measures, and thus are not reasonably SCI warrants inclusion of a definition of from the public internet.314 One likely to pose a security threat to SCI indirect SCI systems because an issue or commenter believed that the definition systems if breached, they would not be systems intrusion with respect to a non- should exclude any system with included in the definition of indirect SCI system still could cause or increase ‘‘compensatory controls in place,’’ SCI systems, and thus would be outside the likelihood of an SCI event with which it stated would protect and of the scope of Regulation SCI. respect to an SCI entity’s SCI secure SCI systems from vulnerabilities The Commission notes that the 307 systems. In particular, because that could arise from shared network definition of indirect SCI systems will systems that are not adequately walled links.315 Another commenter asked for not include any systems of an SCI entity off from SCI systems may present for which the SCI entity establishes reasonably designed and effective potential entry points to an SCI entity’s 308 See NYSE Letter at 12; BATS Letter at 5–6; ISE network and thus represent potential Letter at 7–8; BIDS Letter at 16–17; SROs Letter at controls that result in SCI systems being vulnerabilities to SCI systems, the 15; Direct Edge Letter at 3; FINRA Letter at 13; ISE logically or physically separated from Letter at 8; and DTCC Letter at 5; and ITG Letter such non-SCI systems. Thus, the at 12. 303 See id. universe of an SCI entity’s indirect SCI 309 See NYSE Letter at 12; BATS Letter at 5; and 304 See adopted Rule 1000 (definition of ‘‘SCI ISE Letter at 7–8. systems is in the control of each SCI review’’) and infra Section IV.B.5 (discussing the 310 entity, and SCI entities should SCI review requirement). See BIDS Letter at 16–17. 311 305 See, e.g., NYSE Letter at 11; Omgeo Letter at See ITG Letter at 12 (stating that its suggested reasonably expect Commission staff to 6; MFA Letter at 6 (noting specifically that the approach would, in its case, cover systems for order assess its security controls around SCI definition could be read to extend to broker-dealers handling and execution, processing of market data, systems in connection with an or other third parties); SIFMA Letter at 8; ITG Letter transaction reporting, and clearing and settlement inspection or examination for at 5, 12; BIDS Letter at 16–17; MSRB Letter at 7; of trades). OCC Letter at 4; FINRA Letter at 12–13; CME Letter 312 See, e.g., Joint SROs Letter at 15 (stating that compliance with Regulation SCI. If at 6; DTCC Letter at 5; Oppenheimer Letter at 3; and the term ‘‘SCI security systems’’ should be deleted, these controls are not present or are not Direct Edge Letter at 3. but if retained, should exclude those systems that reasonably designed, the applicable 306 See, e.g., NYSE Letter at 11; Omgeo Letter at are physically and logically separated); BATS Letter non-SCI systems would be within the at 5–6; Direct Edge Letter at 3; FINRA Letter at 13; 6; MFA Letter at 6; SIFMA Letter at 2; FIF Letter scope of the definition of indirect SCI at 3; LiquidPoint Letter at 3; KCG Letter at 18; OCC ISE Letter at 8; and DTCC Letter at 5. Letter at 3; and Joint SROs Letter at 5. 313 See BATS Letter at 5–6. systems and subject to the security 307 See Proposing Release, supra note 13, at 314 See Direct Edge Letter at 3. 18099. 315 See FINRA Letter at 13. 316 See ISE Letter at 8.

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standards and systems intrusions with the definition of SCI systems, is will apply to material changes to the provisions of Regulation SCI. responsive to a broad range of security of indirect SCI systems.326 In Some commenters recommended that, commenters’ concerns.320 addition, the requirements regarding an rather than including SCI security Another commenter suggested that SCI review will apply to indirect SCI systems in the scope of the regulation, the definition be limited to systems ‘‘of, systems.327 Finally, Rules 1005 through the Commission should instead require or operated by or on behalf of, an SCI 1007, relating to recordkeeping and SCI entities to establish policies and entity,’’ noting that the definition of SCI electronic filing and submission of Form procedures designed to ensure the security systems should have parallel SCI, respectively, will also apply to security of their systems.317 According construction to the definition of ‘‘SCI indirect SCI systems.328 The to these commenters, such an approach systems’’ and without this phrase, SCI Commission believes that it is would require an evaluation of the risks entities would be tasked inappropriately appropriate to subject indirect SCI posed to SCI systems by non-SCI with controlling for systems outside of systems to only these specified systems. As noted, the Commission their effective control.321 As noted, the provisions because the Commission believes that the adopted definition of adopted definition of ‘‘indirect SCI believes that the primary risk posed by ‘‘indirect SCI systems’’ will effectively systems’’ applies to those systems ‘‘of, indirect SCI systems is that they may require SCI entities to evaluate the risks or operated by or on behalf of, an SCI serve as vulnerable entry points to SCI posed to SCI systems by non-SCI entity.’’ As a result, the adopted systems. The Commission’s objective systems. However, the Commission definition of indirect SCI systems with respect to indirect SCI systems is believes that the adopted approach will provides (as is the case for SCI systems) to guard against a non-SCI system being incentivize SCI entities to seek to have that systems ‘‘of, or operated by or on breached in a manner that threatens the in place strong security controls around behalf of’’ an SCI entity, are included in security of any SCI system. The SCI systems. As noted, if an SCI entity the definition of indirect SCI systems if Commission believes that its approach designs and implements security their breach would be reasonably likely to defining indirect SCI systems, and controls so that none of its non-SCI to pose a security threat to SCI requiring SCI entities to consider, systems would be reasonably likely to systems.322 The Commission believes address, and report on security changes pose a security threat to SCI systems, that the addition of this language is and intrusions into systems where then it will have no indirect SCI warranted to make clear that security of vulnerabilities have been identified, is systems. If, however, an SCI entity does SCI systems is not limited solely to tailored to meet this objective. have indirect SCI systems, then certain threats from systems operated directly provisions of Regulation SCI will apply by the SCI entity. If it were, outsourced 3. SCI Events to those indirect SCI systems.318 The systems of SCI entities would not be Regulation SCI specifies the types of Commission believes this approach to subject to the requirements of events—i.e., SCI events—that give rise indirect SCI systems is more appropriate Regulation SCI, which would to certain obligations under the rule, than the policies and procedures undermine the goals of Regulation SCI. including taking corrective action, approach suggested by some As discussed in further detail below, reporting to the Commission, and commenters because the Commission unlike SCI systems, those systems disseminating information about such believes that its approach is more meeting the definition of ‘‘indirect SCI SCI events.329 Proposed Rule 1000(a) comprehensive as it includes, for systems’’ will only be subject to certain defined the term ‘‘SCI event’’ as ‘‘an example, the requirements to take provisions of Regulation SCI. event at an SCI entity that constitutes: corrective action, provide notifications Specifically, references to ‘‘indirect SCI (1) A systems disruption; (2) a systems to the Commission, and disseminate systems’’ are included in the definitions compliance issue; or (3) a systems information for certain SCI events of ‘‘responsible SCI personnel,’’ ‘‘SCI intrusion.’’ 330 The Commission is relating to indirect SCI systems which, review,’’ and ‘‘systems intrusion’’ in adopting the definition of ‘‘SCI event’’ by definition, if breached, would be adopted Rule 1000.323 Rule 1001(a), as proposed. reasonably likely to pose a security requiring reasonably designed policies Many commenters believed that the threat to SCI systems. Another and procedures to ensure operational proposed definition of ‘‘SCI event’’ was commenter stated that a more precise capability, will apply to indirect SCI vague 331 or overly broad because it was definition of SCI security systems is systems only for purposes of security not limited to capturing material SCI important and that it would be valuable standards.324 In addition, Rule 1002, events 332 or events that the commenters for the Commission to work with which relates to an SCI entity’s believed are truly disruptive and pose a representatives within the securities obligations with regard to SCI events, risk to the market.333 Specifically, industry to collectively craft the most will apply to indirect SCI systems only appropriate definition that will ensure with respect to systems intrusions.325 326 See adopted Rule 1003(a)(i) and Section IV.B.4 that critical security systems are (discussing requirements relating to material Further, pursuant to Rule 1003(a), the systems changes). 319 captured. In crafting the definition, obligations related to systems changes 327 See adopted Rule 1003(b) and Section IV.B.5 the Commission has taken into account (discussing the SCI review requirement). comments received, with such 320 See supra note 17 and accompanying text. 328 See adopted Rules 1005–1007 and Section commenters representing a wide variety 321 See MSRB Letter at 7. IV.C (discussing the recordkeeping and electronic of types of participants in the securities 322 See supra Section IV.A.2.b (discussing the filing of Form SCI). 329 markets, and believes the adopted inclusion of third party systems in the definition of See infra Section IV.B.3 (discussing an SCI ‘‘SCI systems’’). entity’s obligations with respect to SCI events). definition of indirect SCI systems, along 323 See adopted Rule 1000. 330 See proposed Rule 1000(a) and Proposing 324 See adopted Rule 1001(a) and supra Section Release, supra note 13, at Section III.B.3. 317 See, e.g., NYSE Letter at 12; MFA Letter at 6; IV.B.1 (discussing the policies and procedures 331 See ITG Letter at 12; and OTC Markets Letter SIFMA Letter at 2; FIF Letter at 3; LiquidPoint requirement under Rule 1001(a)). at 16. Letter at 3; KCG Letter at 18; OCC Letter at 3; and 325 See adopted Rule 1000 (definitions of system 332 See FIF Letter at 2; ITG Letter at 12; DTCC Joint SROs Letter at 5. compliance and systems disruption, which do not Letter at 5; and OTC Markets Letter at 16. 318 See infra notes 323–328 (discussing the include indirect SCI systems, and the definition of 333 See NYSE Letter at 3; ICI Letter at 4; provisions of Regulation SCI applicable to indirect systems intrusion, which includes indirect SCI Oppenheimer Letter at 3. See also supra note 231 SCI systems). systems) and supra Section IV.B.3 (discussing an and accompanying text (discussing comment that 319 See DTCC Letter at 5. SCI entity’s obligations with respect to SCI events). Continued

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several commenters recommended that market.341 Rather, the Commission SCI events that SCI entities encounter. the definition of SCI event include a believes that the adopted Commission Moreover, information about trends and materiality threshold, so that only notification and information notifications of de minimis SCI events events determined by the SCI entity to dissemination requirements for SCI generally can also inform the be material would trigger certain events will help to focus the Commission of areas of potential obligations under the rule.334 One Commission’s and SCI entities’ weaknesses, or persistent or recurring commenter stated that the definition of resources on the more significant SCI problems, across SCI entities and also SCI event could be interpreted to events by providing appropriate should help the Commission better include trivial events, and therefore exceptions from reporting and focus on common types of SCI events or believed that the definition needed dissemination for events that have no or issues with certain types of SCI systems clarity.335 Finally, one commenter de minimis impacts on an SCI entity’s across SCI entities. This information suggested that SCI event be defined as operations or market participants. In also will permit the Commission and its outlined in Rule 301(b)(6)(ii)(G) under addition, the Commission believes that staff to issue industry alerts or guidance Regulation ATS,336 which requires a SCI event should not be defined as if appropriate. In addition, this qualifying ATS to notify the outlined in Rule 301(b)(6)(ii)(G) under information would allow the Commission of material systems outages Regulation ATS as suggested by one Commission and its staff to review SCI and significant systems changes.337 commenter,342 because Rule entities’ classification of SCI events as After careful consideration of the 301(b)(6)(ii)(G) requires Commission de minimis SCI events. views of commenters, although the notification of ‘‘material systems In addition, although the definition of Commission is adopting the definition outages.’’ 343 Such an approach would SCI event is unchanged, to address of ‘‘SCI event’’ as proposed, the exclude any systems compliance issues commenters’ concerns, the Commission requirements of Regulation SCI are or systems intrusions, two types of has determined to modify the various tiered in a manner that the Commission events that the Commission believes components of that definition (i.e., the believes is responsive to the concerns of should be included as SCI events. This definition of systems disruption, commenters about the breadth of the approach would also create a materiality systems compliance issue, and systems definition.338 Specifically, and as threshold for systems disruptions, explained in further detail below, the which the Commission believes would intrusion), in certain respects, as Commission is incorporating a risk- not be appropriate, as discussed below. discussed below. based approach to the obligations of SCI In addition, by not including a a. Systems Disruption entities with respect to SCI events.339 materiality threshold within the The Commission is not incorporating definition, SCI entities will be required Proposed Rule 1000(a) would have a materiality threshold as requested by to assess, take corrective action, and defined ‘‘systems disruption’’ as ‘‘an some commenters,340 including by keep records of all such events, some of event in an SCI entity’s SCI systems that limiting the definition of SCI event to which may initially seem insignificant results in: (1) A failure to maintain only those events that are considered by to an SCI entity, but which may later service level agreements or constraints; SCI entities to be truly disruptive to the prove to be the cause of significant (2) a disruption of normal operations, systems issues at the SCI entity. An SCI including a switchover to back up the definition of SCI systems should be revised to entity’s records of de minimis SCI equipment with near-term recovery of cover only those systems where a disruption, events may also be useful to the primary hardware unlikely; (3) a loss of compliance issue, intrusion or material systems change would impact investors and markets that are Commission in that they may, for use of any SCI system; (4) a loss of subject to the Commission’s jurisdiction). example, aid the Commission in transaction or clearance and settlement 334 See, e.g., FIF Letter at 2 (suggesting factors for identifying patterns of de minimis SCI data; (5) significant backups or delays in determining what is a material SCI event, and events that together might result in a processing; (6) a significant diminution urging that only material SCI events be subject to of ability to disseminate timely and notification requirements); ITG Letter at 12 more impactful SCI event, either at an (suggesting that a Commission notification SCI entity or across a group of SCI accurate market data; or (7) a queuing of requirement apply only to those events that have a entities, or circumstances in which an data between systems components or material impact on the ongoing maintenance of fair SCI event causes de minimis systems queuing of messages to or from and orderly markets in an NMS security); and DTCC Letter at 5 (recommending that each component of issues for one particular SCI entity but customers of such duration that normal the term SCI event be limited by a materiality results in significant issues for another service delivery is affected.’’ 344 As threshold and be ‘‘risk-based’’ so that the term SCI entity. The Commission also discussed below, in response to includes events that cause a disruption to the SCI believes that the ability to view such comments, the Commission is entity’s ability to conduct its core functions). events in the aggregate and across substantially modifying the proposed 335 See ITG Letter at 12. 336 17 CFR 242.301(b)(6)(ii)(G). multiple SCI entities is important to definition of systems disruption in 337 See OTC Markets Letter at 16. In addition, allow the Commission and its staff to be adopted Rule 1000. some commenters objected to the inclusion of able to gather information about trends One commenter stated that the systems compliance issues within the definition of related to SCI events that could not proposed definition of systems SCI events. See infra notes 403–405 and otherwise be properly discerned. accompanying text. disruption was reasonable, but Information about trends will assist the 338 See supra notes 331–337 and accompanying recommended that it be expanded to text. Commission in fulfilling its oversight encompass disruptions originating from 339 Under this risk-based approach, for example, role by keeping Commission staff a third party.345 However, many other de minimis SCI events will not be subject to the informed about the nature and commenters believed that the definition immediate Commission reporting requirements as frequency of the types of de minimis proposed, but rather, SCI entities will only be of systems disruption was too broad and required to make, keep, and preserve records would include minor events that they 341 regarding de minimis SCI events and submit de See supra note 333 and accompanying text. believed should be excluded from the minimis systems disruptions and de minimis 342 See supra note 337 and accompanying text. systems intrusions to the Commission in quarterly 343 See 17 CFR 242.301(b)(6)(ii)(G). Rule summary reports. See Rule 1002(b)(5). 301(b)(6)(ii)(G) also requires that ATSs promptly 344 See proposed Rule 1000(a) and Proposing 340 See supra notes 334 and 337 and notify the Commission of significant systems Release, supra note 13, at Section III.B.3.a. accompanying text. changes. 345 See Lauer Letter at 5–6.

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definition.346 Several commenters determining whether a particular issue included if they result in a material suggested ways to limit the scope of the meets the definition.354 impact on an SCI entity’s operations.363 defined term. For example, some Service Level Agreements Loss of Use of Any System commenters suggested limiting the definition to material disruptions.347 Two commenters believed that the One commenter stated that the term One of these commenters added that first element of the definition regarding ‘‘loss of use of any SCI system’’ is service level agreements should be systems disruptions should exclude any unclear and expressed concern that the eliminated.355 One of these commenters regularly planned outages occurring lack of clarity may lead to interpretive stated that an SCI entity’s regulatory during the normal course of business.348 differences and inconsistencies in requirements should not depend upon application among SCI entities.364 Three Another commenter recommended that the negotiated language of an agreement development and testing environments commenters discussed failovers to between business partners, while the backup systems, with one commenter should be excluded from the definition other commenter noted that, in some of systems disruption.349 One stating the Commission should clarify cases, a private contract might have whether this constitutes a loss of use of commenter suggested modifying the more stringent requirements than a system,365 another commenter stating definition to include only two elements: required by regulation, which would, in that it should not be considered a (1) Disruptions of either the SCI systems effect, transform such agreements into systems disruption,366 and the third 356 or of the operations of the SCI entity new regulatory obligations. Other commenter stating that it should only be that have the effect of disrupting the commenters stated this element should considered a systems disruption if there delivery of the SCI service provided by be revised to capture only the most is an impact on normal operations.367 those systems; and (2) degradations of significant disruptions to a service level SCI systems processing creating backups agreement.357 In addition, one Loss of Data commenter expressed concern that SCI or delays of such a degree and duration Several commenters stated that losses entities may forgo negotiating detailed that the delivery of service is effectively of transaction or clearance and and stringent service level agreements if disrupted or unusable by the market settlement data that are immediately the first element were to be adopted as participants who use the systems.350 retrieved, promptly corrected, or, for proposed.358 Two commenters believed that the clearance and settlement data, resolved proposed definition of systems Disruptions of Normal Operations prior to the close of the trading day 368 disruption was too rigid and should Two commenters stated that the should not be systems disruptions. provide for more flexibility and second element of the definition needs One commenter suggested that the rule discretion.351 Both commenters were clarification because the phrase be revised to include as a systems skeptical that an event should be ‘‘disruption of normal operations’’ is disruption data that is altered or corrupted in some way.369 Another reportable solely because it matched the vague and overbroad and therefore commenter stated that this prong of the description of one of the seven elements could potentially include minor 359 definition should include a materiality of the definition.352 One of these events. Two commenters stated that, qualifier.370 commenters noted that the if a switchover is utilized and there is Commission’s proposed definition seeks no material impact on the core services, Backups or Delays and Market Data to codify as a formal definition language then there should not be a requirement Dissemination to notify the Commission of a systems used by the ARP Inspection Program disruption.360 One of these commenters With respect to the fifth and sixth that was meant to provide flexibility added that programming errors that elements of the definition regarding and latitude in determining what occur prior to production and regularly significant backups or delays in 353 constitutes a systems disruption. The scheduled maintenance should not be processing and a significant diminution other commenter thought that the seven considered disruptions.361 Several of ability to disseminate timely and prongs of the proposed definition of commenters also recommended that accurate market data, one commenter ‘‘systems disruption’’ were appropriate testing errors should not be included in expressed support for the inclusion of considerations in determining whether a the definition,362 and one commenter such performance degradations in the systems disruption had occurred, but stated that testing errors should only be definition of systems disruptions but that an SCI entity should be afforded stated that it believed that the more discretion and flexibility in 354 See OCC Letter at 6. This commenter also Commission’s interpretation of the term critiqued or requested clarification for each prong ‘‘significant’’ in the SCI Proposal was of the definition, as discussed further below. 346 overly broad because it would See, e.g., FINRA Letter at 16; BATS Letter at 355 See NYSE Letter at 13; and BATS Letter at 9. 9; Omgeo Letter at 7; NYSE Letter at 14; Joint SROs 356 See NYSE Letter at 13; and BATS Letter at 9. encompass delays that are small and, in Letter at 6; OCC Letter at 6; SIFMA Letter at 9–10; 371 357 See DTCC Letter at 7 (suggesting that the fact, insignificant. and OTC Markets Letter at 21. definition capture only the most significant 347 See DTCC Letter at 6; SIFMA Letter at 9; OCC disruptions to a service level agreement that are 363 See Omgeo Letter at 9 (noting that inclusion Letter at 6; OTC Markets Letter at 21; and Joint caused by the SCI entity and that impede its ability of testing errors would discourage SCI entities from to perform its core functions and critical SROs Letter at 6. conducting effective quality assurance programs 348 operations); and OCC Letter at 7. See also Omgeo See DTCC Letter at 7. and could undermine good quality engineering Letter at 9 (noting concerns that this element could 349 See FINRA Letter at 11, 16 (noting also that practices). require reporting of events too minor to be noticed the many elements of the defined term were vague). 364 by participants and that do not cause any See OCC Letter at 7. See also Section IV.A.2.b (discussing the definition disruptions of service or material risks to the entity 365 See id. of ‘‘SCI systems,’’ including the elimination of test or users). 366 See NYSE Letter at 13. and development systems from its definition). 358 See OCC Letter at 7. 367 See Direct Edge Letter at 3. 350 See Omgeo Letter at 11. 359 See NYSE Letter at 13; and Omgeo Letter at 368 See, e.g., OCC Letter at 7; DTCC Letter at 7; 351 See Omgeo Letter at 7; and OCC Letter at 8. SIFMA Letter at 10; and Omgeo Letter at 11. 6–8. 360 See BATS Letter at 9; and SIFMA Letter at 10. 369 See Omgeo Letter at 11. 352 See Omgeo Letter at 7; and OCC Letter at 361 See BATS Letter at 10. 370 See NYSE Letter at 14. 6–8. 362 See BATS Letter at 11; SIFMA Letter at 10; 371 See Omgeo Letter at 9. See also Proposing 353 See Omgeo Letter at 7. and NYSE Letter at 13. Release, supra note 13, at 18101–02.

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Data Queuing Definition of ‘‘Systems Disruption’’ as that the definition of systems disruption Adopted include a materiality qualifier.383 With respect to the seventh element, one commenter stated that queuing of After careful consideration of the Because the Commission agrees with commenters regarding the difficulties of data is a very good indicator of a views of commenters, the Commission the proposed definition of ‘‘systems problem, but also noted that it is not is removing the seven specific types of disruption,’’ it is not including any of necessarily being properly monitored by systems malfunctions that were the specific types of systems most firms and suggested that the proposed to define systems disruption. malfunctions in the adopted definition As adopted, ‘‘systems disruption’’ is Commission require SCI entities to of ‘‘systems disruption.’’ Thus, the 372 defined in Rule 1000 to mean ‘‘an event monitor queue depth. However, Commission believes SCI entities would in an SCI entity’s SCI systems that several other commenters stated that likely find it helpful to establish disrupts, or significantly degrades, the queuing of data is normal and parameters that can aid them and their 373 normal operation of an SCI system.’’ necessary. Some commenters staff in determining what constitutes the The Commission has considered suggested that the Commission should ‘‘normal operation’’ 384 of each of its SCI only require reporting of such queuing commenters’ suggestions and feedback systems, and when such ‘‘normal if it materially affects the delivery of with respect to the proposed definition, operation’’ has been disrupted or core services to customers.374 One including the criticisms of various significantly degraded because those commenter asked for additional aspects of the seven specific types of parameters have been exceeded. The clarification on this element because all systems malfunctions delineated in the Commission agrees with commenters systems have queues to some extent SCI Proposal and believes that the who noted that, given its voluntary with normal functionality and only adopted definition, which largely nature, entities that participate in the certain queues should trigger recovery follows the definition suggested by a ARP Inspection Program are afforded a 381 actions.375 One commenter expressed commenter, is appropriate. certain degree of flexibility and concern that language in the SCI Specifically, this commenter discretion in reporting systems outages, Proposal stating that ‘‘queuing of data is recommended that the definition of and agrees that, given its proposed systems disruption be revised to have a warning signal of significant application to a mandatory rule, the two elements: (1) Disruptions of either disruption’’ 376 would make events that proposed definition limited the the SCI systems or of the operations of are precursors to system disruptions flexibility and discretion of SCI entities the SCI entity that have the effect of 385 themselves become system in a manner that was overly rigid. disrupting the delivery of the SCI disruptions.377 Although the specific types of systems service provided by those systems; and malfunctions have been removed from Customer Complaints (2) degradations of SCI systems the adopted definition of systems processing creating backups or delays of disruption, the Commission nonetheless Several commenters objected to the such a degree and duration that the continues to believe, as suggested by Commission’s discussion in the SCI delivery of service is effectively one commenter,386 that the types of Proposal regarding customer disrupted or unusable by the market systems malfunctions that comprised complaints,378 stating that the participants who use the systems.382 the proposed definition may be useful to Commission should not consider each The Commission agrees with SCI entities to consider as indicia of a instance in which a customer or systems commenters that the proposed systems disruption. user complains or inquires about a definition of systems disruption had the slowdown or disruption of operations as potential to be both over-inclusive and 383 As discussed more fully below, an SCI entity’s 379 assessment of the impact of an event meeting the an indicator of a systems disruption. under-inclusive. The Commission For example, one commenter noted that definition of a systems disruption will affect believes that the adopted definition whether it is subject to an immediate Commission customer complaints are often appropriately represents a change in notification obligation, or a recordkeeping and ultimately determined to be the result of focus of the definition from the quarterly reporting obligation. See infra Section system errors or discrepancies on the IV.B.3.c (discussing the exclusion of de minimis prescriptive seven prongs in the SCI systems disruptions from immediate Commission customer’s end, and stated that Proposal’s definition that represented notification requirements in Rule 1002(b)(5)). requiring an SCI entity to treat these the effects caused by a disruption of an 384 The Commission notes that, for certain SCI complaints as significant systems SCI entity’s systems to, instead, whether systems, ‘‘normal operation’’ may include a certain disruptions simply because they are degree of operational variability that would allow a system is halted or degraded in a for a given amount of degradation of functionality made would impose an unnecessary manner that is outside of its normal (e.g., some data queuing or some slowing of burden on the SCI entity.380 operation. The Commission believes the response times) before the system’s operations reach the point of being ‘‘significantly degraded.’’ revised definition sets forth a standard However, such variability parameters may be 372 See Lauer Letter at 5. that SCI entities can apply in a wide included as part of an SCI entity’s policies and 373 See, e.g., BATS Letter at 10; DTCC Letter at 7; variety of circumstances to determine in procedures so that the SCI entity and its personnel SIFMA Letter at 10; Omgeo Letter at 10; and Joint their discretion whether a systems issue would be aware of them before the occurrence of SROs Letter at 6. systems issues. 374 See, e.g., BATS Letter at 10–11; DTCC Letter should be appropriately categorized as a 385 Commenters highlighted many examples at 7; Omgeo Letter at 10; and OCC Letter at 8. systems disruption. Further, because the where a rigid interpretation of the proposed 375 See NYSE Letter at 14. adopted definition of systems definition had the potential to incorporate into the 376 See Proposing Release, supra note 13, at disruption takes into account whether a definition events that could be considered part of 18102. normal operation. See, e.g., supra notes 361, 364, systems problem is outside of normal 368, 369, 374, and 379 and accompanying text. As 377 See Omgeo Letter at 9. operations, the Commission also adopted, however, such events would not be 378 See Proposing Release, supra note 13, at believes that partly addresses the captured by the definition of systems disruptions 18102. concerns of the commenters suggesting because an event that disrupts, or significantly 379 See, e.g., DTCC Letter at 7; Omgeo Letter at 10; degrades, the normal operation of an SCI system BATS Letter at 11; NYSE Letter at 14; and OCC would not be considered the ‘‘normal operation’’ of Letter at 8. 381 See id. at 11. such SCI system. 380 See Omgeo Letter at 10–11. 382 See supra note 353 and accompanying text. 386 See supra note 354 and accompanying text.

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As discussed in the SCI Proposal 387 expressed concern that events that are the definition of systems disruption.396 and by certain commenters,388 the seven precursors to system disruptions, such The Commission notes that, as categories of malfunctions in the as the queuing of data, would discussed above, development and proposed definition of ‘‘systems themselves be systems disruptions.391 testing systems have been excluded disruption’’ have their origin in ARP Similarly, by eliminating the seven from the definition of SCI systems, and staff guidance regarding when ARP types of malfunctions, the Commission thus such disruptions would not be participants should notify the has addressed comments that called for subject to the requirements of Commission of system outages and the elimination of specific elements of Regulation SCI.397 represent practical examples that SCI the proposed definition, such as service The Commission is not incorporating entities should consider to be systems level agreements.392 a materiality threshold into the disruptions in many circumstances. The definition of systems disruption as Further, the Commission agrees with Commission notes that the revised requested by some commenters.398 commenters that customer complaints definition is intended to address some Rather, as discussed below, the may be indicia of a systems issue,393 but commenters’ concerns with the requirements of Regulation SCI are that a customer complaint alone would particular elements of the definition of tiered in a manner that the Commission not be determinative of whether a systems disruption as originally believes is responsive to commenters’ system problem has occurred that meets proposed. For example, under the concerns regarding the breadth of the the definition of systems disruption modified definition, if an SCI system definition of systems disruption (while under Regulation SCI.394 With respect to experiences an unplanned outage but stopping short of including a materiality fails over smoothly to its backup system the commenters who stated that losses standard).399 In particular, the such that there is no disruption or of transaction or clearance and Commission believes that the adopted significant degradation of the normal settlement data that are immediately Commission notification and operation of the system, the outage of retrieved, promptly corrected, or, for information dissemination requirements the primary system would not constitute clearance and settlement data, resolved for SCI events (i.e., quarterly a systems disruption. On the other prior to the close of the trading day Commission reporting of de minimis hand, an SCI entity may determine that, should not be systems disruptions, the systems disruptions, and an exception even when a primary system fails over adopted definition would exclude these for de minimis systems disruptions from smoothly to its backup system such that events if they do not disrupt or the information dissemination users are not impacted by the failover, significantly degrade the normal requirement) will help to focus the 395 operating from the backup system operations of an SCI system. Commission’s and SCI entities’ without additional redundancy would However, if loss of transaction or resources on the more significant not constitute normal operation. In this clearance and settlement data disrupts systems disruptions. In addition, by not case, the outage of the primary system or significantly degrades the normal including a materiality threshold within would fall within the definition of operation of an SCI system, it would the definition, SCI entities will be systems disruption. Further, the constitute a systems disruption and be required to assess, take corrective Commission believes it would be subject to the requirements of action, and keep records of all systems appropriate for an SCI entity to take into Regulation SCI (e.g., immediate or disruptions, some of which may account regularly scheduled outages or quarterly Commission notification, initially seem insignificant to an SCI scheduled maintenance as part of depending on the impact of the entity, but which may later prove to be the cause of significant systems ‘‘normal operations.’’ 389 In particular, a disruption). disruptions at the SCI entity. An SCI planned disruption to an SCI system Several commenters also suggested entity’s records of de minimis systems that is a part of regularly scheduled that testing errors or other disruptions disruptions may also be useful to the outages or scheduled maintenance in development and testing Commission in that they may, for would not constitute a systems environments should be excluded from example, aid the Commission in disruption or be subject to the identifying patterns of de minimis requirements of Regulation SCI, if such 391 See supra note 377 and accompanying text. systems disruptions that together might regularly scheduled outages or 392 See supra notes 355 and 358 and result in a more impactful SCI event, scheduled maintenance are part of the accompanying text. 393 The Commission agrees, as noted by some either at an SCI entity or across a group SCI entity’s normal operations. With of SCI entities, or circumstances in regard to data queuing, to the extent that commenters, that in some instances, customer complaints may be the result of a problem at a which a systems disruption causes de such queuing is part of the normal system not operated by (or on behalf of) an minimis systems issues for one functionality of a system and does not applicable SCI entity, but rather a system operated by the customer itself. See supra note 380 and particular SCI entity but results in cause a disruption or significant significant issues for another SCI entity. degradation of normal operations, it accompanying text. 394 See supra notes 379–380 and accompanying The Commission also believes that the would not be captured by the rule, text. ability to view de minimis SCI events in which is limited to events occurring to 395 See supra note 368. The Commission notes the aggregate and across multiple SCI an SCI system that are outside its that for clearance and settlement systems, normal 390 operations would include all steps necessary to normal operations. Additionally, by 396 effectuate timely and accurate end of day See supra notes 361–363 and accompanying eliminating the seven types of settlement. In response to the commenter who text. malfunctions from the definition as stated that the definition of systems disruption 397 See supra Section IV.A.2.b (discussing the proposed, the Commission has should be revised to include data that is altered or definition of ‘‘SCI systems’’). responded to commenters who corrupted in some way, because the Commission 398 See supra note 347 and accompanying text. has determined to eliminate the pronged approach 399 See Rule 1002(b)(5) and infra Section IV.B.3.c to the definition of systems disruption, the (discussing the Commission notification 387 See Proposing Release, supra note 13, at Commission notes that, under the adopted requirement for SCI events and requiring a quarterly 18101. definition, data that is altered or corrupted in some summary report for de minimis systems 388 See supra note 353 and accompanying text. way may be a systems disruption if such altered or disruptions). See also Rule 1002(c)(4) and infra 389 See supra note 361 and accompanying text. corrupted data disrupt or significantly degrade the Section IV.B.3.d (discussing information 390 See supra notes 372–377 and accompanying affected SCI system’s normal operation. See supra dissemination requirement for certain SCI events, text. note 369. but excluding de minimis systems disruptions).

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entities is important to the Commission entirely.403 One of these commenters refinement from ‘‘federal securities and its staff to be able to gather stated that the inclusion of systems laws’’ to ‘‘the Act’’ (i.e., the Securities information about trends related to such compliance issue as an SCI event would Exchange Act of 1934) will systems disruptions that could not be a departure from the ARP Inspection appropriately focus the definition on otherwise be properly discerned. Program and ARP Policy Statements.404 Exchange Act compliance rather than Information about trends will assist the The other commenter argued that any other areas of the federal securities laws. Commission in fulfilling its oversight report regarding a systems compliance Although the Commission did not role by keeping Commission staff issue is an admission that the SCI entity receive specific comment suggesting informed about the nature and has violated a law, rule, or one of its that it amend the definition of systems frequency of the types of de minimis governing documents, creating a risk of compliance issue by using the term ‘‘the systems disruptions that SCI entities an enforcement action or other liability Act’’ instead of the broader ‘‘federal encounter. Moreover, information about for the SCI entity.405 securities laws,’’ commenters did trends can also inform the Commission Other commenters stated that the suggest that the Commission limit the of areas of potential weaknesses, or proposed definition is too broad and scope of the definition to only apply to persistent or recurring problems, across should be refined to include only those those sections of the Act that are 406 SCI entities and also should help the issues that are material or significant. applicable to a particular SCI entity 413 Commission better focus on common Commenters’ specific recommendations or the SCI entity’s rules.414 The types of systems disruptions with included limiting the definition to those Commission agrees with these certain types of SCI systems across SCI systems compliance issues that: have a commenters insofar as they advocated entities. This information also would material and significant effect on 407 for focusing the scope to a more specific permit the Commission and its staff to members; can be reasonably set of securities laws and for reducing expected to result in significant harm or issue industry alerts or guidance if the burden on SCI entities, and further loss to market participants or impact the appropriate. In addition, this believes this refinement does not operation of a fair and orderly information would allow the compromise the objective of the market; 408 or have a materially negative Commission and its staff to review SCI definition, which is to capture systems impact on the SCI entity’s ability to entities’ classification of events as de compliance issues with respect to SCI perform its core functions.409 One minimis systems disruptions. Moreover, entities’ obligations under the Exchange commenter also noted that the term the Commission believes that, even Act. The Commission believes that the should be specifically defined to take without adopting a materiality refinement provides additional clarity to account of an SCI entity’s function, such threshold, the adopted definition of SCI SCI entities that, for purposes of systems further focuses the scope of the as clearing agencies’ ability to comply 410 Regulation SCI, their obligations are definition of systems disruption.400 with Section 17A. After considering the view of with respect to compliance with the The Commission also believes that it commenters that the proposed Exchange Act and the rules and is unnecessary to modify the definition definition of systems compliance issue regulations thereunder and the entity’s 415 of systems disruption specifically to is too broad,411 the Commission is rules and governing documents. encompass disruptions originating from revising the definition to mean an event The Commission disagrees with a third party, as one commenter that has caused an SCI system to operate commenters who suggested removing suggested.401 The definition of systems ‘‘in a manner that does not comply with systems compliance issues from the disruption does not limit such events the Act’’ and the rules and regulations definition of SCI event altogether.416 with respect to the source of the thereunder and the entity’s rules and Although systems compliance issues disruption, whether an internal source governing documents, as applicable.412 have not been within the scope of the at the SCI entity or an external third The Commission believes the ARP Inspection Program,417 the party source. Commission believes that inclusion of 403 b. Systems Compliance Issue See Omgeo Letter at 13; and NYSE Letter at systems compliance issues in the 16. definition of SCI event and the resulting 404 See Omgeo Letter at 14. Proposed Rule 1000(a) would have 405 applicability of the Commission defined the term ‘‘systems compliance See NYSE Letter at 16. 406 See, e.g., Joint SROs Letter at 2, 8; ISE Letter reporting, information dissemination, issue’’ as ‘‘an event at an SCI entity that at 6; SIFMA Letter at 13; Liquidnet Letter at 3; CME and recordkeeping requirements to has caused any SCI system of such Letter at 8; DTCC Letter at 6; OCC Letter at 13; and systems compliance issues is important entity to operate in a manner that does FINRA Letter at 17 (stating that systems compliance to help ensure that SCI systems are issues should be reportable only if they would not comply with the federal securities directly impact the market or a member firm’s operated by SCI entities in compliance laws and rules and regulations ability to comply with FINRA rules). See also BATS with the Exchange Act, rules thereunder or the entity’s rules or Letter at 13. thereunder, and their own rules and governing documents, as 407 See ISE Letter at 6–7. governing documents. applicable.’’ 402 The Commission is 408 See Liquidnet Letter at 3; and CME Letter at 8. See also FINRA Letter at 17. 413 adopting the definition of systems 409 See DTCC Letter at 6; and OCC Letter at 13. See supra note 410 and accompanying text. 414 compliance issue substantially as 410 See DTCC Letter at 6. See also infra Sections See supra note 406 and accompanying text. proposed, with modifications to refine IV.B.3.c and IV.B.3.d (discussing comments with 415 Notwithstanding this provision’s focus on its scope. respect to systems compliance issues and their compliance with the Exchange Act and the rules relation to Commission notification and and regulations thereunder and the entity’s rules Two commenters stated that the term information dissemination to members or and governing documents, the Commission notes ‘‘systems compliance issue’’ should be participants). that its objective in adopting Regulation SCI is not, deleted from the definition of SCI event 411 See supra note 406 and accompanying text. for example, to change the obligations of SCI 412 As noted above, proposed Rule 1000 defined entities that are public companies with respect to systems compliance issue as an event at an SCI their disclosure obligations under the Securities Act 400 See supra Sections IV.A.2.b (discussing the entity that has caused any SCI system of such entity of 1933. See 15 U.S.C. 77a et seq. definition of ‘‘SCI systems’’). to operate ‘‘in a manner that does not comply with 416 See supra notes 403–405 and accompanying 401 See supra note 345. the federal securities laws’’ and rules and text. 402 See proposed Rule 1000(a) and Proposing regulations thereunder or the entity’s rules and 417 See supra note 404 and accompanying text. Release, supra note 13, at Section III.B.3.b. governing documents, as applicable. See also Proposing Release, supra note 13, at 18087.

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In addition, the Commission is not entities’ classification of events as de SCI entities are already subject to adopting a materiality qualifier 418 or minimis systems compliance issues. litigation risk. other limiting threshold 419 in the Finally, the Commission believes that, As adopted, Rule 1000 defines definition of systems compliance issue even without adopting a materiality ‘‘systems compliance issue’’ as ‘‘an as suggested by some commenters. threshold, the adopted definition of SCI event at an SCI entity that has caused Instead, the requirements of Regulation systems, as described in Section IV.A.2 any SCI system of such entity to operate SCI are tiered in a manner that the above, further focuses the scope of the in a manner that does not comply with Commission believes is responsive to definition of systems compliance issue. the Act and the rules and regulations commenters’ concerns regarding the With respect to a commenter’s thereunder or the entity’s rules or breadth of the definition of systems concern that any report regarding a governing documents, as applicable.’’ compliance issue.420 In particular, the systems compliance issue would be an As noted in the SCI Proposal, a systems Commission believes that the adopted admission of a violation and thus create compliance issue could, for example, Commission notification requirement a risk of enforcement action or other occur when a change to an SCI system and the information dissemination liability,421 the Commission notes that is made by information technology staff, requirement (each of which provides an the Commission notification without the knowledge or input of exception for systems compliance issues requirement is not triggered until a regulatory staff, that results in the that have no or de minimis impacts on responsible SCI personnel has a system operating in a manner that does an SCI entity’s operations or market reasonable basis to conclude that a not comply with the Act and rules participants) will help to focus the systems compliance issue has thereunder or the entity’s rules and Commission’s and SCI entities’ occurred.422 The Commission other governing documents.425 For an resources on those systems compliance acknowledges that it could consider the SCI SRO, systems compliance issues issues with more significant impacts. In information provided to the would include SCI systems operating in addition, by not including a materiality Commission in determining whether to a manner that does not comply with the threshold within the definition, SCI initiate an enforcement action. SCI SRO’s rules as defined in the Act entities will be required to assess, take However, the Commission notes that the and the rules thereunder.426 For a plan corrective action, and keep records of all occurrence of a systems compliance processor, systems compliance issue systems compliance issues, some of issue also does not necessarily mean would include SCI systems operating in which may initially seem to have little that the SCI entity will be subject to an a manner that does not comply with an or no impact, but which may later prove enforcement action. Rather, the applicable effective national market to be the cause of significant systems Commission will exercise its discretion system plan. For an SCI ATS or exempt compliance issues at the SCI entity. The to initiate an enforcement action if the clearing agency subject to ARP, a Commission notes that all SCI entities Commission determines that action is systems compliance issue would are required to comply with the warranted, based on the particular facts include SCI systems operating in a Exchange Act, the rules and regulations and circumstances of an individual manner that does not comply with thereunder, and their own rules, as situation.423 With respect to the documents such as subscriber applicable. Therefore, even if an SCI potential for other types of liability as agreements and any rules provided to entity determines that a systems suggested by this commenter, many subscribers and users and, for an ATS, compliance issue has no or a de entities that fall within the definition of described in its Form ATS filings with minimis impact, the Commission SCI entity already currently disclose to the Commission.427 believes that it is important that it have the Commission and their members or c. Systems Intrusion ready access to records regarding such participants certain information de minimis systems compliance issues regarding systems issues, including Proposed Rule 1000(a) defined to allow it to more effectively oversee issues that may potentially give rise to ‘‘systems intrusion’’ as ‘‘any SCI entities’ compliance with the liability.424 Moreover, the Commission unauthorized entry into the SCI systems Exchange Act and relevant rules. An SCI recognizes that compliance with or SCI security systems of an SCI entity’s records of de minimis systems Regulation SCI will increase the amount entity.’’ 428 The proposed definition is compliance issues may also be useful to of information about SCI events being adopted as proposed, with one the Commission in that they may, for available to the Commission and SCI technical modification to replace the example, aid the Commission in entities’ members and participants, and term ‘‘SCI security systems’’ with identifying areas of potential that the greater availability of this ‘‘indirect SCI systems.’’ 429 weaknesses, or persistent or recurring information has some potential to While one commenter noted its problems, at an SCI entity or across increase litigation risks for SCI entities, general support for the inclusion of multiple SCI entities. This information including the risk of private civil systems intrusions within the scope of also would permit the Commission and litigation. The Commission believes that its staff to issue industry alerts or the value of disclosure to the 425 See Proposing Release, supra note 13, at guidance if appropriate. In addition, this Commission, market participants and 18103. information would allow the investors justifies the potential increase 426 The rules of an SCI SRO include, among other things, its constitution, articles of incorporation, Commission and its staff to review SCI in litigation risk. Moreover, the and bylaws. See 15 U.S.C. 78c(a)(27)–(28). See also Commission notes that, to the extent 17 CFR 240.19b–4(c). 418 See supra notes 406–407 and 409 and members and participants or the public 427 Subscriber agreements and other similar accompanying text. suffer damages when SCI events occur, documents that govern operations of SCI ATSs and 419 See supra note 408. exempt clearing agencies subject to ARP are 420 See Rule 1002(b)(5) and infra Section IV.B.3.c generally not publicly available, but are typically 421 (discussing the Commission notification See supra note 405 and accompanying text. provided to subscribers and users of such entities. requirement for SCI events and the exclusion for de 422 See supra Section IV.B.3.a (discussing the See 17 CFR 242.301(b) for a description of the filing minimis systems compliance issues). See also Rule triggering standard). requirements for ATSs. 1002(c)(4) and infra Section IV.B.3.d (discussing the 423 See, e.g., infra notes 626–628 and 428 See proposed Rule 1000(a) and Proposing information dissemination requirement for certain accompanying text. Release, supra note 13, at Section III.B.3.c. SCI events, but excluding de minimis systems 424 See supra Section II.B (discussing recent 429 See supra Section IV.A.2.d (discussing the compliance issues). events related to systems issues). definition of ‘‘indirect SCI systems’’).

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Regulation SCI,430 this commenter and architecture are designed to anticipate unauthorized entries must be others stated that the proposed intrusions into the outer layer without ‘‘successful’’ because the term ‘‘entry’’ definition was too broad or vague.431 material risk or impact, thus intrusions incorporates the concept of successfully Several commenters asserted that the into such a peripheral system should gaining access to an SCI system or proposed definition would capture too not constitute a systems intrusion under indirect SCI system. many insignificant and minor the rule.438 Further, the Commission is not incidents.432 Some commenters Several commenters stated that only incorporating a materiality threshold for recommended limiting the definition to successful systems intrusions should be the definition of systems intrusion or material systems intrusions, and offered covered in the definition.439 One otherwise limiting the definition of various suggestions for how to do so.433 commenter suggested that this concept systems intrusion to only those systems One commenter stated that the be made explicit in the rule text by intrusions that are major or significant proposed definition was overbroad adding the term ‘‘successful’’ to the as requested by some commenters. The because it would include both definition.440 Two commenters, while Commission believes that, even without intentional and unintentional conduct, supporting the inclusion of only adopting a materiality threshold, the as well as events that have no adverse successful systems intrusions in the adopted definitions of SCI systems and impact.434 Another commenter also definition, pointed out the value of indirect SCI systems further focus the stated that the definition should be sharing information regarding scope of the definition of systems modified to make clear that an intrusion unsuccessful systems intrusions, stating intrusion. Further, because any that is inadvertent would not qualify as that this practice already occurs today unauthorized entry into an SCI system a systems intrusion.435 This commenter among SCI entities, their regulators, and or indirect SCI system is a security further stated that a systems intrusion appropriate law enforcement breach of which the Commission, should be limited to unauthorized agencies.441 having responsibility for oversight of the access to confidential information or to As adopted, Rule 1000 defines U.S. securities markets, should be the SCI systems of an SCI entity that ‘‘systems intrusion’’ to mean ‘‘any notified, the Commission is not materially disrupts the operations of unauthorized entry into the SCI systems including a materiality threshold. In such systems.436 Another commenter or indirect SCI systems of an SCI addition, as discussed below, the suggested that the definition focus on entity.’’ This definition is intended to requirements of Regulation SCI are the unauthorized control of the cover any unauthorized entry into SCI tiered in a manner that the Commission confidentiality, integrity, or availability systems or indirect SCI systems, believes is responsive to commenters’ of an SCI system and/or its data.437 regardless of the identity of the person concerns regarding the breadth of the Some commenters noted that the committing the intrusion (whether they definition of systems intrusion.442 By proposed definition of systems intrusion are outsiders, employees, or agents of not including a materiality threshold did not take into account the multi- the SCI entity), and regardless of within the definition, SCI entities will layered nature of today’s technology whether or not the intrusion was part of be required to assess, take corrective systems. Two commenters stated that a cyber attack, potential criminal action, and keep records of all systems the multi-layered protections of systems activity, or other unauthorized attempt intrusions, some of which may initially to retrieve, manipulate, or destroy data, seem insignificant to an SCI entity, but 430 See NYSE Letter at 15. or access or disrupt systems of SCI which may later prove to be the cause 431 See, e.g., NYSE Letter at 15; BATS Letter at 12; entities. Thus, for example, this of significant systems issues at the SCI DTCC Letter at 7; Omgeo Letter at 11; SIFMA Letter definition is intended to cover the at 10–11; and Joint SROs Letter at 7. entity. An SCI entity’s records of de 432 See, e.g., BATS Letter at 12; DTCC Letter at 7; introduction of malware or other minimis systems intrusions may also be Omgeo Letter at 11; SIFMA Letter at 10–11; and attempts to disrupt SCI systems or useful to the Commission in that they Joint SROs Letter at 7. indirect SCI systems provided that such may, for example, aid the Commission 433 See, e.g., NYSE Letter at 15 (recommending systems were actually breached. In in identifying patterns of de minimis that the definition include only major intrusions addition, the definition is intended to that pose a plausible risk to the trading, routing, or systems intrusions that together might clearance and settlement operations of the exchange cover unauthorized access, whether result in a more impactful SCI event, or to required market data transmission); Omgeo intentional or inadvertent, by employees either at an SCI entity or across a group Letter at 11–12 (expressing concern that the or agents of the SCI entity that resulted of SCI entities, or circumstances in definition did not contain a reference to the from weaknesses in the SCI entity’s materiality of an intrusion, nor the intrusion’s which a systems intrusion causes de impact on markets or market participants); DTCC access controls and/or procedures. In minimis systems issues for one Letter at 7 (suggesting that the definition capture response to comments, the Commission particular SCI entity but results in only unauthorized entries where the SCI entity has emphasizes that the definition of significant issues for another SCI entity. reason to believe such entry could materially systems intrusion does not include impact its ability to perform its core functions or The Commission also believes that the critical operations); Joint SROs Letter at 7 (stating unsuccessful attempts at unauthorized ability to view de minimis systems that the definition should include only those entry because an unsuccessful systems intrusions in the aggregate and across intrusions that the SCI entity reasonably estimated intrusion is much less likely to disrupt would result in significant harm or loss to market multiple SCI entities is important to participants); FINRA Letter at 18 (arguing that only the systems of an SCI entity than a allow the Commission and its staff to be intrusions that have a material impact on the SCI successful intrusion. The Commission able to gather information about trends system or a direct impact on the market or market believes that it is unnecessary and related to such systems intrusions that participants should be included); and OCC Letter at redundant to specifically state in the 13 (suggesting, as an alternative to a ‘‘risk-based’’ could not otherwise be properly approach, that the definition be limited to any definition of systems intrusion that discerned. Information about trends will unauthorized entry into the SCI systems or SCI 438 security systems of an SCI entity, which the SCI See SIFMA Letter at 11; and Omgeo Letter at 442 See Rule 1002(b)(5) and infra Section IV.B.3.c entity reasonably believes may materially impact its 12. The Commission discusses below the comments (discussing the Commission notification ability to perform its core functions or critical that advocated greater Commission use of FS–ISAC requirement for SCI events and requiring a quarterly operations). for reporting systems intrusions. summary report for de minimis systems intrusions). 434 See, e.g., BATS Letter at 12. 439 See BIDS Letter at 17; SIFMA Letter at 11; See also Rule 1002(c)(4) and infra Section IV.B.3.d 435 See SIFMA Letter at 11. NYSE Letter at 15; DTCC Letter at 8. (discussing information dissemination requirement 436 See id. 440 See NYSE Letter at 15. for certain SCI events, but excluding de minimis 437 See NYSE Letter at 15. 441 See BIDS Letter at 17; and DTCC Letter at 8. systems intrusions).

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assist the Commission in fulfilling its definition that commenters suggested members or participants of SCI entities oversight role by keeping Commission but that could, for example, have in such testing. staff informed about the nature and industry-wide implications. Similarly, 1. Policies and Procedures To Achieve frequency of the types of de minimis with respect to the comment that Capacity, Integrity, Resiliency, systems intrusions that SCI entities intrusions into a peripheral system Availability and Security—Rule 1001(a) encounter. Moreover, information about should not constitute a systems trends and notifications of de minimis intrusion because the multi-layered a. Proposed Rule 1000(b)(1) systems intrusions generally can also protections of systems architecture are inform the Commission of areas of designed to anticipate intrusions into Proposed Rule 1000(b)(1) would have potential weaknesses, or persistent or the outer layer and help prevent required an SCI entity to: (1) Establish, recurring problems, across SCI entities material risk or impact,447 the maintain, and enforce written policies and also should help the Commission Commission believes that its discussion and procedures reasonably designed to better focus on common types of of indirect SCI systems in Section ensure that its SCI systems and, for purposes of security standards, SCI systems intrusions or issues with certain IV.A.2.d above responds to commenters’ security systems, have levels of types of SCI systems across SCI entities. concerns by explaining that systems capacity, integrity, resiliency, This information also would permit the intrusions into an indirect SCI system availability, and security, adequate to Commission and its staff to issue could cause or increase the likelihood of maintain the SCI entity’s operational industry alerts or guidance if an SCI event with respect to an SCI capability and promote the maintenance appropriate. In addition, this system. And to the extent a system of fair and orderly markets; and (2) information would allow the intrusion occurs with respect to an SCI include certain required elements in Commission and its staff to review SCI system or indirect SCI system but the such policies and procedures. As entities’ classification of events as de SCI entity’s multi-layered systems proposed, these policies and procedures minimis systems intrusions. architecture helps prevent material risk The Commission also is not were required to provide for: (A) The or impact, the Commission notes that de distinguishing between intentional and establishment of reasonable current and unintentional systems intrusions, as minimis systems intrusions (if such a future capacity planning estimates; (B) suggested by some commenters.443 The system intrusion was determined to be periodic capacity stress tests of systems Commission acknowledges that de minimis) would be subject to less to determine their ability to process intentional systems intrusions may frequent Commission reporting transactions in an accurate, timely, and result in more severe disruptions to the requirements and would not be subject efficient manner; (C) a program to systems of an SCI entity than to the information dissemination review and keep current systems unintentional or inadvertent intrusions. requirements. development and testing methodology; On the other hand, the Commission B. Obligations of SCI Entities—Rules (D) regular reviews and testing of believes that it should be notified of 1001–1004 systems, including backup systems, to successful unintentional or inadvertent identify vulnerabilities pertaining to systems intrusions because they can still Proposed Rules 1000(b)(1)–(9) are internal and external threats, physical indicate weaknesses in a system’s renumbered as adopted Rules 1001– hazards, and natural or manmade security controls. To the extent that 1004. Adopted Rule 1001 corresponds disasters; (E) business continuity and these systems intrusions have no or a de to proposed Rules 1000(b)(1)–(2) and disaster recovery plans that include minimis impact on the SCI entity’s contains the policies and procedures maintaining backup and recovery operations or on market participants, requirements for SCI entities with capabilities sufficiently resilient and they will only be subject to a quarterly respect to operational capability and the geographically diverse to ensure next reporting requirement and will be maintenance of fair and orderly markets business day resumption of trading and excepted from the information (Rule 1001(a)), systems compliance two-hour resumption of clearance and dissemination requirement.444 (Rule 1001(b)), and identification and settlement services following a wide- Additionally, the Commission does designation of responsible SCI scale disruption; and (F) standards that not agree that the definition of systems personnel and escalation procedures result in systems being designed, intrusion should be limited to (Rule 1001(c)).448 Adopted Rule 1002 developed, tested, maintained, operated, unauthorized access to confidential corresponds to proposed Rules and surveilled in a manner that 445 information or should be focused on 1000(b)(3)–(5) and contains the facilitates the successful collection, the unauthorized control of the obligations of SCI entities with respect processing, and dissemination of market confidentiality, integrity, or availability to SCI events, which include corrective data. of an SCI system and/or its data 446 action, Commission notification, and because the Commission believes that Proposed Rule 1000(b)(1)(i) also information dissemination. Adopted provided that an SCI entity’s applicable these modifications would create a Rule 1003 corresponds to proposed definition that would limit the policies and procedures would be Rules 1000(b)(6)–(8) and contains deemed to be reasonably designed if Commission’s ability to be aware of requirements relating to material events that fall outside the limited they were consistent with ‘‘current SCI systems changes and SCI reviews. industry standards.’’ Proposed Rule Finally, adopted Rule 1004 corresponds 443 1000(b)(1)(ii) provided that ‘‘current SCI See supra notes 434–435 and accompanying to proposed Rule 1000(b)(9) and text. industry standards’’ were to be 444 See Rule 1002(b)(5) and infra Section IV.B.3.c contains requirements relating to comprised of ‘‘information technology (discussing the Commission notification business continuity and disaster practices that are widely available for requirement for SCI events and requiring a quarterly recovery plan testing, including free to information technology summary report for de minimis systems intrusions). requiring participation of designated See Rule 1002(c)(4), and infra Sections IV.B.3.d professionals in the financial sector . . . (discussing the information dissemination and issued by an authoritative body that requirements for certain SCI events, but excluding 447 See supra note 438 and accompanying text. is a U.S. governmental entity or agency, de minimis systems intrusions). 448 The discussion of Rule 1001(c), which relates 445 See supra note 436 and accompanying text. to the triggering standard for Rule 1002, is association of U.S. governmental 446 See supra note 437 and accompanying text. discussed below in Section IV.B.3.a. entities or agencies, or widely

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recognized organization.’’ 449 The SCI a risk-based framework, so that SCI as it allows an SCI entity’s policies and Proposal also included, on ‘‘Table A,’’ a entities and/or systems of greater procedures to be tailored to a particular list of publications that the Commission criticality would be required to adhere system’s criticality and risk. As noted had preliminarily identified as to a stricter set of policies and above, while some commenters examples of current SCI industry procedures than SCI entities and/or characterized the proposed rule as too standards in each of nine information systems of lesser criticality.456 These vague and sought further specificity, security domains.450 The SCI Proposal commenters maintained that each SCI others found the rule to be too stated that an SCI entity, taking into entity should have discretion to prescriptive. The Commission believes account its nature, size, technology, calibrate its policies and procedures that the adopted rule provides an business model, and other aspects of its based on its own assessment of the appropriate balance between these two business, could, but would not be criticality of the SCI entity and its opposing concerns by providing a required to, use the publications listed systems to market stability, or that the framework that identifies the minimum on Table A to establish, maintain, and Commission should ‘‘tier’’ the areas that are required to be addressed enforce reasonably designed policies obligations of SCI entities or SCI entity by an SCI entity’s policies and and procedures that satisfy the systems based on their market procedures without prescribing the requirements of proposed Rule function.457 specific policies and procedures that an 1000(b)(1).451 The SCI Proposal also In contrast, some commenters stated SCI entity must follow, or detailing how stated that ‘‘current SCI industry that the Commission’s proposed each element in Rule 1001(a)(2) should standards’’ were not limited to those approach was too vague or be addressed. Given the various types of identified in the publications on Table insufficient.458 For example, one systems at SCI entities, each of which A and could include other publications commenter characterized the minimum represent a different level of criticality meeting the proposed criteria for elements of policies and procedures in and risk to each SCI entity and to the ‘‘current SCI industry standards.’’ 452 In proposed Rule 1000(b)(1)(A)–(F) as ‘‘so securities markets more broadly, the addition, proposed Rule 1000(b)(1)(ii) vague that they will fail to provide any adopted rule seeks to provide flexibility stated that compliance with ‘‘current meaningful improvement in to SCI entities to design their policies SCI industry standards’’ would not be technological systems.’’ 459 Another and procedures consistent with a risk- the exclusive means to comply with the commenter stated that the proposed based approach, as discussed in further requirements of proposed Rule scope of required policies and detail below. At the same time, because 1000(b)(1).453 procedures was appropriate, but that the Commission believes that additional guidance on how an SCI entity may b. Comments Received on Proposed further elaboration on the details was 460 comply with the rule is warranted in Rule 1000(b)(1) and Commission warranted. One commenter stated certain areas, the Commission is Response that the proposed rule lacked adequate discussion of what it means for policies providing further guidance below. In i. Policies and Procedures Generally— and procedures to be reasonably response to comment, the Commission Rules 1001(a)(1) and (3) designed ‘‘to maintain . . . operational is adopting Rule 1001(a) with The Commission received a wide capability and promote the maintenance modifications that it believes will better range of comments on proposed Rule of fair and orderly markets.’’ 461 provide SCI entities with sufficient 1000(b)(1). With respect to policies and The Commission has carefully flexibility to develop their policies and procedures generally, some commenters considered the views of commenters on procedures to achieve robust systems, believed the proposal was too its proposed policies and procedures while also providing guidance on how prescriptive.454 Several characterized it approach to ensuring adequate capacity, an SCI entity may comply with the final as a ‘‘one-size-fits-all’’ approach that did integrity, resiliency, availability, and rule. Specifically, adopted Rule 1001(a) not adequately take into account security of SCI systems (and security for is modified to: (i) Clarify that the rule differences between SCI entities and SCI indirect SCI systems). The Commission is consistent with a risk-based approach entity systems.455 Several commenters agrees with commenters who stated that that requires more robust policies and objecting to the rule as too prescriptive requiring SCI entities to have policies procedures for higher-risk systems and urged that the adopted rule incorporate and procedures relating to the capacity, provides an SCI entity with flexibility to integrity, resiliency, availability, and tailor its policies and procedures to the 449 See Proposing Release, supra note 13, at security of SCI systems (and security for nature of its business, technology, and 18178. indirect SCI systems) should not be a the relative criticality of each of its SCI 450 The domains covered in Table A of the SCI ‘‘one-size-fits-all’’ approach and, as systems; (ii) make clear that an SCI Proposal are: application controls; capacity entity’s reasonable policies and planning; computer operations and production discussed in detail below, is therefore environment controls; contingency planning; clarifying that the adopted rule is procedures remain subject to ongoing information security and networking; audit; consistent with a risk-based approach, self-assessment; (iii) provide increased outsourcing; physical security; and systems flexibility in the manner in which an development methodology. See id. at 18111. 456 SCI entity may satisfy the minimum 451 See id. at 18110. See, e.g., Joint SROs Letter at 4; LiquidPoint 452 See id. at 18110 (stating that an SCI entity Letter at 3; MFA Letter at 3; and SIFMA Letter at elements of required policies and could elect standards contained in publications 8, 12–13. See also FIF Letter at 4; MSRB Letter at procedures; and (iv) revise the criteria other than those identified on proposed Table A to 3; Fidelity Letter at 2; NYSE Letter at 3, 4, 21; for ‘‘current SCI industry standards.’’ In comply with the rule). FINRA Letter at 13–14; and OCC Letter at 3. 457 addition, proposed Table A is 453 See id. at 18109. See, e.g., Joint SROs Letter at 4; FINRA Letter at 13–14; MSRB Letter at 3; MFA Letter at 6; NYSE recharacterized and will be issued as 454 See, e.g., Angel Letter at 2, 8; BIDS Letter at Letter at 3, 4, and 21; SIFMA Letter at 12–13; FIF 7; FIF Letter at 3–4; Joint SROs Letter at 4; staff guidance that will evolve over Letter at 4; Fidelity Letter at 2; and OCC Letter at LiquidPoint Letter at 3–4; MFA Letter at 3; and time. 3. SIFMA Letter at 12–13. 458 See Better Markets Letter at 3–5; CAST Letter 455 See, e.g., FIF Letter at 3–4; FINRA Letter at 31; Response to Commenters Advocating a Joint SROs Letter at 4; KCG Letter at 2–3, 6–8; at 4; CISQ Letter at 2, 5; CISQ2 Letter at 5; and Risk-Based Approach Liquidpoint Letter at 3–4; MFA Letter at 3; OCC Direct Edge Letter at 4. 459 Adopted Rule 1001(a)(1) requires each Letter at 3–4; SIFMA Letter at 12–13; UBS Letter at See Better Markets Letter at 3. 2–4; Tellefsen Letter at 13; and BIDS Letter at 2– 460 See CISQ Letter at 2. SCI entity to establish, maintain, and 3, 6–9. 461 See Direct Edge Letter at 4. enforce written policies and procedures

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reasonably designed to ensure that its promote the maintenance of fair and related and complementary.467 SCI systems and, for purposes of orderly markets for other SCI systems, Specifically, the Commission believes security standards, indirect SCI systems, or indirect SCI systems. As such, the that it is important that an SCI entity’s have levels of capacity, integrity, Commission believes that its adopted policies and procedures are reasonably resiliency, availability, and security, approach in Regulation SCI is consistent designed to ensure its own operational adequate to maintain the SCI entity’s with a risk-based approach, and that capability, including the ability to operational capability and promote the adopted Regulation SCI may result in maintain effective operations, minimize maintenance of fair and orderly markets. the systems of certain SCI entities (for or eliminate the effect of performance The text of this part of the rule is largely example, those that have few or no degradations, and have sufficient unchanged from the proposal. Although critical SCI systems) generally being backup and recovery capabilities. At the several commenters expressed concern subject to less stringent policies and same time, an SCI entity’s own that the proposed rule would have procedures than the systems of other operational capability can have broader imposed a ‘‘one-size-fits-all’’ approach, SCI entities. Thus, a risk assessment is effects and, as entities that play a requiring all SCI entities to hold all of appropriate for an SCI entity to significant role in the U.S. securities their SCI systems to the same determine how to tailor its policies and markets and/or have the potential to standards,462 this was not the intent of procedures for its SCI systems and impact investors, the overall market, or proposed Rule 1000(b)(1), nor is it what indirect SCI systems. the trading of individual securities,468 adopted Rule 1001(a)(1) requires. By The Commission also believes that the Commission believes that the requiring an SCI entity to have policies requiring an SCI entity to tailor its policies and procedures should also be and procedures ‘‘reasonably designed’’ policies and procedures so that they are reasonably designed to promote the and ‘‘adequate’’ to maintain operational reasonably designed and adequate will maintenance of fair and orderly markets. capability and promote the maintenance entail that an SCI entity assess the Periodic Review of fair and orderly markets, the adopted relative criticality and risk of each of its Some commenters expressed concern rule provides an SCI entity with SCI systems and indirect SCI systems. that, when an SCI entity’s policies and flexibility to determine how to tailor its Evaluation of the risk posed by any procedures fail to prevent an SCI event, policies and procedures to the nature of particular SCI system to the SCI entity’s the Commission might use such failure its business, technology, and the relative operational capability and the 463 as the basis for an enforcement action, criticality of each of its SCI systems. maintenance of fair and orderly markets Although the adopted rule does not charging that the policies and will be the responsibility of the SCI procedures were not reasonable.469 One assign differing obligations to an SCI entity in the first instance. The entity based on its registration status, or commenter suggested that the Commission believes this approach will Commission’s focus should be on an its general market function, as some achieve the goal of improving commenters urged, by allowing each entity’s adherence to its own set of Commission review and oversight of policies and procedures, developed SCI entity to tailor its policies and U.S. securities market infrastructure, but procedures accordingly, the adopted based on ‘‘experience, annual SCI will do so within a more focused reviews, and other inputs,’’ rather than approach recognizes that there are framework than as proposed. By being differences between, and varying roles a ‘‘set of generic standards.’’ 470 subject to requirements for a more played by, different systems at various In response to these comments, the targeted set of SCI systems, and guided SCI entities. In tandem with the refined Commission notes that the reasonably by consideration of the relative risk of definition of ‘‘SCI systems,’’ the designed policies and procedures each of its SCI systems, SCI entities may modified definition of ‘‘SCI security approach taken in adopted Rule 1001(a) more easily determine how to allocate systems’’ (adopted as ‘‘indirect SCI does not require an entity to guarantee their resources to achieve compliance systems’’), and the new definition of flawless systems. But the Commission with the regulation than they would ‘‘critical SCI systems,464 adopted Rule believes it should be understood to have under the proposed regulation. 1001(a)(1) explicitly recognizes that require diligence in maintaining a policies and procedures that are As noted above, one commenter urged reasonable set of policies and ‘‘reasonably designed’’ and ‘‘adequate’’ the Commission to discuss what it procedures that keeps pace with to maintain operational capability and means for policies and procedures to be changing technology and circumstances promote the maintenance of fair and reasonably designed ‘‘to maintain . . . and does not become outdated over orderly markets for critical SCI systems operational capability and promote the time. The Commission is therefore may differ from those that are maintenance of fair and orderly adopting a requirement for periodic ‘‘reasonably designed’’ and ‘‘adequate’’ markets.’’ 465 This commenter review by an SCI entity of the to maintain operational capability and characterized the proposed standard of effectiveness of its policies and ‘‘maintaining operational capability’’ as procedures required by Rule 1001(a), 462 See supra note 455 and accompanying text. an ‘‘introspective standard relevant to and prompt action by the SCI entity to 463 See Proposing Release, supra note 13, at 18109 the applicable SCI entity,’’ and the (stating: ‘‘The Commission intends to . . . provide proposed standard of ‘‘promoting the 467 The Commission notes that the identification SCI entities sufficient flexibility, based on the maintenance of fair and orderly of ‘‘critical SCI systems’’ in Regulation SCI nature, size, technology, business model, and other emphasizes that some systems pose greater risk aspects of their business, to identify appropriate markets’’ as implying ‘‘some than others to the maintenance of fair and orderly policies and procedures that would meet the incremental responsibility to the markets if they malfunction, and that it is articulated standard, namely that they be collective market.’’ 466 The Commission appropriate for an SCI entity to consider the risk to reasonably designed to ensure that their systems agrees with this commenter’s other SCI entities and market participants in the have levels of capacity, integrity, resiliency, event of a systems malfunction. availability, and security adequate to maintain the characterization and believes that it is 468 See supra note 59 and accompanying text. SCI entity’s operational capability and promote the appropriate for SCI entities to assess the 469 See, e.g., BATS Letter at 3–4; Angel Letter at maintenance of fair and orderly markets.’’). risk of their systems taking into 2; and FSR Letter at 5. See also ITG Letter at 14 464 As a result of these changes, the adopted rule consideration both objectives, which are (stating that no set of policies and procedures could applies to fewer systems than as proposed, and only guarantee perfect operational compliance); and to those types of systems that the Commission NYSE Letter at 32 (urging inclusion of a good faith believes pose significant risk to market integrity if 465 See supra note 461 and accompanying text. safe harbor). not adequately safeguarded. 466 See Direct Edge Letter at 4. 470 See FIF Letter at 4.

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remedy deficiencies in such policies definition of SCI systems, and with periodic capacity stress tests.476 Some of and procedures.471 An SCI entity will respect to security standards only, the these commenters urged that the not be found to be in violation of this proposed definition of SCI security adopted rule provide an SCI entity with maintenance requirement solely because systems. flexibility to determine, using a risk- it failed to identify a deficiency in its Adopted Rule 1001(a)(2) includes the based assessment, when capacity stress policies and procedures immediately items formerly proposed as Rules tests are appropriate.477 Others after the deficiency occurred if the SCI 1001(b)(1)(i)(A)–(F) as renumbered suggested that capacity stress tests be entity takes prompt action to remedy the Rules 1001(2)(i)–(vi) and a new item required in specified circumstances or deficiency once it is discovered, and the (vii), relating to monitoring of SCI time frames, such as when new SCI entity had otherwise reviewed the systems. Proposed items (A), (D), and capabilities are released into effectiveness of its policies and (E) are revised in certain respects in production,478 whenever required procedures and took prompt action to response to comment. In addition, the system capacity increases by 10 percent, remedy those deficiencies that were Commission discusses below each of the on a quarterly basis, or in conjunction discovered, as required by Rule adopted provisions of Rule 1001(a)(2) in with any material systems change.479 1001(a)(3). the context of the adopted definitions of One commenter suggested that SCI Further, the occurrence of a systems SCI systems and indirect SCI systems, entities should supplement dynamic disruption or systems intrusion will not where relevant.472 stress and load testing with static necessarily mean that an SCI entity has Capacity Planning analysis, a technique used to help violated Rule 1001(a), or that it will be uncover structural weaknesses in subject to an enforcement action for The SCI Proposal stated that policies software.480 In proposing item (B), the violation of Regulation SCI. The and procedures for the establishment of Commission intended for SCI entities to Commission will exercise its discretion reasonable current and future capacity engage in a careful risk-based to initiate an enforcement action if the planning (proposed item (A)) would assessment (as suggested by some Commission determines that such help an SCI entity determine its commenters) 481 of its SCI systems to action is warranted, based on the systems’ ability to process transactions determine when to stress test its particular facts and circumstances. in an accurate, timely, and efficient systems.482 Rule 1001(a)(2)(ii), as While a systems problem may be manner, and thereby help ensure market adopted, affords SCI entities the probative as to the reasonableness of an integrity.473 One commenter expressed flexibility to consider the factors SCI entity’s policies and procedures, it support for the requirement in proposed suggested by commenters, as is not determinative. item (A),474 and another commenter appropriate for their specific systems recommended that proposed item (A) be 483 ii. Minimum Elements of Reasonable and circumstances. The adopted rule revised to make clear that SCI entity does not prescribe a particular Policies and Procedures—Rule capacity planning estimates apply to 1001(a)(2) frequency or trigger for stress testing; ‘‘technology infrastructure’’ capacity, as however, because the Commission Proposed Rule 1000(b)(1)(i) would opposed to capacity with respect to non- believes that, in light of the variability have required that an SCI entity’s technology infrastructure of an SCI in SCI systems, an SCI entity’s 475 policies and procedures provide for, at entity. Because the Commission experience with its particular systems a minimum: (A) The establishment of intended proposed item (A) to relate to reasonable current and future capacity capacity planning for SCI systems, 476 See, e.g., CISQ Letter at 5; DTCC Letter at 14; planning estimates; (B) periodic rather than capacity planning more Lauer Letter at 6; MSRB Letter at 9; OCC Letter at capacity stress tests of systems to broadly (for example, in relation to an 10; and SIFMA Letter at 12. determine their ability to process SCI entity’s office space), the 477 See DTCC Letter at 14; and OCC Letter at 10. transactions in an accurate, timely, and Commission is including this suggested See also SIFMA Letter at 12 (suggesting that periodic capacity monitoring would be more efficient manner; (C) a program to clarification in adopted Rule appropriate and cost-effective than periodic review and keep current systems 1001(a)(2)(i), and thus requires that an capacity stress testing). development and testing methodology; SCI entity’s policies and procedures 478 See MSRB Letter at 9. (D) regular reviews and testing of include the establishment of reasonable 479 See Lauer Letter at 6. systems, including backup systems, to current and future technology 480 See CISQ Letter at 5. See also infra notes 491 identify vulnerabilities pertaining to and 497, and 498 and accompanying text (further infrastructure capacity planning discussing this comment and the commenter’s internal and external threats, physical estimates. views on the value of assessing the structural hazards, and natural or manmade quality of software). Stress Testing disasters; (E) business continuity and 481 See supra note 477 and accompanying text. disaster recovery plans that include A few commenters raised concerns 482 In response to the commenter that suggested maintaining backup and recovery about proposed item (B), which required periodic capacity monitoring would be more appropriate and cost-effective than periodic capabilities sufficiently resilient and capacity stress testing, see supra note 477 and geographically diverse to ensure next 472 In particular, the Commission is adopting the accompanying text, the Commission believes that business day resumption of trading and language of items (B) and (C) as proposed such monitoring is appropriate and may play an (renumbered as Rule 1001(a)(2)(ii) and (iii), two-hour resumption of clearance and important role in an SCI entity’s assessing when to respectively) but elaborates on the scope of these stress tests its systems. However, the Commission settlement services following a wide- provisions, as well as the scope of revised item (D) continues to believe that stress testing is necessary scale disruption; and (F) standards that (renumbered as Rule 1001(a)(2)(iv)) and in the to help an SCI entity determine its systems’ ability result in systems being designed, context of the adopted definitions of SCI systems to process transactions in an accurate, timely, and and indirect SCI systems. developed, tested, maintained, operated, efficient manner, and thereby help ensure market 473 See Proposing Release, supra note 13, at integrity. See Proposing Release, supra note 13, at and surveilled in a manner that 18107. 18107. While monitoring may be a cost-effective facilitates the successful collection, 474 See MSRB Letter at 9. method to determine when a stress test is processing, and dissemination of market 475 See DTCC Letter at 14–15. The Commission warranted, the Commission does not believe data. References to ‘‘systems’’ in the also received comments in regard to capacity monitoring alone will be an effective substitute for planning as it relates to proposed industry stress testing, which, unlike monitoring, is designed proposed rule were to the proposed standards on the capacity planning domain set out to challenge systems capacity. in proposed Table A. See, e.g., infra note 580 and 483 See supra notes 478–479 and accompanying 471 See Rule 1001(a)(3). accompanying text. text.

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and assessment of risk in this area will current systems development and release of software into production.491 dictate when capacity stress testing is testing methodology for SCI systems, Two commenters advocated for warranted. The requirement for periodic and indirect SCI systems, as applicable, requiring an SCI entity to focus on capacity stress tests of systems to its ability to assess the capacity, identifying structural deficiencies, determine their ability to process integrity, reliability, availability and which they stated pose much greater transactions in an accurate, timely, and security of its SCI systems and indirect risks than functional deficiencies.492 A efficient manner is therefore adopted as SCI systems, as applicable, would be few commenters urged that groups proposed as Rule 1001(a)(2)(ii). undermined. In complying with this independent of the team that designed adopted requirement, an SCI entity may and developed the systems should be Systems Development and Testing wish to consider how closely its testing involved in testing to offer a diverse Methodology environment simulates its production perspective.493 One of these In the SCI Proposal, the Commission environment; whether it designs, tests, commenters further suggested that explained that proposed item (C), which installs, operates, and changes SCI enforcement of the policies governing would require SCI entities to have systems through use of appropriate development and testing activities policies and procedures for a ‘‘program development, acquisition, and testing should be conducted by a ‘‘process to review and keep current systems controls by the SCI entity and/or its audit’’ role that evaluates compliance development and testing methodology,’’ third-party service providers, as with policies, provides guidance to would help an SCI entity monitor and applicable; whether it identifies and development and testing teams on how maintain systems capacity and corrects problems detected in the to comply, and reports on compliance to availability.484 The Commission is development and testing stages; whether senior management.494 adopting the language of this item as it verifies change implementation in the After careful consideration of the proposed as Rule 1001(a)(2)(iii). production stage; whether development comments, the Commission is adopting Two commenters supported this and test environments are segregated this provision with modifications as 485 requirement as proposed. Another from SCI systems in production; and Rule 1001(a)(2)(iv). Specifically, commenter argued that sufficient whether SCI entity personnel have adopted Rule 1001(a)(2)(iv) requires an controls were in place with respect to adequately segregated roles between the SCI entity’s reasonably designed production systems, as proposed, and development and/or test environment, policies and procedures to include therefore that separate policies and and the production environment. ‘‘[r]egular reviews and testing, as procedures specifically for the applicable, of [its SCI systems and, for development and testing environment Reviews of SCI Systems and Indirect purposes of security standards, indirect would be unnecessary and SCI Systems SCI systems], including backup systems, duplicative.486 This commenter added The SCI Proposal explained that to identify vulnerabilities pertaining to that, if development and testing systems proposed item (D), which would have internal and external threats, physical were not excluded from the definition of required an SCI entity to establish, hazards, and natural or manmade SCI systems altogether, then the policies maintain, and enforce policies and disasters.’’ and procedures requirements regarding procedures to review and test regularly As adopted, this provision will afford systems development and testing SCI systems (and SCI security systems, an SCI entity greater flexibility, through methodology should not apply as applicable), including backup the addition of the phrase ‘‘as separately to these environments. The systems, to identify vulnerabilities applicable,’’ to determine how to Commission agrees with this comment, pertaining to internal and external identify vulnerabilities pertaining to and believes it logically follows that threats, physical hazards, and natural or internal and external threats, physical policies and procedures requiring a manmade disasters, would assist an SCI hazards, and natural or manmade program to review and keep current entity in ascertaining whether such disasters. Specifically, the adopted rule systems development and testing systems are and remain sufficiently replaces the proposed rule’s methodology for SCI systems, and secure and resilient.488 Proposed item requirement that an SCI entity conduct indirect SCI systems, as applicable, are (D) garnered a range of comments. Some ‘‘regular reviews and testing’’ of relevant important if development and testing commenters addressing this item systems (including backup systems) systems are excluded from the focused on internal SCI entity testing,489 with a more flexible requirement that an definition of SCI systems, as they are whereas others focused more broadly on SCI entity conduct ‘‘regular reviews and under the adopted regulation.487 An SCI industry-wide testing and testing of 491 entity’s systems development and 490 See CISQ Letter at 3–7 (encouraging the backup systems. Commission to require quality assurance activities testing methodology is a core part of the With respect to comments on internal other than testing, including that an SCI entity systems development life cycle for any testing, one commenter suggested that evaluate and measure the structural quality of its SCI system. Therefore, the Commission the proposed requirement be expanded SCI systems because ‘‘the attributes of an SCI believes that if an SCI entity did not beyond testing to cover a range of system most critically affecting its capacity, integrity, resiliency, availability, and security are have a program to review and keep ‘‘quality assurance activities’’ with each predominantly structural (engineering) rather than functional (correctness)’’). 484 See Proposing Release, supra note 13, at 488 See Proposing Release, supra note 13, at 492 See CAST Letter at 4; and CISQ Letter at 3– 18107. 18107. 7. 485 See CISQ Letter at 2; and MSRB Letter at 9. 489 See, e.g., CAST Letter at 4; CISQ Letter at 3– 493 See, e.g., CISQ Letter at 7; and Lauer Letter at 486 See FINRA Letter at 12. 7; FIA PTG Letter at 4; Lauer Letter at 6; and MSRB 6. 487 See supra Section IV.A.2.b (discussing the Letter at 10. 494 See CISQ Letter at 7. This commenter further definition of ‘‘SCI systems’’). Because development 490 See, e.g., Angel Letter at 2; CoreOne Letter at recommended that such process audits be and testing systems are not part of the adopted 3–5; DTCC Letter at 13; FIA PTG Letter at 2; FIX conducted at least annually for each SCI system, definition of ‘‘SCI systems,’’ systems issues with Letter at 1–2; Tradebook Letter at 1–4; UBS Letter and more often for SCI systems with operational regard to development and testing systems would at 4; and CISQ Letter at 6. See also infra Section problems, a record of non-compliance, or those not be subject to the requirements of adopted Rule IV.B.6 (discussing adopted Rule 1004, requiring being developed, tested, or operated by an 1002 relating to corrective action, Commission business continuity and disaster recovery testing, inexperienced staff, and stated that process auditors notification, and dissemination of information on including required participation of designated who perform a mentoring role to software teams SCI events; or Rule 1003(a) regarding notification of members or participants of SCI entities in such have proven a cost-effective mechanism for on-the- systems changes. testing). job training.

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testing, as applicable’’ of relevant commenters advocating that SCI entities urged that the specific redundancy systems, including backup systems. In should focus on identifying structural requirement implicit in the proposed response to some commenters’ concerns vulnerabilities or weaknesses,497 an SCI geographic diversity provision should that the proposed requirement focused entity may also find it useful to conduct apply to a more limited set of SCI too much on regular testing and not reviews of its software and systems entities.502 In addition, some enough on other methods to assess architecture and design to assess commenters stated that proposed time systems operation,495 the adopted rule whether they have flaws or frames were too inflexible.503 provides an SCI entity the flexibility to dependencies that constitute structural The Commission has carefully determine an assessment methodology risks that could pose a threat to SCI considered commenters’ views and is that would be most appropriate for a systems’ operational capability.498 revising this provision from the given system, or particular functionality Likewise, an inspection by an SCI entity proposal to: (i) Specify that the stated of a system. Thus, consistent with of its physical premises may be a recovery timeframes in Regulation SCI commenters’ views, the adopted method of assessing some of the are goals, rather than inflexible provision does not specifically require vulnerabilities listed in the rule (such as requirements; 504 and (ii) provide that both regular reviews and regular testing physical hazards). the stated two-hour recovery goal in connection with an SCI entity’s applies to critical SCI systems generally. identification of vulnerabilities. Instead, Business Continuity and Disaster In addition, the Commission is adopting the provision requires reviews or testing Recovery the geographic diversity requirement, (or both) to occur as applicable, so long Proposed item (E) would have which does not specify any minimum as the approach is effective to identify required an SCI entity to have business distance for an SCI entity’s backup and vulnerabilities in SCI systems, and continuity and disaster recovery plans recovery facilities, as proposed. As indirect SCI systems, as applicable. that include maintaining backup and explained below, the Commission While Rule 1001(a)(2)(iv) specifically recovery capabilities sufficiently continues to believe that geographic identifies reviews and testing as means resilient and geographically diverse to diversity of physical facilities is an to identify vulnerabilities pertaining to ensure next business day resumption of important component of every SCI internal and external threats, physical trading and two-hour resumption of entity’s BC/DR plan. hazards, and natural or manmade clearance and settlement services Recovery Timeframes as Goals disasters, it does not dictate the precise following a wide-scale disruption. The manner or frequency of reviews and Commission received significant Several commenters addressing testing, and does not prohibit an SCI comment on this aspect of the proposal, proposed item (E) focused their entity from determining that there are with several commenters questioning or comments specifically on the proposed methods other than reviews and testing challenging the principle that securities recovery timeframes.505 A few that may be effective in identifying market infrastructure resilience is commenters that are clearing agencies vulnerabilities. For example, reviews achieved by requiring both geographic specifically expressed concern about the and testing would each be one of the diversity and specific recovery times for proposed requirement for the two-hour methods that an SCI entity could the backup and recovery capabilities of resumption of clearance and settlement employ, and each SCI entity would be all SCI entities.499 Although several services, urging that the two-hour able to determine which method(s) are commenters were supportive of the standard be a goal rather than a most appropriate for each SCI system (or broad goals of the proposed requirement.506 One commenter noted indirect SCI system, as applicable) or requirement,500 others maintained that, particular functionality of a given because the national market system has redundant backup facilities if the market network system, as well as the frequency with as a whole has sufficient capacity). built-in redundancies, the proposed 502 See, e.g., FIA PTG Letter at 4. See also supra which such method(s) should be geographic diversity and resumption note 53 and accompanying text. 496 employed. In addition, in response to requirements need not apply to all SCI 503 See, e.g., SIFMA Letter at 13; and Joint SROs entities to ensure securities market Letter at 17. 495 See supra notes 491–492 and accompanying resilience.501 Some of these commenters 504 See Interagency Paper on Sound Practices to text. Strengthen the Resilience of the U.S. Financial 496 Rule 1001(a)(2)(iv) would also permit an SCI Systems, Securities Exchange Act Release No. conducted at least annually for some SCI systems, entity to engage personnel independent of the team 47638 (April 7, 2003), 68 FR 17809, 17812 (April and more frequently for certain other SCI systems. that designed and developed the systems in testing, 11, 2003) (‘‘Interagency White Paper’’), stating: 497 or to employ a process audit role, to comply with See supra note 492 and accompanying text. ‘‘Recovery-time objectives provide concrete goals to this requirement, as some commenters suggested. 498 As noted by one commenter, static analysis plan for and test against. They should not be See supra notes 493–494 and accompanying text. could be a technique SCI entities could choose to regarded as hard and fast deadlines that must be Like other methods of review and testing, such utilize to help uncover structural weaknesses in met in every emergency situation;’’ and 2003 Policy engagements could identify vulnerabilities in a software. See supra note 480 and accompanying Statement on Business Continuity Planning for number of ways, such as through assessments of the text. Trading Markets, Securities Exchange Act Release SCI entity’s compliance with applicable standards, 499 See, e.g., BIDS Letter at 8; FIA PTG Letter at No. 48545 (September 25, 2003), 68 FR 56656, its risk management and control framework, or its 4; FIF Letter at 3; Group One Letter at 2–3; KCG 56658 (October 1, 2003) (‘‘2003 BCP Policy use of resources. Letter at 6–8, 11–14; FINRA Letter at 35–36; Angel Statement’’), stating: ‘‘Consistent with the approach In response to the comment suggesting that Letter at 12; and ITG Letter at 15. taken in the Interagency Paper, the next-day process audits be conducted at least annually for 500 See Direct Edge Letter at 4; FINRA Letter at resumption objective should provide a concrete each SCI system, and more often for SCI systems 35; ISE Letter at 2; and MSRB Letter at 10. goal to plan for and test against. This should not with operational problems, a record of non- 501 See, e.g., BIDS Letter at 8; FIA PTG Letter at be regarded as a hard and fast deadline that must compliance, or those being developed, tested, or 4; FIF Letter at 3; Group One Letter at 2–3; and KCG be met in every emergency situation.’’ operated by an inexperienced staff, the Commission Letter at 6–8, 11–14. According to these 505 See, e.g., SIFMA Letter at 3, 13, 18; KCG Letter notes that Rule 1001(a)(2)(iv) does not specify the commenters, because of the ease with which market at 11–12; DTCC Letter at 15; OCC Letter at 9–10; precise manner or frequency of reviews and tests. participants are able to shift their order flow when Omgeo Letter at 27–28; Angel Letter at 16–17; Rather, Rule 1001(a)(2)(iv) provides flexibility to an there is an issue at one or more markets, the Direct Edge Letter at 4–5; ISE Letter at 2–5; Joint SCI entity in determining the precise manner and proposed requirements are burdensome and SROs Letter at 16–17; FINRA Letter at 36; MSRB frequency of reviews and/or tests. For example, an unnecessary. See also Angel Letter at 12 (stating Letter at 10; Tellefsen Letter at 6; and Group One SCI entity could determine that, in order for its that, if an exchange experiences an issue, other Letter at 2. policies and procedures to be reasonably designed, exchanges have more than enough capacity to 506 See DTCC Letter at 15 (‘‘[P]roposed Rule as required by Rule 1001(a), its policies and handle the trading volume, and suggesting that it 1000(b)(l)(i)(E) has made what is currently a target procedures should provide that process audits be is not necessary for each exchange to have totally within the 2003 Interagency White Paper that

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that the ‘‘Interagency White Paper itself acknowledges that a hard and fast for trading services following a wide- recognizes that ‘various external factors resumption timeframe may not be scale disruption.515 However, this surrounding a disruption such as time achievable in each and every case, given commenter also urged more broadly that of day, scope of disruption, and status the variety of disruptions that the Commission take into account the of critical infrastructure—particularly potentially could arise and pose criticality of the functions performed by telecommunications can affect actual challenges even for well-designed an SCI entity to the maintenance of fair recovery times,’ and concludes that business continuity and disaster and orderly markets in order to tailor ‘[r]ecovery-time objectives provide recovery. For this reason, the the obligations of the rule more concrete goals to plan for and test Commission is revising the proposed effectively.516 According to this against . . . they should not be regarded requirement by replacing it with a commenter, ‘‘[n]otification and as hard and fast deadlines that must be requirement that an SCI entity have remediation requirements . . . should met in every emergency situation.’ ’’ 507 policies and procedures that include be tailored to the time sensitivity of Several commenters suggested that SCI ‘‘business continuity and disaster each of the functions performed, not entities generally be given more recovery plans that include maintaining applied uniformly across all activities of discretion to decide when to resume backup and recovery capabilities an SCI entity.’’ This commenter trading following a wide-scale sufficiently resilient and geographically identified ‘‘highly critical functions’’ as disruption.508 Other commenters stated diverse and that are reasonably including the primary listing exchanges, more broadly that the proposed recovery designed to achieve next business day trading of securities on an exclusive timeframes were too rigid and resumption of trading and two-hour basis, securities information processors, inconsistent with the Interagency White resumption of critical SCI systems clearance and settlement agencies, Paper and the 2003 BCP Policy following a wide-scale disruption.’’ distribution of unique post-trade Statement.509 Other commenters Replacement of the phrase ‘‘to ensure’’ transparency information, and real-time similarly noted that it might be in the with the phrase ‘‘reasonably designed to market surveillance,’’ and urged the public interest and consistent with the achieve’’ means that Regulation SCI’s Commission to ‘‘leverage the best protection of investors and the enumerated recovery timeframes are practices of the Interagency White maintenance of fair and orderly markets concrete goals, consistent with the Paper, and expand them to include the for the markets to remain closed Interagency White Paper and 2003 BCP [highly] critical functions. . . .’’ 517 following a wide-scale disruption.510 Policy Statement.512 As such, the rule’s Other commenters also urged the In response to comments that the specified recovery timeframes are the Commission to consider the criticality proposed two-hour recovery time frame standards against which the of SCI systems functionality and tailor was too inflexible,511 the Commission is reasonableness of business continuity requirements accordingly.518 One eliminating the proposed requirement and disaster recovery (‘‘BC/DR’’) plans that an SCI entity must ‘‘ensure’’ next will be assessed by the Commission and 515 See SIFMA Letter at 12–13. Specifically, this commenter noted that the Interagency White Paper, business day resumption of trading and its inspection staff. Moreover, as recovery goals, rather than hard and fast supra note 504, distinguishes between ‘‘core two-hour resumption of clearance and clearing and settlement organizations’’ and firms settlement services following a wide- deadlines, the enumerated time frames that play ‘‘significant roles in the financial markets’’ scale disruption. The Commission in the rule will continue to allow for SCI and recommended that the Commission continue to entities to account for the specific facts distinguish between SCI entities that are and circumstances that arise in a given responsible for the highly critical function of clearing and settling services be resumed within 2 centralized counterparties (e.g., clearing agencies hours of a disruption into a requirement that may scenario to determine whether it is registered with the Commission) and SCI entities not be attainable in all circumstances. . . .’’); OCC appropriate to resume a system’s that are not. Letter at 9–10 (‘‘While a two-hour recovery time operation following a wide-scale 516 See SIFMA Letter at 4. objective is a laudable goal . . . current guidelines 517 See id. at 4, 18. SIFMA also listed the remain appropriate to recover and resume clearing disruption. distribution of unique post-trade transparency and settlement activities within the business day on Recovery Timeframe Distinctions information and real-time market surveillance as which the disruption occurs, with the overall highly critical functions. While such systems are aspiration of achieving recovery and resumption In the SCI Proposal, the Commission not specifically identified in the first prong of the within two hours’’); and Omgeo Letter at 27–28 solicited comment on whether the definition of critical SCI systems (as are SCI systems (‘‘While Omgeo agrees that SCI entities should be that directly support functionality relating to: (1) required to rapidly recover from a wide-scale proposed next business day resumption Clearance and settlement systems of clearing disruption and resume operations to avoid of trading following a wide-scale agencies; (2) openings, reopenings, and closings on disrupting the critical markets beyond a single disruption and proposed two-hour the primary listing market; (3) trading halts; (4) business day, it is unreasonable to require these resumption of clearance and settlement initial public offerings; (5) the provision of operations to be resumed within two hours.’’). services following a wide-scale consolidated market data; or (6) exclusively-listed 507 See Omgeo Letter at 27–28. disruption were appropriate.513 The securities), the Commission notes that systems that 508 See Angel Letter at 16–17; Direct Edge Letter provide functionality to the securities markets for at 4–5; ISE Letter at 2; Joint SROs Letter at 16–17; Commission also solicited comment on which the availability of alternatives is significantly and Group One Letter at 2. whether it should consider revising the limited or nonexistent and without which there 509 See SIFMA Letter at 13 (noting that the proposed next business day resumption would be a material impact on fair and orderly Interagency White Paper recommends that ‘‘core requirement for trading to a shorter markets are considered critical SCI systems under clearing and settlement organizations develop the period for certain entities that play a its second prong. See supra Section IV.A.2.c capacity to recover and resume clearing and (discussing the definition of ‘‘critical SCI systems’’). settlement activities within the business day on significant role within the securities 518 See, e.g., KCG Letter at 8, 13–14 (suggesting 514 which the disruption occurs with the overall goal markets. One commenter stated that that proposed item (E) apply only to SCI entities of achieving recovery and resumption within two it agreed with imposing more stringent that perform critical, unique functions in the hours after an event.’’ See also Joint SROs Letter at requirements for resumption of market), and at 5 (stating ‘‘when critical services are 17 (noting that the 2003 BCP Policy Statement, provided, additional heightened regulatory supra note 504, provides that rapid recovery should clearance and settlement services than requirements, as proposed in Regulation SCI, may not be regarded as a hard and fast deadline that be appropriate’’). See also UBS Letter at 3 (urging must be met in every emergency situation). 512 See Interagency White Paper, supra note 504, the Commission to take into consideration the 510 See, e.g., Angel Letter at 16–17; Direct Edge at 17812–13, and the 2003 BCP Policy Statement, difference between ‘‘interruptions of activities that Letter at 4–5, 9; ISE Letter at 2–5; and Joint SROs supra note 504, at 56658. hold significant implications for the National Letter at 16–17. 513 See Proposing Release, supra note 13, at Market System’’ and ‘‘low criticality activities [that] 511 See supra notes 506–510 and accompanying 18112, question 73. are much more manageable and localized in impact text. 514 See id. at 18112, question 76. Continued

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commenter noted that the August 2013 risk-based approach urged by affect actual recovery times.525 The Nasdaq SIP outage revealed each of commenters.521 The Commission also Commission believes it is important, SIAC and Nasdaq (in their roles as plan believes that its approach to holding particularly with respect to clearing processors) as a potential ‘‘single point critical SCI systems to stricter resiliency agencies, that SCI entities endeavor to of failure’’ in the national market standards than other systems is an take all steps necessary to effectuate end system, and specifically urged improved appropriate measure that responds not of day settlement. backup capabilities for these systems.519 only to comments received, but also to Geographic Diversity To Ensure Another commenter, in the context of recent events highlighting the effects of Resilience questioning the need for all markets to malfunctions in critical SCI systems.522 have geographically diverse backups, Several commenters addressing acknowledged that specific redundancy Two commenters requested proposed item (E) expressed concern might be appropriate in certain areas, clarification on the expectations for about the proposed geographic diversity such as where an instrument is traded resumption of SCI systems that are not requirement.526 Some commenters cited only on one exchange or in the case of related to trading, clearance, or a reluctance on the part of SCI entity a primary market during the open and settlement.523 In response to this members or participants to incur the closing periods of the market.520 comment, the Commission notes that cost or assume the risk of connecting to The Commission has carefully the adopted definition of SCI systems a backup site that would only be used considered these comments and has been refined from the proposed infrequently.527 In addition, some believes they support revising the definition of SCI systems and that all commenters cited concerns, such as proposed rule to provide that the two- SCI systems could be considered to be challenges to market makers generating hour recovery goal specified in the ‘‘related to’’ trading. However, systems quotes, if a backup site did not have the 528 adopted rule, as the standard against that directly support market regulation same low latency as the primary site. which BC/DR plans are to be assessed, and/or market surveillance will not be One of these commenter suggested that should apply not only to ‘‘clearance and held to the resumption goals of Rule allowing other fully operational settlement services,’’ but more generally 1001(a)(2)(v) (unless they are critical exchanges to fill in and perform the duties of an exchange experiencing an to the functions performed by critical SCI systems) because the Commission outage would offer the advantages of SCI systems. Given that the securities believes that the resumption of trading continued operation on tested systems markets are dependent upon the reliable and critical SCI systems could occur operation of critical SCI systems, the and the introduction of fewer following a wide-scale disruption variables.529 Another of these Commission believes it is reasonable to without the immediate availability of distinguish the two-hour and next- commenters argued that, in many market regulation and/or market respects, the goal of resilient and business day recovery goals in a manner surveillance systems (unless they are consistent with other provisions of redundant markets is already in place critical SCI systems). However, systems due to the existence of multiple adopted Regulation SCI: Specifically, to that directly support trading, order have the shorter recovery goal apply to competing and interconnected venues, routing, and market data would be critical SCI systems, and the longer operating as a collective system under subject to the next-business day 530 recovery goal apply to resumption of Regulation NMS. resumption goal, unless they are also One commenter agreed that it is a best trading by non-critical SCI systems. The critical SCI systems, in which case they business practice for a market to have Commission also notes that, because the backup disaster recovery facilities and proposed recovery timeframes are being would be subject to the two-hour robust BC/DR plans, but stated that adopted as concrete goals that the resumption goal. ‘‘significant geographic diversity’’ policies and procedures must be One commenter questioned what the should not be an absolute requirement,’’ reasonably designed to achieve, rather expectations are with respect to next- because a wide-scale disruption in New than hard and fast requirements, the day resumption if an SCI entity loses York or Chicago would make next day adopted approach is somewhat more functionality towards the end of the resumption difficult, even with a flexible than that proposed. trading day.524 In response to this geographically diverse backup.531 This Accordingly, adopted Rule 1001(a)(2)(v) comment, the Commission notes that commenter noted that the more remote holds BC/DR plans for critical SCI neither the next-business day the backup, the more difficult it would systems (as defined in Rule 1000) to a resumption of trading goal nor the two- be to staff such a facility, and even more higher standard than BC/DR plans for hour recovery goal for critical SCI so in a surprise disaster, unless the resumption of trading operations more systems is dependent on the time of day backup was fully staffed at all times.532 generally. Specifically, an SCI entity that the loss of functionality occurs. Several commenters also argued that responsible for a given critical SCI Consistent with the Interagency White SCI entities that are ATSs are less system will be expected to design BC/ Paper and 2003 BCP Policy Statement, critical to market stability, and therefore DR plans that contemplate resumption however, the Commission acknowledges of critical SCI system functionality to that the time of day of a disruption can 525 See Interagency White Paper, supra note 504, meet a recovery goal of two hours or at 17812, and the 2003 BCP Policy Statement, supra less. The Commission believes that this note 504, at 56658. 521 See supra notes 53–57 and accompanying text 526 approach is consistent with the broader (summarizing commenters’ recommendations with See, e.g., KCG Letter at 13; FIA PTG Letter at regard to adopting a risk-based approach generally). 3–4; Group One Letter at 2–3; ISE Letter at 2–5; BIDS Letter at 8; and ITG Letter at 15. . . . because market participants are not directly 522 See supra Section II.B (discussing recent 527 touched or are equipped to quickly route around systems issues, including a systems problem that See KCG Letter at 13; FIA PTG Letter at 3–4; the problem’’). According to this commenter, resulted in certain exclusively-listed securities and Group One Letter at 2–3. activities that hold such significant implications being unable to trade for over three hours, and a 528 See KCG Letter at 13; and FIA PTG Letter at would include: ‘‘disruption at primary exchange systems problem affecting the SIP that halted 3–4. during [the] open/close, [a] problem with protected trading in all Nasdaq-listed securities for more than 529 See Group One Letter at 2–3. quote data, [an] outage at listing exchange during three hours). 530 See FIA PTG Letter at 4. See also Angel 2 [an] IPO, [and] SIP data disruptions.’’ 523 See FINRA Letter at 36; and MSRB Letter at Letter at 3. 519 See Angel Letter 2 at 3–4. 10. 531 See ISE Letter at 2–5. 520 See FIA PTG Letter at 4. 524 See Tellefsen Letter at 6. 532 See id.

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should be subject to less stringent could be impacted. The Commission Commission believes that SCI ATSs geographic diversity and recovery notes that some of the practical have the potential to significantly requirements.533 One commenter difficulties commenters cited as the impact investors, the overall market, suggested eliminating the reference to basis for objecting to a backup site and the trading of individual securities ‘‘geographic diversity’’ in favor of requirement, such as the cost and as a result of an SCI event, the requiring ‘‘comprehensive business operational risk of maintaining a Commission believes that these entities continuity and disaster recovery plans redundant connection to an SCI entity are appropriate for inclusion in the with recovery time objectives of the next backup facility that would be used definition of SCI entity and for the business day for trading and two hours infrequently, are concerns raised on application of the geographic diversity for clearance and settlement,’’ and behalf of SCI entity members and requirement.540 emphasizing as guidance that participants.538 In response to Like the proposed rule, the adopted geographic diversity of physical commenters who expressed concern rule does not specify any particular facilities would be an expected regarding the cost for members or minimum distance or geographic component of any such plan.534 participants to co-locate their systems at location that would be necessary to The Commission has carefully backup sites to replicate the speed and achieve geographic diversity.541 considered commenters’ views on the efficiency of the primary site, the However, as stated in the SCI Proposal, proposed geographic diversity Commission emphasizes that adopted the Commission continues to believe requirement and continues to believe Rule 1001(a)(2)(v) does not require an that backup sites should not rely on the that geographic diversity of physical SCI entity to require members or same infrastructure components, such facilities is an important component of participants to use the backup facility in as for transportation, every SCI entity’s BC/DR plan.535 The the same way it uses the primary telecommunications, water supply, and Commission believes that challenges to facility. Rather, the assessment of the electric power.542 The Commission also recovery are increased when a effectiveness of a BC/DR plan that continues to believe that an SCI entity disruption impacts a broad geographic includes geographically diverse backup should have a reasonable degree of area, and therefore that an SCI entity’s facilities is whether it is reasonably flexibility to determine the precise arrangements to assure resilience in the designed to achieve next business day nature and location of its backup site event of a wide-scale disruption cannot resumption of trading and two-hour depending on the particular reliably be achieved without geographic resumption of critical SCI systems vulnerabilities associated with those 536 diversity of its BC/DR resources. The following a wide-scale disruption. sites, and the nature, size, technology, Commission does not agree with In response to comments that business model, and other aspects of its 543 commenters who argued that the geographic diversity should be business.’’ In response to comment existence of multiple competing and encouraged but not required for all SCI that a geographically diverse backup interconnected venues operating as a entities, the Commission does not facility is impractical if key personnel collective system under Regulation believe that it would be appropriate to do not live sufficiently close to the NMS obviates the need for geographic eliminate the proposed requirement that backup facility, the Commission notes diversity at the individual SCI entity that adopted Regulation SCI does not 537 SCI entities maintain geographically level. For example, a wide-scale diverse backup and recovery require an SCI entity to have a disruption, such as a natural disaster or capabilities (which the Commission geographically diverse backup facility man-made attack, could affect a large understands many SCI entities already so distant from the primary facility that number of SCI entities, and absent the SCI entity may not rely primarily on have) because, as stated, absent individual SCI entity responsibility for the same labor pool to staff both individual SCI entity responsibility for maintaining geographic diversity, there facilities if it believed it to be maintaining geographic diversity, there could be a greater likelihood that a appropriate.544 Given that the could be a greater likelihood that a critical mass of SCI entities would not Commission did not propose a specified critical mass of SCI entities would not be operational, so that the continued minimum distance to achieve be operational following a wide-scale maintenance of fair and orderly markets geographic diversity, the Commission disruption. In response to comment that believes that the geographic diversity ATSs are less critical to market stability, 533 See BIDS Letter at 8; FIA PTG Letter at 4; ITG requirement is reasonable and and therefore should be subject to less Letter at 15; and KCG Letter at 8, 13. These appropriate for all SCI entities. The commenters believed that the proposed geographic stringent geographic diversity and diversity requirements are burdensome and recovery requirements, the Commission unnecessary because of the ease with which market achieve next business day resumption of trading participants are able to shift their order flow when notes that ATSs that do not have critical and two-hour resumption of critical SCI systems there is an issue at one or more markets. In SCI systems will be subject to less following a wide-scale disruption, nor does it addition, two commenters argued that, because stringent geographic diversity and require the functional and performance testing and ATSs are subject to FINRA regulations with respect recovery requirements than SCI entities coordination of industry or sector-testing of such to BC/DR plans, further regulation would be plans, which the Commission believes to be 539 redundant and unnecessary. See ITG Letter at 15; that do. However, because the instrumental in achieving the goals of Regulation and OTC Markets Letter at 9. SCI with respect to SCI entities. See also supra note 534 See Direct Edge Letter at 4. 538 See infra Section IV.B.6 (discussing SCI entity 115. 540 535 The Commission’s view is consistent with the BC/DR testing requirements for members or See supra notes 107–109 and accompanying 2003 BCP Policy Statement. See 2003 BCP Policy participants). text. Statement, supra note 504, at 56658. See also infra 539 In addition, in response to commenters who 541 See Proposing Release, supra note 13, at Section VI.C.2.b (discussing the benefits of argued that, because ATSs are subject to FINRA 18108, n. 182 and accompanying text. geographic diversity). regulations with respect to BC/DR plans further 542 See id. 536 See, e.g., 2003 BCP Policy Statement, supra regulation would be redundant and unnecessary 543 See id. note 504, at 56657 (stating that a critical ‘‘lesson (see supra note 533), the Commission notes that 544 An SCI entity with critical SCI systems subject learned’’ from the events of September 11, 2001 is FINRA Rule 4370 generally requires that a member to a two-hour recovery goal may, however, find it the need for more rigorous business continuity maintain a written continuity plan identifying prudent to establish back-up facilities a significant planning in the financial sector to address problems procedures relating to an emergency or significant distance away from their primary sites, or otherwise of wider geographic scope and longer duration than business disruption. Unlike Regulation SCI, address the risk that a wide-scale disruption could those previously addressed). however, the FINRA rule does not include the impact either or both of the sites and their labor 537 See supra notes 530 and 533 and requirement that the business continuity and pool. See Interagency White Paper, supra note 504, accompanying text. disaster recovery plans be reasonably designed to at 17813.

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geographic diversity requirement is proprietary market data as well and, as rather that an SCI entity should have a therefore adopted as proposed. such, SCI systems directly supporting monitoring process in place so that In sum, the Commission believes that proprietary market data or consolidated systems problems are able to be adopted Rule 1001(a)(2)(v), requiring an market data are subject to the identified as a matter of standard SCI entity to have business continuity requirements of item (F). As stated in operations and pursuant to parameters and disaster recovery plans that include the SCI Proposal, the Commission reasonably established by the SCI entity. maintaining backup and recovery believes that the accurate, timely, and In addition, the Commission believes capabilities sufficiently resilient and efficient processing of data is important that the reliability of escalation of geographically diverse and that are to the proper functioning of the potential SCI events to designated reasonably designed to achieve next securities markets. The Commission responsible SCI personnel for business day resumption of trading and continues to believe that it is important determination as to whether they are, in two-hour resumption of critical SCI that each SCI entity’s market data fact, SCI events is likely to be more systems following a wide-scale systems are reasonably designed to effective when it occurs in connection disruption, is consistent with, and maintain market integrity and that the with established procedures for builds upon, both the Interagency White proposed requirement would facilitate monitoring of SCI systems and indirect Paper and the 2003 BCP Policy that goal.548 This element, requiring that SCI systems and pursuant to a process Statement by applying their principles an SCI entity’s policies and procedures for the communication of systems to SCI entities in today’s trading include standards that result in systems problems by those who are not environment, one with a heavy reliance being designed, developed, tested, responsible SCI personnel to those who on technological infrastructure. The maintained, operated, and surveilled in are. The Commission notes that several Commission believes that individual a manner that facilitates the successful commenters discussed the role that SCI entity resilience is fundamental to collection, processing, and technology staff play in monitoring and achieving the goal of improving U.S. dissemination of market data, is adopted identifying potential systems problems securities market infrastructure as proposed, as Rule 1001(a)(2)(vi). and escalating issues up the chain of resilience. command to management as well as Monitoring legal and/or compliance personnel. Robust Standards for Market Data The Commission is adopting an Although systems monitoring may Proposed item (F), requiring an SCI additional provision, designated as Rule already be routine in many SCI entities, entity to have standards that result in 1001(a)(2)(vii), that requires an SCI there are expected benefits of systems being designed, developed, entity’s policies and procedures to monitoring and thus it is appropriate to tested, maintained, operated, and provide for monitoring of SCI systems, require an SCI entity’s policies and surveilled in a manner that facilitates and, for purposes of security standards, procedures to provide for monitoring of the successful collection, processing, indirect SCI systems, to identify SCI systems, and, for purposes of and dissemination of market data, potential SCI events. Several security standards, indirect SCI systems, received little comment. One commenters argued that Regulation SCI to identify potential SCI events. The commenter supported the proposed should allow entities to adopt and Commission believes that monitoring in requirement, subject to further follow escalation procedures instead of tandem with escalation to responsible clarification about what constitutes providing that obligations under SCI personnel is an appropriate market data.545 Another commenter Regulation SCI are triggered by one approach to ensuring SCI compliance. believed that this proposed requirement employee’s awareness of a systems As noted, the requirement that an SCI is redundant because SROs and other issue.549 The Commission is modifying entity have policies and procedures for market participants are already subject Regulation SCI in three respects in monitoring provides an SCI entity with to substantial requirements for market response to these comments: revising flexibility to establish parameters that data.546 the definition of responsible SCI define the types of systems problems to While consolidated market data is personnel to focus on senior managers; which technology personnel should be collected and distributed pursuant to a requiring that an SCI entity have alert, as well as the frequency and variety of Exchange Act rules and joint policies and procedures to identify, duration of monitoring. The industry plans,547 the Commission does designate, and escalate potential SCI Commission also believes this not believe that existing requirements events to responsible SCI personnel; and requirement is consistent with a risk- have the same focus on ensuring the explicitly requiring policies and based approach, and that an SCI entity’s operational capability of the systems for procedures for monitoring.550 The policies and procedures for monitoring collecting, processing, and requirement that an SCI entity have may be tailored to the relative criticality disseminating market data. Thus, the policies and procedures to provide for of SCI systems, with critical SCI systems Commission believes that this monitoring of SCI systems and, for likely to be subject to relatively more provision, while consistent with purposes of security standards, indirect rigorous policies and procedures for existing rules, acts as a complement to SCI systems, is added to make explicit monitoring than other SCI systems. such requirements and is not redundant. that escalation of a systems problem iii. Policies and Procedures Consistent Further, as explained above, the term should occur not only if a systems With ‘‘Current SCI Industry ‘‘market data’’ is not intended to include problem is identified by chance, but Standards’’—Rule 1001(a)(4) only consolidated market data, but Proposed Rule 1000(b)(1)(ii) stated 548 See Proposing Release, supra note 13, at 545 See MSRB Letter at 8. 18108. that an SCI entity’s policies and 546 See Angel Letter at 19. 549 See, e.g., OCC Letter at 12; FINRA Letter at 25– procedures would be deemed to be 547 See, e.g., Rules 601–604 of Regulation NMS 26; Omgeo Letter at 13; FIF Letter at 5; and NYSE reasonably designed if they are and Rule 301(b)(3) of Regulation ATS. See also Letter at 19–20. See also infra notes 758–761 and consistent with ‘‘current SCI industry supra Section IV.A.1.c (discussing definition of accompanying text (discussing comments on the standards,’’ such as those listed on plan processor) and Concept Release on Equity proposed ‘‘becomes aware’’ standard). Market Structure, supra note 4, at 3600 (discussing 550 See infra Section IV.B.3.a (discussing the proposed Table A. ‘‘Current SCI various rules and requirements relating to Commission’s determination to further focus the industry standards’’ were not limited to consolidated market data). definition of ‘‘responsible SCI personnel’’). those listed on proposed Table A, but

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were proposed to be required to be: (A) information technology professionals in the financial sector and issued by an Comprised of information technology the financial sector.’’ Several authoritative body that is a U.S. practices that are widely available for commenters argued that there were governmental entity or agency, free to information technology significant disadvantages to requiring association of U.S. governmental professionals in the financial sector; and that standards be available free of entities or agencies, or widely (B) issued by an authoritative body that charge.552 One of these commenters recognized organization. The is a U.S. governmental entity or agency, stated that requiring standards to be Commission believes that this criterion association of U.S. governmental available for free ‘‘may encourage SCI is sufficiently flexible to include entities or agencies, or widely entities to use standards that may be technology practices issued by recognized organization. The rule outdated when more suitable standards professional organizations, including further stated that ‘‘compliance with may be available and would be more the professional organizations such current SCI industry standards appropriate.’’ 553 Another of these referenced by commenters.557 . . . shall not be the exclusive means to commenters stated that ‘‘the cost or lack Proposed Table A: Comments Received comply with the requirements of thereof of a technology standard or paragraph (b)(1).’’ standard framework has no bearing on The SCI Proposal stated that written The goal of proposed Rule the quality or appropriateness of such policies and procedures that are 1000(b)(1)(ii) was to provide guidance to standard or framework and bears no consistent with the relevant examples of SCI entities on policies and procedures significance to the maintenance of fair SCI industry standards contained in the that would meet the articulated and orderly markets.’’ 554 publications identified in Table A standard of being ‘‘reasonably designed Two standard setting organizations would be deemed to be ‘‘reasonably to ensure that their systems have levels commented regarding the use of designed’’ for purposes of proposed of capacity, integrity, resiliency, consensus standards, citing OMB Rule 1000(b)(1).558 Proposed Table A availability, and security, adequate to Circular No. A–119, which directs listed publications covering nine maintain their operational capability agencies to use voluntary consensus inspection areas, or ‘‘domains,’’ that and promote the maintenance of fair standards (i.e., standards developed by Commission staff historically has and orderly markets.’’ The proposal professional standards organizations), evaluated under the ARP Inspection sought to provide this guidance by and urged the Commission to eliminate Program.559 identifying example information the requirement that SCI industry Proposed Table A elicited significant technology publications describing standards be ‘‘available for free.’’ 555 and varied comment. Some commenters processes, guidelines, frameworks, and/ Another commenter similarly urged that objected generally to the Table A or standards that SCI entities could elect it was important for SCI entities to use framework.560 Others objected more to look to in developing its policies and publications generated by professional specifically to Table A’s proposed procedures. Proposed Table A set forth organizations that regularly update their content,561 and some commenters an example of one set of technology standards and employ open processes objected to Table A as a premature publications that the Commission for gathering industry input.556 attempt to establish consensus on SCI preliminarily believed was an The Commission agrees that the cost industry standards where consensus has appropriate set of reference documents. or lack thereof of a technology standard not yet emerged.562 The SCI Proposal acknowledged that or standard framework has no bearing Table A Framework and Process ‘‘current SCI industry standards’’ would on the quality or appropriateness of not be limited to the publications such standard, and also that SCI entities One group of commenters suggested that, in lieu of the publications identified on proposed Table A. As should be encouraged to use appropriate identified in Table A, the Commission such, an SCI entity’s choice of a current standards developed by professional should characterize policies and SCI industry standard in a given domain organizations that regularly update their procedures as reasonably designed if or subcategory thereof could standards and employ open processes they comply with ‘‘generally accepted appropriately be different from those for gathering industry input. While the standards.’’ 563 Another commenter contained in the publications identified Commission did not propose to require similarly suggested that the Commission in proposed Table A.551 Many that particular standards be used, in replace the proposed rule’s reference to commenters, however, objected to the response to comment, the Commission ‘‘current SCI industry standards’’ with proposed objective criteria for reference is adopting Rule 1001(a)(4) without the publications, and/or one or more of the criterion in the SCI Proposal that a technology standard be available free of 557 See infra notes 583–601 and accompanying specific publications listed on proposed text. The Commission expresses no view, however, Table A. The Commission has carefully charge. The other criteria are adopted as on any particular publication that is not specifically considered commenters’ views and is proposed. Thus, to qualify as an ‘‘SCI identified in infra notes 584–601, or standards that adopting Rule 1000(b)(1)(ii), industry standard,’’ a publication must remain in development (e.g., a standard being be comprised of information technology drafted by AT 9000) (see infra note 601 and renumbered as Rule 1001(a)(4), with accompanying text). certain modifications as described practices that are widely available to 558 See Proposing Release, supra note 13, at below. information technology professionals in 18109. 559 See id. Criteria for Identifying SCI Industry 552 See ANSI Letter at 1; DTCC Letter at 15; OCC 560 See, e.g., Angel Letter at 8–9; BATS Letter at Standards: Comments Received and Letter at 9; Omgeo Letter at 33–34; and X9 Letter 6–7; BIDS Letter at 7; Direct Edge Letter at 2; Joint Commission Response at 1. SROs Letter at 4; MSRB Letter at 11–12; and NYSE 553 See OCC Letter at 9. Letter at 20–21. Some commenters disagreed with the 554 See Omgeo Letter at 33 (noting also that the 561 See, e.g., Angel Letter at 8–9; BATS Letter at Commission’s proposal to require SCI proposed criteria would eliminate appropriate 6–7; FIF Letter at 3–4; ISE Letter at 11–12; CAST industry standards to be ‘‘comprised of standards such ITIL and ISO 27000). Letter at 10; MSRB Letter at 11–12; DTCC Letter at information technology practices that 555 See ANSI Letter at 1; and X9 Letter at 1. 15; FINRA Letter at 31; Omgeo Letter at 33; CISQ 556 See CISQ2 Letter at 6. See also Angel Letter Letter at 1–2; OCC Letter at 9; Lauer Letter at 5– are widely available for free to at 8 (suggesting that the proposed criteria could 7; BIDS Letter at 7; and Liquidnet Letter at 3–4. potentially result in the creation of race-to-the- 562 See, e.g., FIF Letter at 3–4; Liquidnet Letter at 551 See Proposing Release, supra note 13, at bottom standards organizations that establish lax 3–4; UBS Letter at 7; and ISE Letter at 11–12. 18109. standards). 563 See Joint SROs Letter at 4.

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the phrase ‘‘generally accepted not be sufficiently nimble to assure that proposed Table A, as discussed in this technology principles,’’ and delete SCI entities adhere to the best possible Section IV.B.1.b.iii, and periodically Table A and the proposed Table A then-current standards, and suggested update such guidance as appropriate. criteria.564 These commenters viewed that the Commission defer to the The Commission believes that guidance proposed Table A as flawed in expertise of the organizations that have issued by the Commission staff will concept.565 Specifically, one of these established the listed standards and rely have the advantage of easier updating commenters expressed concern that the on the updates provided by these and allow for emerging consensus on standards set forth in Table A might not organizations.571 Another commenter standards more focused on the keep pace with a constantly evolving stated that any ‘‘hard coded’’ solutions securities industry. Thus, concurrent technological landscape and that, are likely to become obsolete very with the Commission’s adoption of despite this evolution, Commission staff quickly.572 Regulation SCI, Commission staff is might take a checklist approach to its After careful consideration of these issuing guidance to SCI entities on review of policies and procedures, comments, the Commission developing policies and procedures which would result in unintended acknowledges that the proposed consistent with ‘‘current SCI industry consequences.566 framework for identifying and updating standards.’’ 575 publications on Table A may not be The other commenter stated that it Table A Publications was more common, and more sufficiently nimble to assure that its list appropriate in any industry that relies of publications does not become Many commenters who did not urge heavily on technology, for an entity to obsolete as technology and standards elimination of Table A altogether review a variety of different standards change. The Commission agrees that, in addressed the content of proposed Table for frameworks or best practices, and an industry that relies heavily on A. Those commenters did not express then adopt a derivative of multiple technologies that are constantly opposition to the identification of standards, customizing them for the evolving, the prescription of hard-coded certain inspection areas or domains on systems at issue.567 According to this solutions that may become quickly proposed Table A, but some commenter, SCI entities would be outdated is not the better approach. commenters identified issues with unlikely to comply with all aspects of However, because several commenters specific publications listed on Table 576 any particular standard in Table A at stated that there is currently a lack of A. Specifically, two commenters any particular time, thereby ‘‘obviating consensus on what constitutes generally stated that the NIST publication listed 568 accepted standards or principles in the for the Systems Development its usefulness.’’ 577 Other commenters argued that the securities industry,573 the Commission Methodology domain was outdated. Table A concept was flawed because continues to believe that there is value One of these commenters objected to Table A would always be on the verge in identifying example publications for this publication as reflecting a of being outdated. For example, one SCI entities to consider looking to in burdensome staged process to software commenter characterized the proposed establishing policies and procedures development that favors the ‘‘waterfall Table A publications as ‘‘soon-to-be that are consistent with ‘‘current SCI methodology’’ over ‘‘agile’’ software outdated’’ and stated that it is crucial industry standards.’’ 574 development, which generally uses that SCI entity policies and procedures After considering the potential more ‘‘nimble processes’’ and is more be ‘‘forward-looking’’ and able to disadvantages of ‘‘hard-coding’’ Table A typical in the financial services industry today.578 Another commenter noted that respond to future threats.569 Another in a Commission release, and the this publication had both strengths and commenter stated that the proposed potential benefits of providing further weaknesses.579 Two commenters process for updating Table A 570 would guidance to SCI entities on the meaning of ‘‘current SCI industry standards,’’ the objected to the FFIEC’s Operations IT 564 See NYSE Letter at 20–21. Commission has determined that, rather Examination Handbook in the capacity 580 565 See Joint SROs Letter at 4; and NYSE Letter than the Commission issuing Table A in planning domain as too generic. One at 20. this release, Commission staff should commenter objected to the inclusion of 566 See Joint SROs Letter at 4. Other commenters issue guidance to assist SCI entities in FFIEC’s Audit IT Examination similarly expressed concern that SCI entities would developing policies and procedures Handbook.581 Another commenter closely adhere to the publications listed in Table A stated more broadly that the proposed (even though the SCI Proposal specified that such consistent with ‘‘current SCI industry adherence would not be the exclusive means to standards’’ in a manner that is Table A publications focus too heavily comply with the requirements of proposed Rule consistent with the Commission’s 1000(b)(1)), rather than take advantage of the response to comments received on 575 Staff Guidance on Current SCI Industry flexibility built into the proposed rule out of Standards will be available on the Commission’s concern that if they did not, they would expose Web site at: www.sec.gov. themselves to potential regulatory action for failure standards, the then-current set of SCI industry 576 See, e.g., Angel Letter at 9; BATS Letter at 6– to comply with Regulation SCI. See, e.g., MSRB standards would be the [relevant] standards. . . .’’ 7; FIF Letter at 3–4; and ISE Letter at 10. Letter at 11; Angel Letter at 8; BATS Letter at 6; and Proposing Release, supra note 13, at 18111. 577 See BATS Letter at 6; and ISE Letter at 10 NYSE Letter at 20–21. 571 See MSRB Letter at 11–12. (objecting to the inclusion of NIST Security 567 See NYSE Letter at 20. 572 See Direct Edge Letter at 2. Considerations in the System Development Life 568 See id. 573 See supra note 633 and accompanying text. Cycle (Special Publication 800–64 Rev. 2) as a 569 See id. See also ISE Letter at 10 (stating that 574 See Rule 1001(a)(4), which states: ‘‘For suitable ‘‘current SCI industry standard’’ in the the standards listed in Table A are not the most purposes of [complying with Rule 1001(a)], such systems development methodology domain). current or appropriate standards). See also infra policies and procedures shall be deemed to be 578 See BATS Letter at 6–7. notes 577–578 and accompanying text. reasonably designed if they are consistent with 579 See CISQ2 Letter at 4–5 (stating that NIST 570 In the SCI Proposal, the Commission stated current SCI industry standards, which shall be Special Publication 800–64, Rev. 2 and any that it ‘‘preliminarily believes that, following its comprised of information technology practices that derivative standard should ‘‘be reviewed and if initial identification of one set of SCI industry are widely available to information technology necessary revised by a panel of industry standards . . . it would be appropriate for professionals in the financial sector and issued by practitioners and technical experts to balance the Commission staff, from time to time, to issue an authoritative body that is a U.S. governmental requirement for rigor with the amount of practices notices to update the list of previously identified set entity or agency, association of U.S. governmental and documentation specified in the standard’’). of SCI industry standards after receiving entities or agencies, or widely recognized 580 See ISE Letter at 10; and FIF Letter at 3–4 appropriate input from interested persons. . . . organization. Compliance with such current SCI (both described this publication as setting forth a However, until such time as Commission staff were industry standards, however, shall not be the process for conducting capacity planning). to update the identified set of SCI industry exclusive means to comply with [Rule 1001(a)].’’ 581 See ISE Letter at 10.

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on firm-level risks and do not take into Microsoft’s SDL,595 and resources for The Commission therefore believes that account the technological and economic defining secure software development issuance of staff guidance that does this, stability of the U.S. market as a practices from organizations such as as discussed above, will be useful for whole.582 OWASP, WASC and SAFECode,596 and SCI entities. However, after careful In addition, several commenters publications issued by Scrum consideration of commenters’ views suggested specific additions to the Alliance,597 the Association for regarding the publications on proposed proposed list of publications on Table Software Testing (AST),598 the Institute Table A, the Commission believes it is 583 A. For example, more than one of Electrical and Electronics Engineers useful to characterize how such staff 599 commenter suggested the following (IEEE), and the Association for guidance should be used by SCI entities. 600 standards as appropriate for inclusion Computing Machinery (ACM). In In particular, the Commission on Table A: COBIT/ISACA; 584 ISO– addition, one commenter suggested a understands that some commenters who 27000; 585 ISO 25000; 586 and NFPA– standard currently being drafted by AT objected to the proposed Table A 1600.587 Other standards or publications 9000, a working group which focuses on concept and/or the proposed Table A mentioned by commenters as useful, trading safety, regulatory requirements, content were more broadly taking issue particularly in the area of software and achieving efficiency and with the characterization of certain of quality or software security, include the effectiveness of systems involved in the documents on proposed Table A, CISQ Software Quality Specification,588 automated trading.601 the Capability Maturity Model A few commenters opposed such as the NIST 800–53 document, as Integration (CMMI) framework, 589 referencing standards in Regulation SCI a ‘‘standard,’’ rather than a ‘‘framework’’ ‘‘SANS 20 Critical Security at the outset and instead supported or a ‘‘process.’’ 605 The Commission Controls,’’ 590 ‘‘CWE/SANS Top 25 Most establishing a process that they believed believes that many commenters Dangerous Software Errors,’’ 591 the would, after a certain period of time, implicitly were questioning why certain Open Source Security Testing yield a coherent set of standards.602 One identified technology frameworks (such Methodology Manual (OSSTMM),592 the of these commenters urged that best as NIST 800–53) were being labeled as, BITS Financial Services Roundtable practices should evolve from the and thereby elevated to, an example of Software Assurance Framework Commission’s experience with the ‘‘current SCI industry standards’’ when (January 2012),593 the ‘‘Build Security In annual SCI review process and many SCI entities were already Maturity Model’’ (BSTMM),594 experience with the ARP program, following ISO 27000, COBIT, or other because such best practices will be technology standards that they viewed 582 See Angel Letter at 9. specific to the securities industry and as more specific, relevant, and/or cost 583 See, e.g., CAST Letter; ISE Letter; MSRB Letter; DTCC Letter; FINRA Letter; Omgeo Letter; reflect the actual practices of SCI effective than the NIST frameworks 603 CISQ2 Letter; OCC Letter; BIDS Letter; Liquidnet entities. Finally, several commenters identified on proposed Table A.606 In Letter; and X9 Letter. suggested that the Commission establish response to these comments, the 584 See CAST Letter at 10; ISE Letter at 11; and a working group to develop SCI industry Commission believes it is appropriate MSRB Letter at 11. COBIT (formerly known as 604 Control Objectives for Information and related standards. that the staff’s guidance be characterized Technology) is an enterprise information The Commission has carefully as listing examples of publications technology governance framework developed by considered these comments, and describing processes, guidelines, ISACA (formerly known as the Information Systems continues to believe that there is value frameworks, or standards for an SCI Audit and Control Association). in identifying publications for SCI 585 See DTCC Letter at 15; ISE Letter at 11; FINRA entity to consider looking to in Letter at 31; and Omgeo Letter at 33. FINRA entities to consider looking to in developing reasonable policies and recommended ISO–27000 series because it provides establishing reasonable policies and ‘‘greater specificity’’ and may be ‘‘less burdensome’’ procedures, rather than strictly as listing procedures, because doing so will industry standards. Thus, the than the standards identified in proposed Table A. provide guidance on how an SCI entity ISE and DTCC recommended ISO 27000 specifically Commission believes it is appropriate if may comply with adopted Rule 1001(a). for application controls, information security and Commission staff were to list networking, and physical security controls. Omgeo publications that provide guidance to stated more broadly that it models aspects of its 595 See id. program on widely accepted international standards 596 See id. SCI entities on suitable processes for and frameworks such as ITIL and ISO 27000. 597 See Liquidnet Letter at 4. developing, documenting, and 586 See CAST Letter and CISQ2 Letter. CAST 598 suggested supplementing the SCI industry See id. implementing policies and procedures standards with standards that address development, 599 See id. for their SCI systems (and indirect SCI as well as standards that pertain to structural 600 See id. systems, as applicable), taking into software quality, such as ISO 25010 and CISQ 601 See X9 Letter at 2. account the criticality of each such Software Quality Specification. See CAST Letter at 602 See, e.g., FIF Letter at 4, 6; Liquidnet Letter 5. CISQ2 agreed that standards addressing at 3; UBS Letter at 7; and ISE Letter at 11. system. structural software quality are needed and 603 See FIF Letter at 4, 6. With respect to the publications suggested including CISQ Specification for 604 Automated Quality Characteristic Measures: CISQ– See, e.g., Liquidnet Letter at 3 (urging that a commenters suggested for inclusion on TR–2012–01 in Table A. CISQ also pointed to the working group consisting of regulators, industry proposed Table A, the Commission is Capability Maturity Model Integration (CMMI) as participants (from exchanges, ATSs and broker- another potential option, noting that it was the most dealers) and security and controls experts be not disputing the value of such widely adopted process standard for rigorous established to develop a security and controls standards, and believes that each, when software development practices. See CISQ2 Letter at framework for the industry). See also UBS Letter at considered with respect to a particular 7 (urging the Commission to convene a ‘‘cross- 3–4. system at an SCI entity, may contain 587 See OCC Letter at 9; and ISE Letter at 11. ISE industry, multi-disciplinary Working Group’’ to be also specifically recommended BS 25999 as an responsible for developing recommendations for appropriate standards for the SCI entity alternative contingency planning standard. appropriate standards); and ISE Letter at 11 to use as, or incorporate within, its 588 See CAST Letter at 5; and CISQ Letter at 1. (recommending that the Commission authorize SCI entities to establish a standards committee to 589 See CAST Letter at 10. review and recommend specific sets of standards). 605 The Commission also notes that this point was 590 See FIF Letter at 4. See also CISQ Letter at 2, 6 (supporting the Table made by a member of the third panel at the 591 See id. A approach but also seeing value in tailoring Cybersecurity Roundtable, supra note 39. See also 592 See Lauer Letter at 5–7. existing standards from professional organizations FINRA Letter at 31. 593 See BIDS Letter at 7. into an industry-specific set of standards for SCI 606 See supra notes 577–601 and accompanying 594 See id. entities). text.

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policies and procedures.607 The reasonable for the most robust controls 1001(a)(1)–(2). Moreover, because use of Commission notes that the guidance is to be selected and implemented for the publications identified by intended to be used as a baseline from ‘‘critical SCI systems,’’ as compared to Commission staff is not mandatory, the which the staff may work with SCI other types of SCI systems, and the staff guidance should not be regarded as entities and other interested market Commission believes it would be establishing a checklist, the use of participants to build consensus on appropriate that the staff’s guidance which could result in unintended industry-specific standards, as include publications that require more consequences, but rather a basis for discussed more fully below. Further, the rigorous controls for higher-risk considering how an SCI entity’s selected Commission believes that the goal of systems. The staff guidance is not standards relate to the guidance providing general and flexible guidance intended to be static, however. As the provided by Commission staff and to SCI entities does not necessitate Commission staff works with SCI whether they are appropriate standards providing a lengthy list of all the entities, as well as members of the for use by that particular SCI entity for publications that meet the criteria set securities industry, technology experts, a given system. forth in Rule 1001(a)(4).608 and interested members of the public, The Commission believes that it The Commission continues to believe and as technology standards continue to would be appropriate that the that it may be appropriate for an SCI evolve, the Commission anticipates that publications initially identified by entity to choose to adhere to a standard the Commission staff will periodically Commission staff at a minimum include or guideline in a given domain or update the staff guidance as appropriate. the nine inspection areas, or ‘‘domains,’’ subcategory thereof that is different Another way in which the that the Commission identified on Table from those contained in the staff publications identified by Commission A in the SCI Proposal and that are guidance, and emphasizes that nothing staff should provide guidance to SCI relevant to SCI entities’ systems that the staff may include in its entities is by providing transparency on capacity, integrity, resiliency, guidance precludes an SCI entity from how the staff will, at least initially, availability, and security, namely: adhering to standards such as ISO prepare for and conduct inspections Application controls; capacity planning; 27000, COBIT, or others referenced by relating to Regulation SCI. As discussed computer operations and production commenters to the extent they result in in the SCI Proposal and above,610 for environment controls; contingency policies and procedures that comply over two decades, ARP staff has planning; information security and with the requirements of Rule conducted inspections of ARP entity networking; audit; outsourcing; physical 1001(a).609 Moreover, adopted Rule systems, with a goal of evaluating security; and systems development 1001(a)(4) explicitly provides that whether an ARP entity’s controls over methodology. compliance with current SCI industry its information technology resources in The Commission believes it would be standards (i.e., including those each domain are consistent with ARP appropriate that each publication publications identified by the and industry guidelines,611 as identified identified by Commission staff be Commission staff) is not the exclusive by ARP staff from a variety of identified with specificity and include method of compliance with Rule information technology publications the particular publication’s date, 1001(a). Accordingly, an SCI entity’s that ARP staff believed were appropriate volume number, and/or publication determination not to adhere to some or for securities market participants.612 number, as the case may be. Thus, for all of the publications included in the With the adoption of Regulation SCI, SCI entities that establish or self-assess staff guidance in developing its policies and the resultant transition away from their policies and procedures in reliance and procedures does not necessarily the voluntary ARP Inspection Program on the guidance provided by the mean that its policies and procedures to an inspection program under publications identified by Commission will be deficient or unreasonable for Regulation SCI, the Commission staff, the Commission believes that the purposes of Rule 1001(a)(1). believes it is helpful to establish publications should be the relevant Importantly, the publications listed by consistency in its approach to publications until such time as the list Commission staff should be understood examining SCI entities for compliance is updated by Commission staff. Of to provide guidance to SCI entities on with Regulation SCI. Importantly, course, SCI entities may elect to use selecting appropriate controls for establishing consistency does not mean publications describing processes, applicable systems, as well as suitable that the Commission will take a one- guidelines, frameworks, and/or processes for developing, documenting, size-fits-all or checklist approach. standards other than those identified by and implementing policies and Because the publications identified by Commission staff to develop policies procedures for their SCI systems (and Commission staff should be general and and procedures that satisfy the indirect SCI systems, as applicable), flexible enough to be compatible with requirements of Rules 1001(a)(1)–(2). taking into account the criticality of many widely-recognized technology As stated in the SCI Proposal, each such system. Thus, for example, standards that SCI entities currently use, however, the Commission continues to the Commission believes it would be the Commission believes the believe that the development of publications identified by Commission securities-industry specific standards is 607 See supra notes 577–601 and accompanying staff should provide guidance for an SCI a worthy goal. Although some text. entity to self-assess whether its policies commenters urged the Commission not 608 See supra note 557 and accompanying text. and procedures comply with Rules to adopt Table A at the outset, and 609 Likewise, such guidance would not preclude an SCI entity from adopting a derivative of multiple instead establish a process to achieve standards, and/or customizing one or more 610 See supra Section II.A. that end,613 the Commission believes standards for the particular system at issue, as one 611 As stated in the SCI Proposal, the domains that the better approach is for commenter suggested. See supra note 567 and covered during an ARP inspection depend in part Commission staff to provide examples accompanying text. In assessing whether an SCI upon whether the inspection is a regular inspection entity’s use of such an approach in designing its or a ‘‘for-cause’’ inspection. Typically, however, to of publications through its guidance that policies and policies and procedures would be make the most efficient use of resources, a single form a baseline and remain open to ‘‘deemed’’ to be reasonably designed, the ARP inspection will cover fewer than nine emerging consensus on industry- Commission’s inquiry would be into whether its domains. See Proposing Release, supra note 13, at policies and procedures were consistent with 18086. specific standards. In response to the standards meeting the criteria in adopted Rule 612 See id. and supra Section II.A (discussing the 1001(a)(4). ARP Inspection Program). 613 See supra note 604 and accompanying text.

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commenter that suggested that the policies and procedures which would compliance. Some commenters Commission leverage the annual SCI reasonably be expected to prevent and supported the broad goals of a policies review process and the SCI inspection detect, insofar as practicable, any and procedures requirement to help process to yield a coherent set of violations of such policies and ensure that SCI systems operate as industry-specific standards that could procedures by the SCI entity or any intended.616 Other commenters be referenced on Table A, the person employed by the SCI entity; and questioned whether any set of policies Commission believes that such an (3) reasonably discharged the duties and and procedures could guarantee perfect approach could serve as an appropriate obligations incumbent upon it by such operational compliance.617 One input into the future development of policies and procedures, and was commenter emphasized that no set of such standards.614 In response to the without reasonable cause to believe that policies and procedures can guarantee commenter who stated that the such policies and procedures were not 100% operational compliance and that, proposed Table A publications do not being complied with in any material historically, the Commission has take into account the technological and respect. The safe harbor for SCI entities allowed entities to use a reasonableness economic stability of the U.S. market as in proposed Rule 1000(b)(2)(ii) specified standard so that policies and procedures a whole,615 the Commission notes that that the SCI entity’s policies and are required to be reasonably designed the technological stability of individual procedures must be reasonably designed to promote compliance, and the same SCI entities, in tandem with a to provide for: (1) Testing of all SCI should be used for the underlying heightened focus on critical SCI systems and any changes to such predicate requirement in Regulation systems, are necessary prerequisites to systems prior to implementation; (2) SCI.618 A few commenters expressed achieving such market-wide goals. periodic testing of all SCI systems and concern that, in instances where an SCI Accordingly, the Commission believes any changes to such systems after their entity’s policies and procedures failed that the publications identified by implementation; (3) a system of internal to prevent SCI events, the Commission Commission staff today should serve as controls over changes to SCI systems; (4) might use such failures as the basis for an appropriate initial set of ongoing monitoring of the functionality an enforcement action, charging that the publications, processes, guidelines, of SCI systems to detect whether they policies and procedures were not frameworks, and standards for SCI are operating in the manner intended; reasonable.619 One commenter believed entities to use as guidance to develop (5) assessments of SCI systems that compliance with Regulation SCI their policies and procedures under compliance performed by personnel should be measured against a firm’s Rule 1001(a). With this guidance as a familiar with applicable federal adherence to its own set of policies and starting point, the Commission expects securities laws and rules and procedures that are in keeping with SCI that the Commission staff will seek to regulations thereunder and the SCI system objectives, and such policies work with members of the securities entity’s rules and governing documents, should be reviewed and updated as part industry, technology experts, and as applicable; and (6) review by of the annual SCI review process.620 interested members of the public regulatory personnel of SCI systems Another commenter requested that the towards developing standards relating design, changes, testing, and controls to Commission more clearly distinguish to systems capacity, integrity, resiliency, prevent, detect, and address actions that between liability under Regulation SCI availability, and security appropriately do not comply with applicable federal and liability for SCI events, stating that tailored for the securities industry and securities laws and rules and compliance with Regulation SCI and SCI entities, and periodically issue staff regulations thereunder and the SCI compliance with other federal securities guidance that updates the guidance with entity’s rules and governing documents, laws and rules must remain distinct.621 such standards. as applicable. Whereas adopted Rule 1001(a) 622 In addition, proposed Rule concerns the robustness of the SCI 2. Policies and Procedures To Achieve 1000(b)(2)(iii) set forth a safe harbor for entity’s systems, adopted Rule Systems Compliance—Rule 1001(b) individuals. It provided that a person 1001(b) 623 concerns the operational Proposed Rule 1000(b)(2)(i) would employed by an SCI entity would be compliance of an SCI entity’s SCI have required each SCI entity to deemed not to have aided, abetted, systems with the Exchange Act, the establish, maintain, and enforce written counseled, commanded, caused, rules and regulations thereunder, and policies and procedures reasonably induced, or procured the violation by designed to ensure that its SCI systems any other person of proposed Rule 616 See MSRB Letter at 12–13; SIFMA Letter at 12; operate in the manner intended, 1000(b)(2)(i) if the person employed by and MFA Letter at 3. Two of these commenters believed that SCI entities that perform critical including in a manner that complies the SCI entity has reasonably discharged market functions should be required to have more with the federal securities laws and the duties and obligations incumbent stringent policies and procedures than less critical rules and regulations thereunder and upon such person by the policies and SCI entities. See SIFMA Letter at 12; and MFA the SCI entity’s rules and governing procedures, and was without reasonable Letter at 3–4. 617 documents, as applicable. See ITG Letter at 14. See also BATS Letter at cause to believe that such policies and 3–4, 6. Proposed Rule 1000(b)(2) also would procedures were not being complied 618 See ITG Letter at 14. have included safe harbors for an SCI with in any material respect. 619 See BATS Letter at 3–4; Angel Letter at 4; and entity and its employees. Specifically, After careful consideration of the FSR Letter at 5. One of these commenters proposed Rule 1000(b)(2)(ii) provided comments, proposed Rule 1000(b)(2) is considered this possibility as, in effect, imposing a that an SCI entity would be deemed not strict liability standard with respect to systems adopted as Rule 1001(b) with issues, and was concerned that the proposed to have violated proposed Rule modifications, as discussed below. approach would result in ‘‘finger-pointing’’ and 1000(b)(2)(i) if the SCI entity: (1) constant enforcement actions for immaterial a. Reasonable Policies and Procedures Established policies and procedures violations that desensitize people to actual material To Achieve Systems Compliance reasonably designed to provide for violations. See FSR Letter at 3–8. The Commission received significant 620 See FIF Letter at 4. specified elements; (2) established and 621 comment on its proposal to require that See FSR Letter at 6. maintained a system for applying such 622 Adopted Rule 1001(a) was proposed as Rule SCI entities establish, maintain, and 1000(b)(1). 614 See supra note 602 and accompanying text. enforce written policies and procedures 623 Adopted Rule 1001(b) was proposed as Rule 615 See supra note 582 and accompanying text. reasonably designed to ensure systems 1000(b)(2).

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the SCI entity’s governing documents. Consistent with the discussion above whether an SCI entity violated The Commission continues to believe, regarding Rule 1001(a), the Commission Regulation SCI does not affect the as stated in the SCI Proposal, that a rule emphasizes that the occurrence of a determination of whether the requiring SCI entities to establish, systems compliance issue at an SCI underlying SCI event also caused the maintain, and enforce policies and entity does not necessarily mean that SCI entity to violate other laws or rules, procedures reasonably designed to the SCI entity has violated Rule 1001(b) and compliance with Regulation SCI is ensure operational compliance will help of Regulation SCI. As stated in the SCI not a safe harbor or other shield from to: ensure that SCI SROs comply with Proposal, an SCI entity will not be liability under other laws or rules. Thus, Section 19(b)(1) of the Exchange Act; 624 deemed to be in violation of Rule even if the occurrence of an SCI event reinforce existing SRO rule filing 1001(b) solely because it experienced a does not cause an SCI entity to be found processes to assist market participants systems compliance issue.627 The to be in violation of Regulation SCI, the and the public in understanding how Commission also notes that Rule SCI entity may still be liable under other the SCI systems of SCI SROs are 1001(b) requires systems compliance Commission rules or regulations, the intended to operate; and assist SCI SROs policies and procedures to be Exchange Act, or SRO rules for the in meeting their obligations to file plan reasonably designed.628 The underlying SCI event.630 amendments to SCI Plans under Rule Commission acknowledges that b. Proposed Safe Harbor for SCI Entities 608 of Regulation NMS.625 It will reasonable policies and procedures will similarly help other SCI entities (i.e., not ensure the elimination of all systems i. Comments Received SCI ATSs, plan processors, and exempt issues, including systems compliance In the SCI Proposal, the Commission clearing agencies subject to ARP) to issues. While a systems compliance solicited comment on the proposed achieve operational compliance with issue may be probative as to the approach to include safe harbor the Exchange Act, the rules and reasonableness of an SCI entity’s provisions in proposed Rule 1000(b)(2) regulations thereunder, and their policies and procedures, it is not and specifically asked whether governing documents. determinative. Further, the occurrence commenters agreed with the proposed The Commission notes that Rule of a systems compliance issue also does inclusion of safe harbors.631 Many 1001(b) is intended to help prevent the not necessarily mean that the SCI entity commenters specifically addressed the occurrence of systems compliance will be subject to an enforcement action. safe harbors in proposed Rule issues at SCI entities. The Commission Rather, the Commission will exercise its 1000(b)(2). Two commenters urged discussed in Section IV.A.3.b the discretion to initiate an enforcement elimination of the proposed safe rationale for further focusing the action if the Commission determines harbors.632 One of these commenters definition of systems compliance issue that action is warranted, based on the stated that the safe harbors were framed (i.e., replacing the reference to operating particular facts and circumstances of an so generally that they would be easy to ‘‘in the manner intended, including in individual situation. invoke.633 This commenter also stated a manner that complies with the federal In response to one commenter’s that inclusion of a safe harbor provision securities laws’’ with a reference to request that the Commission more for compliance standards would operating ‘‘in a manner that complies clearly distinguish between liability unnecessarily and severely limit the with the Act’’). To provide consistency under Regulation SCI and liability for Commission’s ability to deter violations between the definition of systems SCI events,629 the Commission notes through meaningful enforcement compliance issue and the requirement that liability under Regulation SCI is actions.634 The other commenter stated for policies and procedures to ensure separate and distinct from liability for that, if a safe harbor is adopted, the systems compliance, the Commission is other violations that may arise from the Commission should be as specific as similarly revising Rule 1001(b)(1) to underlying SCI event. In particular, possible in establishing how to qualify require each SCI entity to establish, for the safe harbor, and recommended maintain, and enforce written policies policies and procedures should be reviewed and that Commission guidance ensure that and procedures reasonably designed to updated as part of the annual SCI review process. See supra note 620 and accompanying text. The SCI entities are actively building and ensure that its SCI systems operate ‘‘in comment regarding reviews and updates of policies a manner that complies with the Act’’ improving upon safety systems and not and procedures is addressed below. See infra note simply checking boxes and doing the and the rules and regulations 673 and accompanying text. thereunder and the entity’s rules and 627 Also, as noted in the SCI Proposal, an minimal amount necessary to ensure employee of an SCI entity would not be deemed to compliance.635 governing documents, as applicable. have aided, abetted, counseled, commanded, As noted above, some commenters In contrast, several commenters caused, induced, or procured the violation by any supported the inclusion of a safe harbor expressed concern that an SCI entity other person of Rule 1001(b) merely because the SCI would be found to be in violation of entity at which the employee worked experienced in proposed Rule 1000(b)(2) in theory, Rule 1001(b) if an SCI event occurs.626 a systems compliance issue. See Proposing Release, but objected to the proposed supra note 13, at 18116. 628 As stated above, one commenter noted that no 630 For example, it is possible for an SCI SRO to 624 See 15 U.S.C. 78s(b)(1) (requiring each SRO to set of policies and procedures can guarantee 100% have established, maintained, and enforced file with the Commission copies of any proposed operational compliance and that historically, the reasonably designed systems compliance policies rule or any proposed change in, addition to, or Commission has allowed entities to use a and procedures consistent with the requirements of deletion from the rules of the SRO). reasonableness standard so that policies and Rule 1001(b) of Regulation SCI, but still potentially 625 See Proposing Release, supra note 13, at procedures are required to be reasonably designed violate Section 19(g) of the Exchange Act if the 18115. to promote compliance, and the same approach operation of its systems is inconsistent with its own 626 See supra notes 617–620 and accompanying should be used for Regulation SCI. See supra note rules. See 15 U.S.C. 78s(g) (requiring every SRO to text. One of these commenters believed that 618 and accompanying text. The Commission comply with the Exchange Act, the rules and compliance with Regulation SCI should be agrees with this commenter that reasonably regulations thereunder, and its own rules). measured against a firm’s adherence to its own set designed policies and procedures might not 631 See Proposing Release, supra note 13, at of policies and procedures that are in keeping with completely eliminate the occurrence of systems 18117, question 104. SCI systems objectives. See supra note 620 and compliance issues. Also, adopted Rule 1001(b) is 632 accompanying text. The Commission understands consistent with this commenter’s suggestion, See Better Markets Letter at 5–6; and Lauer this commenter to be expressing the same concern because it requires policies and procedures that are Letter at 7–8. as other commenters that an SCI entity would be ‘‘reasonably designed’’ to ensure systems 633 See Better Markets Letter at 5–6. found to be in violation of Rule 1001(b) if an SCI compliance. 634 See id. at 6. event occurs. This commenter also noted that 629 See supra note 621 and accompanying text. 635 See Lauer Letter at 7–8.

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approach.636 Some commenters stated believed offered no safe harbor if the Commission does not include the that the proposed safe harbor, with its protection at all.644 Another commenter suggested safe harbor, the adopting prescriptive requirements, would evolve stated that the use of a reasonableness release should clearly state that the into the de facto rule itself as SCI standard with respect to the design of Commission will not pursue entities decide to adhere to the systems and the discharge of duties enforcement actions against SCI entities requirements of the safe harbor rather under an SCI entity’s policies and that establish, maintain, and enforce than risk a potential enforcement action procedures would mean that an SCI compliance policies and procedures or stemming from an SCI event.637 One of entity and its employees would never act in good faith, notwithstanding a these commenters noted that the safe know with certainty whether they met violation of Regulation SCI.651 harbor merely further defined the the terms of the safe harbor.645 Another One group of commenters similarly elements that the policies and commenter similarly stated that SCI recommended that the Commission procedures must have by providing a entities cannot know if they have adopt an objective safe harbor.652 These list of points that reasonably designed complied with the safe harbor unless commenters noted that minor mistakes policies and procedures must cover.638 more guidance is provided on the and unintentional errors occur in the This commenter believed that including concept of ‘‘reasonable policies and daily operations of running a business, a requirement for reasonably designed procedures’’ and the Commission and a safe harbor should provide policies and procedures and providing a explains what constitutes adequate protection to SCI entities that follow the safe harbor when those policies and testing, monitoring, assessments, and policies and procedures as intended, procedures are reasonably designed is review for each system.646 One including in the resolution and inherently circular, and expressed commenter agreed with the need for a containment of such mistakes and concern about liability under Regulation safe harbor but stated that the proposed errors.653 These commenters believed SCI whenever there is a systems or safe harbor is not sufficiently robust that it should be sufficient for an SCI technology malfunction or error.639 This because it contains ‘‘vague and entity to qualify for the safe harbor if it commenter also compared the proposed extensive requirements that are overly adopts policies and procedures SCI entity safe harbor to other rules, subjective’’ and the Commission reasonably designed to comply with stating that the other rules requiring therefore would be ‘‘likely to review an Regulation SCI and does not knowingly policies and procedures recognize the SCI entity’s interpretation of the safe violate such policies and procedures.654 need for those policies and procedures harbor in the event of a systems issue These commenters further requested to be reasonably designed in light of the with the benefit of 20/20 hindsight.’’ 647 that the Commission clarify its views on manner in which business is This commenter expressed concern that the protections of the safe harbor for conducted.640 This commenter further the occurrence of a significant systems inadvertent violations of other laws and noted that, if the Commission intends event would mean that an exchange did rules despite compliance with that all SCI entities conform to the not have reasonable policies and Regulation SCI and expand the safe standards articulated in the safe harbor, procedures and would be outside the harbor to explicitly cover such the Commission should set them forth terms of the proposed safe harbor.648 instances.655 as express provisions of the rule, A few commenters suggested specific One commenter suggested simplifying although this commenter believed that alternatives to the proposed safe the safe harbor to require only that an such an approach would be misguided harbors.649 One commenter SCI entity adopt reasonable policies and because it would create strictures that recommended that the Commission procedures to comply with proposed impose protocols that may not be adopt a safe harbor with objective Regulation SCI, which should include suitable for certain market criteria to protect SCI entities from reasonable ongoing responsibilities participants.641 enforcement actions under Regulation related to testing and monitoring.656 Several other commenters expressed SCI except in cases of intentional or Another commenter believed that the concern that the proposed safe harbors reckless non-compliance or patterns of safe harbor should grant immunity from were unclear.642 One group of non-compliance with Regulation SCI, or enforcement penalties for all problems commenters noted that the provisions in if an SCI entity fails to implement that are self-reported by SCI entities and the proposed safe harbors were vague, reasonable corrective action in response individuals.657 One commenter subjective, and merely duplicate to a written communication from the suggested that Regulation SCI should: elements that would result from a Commission regarding Regulation (1) Encourage parties to discover and logical interpretation of Rule SCI.650 This commenter urged that, even 643 1000(b)(1), which these commenters intentionally or recklessly fail to discharge their SCI entities a clear, affirmative defense from duties and obligations under the SCI entity’s 636 See, e.g., Angel Letter; Direct Edge Letter; FSR allegations of having violated Regulation SCI). policies and procedures. See NYSE Letter at 29, 31– Letter; ITG Letter; MSRB Letter; NYSE Letter; OCC 644 See Joint SROs Letter at 13. 32. This comment and the individual safe harbor Letter; OTC Markets Letter; and Joint SROs Letter. 645 See OCC Letter at 11. This commenter also are addressed in Section IV.B.2.d below. Another 637 See ITG Letter at 14 (stating that ‘‘[t]he safe questioned the value of the safe harbors as proposed commenter, expressing support for NYSE’s harbor contains so many requirements that it and requested that the Commission consider suggested approach for SCI entities and their operates as a rule by itself’’); and FSR Letter at 8. including bright-line tests and minimum standards employees, stated that an objective standard would 638 See FSR Letter at 4–5. in the safe harbor provisions to better guide SCI provide the proper incentives for compliance and 639 See id. at 5–6. entities and their employees in avoiding liability allow SCI entities to reasonably evaluate their potential exposure when an SCI event occurs and 640 See FSR Letter at 8–9 (expressing concern that under Regulation SCI. See OCC Letter at 11. See act quickly in the critical moments following an SCI the safe harbor will become the sole yardstick by also NYSE Letter at 30 (noting that the Commission event. See OTC Markets Letter at 16. which conduct is measured and, even if the safe provided no guidance on the phrase ‘‘policies and 651 harbor were non-exclusive, it could become the de procedures reasonably designed’’). See NYSE Letter at 32, n. 41. facto standard to the exclusion of other, legitimate 646 See OTC Markets Letter at 15. 652 See Joint SROs Letter at 13–14. approaches). 647 See NYSE Letter at 30. 653 See id. 641 See FSR Letter at 9. 648 See id. 654 See id. These commenters suggested a parallel 642 See, e.g., FSR Letter; OCC Letter; and OTC 649 See, e.g., FSR Letter; ITG Letter; OTC Markets safe harbor for employees of SCI entities. See id. at Markets Letter. Letter; Joint SROs Letter; and NYSE Letter. 14. 643 See Joint SROs Letter at 13 (stating that the 650 See NYSE Letter at 29, 31–32. This commenter 655 See id. proposed safe harbor should provide a more also suggested that SCI entity employees be 656 See ITG Letter at 14. objective and transparent approach, and provide protected except in instances where employees 657 See Angel Letter at 4.

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remediate technology errors and differences, and each SCI entity will Further, as noted above, in the SCI malfunctions, and/or deficiencies in need to exercise judgment in developing Proposal, the Commission stated its their policies and procedures; (2) avoid and maintaining specific policies and preliminary belief that it would be ipso facto liability under Regulation SCI procedures that are reasonably designed appropriate to provide an explicit safe for failures by technology or systems; to achieve systems compliance. The harbor for SCI entities in order to and (3) require some form of causation Commission also believes that SCI provide greater clarity on how they in order for liability to attach.658 This entities should consider the evolving could comply with proposed Rule commenter also recommended that the nature of the securities industry, as well 1000(b)(2).665 Rather than achieving this Commission provide safe harbors from as industry practices and standards, in goal, commenters argued that the liability under both proposed Rules developing and maintaining such proposed safe harbor merely further 1000(b)(1) and (2) where either: (1) The policies and procedures. As such, the defined the elements that the policies SCI entity or SCI personnel discovers elements specified in Rule 1001(b) are and procedures must have, and did not and remediates a problem without non-exhaustive, and each SCI entity include sufficient guidance or regulatory intervention and assuming no should consider on an ongoing basis specificity to SCI entities seeking to rely underlying material violation; or (2) no what steps it needs to take in order to on it.666 For example, one commenter technology error or problem has ensure that its policies and procedures noted that the policies and procedures occurred, but the policies and are reasonably designed. specified in the safe harbor would still 667 procedures might benefit from In the SCI Proposal, the Commission need to be ‘‘reasonably designed.’’ improvements.659 According to this stated that, ‘‘[b]ecause of the complexity Further, the Commission acknowledges commenter, the remediation safe harbor of SCI systems and the breadth of the some commenters’ concern that the should also apply to underlying federal securities laws and rules and proposed safe harbor, ‘‘with its technology problems if the SCI entity prescriptive requirements,’’ could regulations thereunder and the SCI 668 had complied with Regulation SCI.660 entities’ rules and governing documents, evolve into the de facto rule itself. As discussed above, the Commission One commenter expressed concern that, the Commission preliminarily believes is not adopting a safe harbor for SCI without a safe harbor and a guarantee of that it would be appropriate to provide entities. Rather, adopted Rule 1001(b)(1) immunity, the disclosures to the an explicit safe harbor for SCI entities requires an SCI entity to have Commission required under Regulation and their employees in order to provide reasonably designed policies and SCI would provide a roadmap for greater clarity as to how they can ensure procedures to achieve systems litigation against non-SRO entities.661 that their conduct will comply with 663 compliance and adopted Rule 1001(b)(2) ii. Elimination of Proposed Safe Harbor [Rule 1000(b)(2)].’’ specifies non-exhaustive, general for SCI Entities and Specification of One reason that the Commission is minimum elements that an SCI entity Minimum Elements not adopting the proposed safe harbor must include in its systems compliance for SCI entities is that the Commission As discussed in greater detail below, policies and procedures. These has focused the scope of Regulation SCI after careful consideration of the minimum elements are based on the as adopted. For example, adopted Rule comments, and in light of the more elements contained in the proposed safe 1001(b) requires policies and focused scope of Regulation SCI, the harbor for SCI entities, but modified in procedures that are reasonably designed Commission has determined not to to ensure compliance with ‘‘the Act’’— 665 adopt the proposed safe harbor for SCI See id. rather than operating ‘‘in the manner 666 See supra notes 638–639, 643–648 and entities.662 Rather, Rule 1001(b) sets intended, including in a manner that accompanying text. With respect to the group of forth non-exhaustive minimum complies with the federal securities commenters who suggested that the safe harbor elements that an SCI entity must should give SCI entities a clear, affirmative defense laws’’ as was proposed—and the rules include in its systems compliance from allegations of having violated Regulation SCI, and regulations thereunder, and the SCI as discussed above, the Commission is eliminating policies and procedures. The entity’s rules and governing documents. the proposed safe harbor for SCI entities. See supra Commission recognizes that the precise note 643. As discussed below, the Commission Therefore, the requirement under nature, size, technology, business believes that, by specifying non-exhaustive adopted Rule 1001(b) is more targeted model, and other aspects of each SCI minimum elements that an SCI entity must include than the requirement under proposed in its systems compliance policies and procedures, entity’s business vary. Therefore, the Rule 1000(b)(2), and alleviates some of the rule will encourage SCI entities to actively build minimum elements are intended to be and improve upon the compliance of their systems, the concern regarding the ‘‘breadth of general in order to accommodate these rather than limit their compliance to some fixed the federal securities laws and rules and elements of a safe harbor. 667 See supra notes 638–639 and accompanying 658 See FSR Letter at 9. regulations thereunder’’ that was text. This commenter also compared the proposed 659 expressed in the SCI Proposal. The See id. at 9–10. SCI entity safe harbor to other rules, stating that the 660 See id. at 3, 9–10. Commission expects that SCI entities other rules requiring policies and procedures 661 See OTC Markets Letter at 15–16 (stating that are familiar with their obligations under recognize the need for those policies and ‘‘entities that do not have SRO immunity, such as the Exchange Act, the rules and procedures to be reasonably designed in light of the ATSs, may be subject to liability based on regulations thereunder, and their own manner in which business is conducted. See supra information reported under Reg. SCI’s Rule note 640 and accompanying text. Rule 1001(b), as 1000(b)(4)(iv) . . . [w]ithout a safe harbor and a rules and governing documents. In adopted, requires policies and procedures to be guarantee of immunity, this kind of disclosure addition, as discussed in Section ‘‘reasonably designed’’ to ensure the compliance of provides a roadmap for litigation against non-SRO IV.A.2.b above, the Commission has SCI systems. Therefore, Rule 1001(b) recognizes the SCI entities’’). further focused the scope of SCI need for policies and procedures to be reasonably 662 The Commission’s decision not to adopt an designed in light of the manner in which an SCI SCI entity safe harbor also addresses a commenter’s systems, which also alleviates some of entity’s business is conducted. concern that the inclusion of a safe harbor provision the concern regarding the ‘‘complexity 668 See supra note 637 and accompanying text in Rule 1001(b) could unnecessarily and severely of SCI systems’’ that was expressed in and supra note 640. The Commission acknowledges limit the Commission’s ability to deter violations the SCI Proposal.664 that some commenters who believed that the through meaningful enforcement actions. See supra proposed safe harbor was inadequate also notes 633–634 and accompanying text. As advocated for alternative safe harbors, such as those discussed in Section IV.B.2.d below, however, the 663 See Proposing Release, supra note 13, at that require knowledge or recklessness for liability. Commission is adopting a safe harbor for personnel 18115. These comments are discussed below in Section of SCI entities. 664 See id. IV.B.2.b.iii.

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response to concerns raised by intended to alter the standards for enforcement action. Rather, the commenters. As adopted, Rules determining liability under other laws Commission will exercise its discretion 1001(b)(1) and (b)(2) specify the or rules. Therefore, if an SCI entity is in to initiate an enforcement action if the minimum elements of reasonably compliance with Regulation SCI but Commission determines that action is designed policies and procedures to inadvertently violates another law or warranted, based on the particular facts achieve systems compliance, and at the rule, whether or not the SCI entity will and circumstances of an individual same time provide flexibility by be liable under the other law or rule situation. permitting an SCI entity to establish depends on the standards for As discussed above, some policies and procedures that are determining liability under such law or commenters expressed concern that the reasonably designed based on the rule. Because the new requirements occurrence of a significant systems issue nature, size, technology, business under Regulation SCI are separate and would mean that an SCI entity did not model, and other aspects of its business. distinct from existing requirements have reasonable policies and procedures Moreover, the Commission believes under other laws or rules, Regulation and therefore suggested ‘‘objective’’ safe that, by specifying non-exhaustive, SCI is not a shield from liability under harbors.671 The Commission notes that general minimum elements of systems such laws or rules. all SCI entities are required to comply compliance policies and procedures, the The Commission also does not believe with the Exchange Act, the rules and rule will encourage SCI entities to that it would be appropriate to provide regulations thereunder, and their own actively build and improve upon the a safe harbor for all problems that are rules and governing documents, as compliance of their systems rather than self-reported by SCI entities and applicable, and the purpose of Rule limit their compliance to bright-line individuals or that are discovered and 1001(b) is to effectively help ensure tests or the fixed elements of a safe remediated without regulatory compliance of the operation of SCI harbor, and encourage the evolution of intervention, as suggested by systems with these laws and rules. The sound practices over time. In addition, commenters.670 In particular, Rule Commission does not believe that Rule the Commission notes that there 1001(b) is intended to help ensure that 1001(b) would further this goal to the currently are no publicly available SCI entities operate their systems in same degree if the Commission were to written industry standards regarding compliance with the Exchange Act and adopt commenters’ safe harbor systems compliance that are applicable relevant rules in the first place, and thus suggestions (i.e., an SCI entity is deemed to all SCI entities that can serve as the is not only focused on helping to ensure to be in compliance with Rule 1001(b) basis for a clear, objective safe harbor, that SCI entities appropriately respond so long as: The SCI entity is not as there is with current SCI industry to a compliance issue (e.g., by taking knowingly out of compliance; such non- standards (e.g., the publications listed in corrective action or reporting the issue compliance is not intentional, reckless, staff guidance) relating to operational to the Commission) after it has occurred or in bad faith; or there is no pattern of capability. Even if such standards and impacted the market or market non-compliance) because, with these existed, the Commission believes that participants. Therefore, the Commission suggested ‘‘objective’’ safe harbors, SCI the specificity necessary to achieve the does not believe that the suggested self- entities may not be effectively goal of a clear, objective safe harbor report or remediation safe harbors will incentivized to establish, maintain, and would disincentivize SCI entities from effectively further this intent of Rule enforce reasonably designed policies continuing to improve their systems 1001(b). In particular, the Commission and procedures to ensure systems over time. Finally, the Commission notes that reporting and remediation of compliance. Moreover, the Commission believes that, because the minimum SCI events are separately required under notes that Rule 1001(b) requires elements specified in Rule 1001(b)(2) Rules 1002(b) and (a) of Regulation SCI, ‘‘reasonably designed’’ policies and are non-exhaustive, Rule 1001(b) can respectively. The purposes of Rule procedures, which already provides accommodate the possibility that, as 1002(b) include keeping the flexibility to SCI entities in complying technology evolves, additional or Commission informed of SCI events with the rule. The Commission also updated elements could become after they have occurred. Moreover, emphasizes again that, while it is appropriate for SCI entities to include in Rule 1002(a) is intended to ensure that eliminating the safe harbor for SCI their systems compliance policies and SCI entities remedy a systems issue and entities, the occurrence of a systems procedures to ensure that such policies mitigate the resulting harm after the compliance issue may be probative, but and procedures remain reasonably issue has already occurred. The is not determinative, of whether an SCI designed on an ongoing basis. Commission believes that, if an SCI entity violated Regulation SCI. As noted entity is protected from liability under above, an SCI entity would not be iii. Response to Other Comments on the Rule 1001(b) simply because it self- SCI Entity Safe Harbor reported systems compliance issues or 671 See supra notes 650–654 and accompanying With respect to commenters who discovered and remediated systems text. As discussed above, some of these commenters suggested that the safe harbor should protect SCI requested clarification on the protection compliance issues without regulatory entities from enforcement action except in cases of of the safe harbor for inadvertent intervention, the SCI entity will not be intentional or reckless non-compliance, or patterns violations of other laws and rules effectively incentivized to have of non-compliance with Regulation SCI. See supra despite compliance with Regulation reasonably designed policies and note 650 and accompanying text. As an alternative 669 to the intentional and recklessness standard, one of SCI, as noted above, the Commission procedures to ensure systems these commenters requested that the Commission clarifies that liability under Regulation compliance in the first place. As specifically state that the Commission will not SCI is separate and distinct from discussed above, the occurrence of an pursue enforcement actions against SCI entities that liability for other violations that may SCI event will not necessarily cause a establish, maintain, and enforce systems compliance policies and procedures or act in good arise from the underlying SCI events violation of Regulation SCI. Further, the faith, notwithstanding a violation of Regulation SCI. under other laws and rules. Specifically, occurrence of a systems compliance See supra note 651 and accompanying text. One Regulation SCI imposes new issue also does not necessarily mean commenter noted that it should be sufficient for an SCI entity to qualify for the safe harbor if it adopts requirements on SCI entities and is not that the SCI entity will be subject to an policies and procedures reasonably designed to comply with Regulation SCI and does not 669 See supra notes 655 and 660 and 670 See supra notes 657 and 659 and knowingly violate such policies and procedures. accompanying text. accompanying text. See supra note 654 and accompanying text.

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deemed to be in violation of Rule that an SCI entity will not be found to under certain circumstances,675 if an 1001(b)(1) merely because it be in violation of this maintenance SRO fails to comply with the provisions experienced a systems compliance requirement solely because it failed to of the Exchange Act, the rules or issue. Further, the occurrence of a identify a deficiency immediately after regulations thereunder, or its own rules, systems compliance issue also does not the deficiency occurred, if the SCI entity the Commission is still authorized to necessarily mean that the SCI entity will takes prompt action to remedy the impose sanctions.676 As such, like other be subject to an enforcement action. deficiency once it is discovered, and the SCI entities, SROs are not immune from Rather, the Commission will exercise its SCI entity had otherwise appropriately Commission sanctions. Finally, as discretion to initiate an enforcement reviewed the effectiveness of its policies discussed in detail above, the action if the Commission determines and procedures and took prompt action Commission does not believe that it that action is warranted, based on the to remedy those deficiencies that were would be appropriate to provide a safe particular facts and circumstances of an discovered. harbor for all problems that are self- individual situation. Finally, as noted above, one reported to the Commission by SCI Further, as noted above, one commenter believed that, without a safe entities and individuals. commenter recommended that the harbor and a guarantee of immunity Commission provide a safe harbor (such as the regulatory immunity of c. Minimum Elements of Reasonable where no technology error or problem SROs), information provided to the Policies and Procedures has occurred, but the policies and Commission pursuant to Rule The safe harbor for SCI entities in procedures might benefit from 1000(b)(4)(iv) would provide a roadmap proposed Rule 1000(b)(2)(ii) specified improvements.672 The Commission for litigation. As discussed below in that, to qualify for the safe harbor, the believes that there may be instances Section IV.B.3.c, the Commission SCI entity’s policies and procedures where an SCI entity’s policies and acknowledges that, if an SCI entity must be reasonably designed to provide procedures might benefit from experiences an SCI event, it could for: (1) Testing of all SCI systems and improvement, even though they are become the subject of litigation any changes to such systems prior to reasonably designed. In such instances, (including private civil litigation). At implementation; (2) periodic testing of the SCI entity is in compliance with the same time, the Commission notes all SCI systems and any changes to such Rule 1001(b) and therefore does not that the information submitted to the systems after their implementation; (3) a need a safe harbor. At the same time, the Commission pursuant to Regulation SCI system of internal controls over changes Commission notes that there may be will be treated as confidential, subject to to SCI systems; (4) ongoing monitoring instances where no technology error or applicable law.674 On the other hand, of the functionality of SCI systems to problem has occurred, but an SCI the Commission acknowledges that it detect whether they are operating in the entity’s policies and procedures with could consider the information manner intended; (5) assessments of SCI regard to systems compliance might provided to the Commission pursuant to systems compliance performed by nonetheless be deficient and not satisfy Rule 1002(b) in determining whether to personnel familiar with applicable the requirements of Rule 1001(b). The initiate an enforcement action. The federal securities laws and rules and Commission does not believe that it Commission notes that all SCI entities regulations thereunder and the SCI would be appropriate to provide a safe are required to comply with the entity’s rules and governing documents, harbor in these instances. As noted Exchange Act, the rules and regulations as applicable; and (6) review by above, Rule 1001(b) is intended to help thereunder, and their own rules and regulatory personnel of SCI systems ensure that SCI entities operate their SCI governing documents, as applicable, design, changes, testing, and controls to systems in compliance with the and the requirement for Commission prevent, detect, and address actions that Exchange Act and relevant rules. The notification of systems compliance do not comply with applicable federal Commission does not believe that a safe issues is intended to assist the securities laws and rules and harbor that effectively insulates Commission in its oversight of such regulations thereunder and the SCI deficient policies and procedures will compliance. With respect to the entity’s rules and governing documents, further the intent of this rule. Further, regulatory immunity of SROs, the as applicable. In the SCI Proposal, the the Commission notes that one Commission notes that, although courts Commission asked whether each requirement of Rule 1001(b)(1) is that an have found that SROs are entitled to element of the proposed safe harbor for SCI entity ‘‘maintain’’ its policies and absolute immunity from private claims SCI entities was appropriate.677 Several procedures. To explicitly set forth an commenters addressed one or more of SCI entity’s obligation to review and Regulation SCI should encourage parties to discover and remediate deficiencies in policies and the proposed safe harbor elements. update its policies and procedures, procedures). The Commission notes that Rule As discussed above, rather than similar to Rule 1001(a), the Commission 1001(b)(3) requires SCI entities to review and adopting the proposed safe harbor for is adopting a requirement for periodic update their systems compliance policies and SCI entities, the Commission is review by an SCI entity of the procedures rather than simply ‘‘encourage’’ the discovery and remediation of deficiencies because, specifying non-exhaustive, general effectiveness of its systems compliance in order to achieve the intended benefits of Rule policies and procedures, and prompt 1001(b), an SCI entity’s systems compliance 675 The Commission notes that SRO immunity action by the SCI entity to remedy policies and procedures must remain reasonably applies only under certain circumstances. In designed. If the Commission simply encourages SCI particular, ‘‘when acting in its capacity as a SRO, deficiencies in such policies and [the SRO] is entitled to immunity from suit when 673 entities to review and update their systems procedures. The Commission notes compliance policies and procedures, the it engages in conduct consistent with the quasi- Commission believes that there would be a greater governmental powers delegated to it pursuant to the 672 See supra note 659 and accompanying text. likelihood that such policies and procedures might Exchange Act and the regulations and rules 673 See Rule 1001(b)(3). The adoption of this become outdated and less effective in preventing promulgated thereunder.’’ See DL Capital Group, review and update requirement is consistent with systems compliance issues. LLC v. NASDAQ Stock Market, Inc., 409 F.3d 93, the views of some commenters. See supra notes 620 674 The Commission notes that the General 97 (2d Cir. 2005) (quoting D’Alessio v. New York and accompanying text (discussing a commenter’s Instructions to Form SCI, Item G. Paperwork Stock Exchange, Inc., 258 F.3d 93, 106 (2d Cir. suggestion that policies and procedures should be Reduction Act Disclosure, provides that the 2001)). reviewed and updated as part of the annual SCI Commission ‘‘will keep the information collected 676 See 15 U.S.C. 78s(g). review process) and 658 and accompanying text pursuant to Form SCI confidential to the extent 677 See Proposing Release, supra note 13, at (discussing a commenter’s suggestion that permitted by law.’’ See infra Section IV.C.2. 18116–17.

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minimum elements that an SCI entity would impose additional cost and not component for achieving this goal and must include in its systems compliance provide any benefit.681 One commenter it is included as a required element of policies and procedures. The minimum believed that the pre- and post- systems compliance policies and elements are based on the proposed safe implementation testing components of procedures.687 In contrast, the harbor. These elements are: (i) Testing the safe harbor, which would apply to Commission believes that the value of of all SCI systems and any changes to all systems changes, could potentially the proposed element for additional SCI systems prior to implementation; drive SCI entities to take a narrow view testing in the absence of systems (ii) a system of internal controls over of what constitutes a systems change.682 changes may be variable, depending on changes to SCI systems; (iii) a plan for Another commenter sought further the SCI system or change to an SCI assessments of the functionality of SCI guidance from the Commission on the system at issue.688 At the same time, systems designed to detect systems scope of periodic testing of all SCI each SCI entity should consider on an compliance issues, including by systems and whether, for example, ongoing basis what steps it needs to take responsible SCI personnel and by systems testing would be required in order to ensure that its policies and personnel familiar with applicable following a systems change if the SCI procedures are reasonably designed, provisions of the Act and the rules and entity has already provided notice of the including whether its policies and regulations thereunder and the SCI systems change to the Commission.683 procedures should provide for testing of entity’s rules and governing documents; One commenter requested clarification certain systems changes after their and (iv) a plan of coordination and that the testing described in proposed implementation to ensure that they communication between regulatory and Rules 1000(b)(2)(ii)(A)(1) and (2) refers operate in compliance with the other personnel of the SCI entity, to testing to ensure that SCI systems Exchange Act and relevant rules. including by responsible SCI personnel, operate in the manner intended, and With regard to element (3) of the regarding SCI systems design, changes, noted that testing should not be proposed safe harbor, one commenter testing, and controls designed to detect required to be periodic, but instead stated that it is unclear what minimum and prevent systems compliance issues. should be based on the relative risks of standards are required for the internal Each of these elements is discussed non-compliance arising from any controls under proposed Rule 689 below. changes being introduced into 1000(b)(2)(ii)(A)(3). As discussed As noted above, some commenters production or any changes to the above, the Commission believes it is requested more guidance or certainty applicable laws or rules.684 One appropriate to set forth minimum regarding the safe harbor elements (e.g., commenter stated that it believed that elements of systems compliance policies by including bright-line tests and the frequency and type of testing under and procedures that are broad enough to minimum standards).678 As discussed proposed Rules 1000(b)(2)(ii)(A)(1) and provide SCI entities with reasonable above in Section IV.B.2.b, the (2) are open to interpretation.685 flexibility to design their policies and Commission is not adopting a safe After consideration of the views of procedures based on the nature, size, harbor but is specifying the minimum commenters, the Commission believes technology, business model, and other elements that an SCI entity must that testing of SCI systems and changes aspects of their businesses. Therefore, include in its systems compliance to such systems prior to implementation while the Commission believes that a policies and procedures. By generally is appropriate for inclusion as a system of internal controls over changes requiring policies and procedures to be required element of systems compliance to SCI systems is appropriate for reasonably designed and specifying policies and procedures. As noted in the inclusion as a required element of non-exhaustive, general minimum SCI Proposal, elements (1) and (2) of the systems compliance policies and elements of systems compliance policies proposed safe harbor were intended to and procedures, the Commission 687 With respect to a commenter’s concern that help SCI entities to identify potential ‘‘changes’’ to SCI systems could include, for intends to provide specificity on how to problems before such problems have the example, any opening of a customer port, the comply with Rule 1001(b), and at the ability to impact markets and removal of access rights from a departing employee, same time provide a reasonable degree investors.686 The Commission believes and the previously unscheduled closing of the of flexibility to SCI entities in market for the death of a U.S. president, the that testing prior to implementation of Commission does not view these as changes to an establishing and maintaining policies SCI systems and prior to SCI entity’s systems, because the Commission and procedures that are appropriately implementation of any SCI systems believes that these actions are part of an SCI entity’s tailored to each SCI entity. changes would likely be an important standard operations. See supra note 682. In Regarding elements (1) and (2) of the particular, the Commission believes that the opening of a customer port, the removal of access 681 proposed safe harbor, a few commenters See id. See also FINRA Letter at 33. rights, and the closing of the market are existing opposed the inclusion of a requirement 682 See Direct Edge Letter at 6. This commenter functionalities at SCI entities, and are routinely that an SCI entity conduct periodic expressed concern that, under the proposed performed by SCI entities without the need to approach, any opening of a customer port, the change existing functionalities. testing of systems absent systems removal of access rights from a departing employee, changes.679 One commenter stated that 688 See supra notes 681–682 and accompanying and the previously unscheduled closing of the text. The Commission notes that a commenter asked it performs testing prior to market for the death of a U.S. president all involve about the scope of periodic testing under the implementation of trading systems ‘‘changes’’ to SCI systems that need to be tracked, proposed safe harbor, and whether systems testing approved, and catalogued within the construct of an under the proposed safe harbor would be required changes in the production environment enterprise-wide change management system. See id. and conducts regression testing to following a systems change if the SCI entity has This commenter stated that these ‘‘changes’’ cannot already provided notice of the systems change to ensure that the changes did not all be tested, either prior to or after implementation, the Commission. Another commenter noted that introduce any undesired side-effects.680 without an extraordinary amount of redundancy testing under the proposed safe harbor should not and bureaucracy, if at all. See id. This commenter be required to be periodic, but instead could be This commenter explained that the therefore suggested requiring instead ‘‘[a]ppropriate proposed periodic testing requirement based on the relative risks of non-compliance testing of [SCI] systems and changes to such arising from any changes being introduced into systems prior to their implementation.’’ See id. production or any changes to applicable laws or 678 See supra notes 645–647 and accompanying 683 See OCC Letter at 11. rules. The Commission is not requiring periodic text. 684 See MSRB Letter at 13–14. testing or testing following systems changes in Rule 679 See FINRA Letter at 33; BATS Letter at 7; and 685 See NYSE Letter at 30. 1001(b), and, as discussed above, the Commission ISE Letter at 7. 686 See Proposing Release, supra note 13, at is not adopting the proposed safe harbor. 680 See ISE Letter at 7. 18115. 689 See NYSE Letter at 30.

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procedures, the Commission is not to determine the level of familiarity specifying the manner and frequency of specifying the minimum standard for necessary to qualify as personnel able to assessments that must be set forth in internal controls. As stated in the SCI undertake the assessments and which such plan because the Commission Proposal, a system of internal controls personnel are regulatory personnel, and believes that each SCI entity will likely and ongoing monitoring of systems asked whether these two categories of be in the best position to assess and functionality are intended to help personnel are different.695 Another determine the assessment plan that is ensure that an SCI entity adopts a commenter also sought clarification on most appropriate for its SCI systems. framework that will help it bring newer, the meaning of the term ‘‘regulatory The Commission emphasizes that the faster, and more innovative SCI systems personnel’’ and suggested that each SCI nature and frequency of the assessments online without compromising due care, entity should have discretion in contemplated by an SCI entity’s plan and to help prevent SCI systems from determining which of its employees will vary based on a range of factors, becoming noncompliant resulting from, constitute regulatory personnel.696 One including the entity’s governance for example, inattention or failure to commenter expressed concern that structure, business lines, and legal and review compliance with established review by regulatory personnel of SCI compliance framework. The plan for written policies and procedures. The systems would unreasonably expose assessments does not require the SCI Commission believes that such internal non-technology persons to potential entity to conduct a specific kind of controls would likely include, for liability if an SCI entity suffers a assessment, nor does it require that example, protocols that provide for: malfunction.697 assessments be performed at a certain Communication and cooperation After consideration of the views of frequency. The plan, however, may between legal, business, technology, and commenters, the Commission believes address the specific reviews required by compliance departments in an SCI that ‘‘a plan for assessments of the Rule 1003(b)(1). entity; appropriate authorization of functionality of SCI systems designed to In addition, in response to a systems changes by relevant detect systems compliance issues, commenter’s concern that the proposed departments of the SCI entity prior to including by responsible SCI personnel safe harbor element of ‘‘monitoring of implementation; review of systems and by personnel familiar with the functionality of [SCI] systems to changes by legal or compliance applicable provisions of the Act and the detect whether they are operating in the departments prior to implementation; rules and regulations thereunder and manner intended’’ is potentially quite and monitoring of systems changes after the SCI entity’s rules and governing broad and seems to suggest some form implementation. documents’’ is appropriate for inclusion of independent validation, the With regard to elements (4)–(6) of the as a required element of systems Commission notes that it is not proposed safe harbor, one commenter compliance policies and procedures. In requiring SCI entities to include noted that the proposed requirement particular, rather than ‘‘ongoing independent validation in their related to ongoing monitoring was too monitoring of the functionality of [SCI] assessment plans.700 However, if an SCI broad and should be eliminated or systems to detect whether they are entity determines that its reasonably revised to be more flexible.690 This operating in the manner intended’’ and designed systems compliance policies commenter noted that the proposal for also ‘‘assessments of SCI systems and procedures should provide for ‘‘monitoring of the functionality of [SCI] compliance . . . ,’’ the Commission independent validation in its systems to detect whether they are believes that ‘‘a plan for assessments’’ assessment plan under certain operating in the manner intended’’ is of SCI systems compliance would be circumstances, then the SCI entity 698 potentially quite broad and seems to more appropriate. The Commission should design its policies and suggest some form of independent notes that ‘‘a plan for assessments’’ procedures accordingly. In that case, validation.691 Another commenter asked could include, for example, not only a pursuant to Rule 1001(b), which the Commission to clarify how the plan for monitoring, but also a plan for requires an SCI entity to establish, testing requirements in proposed Rules testing or assessments, as appropriate, maintain, and enforce its written 1000(b)(2)(ii)(1) and (2) (testing prior to and at a frequency (e.g., periodic or policies and procedures, the SCI entity and after implementation) differ from continuous) that is based on the SCI would be required to enforce its own those in proposed Rule entity’s risk assessment of each of its policies and procedures, including 699 1000(b)(2)(ii)(A)(5) (assessments of SCI systems. The Commission is not those related to independent validation. In addition, the Commission believes systems compliance by personnel 695 See MSRB Letter at 13–14. that ‘‘a plan of coordination and familiar with applicable laws and 696 See OCC Letter at 11. See also FINRA Letter communication between regulatory and rules).692 One commenter noted that the at 34–35 (requesting more guidance on which types other personnel of the SCI entity, monitoring, assessments, and reviews of personnel are intended to fulfill the requirements including by responsible SCI personnel, under proposed Rules of proposed Rules 1000(b)(2)(ii)(A)(5) and (6)). 697 regarding SCI systems design, changes, 1000(b)(2)(ii)(A)(4), (5), and (6) are See ITG Letter at 14. 698 testing, and controls designed to detect unclear.693 Two commenters sought The Commission notes that ‘‘a plan for assessments’’ is derived from a combination of the and prevent systems compliance issues’’ guidance on how an SCI entity could ‘‘ongoing monitoring’’ and ‘‘assessments’’ elements is appropriate for inclusion as a satisfy the requirements related to of the proposed SCI entity safe harbor. Because ‘‘a required element of systems compliance reviews and assessments by legal and plan for assessments’’ could provide for ongoing policies and procedures. As noted in the compliance personnel (i.e., proposed (i.e., periodic or continuous) monitoring, the Commission believes that it would be duplicative SCI Proposal, assessments of SCI Rules 1000(b)(2)(ii)(A)(5) and (6)).694 to include both monitoring and a plan for systems compliance by personnel One of these commenters suggested that assessments as required elements of systems familiar with applicable laws and rules each SCI entity be given the discretion compliance policies and procedures. 699 See supra note 690 and accompanying text (discussing the view of a commenter that the reviews and assessments by legal and compliance 690 See FINRA Letter at 33–34. proposed element of the SCI entity safe harbor personnel). Further, in response to a commenter, a 691 See id. related to ongoing monitoring was too broad and plan for assessments is different from the testing of 692 See MSRB Letter at 13. should be eliminated or revised to be more flexible) SCI systems prior to implementation of systems 693 See NYSE Letter at 30. and supra note 694 and accompanying text changes. See supra note 692 and accompanying 694 See FINRA Letter at 34–35; and MSRB Letter (discussing comments seeking guidance on how an text. at 13. SCI entity could satisfy the requirements related to 700 See supra note 691 and accompanying text.

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and regulatory personnel review of SCI requirement that it does ‘‘not have caused, induced, or procured the systems design, changes, testing, and reasonable cause to believe the policies violation by any other person of controls are intended to help foster and procedures were not being proposed Rule 1000(b)(2)(i) if the person coordination between the information complied with.’’ 706 Another commenter employed by the SCI entity has technology and regulatory staff of an SCI stated that there is no guidance for SCI reasonably discharged the duties and entity so that SCI events and other entities on how to appropriately follow obligations incumbent upon such issues related to SCI systems would be the procedures that they have developed person by the policies and procedures, more likely to be addressed by a team and stated that as proposed, it would be and was without reasonable cause to of staff in possession of the requisite reasonable to interpret the safe harbor as believe that such policies and range of knowledge and skills.701 They excluding any SCI entity that suffers a procedures were not being complied are also intended to help ensure that an significant systems event.707 One with in any material respect. SCI entity’s business interests do not commenter believed that the In the SCI Proposal, the Commission undermine regulatory, surveillance, and Commission should resolve any asked whether commenters agreed with compliance functions and, more potential ambiguity between the the requirements of the proposed safe broadly, the requirements of the requirements of proposed Rule harbor for employees of SCI entities, Exchange Act, during the development, 1000(b)(2)(ii)(C)(1) (requiring SCI and whether a similar safe harbor testing, implementation, and operation entities to reasonably discharge the should be available to individuals other processes for SCI systems.702 The duties and obligations set forth in the than employees of SCI entities.710 Some Commission believes that a plan of policies and procedures) and proposed commenters specifically addressed the coordination and communication Rule 1000(b)(2)(ii)(C)(2) (requiring that proposed safe harbor for individuals.711 between regulatory and other personnel, SCI entities not have reasonable cause to Several commenters urged that including by responsible SCI personnel, believe such policies and procedures individuals not be subject to liability would further these same goals. were not being complied with).708 As under Regulation SCI absent an The Commission expects that an SCI discussed throughout this section, the intentional act of willful misconduct.712 entity will determine for itself the Commission is not adopting the Two commenters questioned the need responsible SCI personnel and other proposed safe harbor for SCI entities. for a safe harbor for individuals personnel who have sufficient Therefore, as adopted, Rule 1001(b) generally,713 and one commenter stated knowledge of relevant laws and rules to does not include the provisions of be able to effectively implement systems proposed Rules 1000(b)(2)(ii)(B) and (C). 710 See id. at 18117, question 103. 703 711 assessments, such that the SCI Further, the Commission believes that See, e.g., Angel Letter; Direct Edge Letter; FINRA Letter; FSR Letter; and MSRB Letter. entity’s policies and procedures are proposed Rules 1000(b)(2)(ii)(B) and (C) reasonably designed to ensure that SCI 712 See Direct Edge Letter at 6; and MSRB Letter reiterated the requirements for SCI at 17. See also supra notes 650 and 654 and systems operate in compliance with the entities to establish, maintain, and accompanying text (discussing comments Exchange Act and relevant rules, as enforce their systems compliance suggesting individual safe harbors). One commenter 704 required by Rule 1001(b). Similarly, policies and procedures, and provided suggested that the safe harbor should provide that the Commission expects that an SCI a person employed by an SCI entity shall be an example of how SCI entities could deemed not to have aided, abetted, counseled, entity will determine for itself the satisfy these requirements. For example, commanded, caused, induced, or procured the regulatory and other personnel, the SCI Proposal noted that proposed violation by any other person unless such violation including responsible SCI personnel, directly or indirectly relates to the duties and Rules 1000(b)(2)(ii)(B) and (C) specified obligations of such person under the policies and who have sufficient knowledge with that an SCI entity’s policies and respect to the legal and technical procedures described in Rule 1000(b)(2)(i) and such procedures must be reasonably designed person: (A) Has not reasonably discharged the aspects of systems design, changes, to achieve SCI systems compliance, and applicable duty or obligation under such policies testing, and controls to engage in and procedures; (B) was not directed by his or her that, as part of such policies and supervisor, SCI entity legal counsel, SCI senior coordination and communication procedures, the SCI entity must regarding such operations, such that the management, or the governing body of the SCI establish and maintain systems for entity to act in a manner that would constitute such SCI entity’s policies and procedures are applying those policies and procedures, a failure to discharge such duty or obligation; and reasonably designed to ensure that its and enforce its policies and procedures, (C) acted recklessly or intentionally with respect to SCI systems operate in compliance with such failure to discharge such duty or obligation. in a manner that would reasonably See MSRB Letter at 17. The Commission believes the Exchange Act and relevant rules, as that elements (A) and (B) of this commenter’s 705 allow it to prevent and detect violations required by Rule 1001(b). of the policies and procedures.709 The suggestion are consistent with the adopted One commenter sought clarity on how individual safe harbor. In particular, the Commission believes that Rule 1001(b), an SCI entity would satisfy the Commission notes that the safe harbor specifies that as adopted, provides flexibility to SCI an individual must have reasonably discharged the entities regarding their methods for duties and obligations incumbent upon such person 701 See Proposing Release, supra note 13, at establishing, maintaining, and enforcing by the SCI entity’s policies and procedures. The 18116. Commission believes that there can be instances 702 For example, profit incentive could lead an their systems compliance policies and where a person has reasonably discharged his or her SCI entity to introduce a new functionality before procedures. duties and obligations under the SCI entity’s regulatory personnel are able to adequately check policies and procedures, even though such person that the functionality will operate in compliance d. Individual Safe Harbor was directed by his or her supervisor, SCI entity with relevant laws and rules. Proposed Rule 1000(b)(2)(iii) set forth legal counsel, SCI entity senior management, or the 703 See supra notes 694–696 and accompanying governing body of the SCI entity to act in a manner text (describing comments on the proposed safe a safe harbor for individuals. It provided that is inconsistent with his or her duties that are harbor related to who would be involved in systems that a person employed by an SCI entity set forth the policies and procedures. For example, assessments). would be deemed not to have aided, the SCI entity’s reasonably designed policies and 704 Criteria for identification of such personnel abetted, counseled, commanded, procedures could specifically set forth could, for example, be set forth in the SCI entity’s circumstances where certain personnel of the SCI systems compliance policies and procedures. entity may direct another person to act outside of 706 705 Some commenters expressed concern See FINRA Letter at 35. his or her duties or obligations that are set forth in regarding the potential liability for regulatory 707 See OTC Markets Letter at 15. the policies and procedures. personnel. See supra note 697 and accompanying 708 See MSRB Letter at 13–15. 713 See FINRA Letter at 35; and FSR Letter at 3– text. The Commission discusses individual liability 709 See Proposing Release, supra note 13, at 8 (stating that the proposed rule lacks clarity over in Section IV.B.2.d below. 18116. Continued

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that inclusion of a safe harbor would connection with a Commission finding With respect to commenters who unnecessarily and severely limit the that an SCI entity violated Rule 1001(b), suggested extending the individual safe Commission’s ability to deter violations the individual safe harbor will not apply harbor to contractors, consultants, and through meaningful enforcement if an SCI entity personnel failed to other non-employees used by SCI actions.714 Two commenters questioned reasonably discharge his or her duties entities in connection with their SCI why the proposed safe harbor for and obligations under the policies and systems,723 the Commission agrees with individuals was limited to SCI entity procedures. In addition, for an SCI these comments and is extending the employees.715 One commenter entity personnel who is responsible for safe harbor to all ‘‘personnel of an SCI expressed concern that the proposed or has supervisory responsibility over entity,’’ rather than only persons safe harbor for individuals could be an SCI system, the individual safe employed by an SCI entity, as was counterproductive and create an harbor also will not apply if he or she proposed. Specifically, the Commission environment of second-guessing and had reasonable cause to believe that the believes that contractors, consultants, distrust, where employees act in a way policies and procedures related to such and other similar non-employees may to avoid potential liability (i.e., each an SCI system were not in compliance act in a capacity similar to an SCI person would be effectively deputized with Rule 1001(b) in any material entity’s employees, and thus should be to police others’ actions).716 A few respect. Therefore, the Commission does able to avail themselves of the commenters added that the proposed not believe that the individual safe individual safe harbor if they satisfy its safe harbor for individuals, and the harbor will ‘‘unnecessarily and requirements. resulting implication of potential severely’’ limit the Commission’s ability To be covered by the individual safe individual liability, may have the to deter violations. harbor, for which the individual has the burden of proof, personnel of an SCI unintended consequence of limiting the With respect to commenters who entity must: (i) Have reasonably ability of SCI entities to hire the best questioned the need for an individual discharged the duties and obligations available talent in information safe harbor because Rule 1001(b) incumbent upon such person by the SCI technology, risk-management, and imposes an obligation on SCI entities,721 717 entity’s policies and procedures; and (ii) compliance disciplines. One the Commission agrees that Regulation commenter questioned why the be without reasonable cause to believe SCI imposes direct obligations on SCI that the policies and procedures relating proposed safe harbor for individuals entities, and does not impose would apply only to actions of aiding to an SCI system for which such person obligations directly on personnel of SCI was responsible, or had supervisory any other person and not apply to any entities. At the same time, as with all actions of the reporting individual.718 responsibility, were not established, other violations of the Exchange Act and maintained, or enforced in accordance After careful consideration of these rules that impose obligations on an with Rule 1001(b) in any material comments, the Commission is adopting entity, there is a potential for secondary respect. Element (i) of the adopted the individual safe harbor with certain liability for an individual who aided individual safe harbor is substantively modifications. With respect to the and abetted or caused a violation. The unchanged from the proposal. For the commenter who expressed concern that Commission is therefore revising the reasons discussed below in this section, a safe harbor would ‘‘unnecessarily and individual safe harbor to clarify that element (ii) of the adopted individual severely’’ limit the Commission’s ability personnel of an SCI entity shall be safe harbor specifies that it applies only to deter violations through meaningful deemed not to have aided, abetted, 719 to a person who is responsible for or has enforcement actions, the Commission counseled, commanded, caused, supervisory responsibility over an SCI notes that Regulation SCI only imposes induced, or procured the violation by system. In addition, rather than obligations directly on SCI entities and ‘‘an SCI entity’’ (rather than ‘‘any other requiring an individual to be without the Commission is not adopting a safe person’’) of Rule 1001(b) if the elements reasonable cause to believe that systems harbor for SCI entities. Further, of the safe harbor are satisfied. compliance policies and procedures personnel of SCI entities qualify for the As noted above, one commenter ‘‘were not being complied with in any individual safe harbor under Rule questioned why the proposed safe material respect’’ as proposed, element 1001(b) only if they satisfy certain harbor for individuals would only apply 720 (ii) of the adopted safe harbor requires requirements. In particular, in to actions of aiding another and not the applicable personnel to be without apply to any direct violative action of reasonable cause to believe that the why individuals need a safe harbor when the 722 policies and procedures requirement is placed the reporting individual. The relevant systems compliance policies exclusively on SCI entities, and lacks clarity Commission notes that the individual and procedures ‘‘were not established, regarding to whom SCI entities or SCI personnel safe harbor only applies to actions of maintained, or enforced’’ in accordance would be liable for a breach and how liability aiding, abetting, counseling, with Rule 1001(b) in any material would be apportioned between market participants for an SCI event). See also MSRB Letter at 15 commanding, causing, inducing, or respect. The Commission notes that (seeking further clarification from the Commission procuring the violation by an SCI entity element (ii) of the adopted safe harbor regarding the nature of the potential liabilities faced because Regulation SCI does not impose tracks the language of the general by individuals). any direct obligations on personnel of requirement under Rule 1001(b) that an 714 See Better Markets Letter at 6. SCI entities. Therefore, individuals SCI entity ‘‘establish, maintain, and 715 See FINRA Letter at 35; and MSRB Letter at 17. These commenters suggested extending the safe could not be found to be in violation of enforce’’ written policies and harbor to contractors, consultants, and other non- Regulation SCI, except through aiding, procedures reasonably designed to employees used by SCI entities in connection with abetting, counseling, commanding, ensure systems compliance, and their SCI systems. See FINRA Letter at 35; and causing, inducing, or procuring the appropriately reflects the MSRB Letter at 17. violation by an SCI entity of Regulation 716 See MSRB Letter at 15–17. responsibilities of a person who is 717 See Direct Edge Letter at 6; and MSRB Letter SCI. responsible for or has supervisory at 17. responsibility over an SCI system.724 718 See Angel Letter at 4. personnel of an SCI entity, rather than only persons 719 See supra note 714 and accompanying text. employed by an SCI entity, as proposed. 723 See supra note 715 and accompanying text. 720 As discussed below in this section, the 721 See supra note 713 and accompanying text. 724 As noted below, the Commission believes it is Commission is extending the safe harbor to all 722 See supra note 718 and accompanying text. appropriate in the context of the safe harbor that,

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The Commission believes that it is that potential individual liability may Exchange Act, the rules and regulations appropriate to not provide a safe harbor limit the hiring ability of SCI entities,727 thereunder, and their own rules and to a person with responsibility over an as noted above, personnel of an SCI governing documents, as applicable, SCI system if such person had entity will not be deemed to have aided, and the purpose of Rule 1001(b) is to reasonable cause to believe that the abetted, counseled, commanded, effectively help ensure compliance of policies and procedures for such system caused, induced, or procured the the operation of SCI systems with the were not established, maintained, or violation by an SCI entity of Regulation Exchange Act, the rules and regulations enforced as required by Rule 1001(b) in SCI merely because the SCI entity thereunder, and their own rules and a material respect. The limited experienced a systems compliance governing documents. The Commission application of this element to such issue, whether or not the person was does not believe that the rule would personnel (rather than to any person able to take advantage of the individual further this goal to the same degree if employed by an SCI entity as proposed) safe harbor. the Commission adopts commenters’ is intended to mitigate commenters’ As noted above, with respect to a suggestions for the individual safe concerns that the proposed safe harbor personnel of an SCI entity who is not harbor (i.e., personnel of an SCI entity would create an environment of distrust responsible for and does not have are permitted to cause an SCI entity to and limit the ability of SCI entities to supervisory responsibility over SCI be out of compliance with Rule 1001(b) hire high quality personnel.725 In systems, the safe harbor provides that so long as the personnel did not act particular, personnel who are not such personnel shall be deemed not to intentionally or willfully). responsible for and do not have have aided, abetted, counseled, supervisory responsibility over SCI commanded, caused, induced, or 3. SCI Events: Corrective Action; systems can qualify for the individual procured the violation by an SCI entity Commission Notification; Dissemination safe harbor, regardless of their belief of Rule 1001(b) if such person has of Information—Rule 1002 regarding the reasonableness of the SCI reasonably discharged the duties and Adopted Rule 1002, which entity’s systems compliance policies obligations incumbent upon him or her corresponds to proposed Rules and procedures. Therefore, such by the systems compliance policies and 1000(b)(3)–(5), requires an SCI entity to personnel would not be ‘‘deputized to procedures. Therefore, unlike personnel take corrective action, notify the police’’ the actions of other personnel, who are responsible for or have Commission, and disseminate as a commenter believed they would.726 supervisory responsibility over SCI information regarding certain SCI Further, with respect to personnel who systems, these persons would not be events. are responsible for or have supervisory liable even if the SCI entity itself did not responsibility over an SCI system, such have reasonably designed systems a. Triggering Standard personnel likely already have the compliance policies and procedures or As proposed, the obligation of an SCI responsibility to supervise others’ did not enforce its policies and entity to take corrective action activities related to that SCI system, procedures, as long as they discharged (proposed Rule 1000(b)(3)), notify the which would provide such personnel their duties and obligations under the Commission (proposed Rule 1000(b)(4)), with information to form a reasonable policies and procedures in a reasonable and disseminate information (proposed belief regarding the reasonableness of manner.728 The Commission believes Rule 1000(b)(5)) would have been the policies and procedures. Because this safe harbor is appropriate because triggered upon ‘‘any responsible SCI Rule 1001(b) is intended to help prevent the persons who will seek to rely on this personnel becoming aware of’’ an SCI the occurrence of systems compliance safe harbor are those who do not have event.730 Proposed Rule 1000(a) defined issues at SCI entities, the Commission responsibility for the establishment, ‘‘responsible SCI personnel’’ to mean, believes that it is appropriate for maintenance, and enforcement of the for a particular SCI system or SCI supervisory personnel to be policies and procedures, or the actions security system impacted by an SCI knowledgeable regarding the entity’s of other personnel of the SCI entity. event, any personnel, whether an policies and procedures regarding With respect to commenters who employee or agent, of an SCI entity systems compliance, which may be argued that individuals should not be having responsibility for such accomplished through training provided subject to liability under Regulation SCI system.731 In the SCI Proposal, the by the SCI entity. Moreover, the absent an intentional act of willful Commission noted that this proposed 729 Commission believes it is appropriate in misconduct, the Commission notes definition was intended to include any the context of the safe harbor that, if a again that Regulation SCI imposes direct personnel of the SCI entity having person with responsibility over an SCI obligations only on SCI entities, and not responsibility for the specific system(s) system becomes aware of potential on individuals. However, as with all impacted by a given SCI event.732 The material non-compliance of the SCI other violations of provisions of the Commission stated that such personnel entity’s policies and procedures related Exchange Act and rules that impose would include any technology, to that system, such person should take obligations on an entity, there is a business, or operations staff with action to review and address, or direct potential for secondary liability for an responsibility for such systems, and other personnel to review and address, individual who aided and abetted or with respect to systems compliance such material non-compliance. Finally, caused a violation. As discussed above issues, any regulatory, legal, or to further mitigate commenters’ concern in the context of SCI entities, all SCI compliance personnel with legal or entities are required to comply with the compliance responsibility for such if a person with responsibility over an SCI system systems.733 The Commission also becomes aware of potential material non- 727 See supra note 717 and accompanying text. compliance of the SCI entity’s policies and 728 The Commission believes that, in order for a procedures related to that system, such person person to reasonably discharge his duties and 730 See proposed Rules 1000(b)(3), 1000(b)(4)(i)– should take action to review and address, or direct obligations under the SCI entity’s policies and (ii), and 1000(b)(5)(i)–(ii). other personnel to review and address, such procedures, that person must be able to understand 731 See proposed Rule 1000(a) and Proposing material non-compliance. his duties and obligations under such policies and Release, supra note 13, at Section III.C.3.a. 725 See supra notes 716–717 and accompanying procedures, which may be accomplished through 732 See Proposing Release, supra note 13, at text. training provided by the SCI entity. 18118. 726 See supra note 716 and accompanying text. 729 See supra note 712 and accompanying text. 733 See id.

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explained that ‘‘responsible SCI pursuant to which technology staff or commenters, believes that it is personnel’’ would not be limited to junior employees could assess a systems appropriate to instead focus the adopted managerial or senior-level employees of problem and escalate the issue up the definition on senior personnel of SCI the SCI entity and could include junior chain of command to management as entities that have responsibility for a personnel with responsibility for a well as legal and/or compliance particular system.747 The Commission particular system.734 personnel, who will help determine believes that adopting a more focused After considering the views of whether a systems issue was an SCI definition of responsible SCI personnel commenters, the Commission is event and whether the obligations under to include only senior managers having modifying the proposed standard for Regulation SCI are triggered.740 These responsibility for a given system (and triggering corrective action, Commission commenters argued that the rule should their designees) addresses commenters’ notification, and dissemination of allow entities to adopt and follow such concerns that the obligations of the rule information obligations in adopted Rule escalation procedures rather than could have been triggered upon the 1002, including by amending the triggering the obligations under awareness of junior or inexperienced definition of responsible SCI personnel, Regulation SCI upon one employee’s employees who lack the knowledge or as discussed below. awareness of a systems issue.741 One experience to be able to make a commenter also asserted that limiting determination regarding whether an SCI Responsible SCI Personnel the definition of responsible SCI event had, in fact, occurred.748 The Many commenters expressed concern personnel would be appropriate if the Commission believes that the revised that the proposed definition of Commission also required a robust definition is a better approach than the responsible SCI personnel was too escalation procedure.742 proposed definition because, consistent broad.735 These commenters generally Some commenters also expressed with suggestions from some urged the Commission to revise the concern about the potential liability that commenters, it will appropriately allow scope of the definition to cover only responsible SCI personnel could face if SCI entities to adopt procedures that those employees in management or the rule were adopted as proposed, would require personnel of an SCI supervisory roles that have given the breadth of the definition of entity to escalate a systems issue to responsibility over an SCI system, rather ‘‘responsible SCI personnel.’’ 743 senior individuals who are responsible than including relatively junior or Specifically, commenters asserted that, for a particular system and who have inexperienced employees.736 Some of as a result of including junior and the ability and authority to these commenters stated that junior information technology personnel appropriately analyze and assess the employees and/or technology personnel within the definition and the potential issue affecting the SCI system or may not have the training or breadth of liability of such individuals, the indirect SCI system, and their designees, knowledge or experience necessary to proposed provision would make it more as applicable.749 identify, analyze, and determine difficult for SCI entities to attract and The Commission also notes that, whether a systems issue is an SCI event retain high quality information consistent with some commenters’ under the rule.737 Similarly, one technology employees.744 Another recommendations, under the adopted commenter advocated limiting commenter noted that responsible rule, SCI entities will be afforded responsible SCI personnel to employees operations or technical personnel may flexibility to determine which personnel with full knowledge and authority over not be in a position to make legal to designate as ‘‘responsible SCI a system.738 Some commenters also determinations about when a personnel.’’ 750 Specifically, SCI entities suggested that SCI entities should have compliance issue has arisen.745 will need to affirmatively identify one the discretion to decide which After consideration of the views of or more senior managers that have employees are responsible SCI commenters, the Commission has responsibility for each of its SCI systems personnel.739 revised the term ‘‘responsible SCI or indirect SCI systems.751 In addition, Similarly, several commenters personnel’’ to mean, ‘‘for a particular the Commission notes that the emphasized the importance of SCI system or indirect SCI system definition of responsible SCI personnel escalation policies and procedures, impacted by an SCI event, such senior affords SCI entities with the flexibility manager(s) of the SCI entity having to designate one or more other 734 See id. responsibility for such system, and their personnel as designees for a given 746 735 See, e.g., Omgeo Letter at 13; MSRB Letter at designee(s).’’ The Commission agrees system.752 The Commission believes 6; BATS Letter at 8; Liquidnet Letter at 3; CME that the proposed definition of that it is important to include designees Letter at 7; OCC Letter at 12; Joint SROs Letter at responsible SCI personnel was broad within the definition of responsible SCI 12; FINRA Letter at 25–26; and OTC Markets Letter and, consistent with the views of some at 19. See also NYSE Letter at 19 (stating that the personnel to provide an SCI entity with proposed definition was too vague and suggesting the flexibility that it may need, and an alternative approach). See also infra note 761 740 See, e.g., OCC Letter at 12; FINRA Letter at 25– and accompanying text. 26; Omgeo Letter at 13; FIF Letter at 5; and NYSE 747 See generally supra notes 735–738 and 736 See, e.g., Omgeo Letter at 13; MSRB Letter at Letter at 19–20. accompanying text. 741 6, 18; NYSE Letter at 19; BATS Letter at 8; See, e.g., OCC Letter at 12; FINRA Letter at 25– 748 See supra notes 736–737. See also note 738 Liquidnet Letter at 3; CME Letter at 7; OCC Letter 26; Omgeo Letter at 13; FIF Letter at 5; and NYSE and accompanying text. at 12; Joint SROs Letter at 12; FINRA Letter at 25– Letter at 19–20. 749 See supra Section IV.B.1.b (discussing Rule 26; and OTC Markets Letter at 19. Similarly, with 742 See FIF Letter at 5. 1001(a)(1)(2)(vii), which requires an SCI entity to regard to the Commission notification requirement 743 See, e.g., NYSE Letter at 19; BATS Letter at 8; have policies and procedures to provide for in proposed Rule 1000(b)(4), one commenter stated Joint SROs Letter at 13; and OTC Markets Letter at monitoring of SCI systems, and indirect SCI that the obligation to notify the Commission should 18. See also supra note 717. systems, as applicable, to identify potential SCI only be triggered when the responsible SCI 744 See, e.g., NYSE Letter at 19; BATS Letter at 8; events, and escalate them to responsible SCI personnel notifies the officer or senior staff Joint SROs Letter at 13; and OTC Markets Letter at personnel); and infra notes 758–761 and responsible for the SCI system or systems generally. 18. These commenters therefore recommended that accompanying text. See DTCC Letter at 9. the definition include only senior personnel who 750 See supra note 739 and accompanying text. 737 See, e.g., OCC Letter at 12; FINRA Letter at 25– would more appropriately be responsible for 751 See Rule 1001(c). 26; and OTC Markets Letter at 19. making a determination as to whether an SCI event 752 The Commission notes that the rules do not, 738 See FIF Letter at 3, 5. had occurred given their knowledge and authority. however, require SCI entities to have designees. 739 See, e.g., Liquidnet Letter at 3; NYSE Letter at 745 See Omgeo Letter at 13. Rather, each SCI entity has the discretion to have 19; and Joint SROs Letter at 12. 746 See adopted Rule 1000. designees if they choose to do so.

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which the Commission believes is Commission also reiterates that the quickly inform responsible SCI necessary, given the varying sizes, occurrence of an SCI event may be personnel of potential SCI events are natures, and complexities of each SCI probative, but is not determinative of necessary to help ensure that the entity. A senior manager may name a whether an SCI entity violated appropriate person(s) are provided designee (or designees) who would also Regulation SCI.755 notice of potential SCI events so that have responsibility for a given system In light of the more focused definition any appropriate actions can be taken in with regard to Regulation SCI, for of responsible SCI personnel and accordance with the requirements of example, if the senior manager is absent, consistent with commenters’ Regulation SCI without unnecessary is occupied with other oversight suggestions,756 the Commission believes delay. Such escalation procedures responsibilities for a period of time, or it is appropriate to also adopt a policies would establish the means by which, because of other practical limitations, is and procedures requirement with and actions required for, escalating otherwise unavailable to assess the SCI respect to the designation of responsible information regarding a systems issue entity’s obligations under Regulation SCI personnel and escalation that may be an SCI event up the chain SCI at a given point in time. The procedures. As discussed above, many of command to the responsible SCI Commission believes it is likely that the commenters highlighted the importance personnel, who will be responsible for designation of a designee and such of escalation procedures and advocated determining whether an SCI event has designee’s particular responsibilities for their use as an alternative to the occurred and what resulting obligations with regard to an SCI system or indirect adoption of a broader definition of may be triggered. The Commission notes SCI system would be addressed by an responsible SCI personnel.757 that each SCI entity may establish SCI entity’s policies and procedures, as Specifically, the Commission is escalation procedures that conform to discussed below. However, the adopting Rule 1001(c), which requires its needs, organization structure, and Commission notes that while the each SCI entity to ‘‘[e]stablish, maintain, size. By requiring that responsible SCI definition of ‘‘responsible SCI and enforce reasonably designed written personnel are ‘‘quickly inform[ed]’’ of personnel’’ does not permit the senior policies and procedures that include the potential SCI events, the Commission manager having responsibility for an criteria for identifying responsible SCI intends to require that escalation applicable system to disclaim personnel, the designation and procedures emphasize promptness and responsibility under the rule by documentation of responsible SCI ensure that responsible SCI personnel delegating it fully to one or more personnel, and escalation procedures to are informed of potential SCI events designees (i.e., the adopted rule reads quickly inform responsible SCI without delay. At the same time, the ‘‘and their designees’’ rather than ‘‘or personnel of potential SCI events.’’ The rule does not prescribe a specific time their designees’’), it may assist SCI Commission believes that it is important requirement in order to give flexibility entities in fulfilling their for an SCI entity’s policies and to SCI entities in recognition that responsibilities under Regulation SCI by procedures to have a defined set of immediate notification may not be allowing them to delegate to personnel criteria for identifying responsible SCI possible or feasible. Further, similar to other than senior managers such that personnel so that such personnel are adopted Rules 1001(a) and 1001(b), Rule those designees can also serve in the identified in a consistent manner across 1001(c) requires that an SCI entity role of responsible SCI personnel. all of an SCI entity’s operations and periodically review the effectiveness of The Commission further believes that with regard to all of its SCI systems and the policies and procedures related to the modifications to the definition indirect SCI systems. The Commission responsible SCI personnel, and to take addresses some commenters’ concerns believes that SCI entities are best suited prompt action to remedy deficiencies in regarding the potential liability of junior to establish the appropriate criteria for such policies and procedures. SCI personnel, as the obligations of the such a designation but notes that such Becomes Aware rule are now triggered only when senior criteria could include, for example, managers, rather than junior employees, consideration of the level of knowledge, Several commenters criticized the having responsibility for a particular skills, and authority necessary to take proposed requirement that certain system have a reasonable basis to the required actions under the rules. obligations under Regulation SCI be conclude that an SCI event has The Commission also believes it is triggered when a responsible SCI occurred.753 Further, the Commission important for policies and procedures to personnel ‘‘becomes aware’’ of an SCI reiterates that Regulation SCI imposes include the designation and event. Some commenters stated that the direct obligations on SCI entities and documentation of responsible SCI standard was vague and lacked clarity does not impose obligations directly on personnel, so that it is clear to all regarding when, exactly, responsible personnel of SCI entities. For these employees of the SCI entity who the SCI personnel would be deemed to reasons, the Commission believes that designated responsible SCI personnel become aware of an SCI event.758 an SCI entity’s ability to attract and are for purposes of the escalation Further, some commenters noted that retain employees should not be procedures and so that Commission staff the ‘‘becomes aware’’ standard negatively affected by the requirements can easily identify such responsible SCI emphasized immediate action over of Regulation SCI, as adopted.754 The personnel in the course of its methodical escalation, diagnosis, and inspections and examinations and other resolution procedures.759 As noted 753 See supra notes 743–744 and accompanying interactions with SCI entities. The above, several commenters emphasized text. Commission also believes that, given the the importance of escalation policies 754 See supra notes 721 and 743–744 and more focused definition of responsible and procedures, and argued that the rule accompanying text. The Commission notes that SCI personnel, escalation procedures to should allow entities to adopt and commenters’ concerns regarding potential liability of employees were related to the scope of the follow such escalation procedures rather proposed definition of responsible SCI personnel 755 See, e.g., supra notes 470 and 627 and and the effect on the hiring and retention of junior accompanying text. 758 See, e.g., BATS Letter at 8–9; NYSE Letter at and information technology personnel. Commenters 756 See supra notes 740–742 and accompanying 19; and Joint SROs Letter at 12. believed that the definition should instead focus on text and infra notes 759–761 and accompanying 759 See Joint SROs Letter at 3, 9, and 12. See also senior managers who could appropriately be held text. OCC Letter at 12; FINRA Letter at 25–26; Omgeo responsible given their responsibilities and 757 See supra notes 740–742 and accompanying Letter at 13; FIF Letter at 5; and NYSE Letter at 19– authority to take necessary actions under the rule. text. 20.

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than triggering the obligations under that the ‘‘reasonable basis to conclude’’ responsible SCI personnel of potential Regulation SCI upon one employee’s standard should provide some SCI events. awareness of a systems issue.760 additional flexibility and time for b. Corrective Action—Rule 1002(a) Another commenter suggested specific judgment to determine whether there is revisions to the triggering standard so a ‘‘reasonable basis to conclude’’ in Proposed Rule 1000(b)(3) required an that the phrase ‘‘responsible SCI contrast to the ‘‘becomes aware’’ SCI entity, upon any responsible SCI personnel becoming aware’’ would be standard which many commenters personnel becoming aware of an SCI eliminated entirely and replaced with noted would be difficult to apply in event, to begin to take appropriate ‘‘SCI entity having a reasonable basis to practice due to the difficulty of corrective action including, at a conclude,’’ which it believed would determining when an individual, in fact, minimum, mitigating potential harm to allow for escalation through a normal ‘‘becomes aware’’ of an SCI event.768 investors and market integrity resulting 761 chain of command. Further, the Commission believes that, from the SCI event and devoting With regard to the Commission adequate resources to remedy the SCI consistent with commenters’ notification requirements event as soon as reasonably recommendations, the revised standard, specifically,762 one commenter practicable.770 The corrective action in conjunction with the revised suggested that SCI entities should only requirement is being adopted definition of ‘‘responsible SCI be required to notify the Commission substantially as proposed, but with the personnel,’’ will allow an SCI entity to ‘‘upon confirming the existence of an triggering standard modified as SCI event,’’ 763 while another adopt and follow its internal escalation discussed above.771 commenter stated that the rule should policies and procedures to inform senior Two commenters supported the require notification to the Commission SCI entity personnel of systems issues, corrective action provision generally.772 as soon as reasonably practicable after and allow meaningful assessment of the Several commenters stated that the responsible personnel becomes aware of issues by such senior management prior proposed requirement put too great an 769 the SCI event.764 Similarly, one to triggering obligations of the rule. emphasis on immediately taking commenter believed that the ‘‘becomes At the same time, the Commission corrective action at the expense of aware’’ standard was problematic believes that the obligations of the rule thoroughly analyzing the SCI event and because it would require notification will continue to be triggered in a timely its cause, considering potential before an SCI entity has accurate manner because the Commission is remedies, and/or acting in accordance information upon which to act.765 adopting a separate requirement in Rule with internal policies and procedures After consideration of the views of 1001(c), as noted above, for escalation before committing to a plan to take commenters, the Commission has procedures to quickly inform corrective action.773 One group of determined to revise the triggering commenters suggested that the rule standard so that SCI entities will be and the Commission’s knowledge of an SCI event. should make clear that ‘‘corrective required to comply with the obligations See supra note 764. action’’ should also include a variety of 768 of adopted Rule 1002 upon responsible See supra note 758 and accompanying text. other potential actions, such as 769 See supra notes 758–760 and accompanying SCI personnel having ‘‘a reasonable text. The Commission believes that the adopted communicating with responsible basis to conclude’’ that an SCI event has standard similarly allows for escalation of a systems parties, diagnosing the root cause, occurred, as suggested by a issue to senior officials because the Commission disclosing to members and the public, commenter.766 This standard permits an believes that having ‘‘a reasonable basis to and mitigating potential harm by conclude’’ is a good indication that an SCI event SCI entity to gather relevant information has likely occurred and does not require that the following their policies and and perform an initial analysis and responsible SCI personnel come to a definitive procedures.774 Another commenter assessment as to whether a systems conclusion, which would cause unnecessary delay stated that, in certain circumstances, it issue may be an SCI event, rather than in taking the actions required by Regulation SCI. is ‘‘aggressive to presume that one Rather, once responsible SCI personnel have a requiring an SCI entity to take corrective reasonable basis to conclude that an SCI event has individual’s knowledge should prompt action, notify the Commission, and/or occurred, the Commission believes that an SCI an immediate response by the SCI disseminate information about an SCI entity should begin to take corrective action, [e]ntity at large.’’ 775 This commenter event immediately upon responsible SCI provide notice to the Commission, and/or disclose further stated that a standard requiring such event, as applicable, because these personnel becoming aware of an SCI requirements are designed to ensure that the SCI an SCI entity to mitigate potential harm 767 event. Thus, the Commission believes entity begins to take action in a timely fashion to to investors is extremely vague.776 mitigate potential harm arising from the incident As adopted, Rule 1002(a) requires an 760 See supra notes 740–742 and accompanying and that the Commission and relevant market SCI entity, upon any responsible SCI participants are kept apprised of an SCI event even text. personnel having a reasonable basis to 761 See NYSE Letter at 19. where a definitive conclusion is not yet available. 762 See infra Section IV.B.3.c (discussing the The Commission does not agree with the conclude that an SCI event has Commission notification requirement for SCI commenter that it should apply the triggering occurred, to begin to take appropriate events). standard only to the SCI entity rather than corrective action including, at a responsible SCI personnel. The Commission notes, 763 See Direct Edge Letter at 8. as discussed above, that the adopted definition of minimum, mitigating potential harm to 764 See Omgeo Letter at 17. responsible SCI personnel imposes obligations only investors and market integrity resulting 765 See FIF Letter at 5 (urging that notification be upon the senior personnel of an SCI entity that have required when ‘‘accurate and actionable’’ responsibility for a particular system. Additionally, 770 See proposed Rule 1000(b)(3) and Proposing information is provided to responsible SCI the Commission believes that it is important to Release, supra note 13, at 18117. personnel). See also BATS Letter at 9. apply the triggering standard to responsible SCI 771 See supra Section IV.B.3.a (discussing the 766 See adopted Rules 1002(a), (b), and (c). See personnel rather than to the SCI entity because, triggering standard). also supra note 761. when combined with an SCI entity’s policies and 772 See MSRB Letter at 17 and DTCC Letter at 9– 767 See supra notes 759 and 763–765 and procedures with respect to the designation of 10. accompanying text. Additionally, the Commission responsible SCI personnel and escalation and 773 does not agree with the commenter who stated that monitoring procedures, the triggering standard is See SIFMA Letter at 3; OCC Letter at 14; Joint notification should be required only as soon as designed to ensure that senior managers are SROs Letter at 11; LiquidPoint Letter at 4; DTCC reasonably practicable after responsible personnel provided notice of potential SCI events so that any Letter at 10; and Direct Edge Letter at 7. become aware of an SCI event because that standard appropriate actions can be taken in accordance with 774 See Joint SROs at 11. would unnecessarily delay the requirement for an the requirements of Regulation SCI without 775 See Direct Edge Letter at 7. SCI entity to take necessary actions under the rule unnecessary delay. 776 Id.

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from the SCI event and devoting responsibility for the SCI system or and taking additional action to respond adequate resources to remedy the SCI indirect SCI system experiencing an SCI as each SCI entity deems appropriate.778 event as soon as reasonably practicable. event and their designees, and (ii) such The Commission also notes that certain The Commission continues to believe personnel have ‘‘a reasonable basis to other specific types of corrective action that this provision of Regulation SCI is conclude’’ that an SCI event has identified by such commenters are important to make clear that each SCI occurred are the appropriate corrective already required by other provisions of entity has the obligation to respond to actions required by Rule 1002(a) Regulation SCI, such as communicating SCI events with appropriate steps triggered. and escalating the issue to responsible necessary to remedy the problem or Further, in response to commenters personnel and making appropriate problems causing such SCI event and who stated that the proposed rule places disclosures to members or participants mitigate the negative effects of the SCI too large an emphasis on immediate regarding the SCI event.779 event, if any, on market participants and corrective action,777 in addition to the modifications noted above which are c. Commission Notification—Rule the securities markets more broadly. As 1002(b) discussed below, the specific steps that intended to allow for appropriate time an SCI entity will need to take to for an SCI entity to perform an initial i. Proposed Rule 1000(b)(4) mitigate the harm will be dependent on analysis and preliminary investigation Proposed Rule 1000(b)(4) addressed the particular systems issue, its causes, into a potential systems issue before the the Commission notification obligations and the estimated impact of the event, obligations under Rule 1002(a) are of an SCI entity upon any responsible among other factors. To the extent that triggered, the Commission notes that it SCI personnel becoming aware of an SCI a systems issue affects not only the does not use the term ‘‘immediate’’ in event.780 Specifically, proposed Rule particular users of an SCI system, but either the proposed or adopted rules. 1000(b)(4)(i) required an SCI entity, also has a more widespread impact on Rather, the Commission emphasizes that upon any responsible SCI personnel the market generally, as may be likely the rule requires that corrective action becoming aware of a systems disruption with regard to systems issues affecting be taken ‘‘as soon as reasonably that the SCI entity reasonably estimated critical SCI systems, the SCI entity will practicable’’ once the triggering would have a material impact on its need to consider how it might mitigate standard has been met. The Commission operations or on market participants, any potential harm to the overall market believes that, because the facts and any systems compliance issue, or any to help ensure market integrity. For circumstances of each specific SCI event systems intrusion (‘‘immediate example, an SCI entity would need to will be different, this standard ensures notification SCI event’’), to notify the take steps to regain a system’s ability to that an SCI entity will take necessary Commission of such SCI event, which process transactions in an accurate, corrective action soon after an SCI could be done orally or in writing (e.g., timely, and efficient manner, or to event, but not without sufficient time to by email). Proposed Rule 1000(b)(4)(ii) ensure the accurate, timely, and first consider what is the appropriate required an SCI entity to submit a efficient collection, processing, and action to remedy the SCI event in a written notification pertaining to any dissemination of market data. particular situation and how such action SCI event to the Commission within 24 should be implemented. As noted above, many of the hours of any responsible SCI personnel Moreover, the Commission has becoming aware of the SCI event. comments on this requirement are considered the comment that the rule related to the standard for triggering the Proposed Rule 1000(b)(4)(iii) required prescribe in more specificity the an SCI entity to submit to the obligation to take corrective action particular types of corrective action that under this provision, namely ‘‘upon any Commission continuing written updates must be taken by an SCI entity and on a regular basis, or at such frequency SCI responsible personnel becoming believes that it is appropriate to adopt, aware of’’ an SCI event. As discussed as reasonably requested by a as proposed, a rule that requires more representative of the Commission, until above, the Commission has further generally that ‘‘appropriate’’ corrective focused the scope of the term such time as the SCI event was resolved. action be taken and requires that, at a Proposed Rule 1000(b)(4)(iv) detailed ‘‘responsible SCI personnel’’ in response minimum, the SCI entity take the types of information that was to commenters’ concerns that the term appropriate steps to mitigate potential required for written notifications under was too broad and could harm to investors and market integrity proposed Rule 1000(b)(4).781 In inappropriately capture junior and/or resulting from the SCI event and devote inexperienced employees. Further, as adequate resources to remedy the SCI 778 See supra note 774 and accompanying text. discussed above, the Commission has event. The Commission notes that the 779 See adopted Rule 1001(c) (requiring policies revised the ‘‘becomes aware’’ standard rule is designed to afford flexibility to and procedures that include, among other things, to instead trigger obligations when SCI entities in determining how to best escalation procedures to quickly inform responsible responsible personnel have ‘‘a SCI personnel of potential SCI events) and Rule respond to a particular SCI event in 1002(c) (requiring dissemination of information reasonable basis to conclude’’ an SCI order to remedy the problem causing the regarding SCI events). event has occurred. As explained above, SCI event and mitigate its effects. As a 780 See proposed Rule 1000(b)(4) and Proposing the Commission believes that these general matter, though, the Commission Release, supra note 13, at Section III.C.3.b. 781 important modifications are responsive agrees that such corrective action would Specifically, the SCI Proposal required written to commenters’ concerns that the notifications and updates to be made electronically likely include a variety of actions, such and required initial written notifications to include corrective action requirement could be as those identified by one group of all pertinent information known about an SCI event, triggered upon the knowledge of only commenters, including determining the including: (1) A detailed description of the SCI one individual or a junior employee of event; (2) the SCI entity’s current assessment of the scope of the SCI event and its causes, types and number of market participants potentially a systems issue without sufficient time making a determination regarding its affected by the SCI event; (3) the potential impact to analyze and assess the systems known and anticipated impact, of the SCI event on the market; and (4) the SCI problem and follow internal escalation following adequate internal diagnosis entity’s current assessment of the SCI event, procedures. Under the adopted including a discussion of the SCI entity’s and resolution policies and procedures, determination regarding whether the SCI event was standard, only when (i) suspected a dissemination SCI event or not. In addition, as systems problems are escalated to senior 777 See supra notes 773–775 and accompanying proposed, to the extent available as of the time of managers of the SCI entity who have text. Continued

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addition, proposed Rule Commission notification on material alternative approaches to reporting 1000(b)(4)(iv)(C) required an SCI entity SCI events.786 Similarly, another systems intrusions. One commenter to provide a copy of any information commenter suggested that SCI entities stated that, in order to limit the number disseminated regarding the SCI event to should only be required to report of notifications, SCI entities should be its members or participants or on the information relating to ‘‘impactful’’ required to investigate and keep a SCI entity’s publicly available Web site. systems disruptions in an annual report record of all systems intrusions that did As described below, adopted Rule to the Commission rather than in near not cause a material disruption of 1002(b) retains the general framework of real time reports.787 Another commenter service, or that were a malicious (but proposed Rule 1000(b)(4) for recommended requiring notification unsuccessful) attempt in gaining Commission notification of SCI events, only for systems issues that warrant unauthorized access to confidential but makes several modifications in notification to an SCI entity’s data, and make these records available response to comments. subscribers or participants.788 Some to the Commission staff if requested.794 Comments Regarding Commission commenters recommended a risk-based Another commenter recommended that Notification of SCI Events approach under which each SCI event non-material systems intrusions be would be subject to a risk-based recorded within the SCI entity’s One commenter generally supported assessment, in which the obligation to records.795 Another commenter proposed Rule 1000(b)(4), stating that it notify the Commission would be based suggested that systems intrusions in a would enhance transparency and might on the attendant risk, with only material development or testing environment allow the Commission to see patterns in events requiring notification.789 should only be reportable if there is a small, seemingly non-material SCI likelihood that the same issue or 782 Commenters also identified potential events that are worthy of attention. problems resulting from a notification vulnerabilities exist in the current However, many other commenters requirement that they perceived as too production environment and cannot be expressed concerns about proposed broad. For example, one commenter verified within a certain period, such as, Rule 1000(b)(4).783 Many of these 796 stated that the notification requirements for example, 24 to 48 hours. In commenters stated that the scope of have the potential to create efficiency addition, one commenter suggested that, proposed Rule 1000(b)(4) was too broad, issues, delay system remediation, create for systems intrusions, rather than and that the notification requirement substantial resource demands, and impose the Commission notification would lead to over-reporting to the create instability, which would requirement on SCI entities, the Commission.784 Commenters also diminish an SCI entity’s ability to be Commission should instead require SCI suggested various ways to revise the responsive to investors and damage entities to establish policies and reporting requirement. For example, market efficiency.790 Similarly, several procedures reasonably designed to several commenters recommended commenters stated that the proposed prevent, detect, and respond to systems requiring notification to the 797 Commission notification provision intrusions. Commission only for ‘‘material’’ or One commenter stated that the ‘‘significant’’ events.785 For example, would require SCI entities to divert resources to comply with the Commission should support the one commenter recommended reporting enhancement of the Financial Services most SCI events as part of the annual requirement which, in turn, would risk delaying resolution of the SCI event that Information Sharing and Analysis SCI review process, while focusing 798 is being reported on.791 Other Center (‘‘FS–ISAC’’) and another commenters suggested that the proposed commenter suggested that non-material the initial notification, Exhibit 1 to Form SCI would cyber-relevant events be provided to rule would result in large volumes of have required inclusion of the following and disseminated through FS–ISAC information: (1) A description of the steps the SCI data and reporting, which would rather than the Commission.799 Some entity was taking, or planned to take, with respect present challenges to, and burdens on, to the SCI event; (2) the time the SCI event was commenters further suggested that resolved or timeframe within which the SCI event SCI entities as well as Commission 792 certain systems intrusions should be was expected to be resolved; (3) a description of the staff. One commenter also questioned 800 SCI entity’s rule(s) and/or governing documents, as reported to FS–ISAC. the extent to which the reported Other commenters stated that applicable, that related to the SCI event; and (4) an information provided by the analysis of the parties that may have experienced reporting a systems compliance issue is a loss, whether monetary or otherwise, due to the notifications would be useful to the SCI event, the number of such parties, and an 793 Commission. 794 See Omgeo Letter at 12. estimate of the aggregate amount of such loss. See Some commenters focused their 795 proposed Rule 1000(b)(4)(iv)(A). See DTCC Letter at 8. comments on the proposal’s 796 782 See Lauer Letter at 6. The Commission also See FINRA Letter at 11–12. notes that, although many other commenters requirements for Commission reporting 797 See BATS Letter at 12. This commenter expressed reservations with proposed Rule of systems intrusions and offered believed that the cost of the proposed requirement 1000(b)(4), many of these commenters also would outweigh any benefits because the proposed rule would require SCI entities to ‘‘rapidly expressed their general support for a notification 786 See FIF Letter at 4. investigate and report a multitude of minor rule that is more limited in scope. See, e.g., ITG 787 See BATS Letter at 10. incidents that regularly occur during the normal Letter at 12 (stating that a reduction in notifications 788 would result in lower costs, reduce the over- See OTC Markets Letter at 19 (stating that the course of business.’’ Id. reporting of events, and allow the Commission to notification requirement to the Commission should 798 FS–ISAC is a service that gathers information focus on events that warrant review); and FINRA be aligned with the current industry practice of from a multitude of sources related to threat, Letter at 18 (‘‘FINRA fully supports the notifying SCI entities’ subscribers of material vulnerability, and risk of cyber and physical Commission’s goal of ensuring that Commission events, explaining that competitive forces motivate security and communicates timely notifications and staff is informed of events that could potentially entities to promptly notify subscribers about authoritative information specifically designed to impact the market’’). significant issues). help protect critical systems and assets from 789 783 See, e.g. NYSE Letter at 21; BATS Letter at 12– See, e.g., OCC Letter at 13; SIFMA Letter at 13; physical and cybersecurity threats. See FS–ISAC: 13; ITG Letter at 12; FINRA Letter at 16–17; Omgeo Omgeo Letter at 1; FINRA Letter at 14; and NYSE Financial Services—Information Sharing and Letter at 16; SIFMA Letter at 13; ISE Letter at 6; Letter at 25. Analysis Center, available at: www.fsisac.com. OCC Letter at 11; and CME Letter at 9. 790 See UBS Letter at 3. 799 See BIDS Letter at 10; and Omgeo Letter at 12. 784 See, e.g., NYSE Letter at 22; Omgeo Letter at 791 See Omgeo Letter at 16; MSRB Letter at 19; 800 See SIFMA Letter at 14 (recommending that 16; SIFMA Letter at 14; ISE Letter at 6; and OCC and OCC Letter at 14. systems intrusions be reported to FS–ISAC in Letter at 12. 792 See SunGard Letter at 5; and Joint SROs Letter addition to the Commission); and Omgeo Letter at 785 See, e.g., ITG Letter at 12; CME Letter at 9; at 7. 12 and 21 (recommending that non-material DTCC Letter at 8; and Omgeo Letter at 15. 793 See NYSE Letter at 22. systems intrusions be reported solely to FS–ISAC).

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reporting a legal conclusion, and that ii. Rule 1002(b) substantially reduce the potential requiring an SCI entity to do so would After careful consideration of the number of SCI events that would be overburden them with extensive comments on proposed Rule 1000(b)(4), subject to Commission notification 810 technical and legal analysis and the Commission is adopting Rule under the proposal. Likewise, potentially expose those entities to 1002(b), with several modifications in systems problems that would otherwise 801 Commission sanctions or litigation. response to comments.809 meet the definition of SCI event do not Several commenters expressed concerns meet the definition of an SCI event if regarding the confidentiality of the Overview they occur in the development or testing information provided pursuant to The Commission notes that, even environment.811 In addition, the proposed Rule 1000(b)(4), and stated without the modifications the Commission believes that the revised that the such information should be Commission is making in adopted Rule definition of ‘‘systems disruption’’ and confidential and protected from public 1002(b), the proposed Commission ‘‘systems compliance issue’’ also will disclosure.802 One of these commenters notification rule would require result in fewer systems issues being requested that the Commission confirm Commission notice of fewer SCI events identified as SCI events.812 In tandem in the final rule that the information than as proposed as a result of the with the revised definitions, the will remain confidential.803 adopted definitions of SCI systems, Commission also believes that the Commenters also raised other general indirect SCI systems, systems revised triggering standard for concerns and made suggestions with disruption, and systems compliance notification of SCI events, which affords regard to proposed Rule 1000(b)(4). One issue, and the revised triggering an SCI entity time to evaluate whether commenter argued that the proposed standard discussed above. In addition, a potential SCI event is an actual SCI rules could cause SCI entities to release the Commission has determined to event, will also result in fewer SCI information before all relevant factors refine the scope of the adopted events being subject to the requirements are known, which could be Commission notification requirement by of Rules 1002(b)(1)–(4).813 The 804 counterproductive and harmful. incorporating a risk-based approach that Commission believes that these changes Another commenter was concerned that requires SCI entities, for purposes of respond to comments that proposed SCI entities would be required to Commission notification, to divide SCI Rule 1000(b)(4) was overbroad and 814 provide notification reports multiple events into two main categories: SCI overly burdensome for SCI entities. times to different Commission staff for events that ‘‘[have] had, or the SCI Exclusion of De Minimis SCI Events the same event.805 Another commenter entity reasonably estimates would have, From Immediate Notification suggested that the proposed requirement no or a de minimis impact on the SCI Requirements: Adopted Rule 1002(b)(5) is onerous and costly and thus, to entity’s operations or on market Adopted Rule 1002(b)(5) states that realize benefits, the Commission, based participants’’ (‘‘de minimis’’ SCI the requirements of Rules 1002(b)(1)–(4) on notifications received from SCI events); and SCI events that are not de entities, should provide regular do not apply to any SCI event that has minimis SCI events. De minimis SCI had, or the SCI entity reasonably summary-level feedback that events will not be subject to an communicates the types, frequency, estimates would have, no or a de immediate Commission notification minimis impact on the SCI entity’s severity, and impact of market incidents requirement as proposed. Instead, all de across all reporting entities and other operations or on market participants. minimis SCI events will be subject to For such de minimis events, Rule related data on the root cause of recordkeeping requirements, and de problems.806 Another commenter 1002(b)(5) requires that an SCI entity: (i) minimis systems disruptions and de Make, keep, and preserve records suggested that the Commission provide minimis systems intrusions will be examples, such as publications and relating to all such SCI events; and (ii) subject to a quarterly reporting submit to the Commission a report, reference blueprints, which could be obligation, as set forth in adopted Rule useful to SCI entities as they attempt to within 30 calendar days after the end of 1002(b)(5). For SCI events that are not each calendar quarter, containing a understand the types of SCI events that de minimis, Commission notification 807 summary description of such systems warrant Commission notification. will be governed by adopted Rules Finally, some commenters broadly 1002(a)(1)–(4), which is substantially 810 See supra Section IV.A.2.b (discussing the questioned the Commission’s legal similar to proposed Rules 1000(b)(4)(ii)– definition of ‘‘SCI systems’’). authority to adopt Regulation SCI as (iv), but relaxed in certain respects in 811 See supra note 796 and accompanying text. proposed, asserting, among other things response to comment, as discussed See also supra Section IV.A.2.b (discussing the that the Commission’s proposed definition of ‘‘SCI systems’’). According to one below. commenter who supported excluding non-market notification requirement was beyond its systems from the definition of SCI systems and the legal authority.808 Effect of Revised Definitions and notification and dissemination requirements, Revised Triggering Standard on applying the reporting requirements to non-market 801 See OTC Markets Letter at 16. See also NYSE Commission Notification Requirement systems ‘‘would significantly increase the volume Letter at 16. of the reports the Commission receives.’’ FINRA The Commission believes that the Letter at 10. (‘‘If the definition of SCI systems is 802 See NYSE Letter at 24; Joint SROs Letter at 12; broadly construed to apply to non-market and DTCC Letter at 11. revisions made to a number of regulatory and surveillance systems, approximately 803 definitions already focus the scope of See DTCC Letter at 11. 111 FINRA systems could be subject to Regulation 804 See ITG Letter at 13. the Commission notification SCI.’’) FINRA Letter at 7. 805 See NYSE Letter at 22. Another commenter requirement in adopted Rule 1002(b) 812 See supra Section IV.A.3 (discussing the suggested that the notification requirement with from the SCI Proposal. For example, definition of ‘‘SCI event,’’ ‘‘systems disruption,’’ respect to system disruptions should make clear elimination of member regulation and and ‘‘systems compliance issue’’). that multiple notifications are not required if a member surveillance systems from the 813 See supra Section IV.B.3.a (discussing the disruption impacts multiple SCI entities. See definition of ‘‘responsible SCI personnel’’) and FINRA Letter at 22. adopted definition of SCI systems will Section IV.B.3.a (discussing the triggering 806 See BIDS Letter at 10. standard). 807 See SunGard Letter at 6. 809 Specific comments on proposed Rules 814 See supra note 784 and accompanying text. 808 See NYSE Letter at 4–6; and OTC Markets at 1000(b)(4)(i)–(iii) that are not discussed above are See also Section VI (discussing comments regarding 6. See infra notes 833–837 and accompanying text discussed below in conjunction with the the burdens associated with proposed Rule (discussing ‘‘Commission Legal Authority’’). Commission’s response to those comments. 1000(b)(4)).

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disruptions and systems intrusions, de minimis events are irrelevant or that As noted, some commenters focused including the SCI systems and, for the Commission should never be made specifically on systems intrusions, systems intrusions, indirect SCI aware of them. To fulfill its oversight urging the Commission to modify or systems, affected by such systems role, the Commission believes that the significantly reduce the instances in disruptions and systems intrusions Commission and its staff should which notice of systems intrusions during the applicable calendar quarter. regularly be made aware of de minimis would be required,818 or provide that The Commission believes that this systems disruptions and de minimis non-material systems intrusions not be exception will result in a less systems intrusions and should have reported at all, and only be recorded by burdensome reporting framework for de ready access to records regarding de the SCI entity.819 The Commission minimis SCI events than for other SCI minimis systems compliance issues that believes that the recordkeeping and events, and therefore responds to SCI entities are facing and addressing quarterly reporting requirement for de comment that the proposed reporting because, as the regulator of the U.S. minimis systems intrusions described in framework was too burdensome. The securities markets, it is important that Rule 1002(b)(5) is partially responsive to Commission believes that the quarterly the Commission and its staff have access these comments, but also believes that reporting of de minimis systems to information regarding all SCI events notice of intrusions in SCI systems and disruptions and de minimis systems (including de minimis SCI events) and indirect SCI systems is important to intrusions will reduce the frequency allow the Commission and its staff to their impact on the technology systems and volume of SCI event notices detect patterns or understand trends in and systems compliance of SCI entities, submitted to the Commission and also the types of systems intrusions that may which may also provide useful insights will allow both the SCI entity and its be occurring at multiple SCI entities. personnel, as well as the Commission into learning about indications of more However, as compared to what would and its staff, to focus their attention and impactful SCI events. The Commission have been required if the SCI Proposal resources on other, more significant SCI has, however, determined to distinguish was adopted without modification, the events. Consistent with taking a risk- the timing of its receipt of information Commission expects that the exception based approach in other aspects of regarding SCI events based on their from the immediate reporting Regulation SCI, the Commission impact: those SCI events that an SCI requirement provided for de minimis believes this modification from the SCI entity reasonably estimates to have a SCI events under Rule 1002(b)(5) will Proposal will result in more focused greater impact are subject to result in a much lower number of Commission monitoring of SCI events ‘‘immediate’’ notification upon systems intrusions that SCI entities will than if this aspect of the SCI Proposal responsible SCI personnel having a be required to immediately report to the was adopted without modification. reasonable basis to conclude that an SCI Commission than commenters Further, by reducing the number of SCI event has occurred; and those SCI believed,820 and will achieve this result event notices provided to the events that an SCI entity reasonably without compromising the Commission on an immediate basis as estimates to have no or a de minimis Commission’s interest in receiving more compared to the SCI Proposal, the impact are subject to recordkeeping timely notification of impactful SCI adopted rule should also impose lower obligations, and for de minimis systems events. compliance costs and fewer burdens disruptions and de minimis systems In addition, some commenters than if this aspect of the SCI Proposal intrusions, a quarterly summary suggested that certain types of systems was adopted without modification. notification. Despite commenters’ intrusions or non-material SCI events be However, the Commission has arguments to the contrary that de reported exclusively to FS–ISAC or to determined not to incorporate a minimis SCI events do not warrant the both the Commission and FS–ISAC, and materiality threshold as requested by Commission’s and its staff’s attention, some advocated that the Commission some commenters,815 to limit the the Commission believes that quarterly support the enhancement of FS– 821 Commission reporting requirements to reporting of de minimis systems ISAC. The Commission believes that those events that are considered by SCI disruptions and de minimis systems FS–ISAC, and other information sharing entities to be truly disruptive to the intrusions and review of records services play an important role in markets, as suggested by other regarding de minimis systems assisting SCI entities and other entities commenters,816 or to limit the compliance issues is beneficial to the with respect to security issues. Consistent with views shared by several Commission reporting requirement only Commission and its staff in members of the third panel at the to those events that warrant notification understanding SCI entity systems Cybersecurity Roundtable, to the extent to an SCI entity’s subscribers or operations at the level of the individual SCI entities determine that such participants, as suggested by still other SCI entity, as well as across the 817 information sharing services are useful, commenters. The Commission has spectrum of SCI entities, and to monitor made this determination because while the Commission encourages SCI entities compliance with the Exchange Act and to cooperate with and share information there may be SCI events with little rules thereunder. The Commission notes apparent impact on an SCI entity’s relating to information security threats that, while it is not requiring that de and related issues with such entities to operations or on market participants minimis systems compliance issues be and the burden on an SCI entity to submitted to the Commission in 818 provide immediate notice to the See supra notes 794–797 and accompanying quarterly reports, Commission staff may text. Commission every time such an event request records relating to such de 819 See supra notes 794–795 and accompanying occurs may not justify the benefit of minimis systems compliance issues as text. providing such notice to the 820 See, e.g., supra note 794 and accompanying necessary. The Commission encourages Commission on an immediate basis, the text (discussing a commenter’s suggestion to limit and does not intend to inhibit an Commission does not believe that such the number of notifications by requiring evaluation by SCI entities of systems recordkeeping of all systems intrusions that did not compliance issues, including de cause a material disruption of service or that were 815 See, e.g., supra note 785 and accompanying a malicious (but unsuccessful) attempt in gaining text. minimis systems compliance issues, unauthorized access to confidential data). 816 See, e.g., supra notes 785–787. which may inherently involve legal 821 See supra notes 799–800 and accompanying 817 See supra note 788. analysis. text.

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further enhance their utility.822 At the that SCI entities will experience a allows the Commission to adequately same time, for the reasons discussed relatively small number of systems monitor compliance with the Exchange above,823 the Commission believes that compliance issues each year, and thus, Act and rules thereunder, while it is important that the Commission its regular examinations of SCI entities reducing the burdens on SCI entities directly receive information regarding will provide an adequate mechanism for with regard to providing information to systems intrusions from SCI entities, reviewing and addressing de minimis the Commission on such de minimis through immediate notifications or systems compliance issues affecting SCI systems compliance issues. quarterly reports, as applicable. entities. As noted above, Commission Accordingly, the Commission has In response to comments that staff may request records relating to determined to exclude certain SCI recordkeeping of non-material SCI such de minimis systems compliance events from the immediate Commission events would be more appropriate than issues as necessary. reporting requirements, subject to reporting, the Commission believes that In response to the concerns raised by certain recordkeeping and reporting quarterly reporting of de minimis one commenter that the notification requirement for such events, as systems disruptions and de minimis requirements have the potential to applicable.827 systems intrusions will better achieve create efficiency issues, delay system As described above, the de minimis the goal of keeping Commission staff remediation, create substantial resource exception from the immediate informed regarding the nature and demands, and create instability, the Commission notification requirements frequency of SCI events that arise but Commission believes that these applies to systems compliance issues as are reasonably estimated by the SCI concerns have been mitigated by the well as systems disruptions and systems entity to have a de minimis impact on numerous changes made from the intrusions. The Commission believes the entity’s operations or on market proposal, such as the adoption of a that this approach strikes a balance that participants. Importantly, submission quarterly reporting framework for de will help focus the Commission’s and and review of regular reports will minimis systems disruptions and de SCI entities’ resources on those systems facilitate Commission staff comparisons minimis systems intrusions and revised compliance issues with more significant among SCI entities and thereby permit definitions of the terms SCI systems, impacts. Even if an SCI entity the Commission and its staff to have a indirect SCI systems, systems determines that the impact of the more holistic view of the types of disruption, and systems compliance systems compliance issue is none or systems operations challenges that were issue, in addition to the reduction in the negligible, however, the Commission posed to SCI entities in the aggregate. obligations SCI entities have with believes that it should have ready access 824 With regard to de minimis systems respect to reporting requirements. In to records regarding such systems compliance issues, however, the addition, ARP entities today are able to compliance issues, and notes that Rule Commission believes the goals of regularly notify the Commission of 1002 requires that an SCI entity take Regulation SCI can be achieved through systems related issues, such as systems corrective action with respect to all SCI the SCI entity’s obligation to keep, and outages, and the Commission therefore events, including de minimis systems provide to representatives of the believes that the notification compliance issues.828 Commission upon request, records of requirements will not require a majority The Commission recognizes that in such de minimis systems compliance of SCI entities to develop policies and many cases, the discovery of a potential issues. The Commission believes that procedures that are incongruous with systems compliance issue may be of a systems compliance issues generally are their current practice. Moreover, the different nature than the discovery of more specific to a particular entity’s Commission believes that providing SCI potential systems disruptions or systems systems and rules and less likely, as entities with 30 days after the end of intrusions, as the latter types of events compared to systems disruptions and each quarter is adequate time for an SCI often have an immediately apparent and systems intrusions, to raise market-wide entity to prepare its report without negative impact on the operations of a issues that could affect several SCI unduly diverting SCI entity resources given system of the SCI entity. In entities. Accordingly, information on away from focusing on SCI events contrast, in many instances, a systems such events are less likely to provide occurring in real time.825 valuable insight into trends and risks The Commission believes that compliance issue may require the across the industry and, therefore, the requiring SCI entities to report de involvement of various personnel Commission believes that the benefits of minimis systems disruptions and de 827 While the facts and circumstances receiving quarterly reports on such de minimis systems intrusions quarterly surrounding a particular SCI event will ultimately minimis systems compliance issues balances the interest of SCI entities in determine the severity of a given event, including would be less relative to de minimis having a limited reporting burden for whether the event is reasonably estimated to be a systems disruptions and de minimis such types of events with the de minimis event, a wide range of factors may be relevant to an SCI entity in making such a systems intrusions. Further, the Commission’s interest in oversight of determination. For example, such factors could Commission notes that, based on the information technology programs include, but are not limited to: whether critical SCI Commission staff’s experience with and systems compliance of SCI systems are impacted; the duration of the SCI event; notifications of compliance-related entities.826 Similarly, the Commission whether there is a loss of redundancy (that believes that requiring recordkeeping of negatively impacts, for example, a source of power, issues at SROs, the Commission believes telecommunications, or other key service); whether de minimis systems compliance issues an alternate trading system is available following a 822 See supra notes 39–40 and accompanying text. trading system disruption; the size of the affected During the Cybersecurity Roundtable, panelists 824 See supra note 790. market trading volume; whether the processes for referenced other services that they believed useful 825 See supra notes 791–793 and accompanying trade completion or clearance and settlement are to SROs, including the Financial Services Sector text. adversely impacted; whether settlement is Coordinating Council for Critical Infrastructure 826 The Commission notes an SCI entity should be completed on time; whether an event is resolved Protection and Homeland Security (FSSCC), the prepared for the possibility that Commission staff prior to the market’s open; whether a post-trade Clearing House and Exchange Forum (CHEF), and may, whether upon request pursuant to Rule event is resolved before the market closes; whether the Worldwide Federation of Exchange’s recently 1002(b)(3), Rule 1005(b)(3), or Rule 1007 or during a failover, despite being successful, results in a established Global Exchanges Cyber Security an examination of its compliance with Regulation given system operating without a backup; and the Working Group (GLEX). See supra note 39. SCI, include a review of the entity’s classification number of securities symbols that are adversely 823 See supra notes 904–906 and accompanying of SCI events as de minimis SCI events under Rule affected. text. 1002(b). 828 See infra note 829 and accompanying text.

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(potentially including compliance and/ while commenters are correct that the ‘‘[have] the capacity to . . . carry out or legal personnel) and a period of time occurrence of a systems compliance the purposes of [the Exchange Act].’’ may be required to afford such issue may expose an SCI entity to Consistent with this statutory personnel the chance to perform a liability,832 the occurrence of an SCI authority, the Commission is adopting preliminary legal analysis to analyze event will not necessarily cause a Regulation SCI to require, among other whether a systems compliance issue violation of Regulation SCI. Further, the things, that SCI entities: (1) Provide had, in fact, occurred. Because Rule occurrence of a systems compliance certain notices and reports to the 1002(b)(1) only requires notification to issue also does not necessarily mean Commission to improve Commission the Commission when responsible SCI that the SCI entity will be subject to an oversight of securities market personnel have a ‘‘reasonable basis to enforcement action. Rather, the infrastructure; and (2) have conclude’’ that a non-de minimis SCI Commission will exercise its discretion comprehensive policies and procedures event has occurred, the Commission to initiate an enforcement action if the in place to help ensure the robustness believes it is appropriate for an SCI Commission determines that action is and resiliency of their technological systems, and also that their entity to notify the Commission of a warranted, based on the particular facts technological systems operate in non-de minimis systems compliance and circumstances of an individual compliance with the Exchange Act, issue after it has conducted such a situation. preliminary legal analysis, unless the rules thereunder, and with their own nature of the issue makes it readily Commission Legal Authority rules and governing documents. These identifiable as a systems compliance requirements are important to furthering issue.829 Further, if an SCI entity As noted above, some commenters the directives in Section 11A(a)(2) of the determines that a systems compliance broadly questioned the Commission’s Exchange Act that the Commission, issue is de minimis, such event will not legal authority to adopt certain having due regard for the public be required to be reported immediately provisions of Regulation SCI as interest, the protection of investors, and to the Commission, but rather the SCI proposed, including those relating to the maintenance of fair and orderly entity will be required to keep, and Commission notification of SCI events, markets, facilitate the establishment of a provide to representatives of the as well as Commission notification of national market system for securities in Commission upon request, records of material systems changes.833 Section accordance with the Congressional such de minimis systems compliance 11A(a)(2) of the Exchange Act directs findings and objectives set forth in issue. Thus, the Commission believes the Commission, having due regard for Section 11A(a)(1) of the Exchange Act, that, as adopted, the requirements with the public interest, the protection of including the economically efficient respect to systems compliance issues are investors, and the maintenance of fair execution of securities transactions. reasonable because SCI entities are and orderly markets, to use its authority As discussed in Section I, the U.S. afforded flexibility to assess and under the Exchange Act to facilitate the securities markets have been understand potential SCI events and are establishment of a national market transformed in recent years by not required to notify the Commission system for securities in accordance with technological advancements that have prior to forming a reasonable basis to the Congressional findings and enhanced the speed, capacity, conclude that an SCI event has objectives set forth in Section 11A(a)(1) efficiency, and sophistication of the occurred. The Commissions also of the Exchange Act. Among the trading functions that are available to believes that, as part of its oversight of findings and objectives in Section market participants. Central to these the securities markets, it should have 11A(a)(1) is that ‘‘[n]ew data processing technological advancements have been access to information regarding de and communications techniques create changes in the automated systems that minimis systems compliance issues the opportunity for more efficient and route and execute orders, disseminate quotes, clear and settle trades, and when requested. And, although some effective market operations’’ and ‘‘[i]t is transmit market data. At the same time, commenters expressed concern that a in the public interest and appropriate however, these technological advances systems compliance issue is a legal for the protection of investors and the have generated an increasing risk of conclusion that requires time to analyze maintenance of fair and orderly markets operational problems with automated and could possibly expose the entity to to assure . . . the economically efficient liability if reported,830 as discussed systems, including failures, disruptions, execution of securities transactions.’’ In delays, and intrusions. Accordingly, in above, the Commission believes these addition, Sections 6(b), 15A, and concerns will be mitigated by the today’s securities markets, properly 17A(b)(3) of the Exchange Act impose functioning technology is central to the revised triggering standard for the obligations on national securities obligations in Rule 1002.831 However, maintenance of fair and orderly markets, exchanges, national securities the national market system, and the associations, and clearing agencies, 829 At the same time, the Commission cautions efficient and effective market operations SCI entities against unnecessarily delaying respectively, to be ‘‘so organized’’ and and the execution of securities Commission notifications of SCI events, including transactions. While the Commission’s systems compliance issues. The Commission notes 832 If an SRO fails to, among other things, comply ARP Inspection Program has been active that the notification requirement is triggered when with the provisions of the Exchange Act, the rules in this area, the Commission has not responsible SCI personnel have a reasonable basis or regulations thereunder, or its own rules, the to conclude that an SCI event has occurred and not, Commission is authorized to impose sanctions. See adopted rules specific to these matters. for example, when responsible SCI personnel have 15 U.S.C. 78s(g). The Commission believes that the definitively concluded that an SCI event has 833 See supra note 808 and accompanying text. adoption of Regulation SCI, with the occurred. As discussed above, the Commission does See infra note 1268 (noting comments relating to modifications from the SCI Proposal as not believe it is appropriate for an SCI entity to the Commission’s legal authority for the proposed delay notifying its regulator of a systems access provision, which the Commission has discussed above, and compliance with compliance issue once the SCI entity has a determined not to adopt in its final rules because the regulation by SCI entities, will reasonable basis to conclude there is one. See supra the Commission can adequately assess an SCI further the goals of the national market note 828 and accompanying text. entity’s compliance with Regulation SCI through system. It will help to ensure the 830 See OTC Markets Letter at 16; and NYSE existing recordkeeping requirements and Letter at 16. examination authority, as well as through the new capacity, integrity, resiliency, 831 See supra Section IV.B.3.a (discussing the recordkeeping requirement in Rule 1005 of availability, and security of the triggering standard). Regulation SCI). automated systems of entities important

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to the functioning of the U.S. securities Exchange Act.835 The Commission commenters suggested a tiered method markets, as well as reinforce the believes that the adopted material that would reserve immediate requirement that such systems operate systems change notification requirement notification to the Commission for truly in compliance with the Exchange Act will allow the Commission to more critical events ‘‘where the Commission’s and rules and regulations thereunder, efficiently and effectively participate in input would contribute to an expedient thus strengthening the infrastructure of discussions with SCI entities when resolution,’’ while requiring SCI entities the U.S. securities markets and systems issues occur and will allow to have written policies and procedures improving its resilience when Commission staff to effectively prepare that focus the SCI entity’s attention technological issues arise. In addition, for inspections and examinations of SCI primarily on taking corrective measures Regulation SCI establishes an updated entities. Moreover, Rule 1003(a), as during an SCI event and maintaining and formalized regulatory framework, adopted, differs significantly from the records to provide information to the thereby helping to ensure more effective proposed requirements as it no longer Commission and members and Commission oversight of these systems requires 30-day advance notification, participants as appropriate.841 Two whose proper functioning is central to but rather requires quarterly reports of commenters suggested that different the maintenance of fair and orderly material systems changes. As such, the reporting standards should apply to markets and for the continued operation requirement is designed not to result in different types of systems, suggesting, of the national market system. For these ‘‘close, minute regulation of computer for example, that immediate notification reasons, the Commission disagrees with systems and computer security.’’ 836 should be required only for higher the comments questioning the Additionally, the Commission notes that priority systems.842 Commission’s legal authority to adopt Regulation SCI does not provide for a One commenter questioned the Regulation SCI. new review or approval process for SCI adequacy of the Commission’s asserted More specifically, the Commission entities’ material systems changes.837 basis and purpose for requiring disagrees with comment regarding its notification for the vast majority of SCI Immediate Commission Notification— events.843 In this commenter’s view, the legal authority under Rule 1002(b) Proposed Rule 1000(b)(4)(i) related to Commission notification of Commission’s asserted rationale for the Commenters also specifically SCI events. As discussed above, having Commission notification discussed proposed Rule 1000(b)(4)(i) 844 immediate notice and continuing requirement would only support regarding reporting to the Commission updates of non-de minimis SCI events, requiring immediate notification for a on immediate notification SCI events. quarterly reports related to de minimis limited number of SCI events, where the One commenter stated that it generally systems disruptions and de minimis Commission’s involvement is supported the immediate notification 845 systems intrusions, and recordkeeping necessary. For other SCI events, in requirement of proposed Rule requirements for de minimis SCI events, which the Commission would only be 1000(b)(4)(i) in the case of material SCI directly enables the Commission to have gathering and analyzing submitted events,838 but other commenters were more effective oversight of the systems information, the commenter stated that critical.839 For example, some the Commission’s rationale for requiring whose proper functioning is central to commenters stated that the Commission immediate notification is insufficient.846 the maintenance of fair and orderly should adopt a materiality threshold Some commenters addressed the use markets and for the continued operation which would only require an SCI entity of the term ‘‘immediately’’ in the of the national market system. In this to immediately report material SCI proposed rule. One commenter respect, Rule 1002(b) is integral to events.840 Similarly, one group of characterized the proposed immediate furthering the statutory purposes of reporting requirements as rigid, and Section 11A of the Act under which the 835 See infra Section IV.B.4 (discussing the questioned why reporting could not Commission is directed to act. requirement to notify the Commission of material occur ‘‘promptly’’ with follow-up as Moreover, the Commission underscores systems changes). reasonably requested by the 836 See infra note 1046. that the adopted Commission Commission staff.847 Another notification provisions would require 837 As noted below in Section IV.B.4, Commission staff will not use material systems change reports commenter stated that immediate immediate Commission notice of fewer to require any approval of prospective systems notification is unrealistic and predicted SCI events than as proposed because the changes in advance of their implementation pursuant to any provision of Regulation SCI, or to adopted definitions of SCI systems, confidential data, but recommended that other delay implementation of material systems changes indirect SCI systems, systems types of intrusions be subject to recordkeeping. See pursuant to any provision of Regulation SCI. disruption, and systems compliance 838 Omgeo Letter at 15. One group of commenters See MSRB Letter at 18. supported implementing a materiality threshold for issue have been refined from the 839 See, e.g., NYSE Letter at 22. systems compliance issues, which it stated should proposal, and de minimis SCI events are 840 See SIFMA Letter at 13; FIF Letter at 4; ITG be based on factors such as the number of members not subject to immediate notice. Letter at 12; NYSE Letter at 23; FINRA Letter at 10, affected, financial impact and operation impact, Some commenters also questioned the 22; and OCC Letter at 13. One commenter stated and these guidelines should be articulated in the that, in considering factors that would determine SCI entities’ policies and procedures. See Joint Commission’s legal authority to require whether or not an SCI event is material, the SROs Letter at 9. Commission notification of material Commission should consider the overall market 841 See Joint SROs Letter at 10. 834 systems changes. As discussed in disruption caused by the SCI event, the length of 842 See FINRA Letter at 22 (suggesting, for more detail below, the material systems the event, the financial impact of the event, and the example, that immediate Commission notification inability to meet core regulatory obligations change reports are intended to make the should not be required for SCI events that occur in regarding order handling and execution activities. systems that do not provide real-time data to the Commission and its staff aware of See ITG Letter at 13. Similarly, two commenters market); and SIFMA Letter at 13 (stating that that significant systems changes at SCI stated that, with respect to systems compliance lower priority systems should only be reported on entities, and thereby improve issues or systems intrusions, immediate notification an aggregate and periodic basis). SCI events should be limited to systems compliance 843 See NYSE Letter at 21–22. Commission oversight of U.S. securities issues or systems intrusions that the SCI entity 844 market infrastructure, which directly reasonably estimates would have a material impact See Proposing Release, supra note 13, at furthers the findings and objectives set on its operations or on market participants. See 18119. 845 See NYSE Letter at 22; see also Joint SROs forth in Section 11A(a)(1) of the MSRB Letter at 18; and Omgeo Letter at 15. Further, in the case of intrusions, one commenter stated that Letter at 10. notifications could also include intrusions that 846 See NYSE Letter at 22. 834 See infra note 1046 and accompanying text. would cause a malicious unauthorized access to 847 See BATS Letter at 12.

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that it could trigger an innumerable the Commission should require requirement is too rigid or would pose amount of false alarms.848 immediate notification only for material practical difficulties, as it allows Other commenters addressed SCI SCI events, or when Commission additional time for escalation to senior events that occur outside of normal involvement would contribute to an SCI entity personnel and for the business hours. Two commenters expedient resolution.853 Given the performance of preliminary analysis and believed that an SCI entity should not Commission’s oversight responsibilities assessment regarding whether an SCI be required to notify the Commission of over SCI entities and the U.S. securities event has, in fact, occurred before an SCI event outside of normal business market generally, the notification rule is requiring notification to the hours.849 Other commenters stated that not intended to be limited to instances Commission. As such, the Commission material events should require in which SCI entities might believe that believes that the immediate notification immediate notification to the it would be useful for the Commission requirement of Rule 1002(b)(1) will not Commission, but all other types of to provide input. SCI event notifications unduly cause ‘‘false alarms,’’ as one events should be reported by the next also serve the function of providing the commenter stated.857 At the same time, business day.850 Commission and its staff with the Commission believes that the One commenter stated that immediate information about the potential impact immediate notification requirement, as notification of an SCI event may be of an SCI event on the securities markets adopted, will help ensure that the difficult where an SCI entity uses a third and market participants more broadly, Commission and its staff are kept party to operate its systems, and which potential impacts may not be apprised of SCI events after they occur, therefore believed that an SCI entity readily apparent or important to the SCI and as their impact unfolds and is should not be responsible for reporting entity reporting such an event. mitigated and, ultimately, as the SCI an SCI event caused by a third party Moreover, the Commission believes that entity engages in corrective action to unless there is a material impact to the there will be instances in which an SCI resolve the SCI events. Additionally, the market or the SCI entity’s ability to meet entity will not know the significance of Commission notes that immediate its service level agreements.851 This an SCI event at the time of the notifications made pursuant to Rule commenter stated that the rule should occurrence of an event, or whether such 1002(b)(1) may be made orally (e.g., by permit SCI entities flexibility on how to event (or, potentially, the aggregated telephone) or in a written form (e.g., by address third party issues and requested impact of several SCI events occurring, email or on Form SCI).858 The further guidance from the Commission for example, across many SCI entities) Commission notes that, by not in this area.852 will warrant the Commission’s input or prescribing the precise method of merit the Commission’s awareness, nor communication for an immediate Immediate Notification of SCI Events: does the Commission believe it should notification, SCI entities are afforded the Adopted Rule 1002(b)(1) be solely within an SCI entity’s flexibility to determine the most Adopted Rule 1002(b)(1) requires discretion to make such a effective and efficient method to each SCI entity to notify the determination. And SCI entities retain communicate with the Commission. Commission of an SCI event the flexibility to revise their initial The Commission has also considered immediately upon any responsible SCI assessments should they subsequently comments that immediate notification personnel having a reasonable basis to determine that the event in question should not be required outside of conclude that an SCI event has occurred was incorrectly initially assessed to be normal business hours, or that it should (unless it is a de minimis SCI event). a de minimis event (or incorrectly only be required outside of normal Such notification may be provided initially assessed to not be a de minimis business hours in the case of material orally (e.g., by telephone) or in writing event). Consequently, the Commission SCI events.859 The Commission notes (e.g., by email or on Form SCI). does not agree with commenters who that the adopted rule will afford SCI Although many commenters were stated that only material SCI events entities considerable flexibility in how critical of the immediate notification should be reported to the Commission to communicate an immediate provision, Rule 1002(b)(1) substantially immediately.854 notification to the Commission—that is, retains the requirements of proposed The Commission has also considered SCI entities may satisfy the immediate Rule 1000(b)(4)(i), but is modified in comments that the term ‘‘immediately’’ certain respects in response to as used in proposed Rule 1000(b)(4) is 857 See supra note 848 and accompanying text. rigid and unrealistic.855 The The Commission notes that, if an SCI entity at some comments. point after submitting an immediate notification The Commission has considered the Commission, in adopting Rule 1002(b), concludes after further investigation and analysis views of commenters who stated that has retained the requirement that SCI that it was incorrect in its initial determination that entities must notify the Commission an SCI event had occurred, the SCI entity should alert the Commission of its updated assessment 848 See Direct Edge Letter 8. immediately; however, as discussed in pursuant to Rule 1002(b)(3). Relatedly, Rule 1002(b) 849 856 See FINRA Letter at 21; and BATS Letter at detail above, the triggering standard is designed to provide SCI entities flexibility in 12. FINRA also stated that an SCI entity should has been modified so that the notifying the Commission of the details regarding have one full business day to report an SCI event. notification obligations of Rule 1002(b) an SCI event (for example, through the ability to 850 See, e.g., DTCC Letter at 9 (stating that, outside are triggered only upon any responsible provide the Rule 1002(b)(2) written notification on of normal business hours, an SCI entity should only a good faith, best efforts basis) and time to assess be required to notify the Commission of the most SCI personnel having a reasonable basis and analyze the SCI event (for example, by critical events; i.e., those with the potential to to conclude that an SCI event has requiring that the Rule 1002(b)(2) written impact the core functions and critical operations of occurred. The Commission believes this notification only provide a description of the SCI the SCI entity); and OCC Letter at 14 (stating that modification responds to commenters event, including the system(s) affected, and with when an event is material because it could have a additional information only required to the extent market-wide impact or impact the core functions of concerns that the ‘‘immediate’’ reporting available at that time). an SCI entity, immediate notification should be 858 The Commission notes that, prior to the required even outside of normal business hours, but 853 See supra notes 838–846 and accompanying compliance date of Regulation SCI, Commission all other SCI events should be reported no later than text. staff intends to notify SCI entities of the email the next business day). 854 See, e.g., supra note 842 and accompanying addresses, phone numbers, and contact persons that 851 See FINRA Letter at 22; see also supra Section text. SCI entities should use when notifying the IV.A.2.b (discussing the definition of ‘‘SCI systems’’ 855 See supra note 847 and accompanying text. Commission of SCI events under Rule 1002(b). as it relates to third parties). 856 See supra Section IV.B.3.a (discussing the 859 See, e.g., supra notes 849 and 794–797 and 852 See FINRA Letter at 22. triggering standard). accompanying text.

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notification requirement simply by necessarily mean that an SCI entity has Written Commission Notification: communicating with the Commission violated Regulation SCI. Proposed Rule 1000(b)(4)(ii) via telephone or email. In addition, The Commission disagrees with the Commenters also specifically because an SCI entity’s obligation to commenter who stated that the discussed and suggested alternatives to report to the Commission is not Commission should not require SCI proposed Rule 1000(b)(4)(ii), which triggered until responsible SCI entities to be responsible for reporting would have required an SCI entity, personnel has a reasonable basis to an SCI event caused by a third party within 24 hours of any responsible SCI conclude that an SCI event has because immediate notification would personnel becoming aware of any SCI 860 occurred, the Commission does not be difficult.862 An SCI event, whether or event, to submit a written notification believe that timely notification, even not caused by a third party system, by pertaining to such SCI event to the outside of normal business, is so definition relates to an SCI system or Commission. Many commenters stated onerous that it necessitates allowing a indirect SCI system. As explained in that the proposed 24-hour time frame full business day to comply. Particularly 866 Section IV.A.2 above (discussing the was too short or burdensome. Several because it has determined to exclude de definitions of ‘‘SCI systems’’ and commenters specifically suggested that minimis SCI events from the immediate ‘‘indirect SCI systems’’), the the Commission extend the time frame notification requirement, the Commission has adopted the definition to allow SCI entities to attend to the SCI Commission believes that it is event without also devoting resources to of SCI systems to include, specifically, reasonable to require that an SCI event notifying the Commission, suggesting those systems of SCI entities that would (except those specified in Rule different time frames they believed to be be reasonably likely to impact the 1002(b)(5)) be reported to the appropriate.867 One commenter Commission orally (e.g., by telephone) protection of investors and the suggested that SCI entities be given until or in writing (e.g., by email or on Form maintenance of fair and orderly markets 24 to 48 hours after final resolution of SCI) when responsible SCI personnel and an SCI entity’s operational the SCI event to submit a written have a reasonable basis to conclude that capability, and has not excluded third notification.868 Another commenter an SCI event has occurred, even if such party systems from the definition. As similarly recommended that, where communication may be outside of stated above, if an SCI entity is real-time notification is needed, written normal business hours. Because the rule uncertain of its ability to manage a notification should not be required provides flexibility to more easily third-party relationship to satisfy the unless an SCI event remains unresolved enable communication—by permitting requirements of Regulation SCI, then it after a reasonable period (such as 10 or oral notification—of the fact of an SCI would need to reassess its decision to 15 days).869 event to the Commission, and because outsource the applicable system to such Some commenters also suggested that, only non-de minimis SCI events are third party.863 if the Commission retains the 24-hour subject to this requirement, the In response to comment that SCI requirement, it should require provision Commission believes notice to the entities would be required to provide of less information. For example, one Commission is appropriate sooner notification reports multiple times to commenter suggested that SCI entities rather than later. In addition, as different Commission staff for the same should only be required to provide discussed above, the Commission event,864 the Commission notes that rule whatever information is sufficiently believes that there may be situations does not include such a requirement. In reliable at that time.870 Two other where the severity of an SCI event may addition, the Commission also disagrees commenters stated that SCI entities not be immediately apparent to an SCI with the commenter who stated that, for should not be required to include an entity experiencing the event, but the systems disruptions, notifications estimate of the markets and participants Commission, from its unique position, should not be required from each 866 may determine as a result of receiving separate entity where a disruption See NYSE Letter at 23; FINRA Letter at 19; multiple immediate notifications, each BATS Letter at 12; DTCC Letter at 9; MSRB Letter impacts multiple SCI entities.865 at 18; SIFMA Letter at 13; FIF Letter at 5; BIDS related to an SCI event of a similar Excusing immediate notification where Letter at 10; Omgeo Letter at 17; and CME Letter nature, that the SCI event is part of a a given event seems to be affecting at 9. 867 pattern of a larger, more significant multiple SCI entities would not be Commenters suggested time frames of 48 occurrence. The Commission is hours (CME Letter at 9); 72 hours (OCC Letter at 12; appropriate because the Commission, as therefore adopting Rule 1002(b) to DTCC Letter at 9, 11 (noting, however, that details the centralized receiver of notifications, surrounding an SCI event should not be required to require that an SCI entity notify the will be the entity that will be in a be provided in writing until after the investigation Commission of an SCI event of the event is complete and the event has been position to determine whether, in fact, immediately upon any responsible SCI resolved)); and five business days (BIDS Letter at SCI entities are concurrently 10). personnel having a reasonable basis to 868 conclude that an SCI event has experiencing the same SCI event. See FINRA Letter at 20. This commenter Moreover, even if a given event affects further suggested that, if an SCI event has not been occurred, without an exception for fully resolved within a reasonable period, e.g.,10 or periods outside of normal business multiple SCI entities, it may be the case 15 days, an SCI entity could be required to submit hours. that the event impacts each SCI entity written notification based on currently available and the affected systems in a different information at the end of that period, with periodic In addition, as noted above, the manner, and thus the Commission status updates via telephone or email, and a final written submission within 24 to 48 hours after the information submitted to the believes it is important to receive Commission pursuant to Regulation SCI event has been fully resolved. individual notifications from each 869 See SIFMA Letter at 14. will be treated as confidential, subject to 870 See FINRA Letter at 20. This commenter also 861 affected SCI entity. applicable law and, as noted in suggested that the rule require an SCI entity to Sections IV.B.1.b.i and IV.B.2.a, the assess the ‘‘business impact’’ of an SCI event, noting 862 See supra notes 851–852 and accompanying occurrence of an SCI event does not that this information may provide more context text. than requiring an SCI entity to estimate the number 863 See supra note 260 and accompanying text. of market participants impacted by an SCI event 860 See supra Section IV.B.3.a (discussing the 864 See, e.g., supra note 805 and accompanying (which in some cases could be zero, but still have triggering standard). text. a negative impact on the SCI entity). See FINRA 861 See supra note 674. 865 See, e.g., id. Letter at 30.

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impacted by an SCI event or to quantify the proposed requirement that SCI pertinent information known by the SCI such impact because this requirement entities provide a copy of any entity about the SCI event. may create a risk of civil liability for the information disseminated to date The Commission has considered SCI entity.871 Another commenter regarding the SCI event to their comments stating that 24 hours is too recommended that the rule require only members or participants.878 short and burdensome a duration for an a brief written summary that is one or One commenter stated that, to reduce SCI entity to submit a compliant written two paragraphs, which could be the cost of compliance, the Commission notification.883 The Commission supplemented by oral communications should accept the same notifications of understands commenters’ concerns that and a longer summary within 15 days service interruptions that an ATS SCI entities may still be actively after an SCI event has been fully already provides to its subscribers.879 investigating and working to resolve an resolved.872 Commenters also provided SCI event and that information it With respect to the information suggestions for limiting the initially provides to the Commission provided to the Commission via circumstances for which 24-hour about an SCI event may not ultimately notification of an SCI event, one written notification would be required prove correct.884 Therefore, in line with commenter suggested that the rule under proposed Rule 1000(b)(4)(ii). One commenters’ concerns regarding a good provide a safe harbor for entities and commenter stated that only SCI events faith and best efforts standard,885 the employees for either inadvertent that materially impact an SCI entity’s Commission has modified the 24-hour omissions in a submitted report, or operations or market participants written notification requirement in when a good faith, documented should be subject to the 24-hour written adopted Rule 1002(b) to make clear that determination is made that no report is notification requirement, but questioned the written notification should be required.873 One commenter stated that whether 24 hours was realistic even for provided on a ‘‘good faith, best efforts that the Commission should expressly those events.880 One commenter basis.’’ This modification acknowledges provide that initial written submissions suggested that proposed Rule that a written notification provided are to be made on a best efforts basis 1000(b)(4)(ii) only apply to significant within 24 hours may provide only a and SCI entities will incur no liability SCI events and that other events only be preliminary assessment of the SCI event, or penalty for any unintentional subject to a recordkeeping that additional information may come to inaccuracies or omissions contained in requirement.881 In addition, some light after the initial 24-hour period, and these submissions.874 Some commenters commenters suggested that if an SCI that the initial assessment may prove in stated that entities should not be liable entity has provided oral notification to retrospect to be incorrect or incomplete. for information that is later found to be the Commission, it should not be Consequently, the adopted rule requires incomplete or inaccurate.875 required to file written notice within 24 that the written notification provided Some commenters 876 questioned the hours after the initial report unless within 24 hours be submitted on a good purpose of requiring that information reasonably requested by the faith, best efforts basis, and does not 882 disseminated to members and Commission. require that the written notification be participants (under proposed Rule Written Notification Within 24 Hours: a comprehensive or complete 1000(b)(5)) be copied and attached to Adopted Rule 1002(b)(2) assessment of the SCI event (unless, of Form SCI as part of notifications to the course, an SCI entity has completed a Adopted Rule 1002(b)(2) requires an Commission, and considered it ‘‘an full assessment by such time). The SCI entity, within 24 hours of any overly broad inclusion of Commission believes that a ‘‘good faith’’ communications’’ that would have ‘‘a responsible SCI personnel having a reasonable basis to conclude that the standard will help to ensure that SCI chilling effect on communications entities will not be accountable for between the SCI entities and their SCI event has occurred, to submit a written notification pertaining to such unintentional inaccuracies or omissions members and participants,’’ 877 while contained in these submissions, and a another commenter argued that, when SCI event to the Commission. Rule 1002(b)(2) allows for such written ‘‘best efforts’’ standard will help to an exchange is having a technology ensure that SCI entities will make a issue, many members may be reaching notifications to be made on a good faith, best efforts basis and requires that it diligent and timely attempt to provide out to the exchange’s staff with requests all the information required by the for information and status. Therefore, include: (i) A description of the SCI event, including the system(s) affected; written notification requirement. The that commenter questioned the Commission also notes that an SCI feasibility, need, and potential impact of and (ii) to the extent available as of the time of the notification: the SCI entity’s entity will not need to submit a written current assessment of the types and notification where an SCI entity 871 See DTCC Letter at 10; and Omgeo Letter at documents that an SCI event is 30. Omgeo added that such a calculation would be number of market participants difficult to compute, likely inaccurate, and of little potentially affected by the SCI event; the determined to be a de minimis SCI use to the Commission. potential impact of the SCI event on the event, other than including de minimis 872 See Omgeo Letter at 17. market; a description of the steps the systems disruptions and de minimis 873 See id. at 18. SCI entity has taken, is taking, or plans systems intrusions in the quarterly 874 See FINRA Letter at 20. to take, with respect to the SCI event; report required by Rule 1002(b)(5). As 875 See, e.g., SIFMA Letter at 14; and UBS Letter discussed in further detail below, in the at 4 (stating that SCI entities acting in good faith the time the SCI event was resolved or should not be held accountable if details offered in timeframe within which the SCI event is event that new information comes to reports to the Commission are substantially expected to be resolved; and any other light or previously reported information different from what is revealed by further analysis). is found to be materially incorrect, 876 Because the requirement to provide 878 adopted Rule 1002(b)(3) requires an SCI information disseminated to an SCI entity’s See Direct Edge Letter at 7–8. 879 entity to update the information at that members or participants is now included in the See BIDS Letter at 11. Final Report (Rule 1002(b)(4)) instead of with the 880 See MSRB Letter at 18. 24-written notification requirement as proposed, 881 See CME Letter at 9. 883 See, e.g., supra note 866 and accompanying the Commission’s response to these comments is 882 See BATS Letter at 12; and Omgeo Letter at text. discussed below in the subsection ‘‘Final Report: 17. See also DTCC Letter at 10; and OCC Letter at 884 See supra notes 873–875 and accompanying Adopted Rule 1002(b)(4).’’ 14 (suggesting 72 hours to provide written text. 877 See Joint SROs Letter at 11. information after providing verbal notification). 885 See id.

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time, and does not require that such about the SCI event.’’ 890 This Proposal was adopted without updates be written.886 The Commission information is the type of necessary modification and, consequently, the believes these modifications will help information that SCI entities are able to requirement to submit a written ensure that SCI entities are able to provide in a short timeframe and that notification within 24 hours of an SCI provide the information required by the Commission has come, over time, to event, thereby alleviating some of the Rule 1002(b)(2) within 24 hours, and rely upon to properly assess systems burdens about which commenters therefore the Commission is not issues. expressed concerns. Moreover, the modifying the timeframe to extend Additionally, the Commission notes Commission believes that a materiality beyond 24 hours, as requested by that adopted Rule 1002(b) does not threshold would likely exclude from the several commenters.887 Moreover, require that an SCI entity provide the 24-hour written notification a large because the information need only be Commission, at the time of the initial number of SCI events that are not de provided on a good faith, best efforts notice to the Commission, with its minimis SCI events but that the basis and, pursuant to Rule 1002(b)(3), current assessment of the SCI event, Commission, as part of its oversight updates can be provided on a regular including a discussion of the role, should be updated on so that the basis to correct any materially incorrect determination of whether it is subject to Commission and its staff can quickly information previously provided or a dissemination requirement, as assess the nature and scope of those SCI when new material information is proposed in Rule 1000(b)(4). events and potentially assist the SCI discovered, the Commission disagrees The Commission has also determined entity in identifying the appropriate with commenters that stated that the to further refine the scope of response, including ways to mitigate the information required by Rule 1002(b) information that needs to be reported in impact of SCI events on investors and should be provided only after resolution the 24-hour written notification by promote the maintenance of fair and of the SCI event. The Commission requiring that the following items orderly markets. The Commission continues to believe that Rule instead be included in the final report reemphasizes that the information to be 1002(b)(2)’s requirement to provide under Rule 1002(b)(4), rather than in the provided under the 24-hour written information to the Commission within 24-hour written notification required by notification would represent the SCI 24 hours is appropriately tailored to Rule 1002(b)(2): A description of the SCI entity’s preliminary assessment— help the Commission and its staff entity’s rule(s) and/or governing performed on a good faith, best efforts quickly assess the nature and the scope document(s), as applicable, that relate to basis—of the SCI event, and only certain of an SCI event and will contribute to the SCI event; and an analysis of parties key information is required under the more timely and effective Commission that may have experienced a loss, 24-hour written notification, with oversight of systems whose proper whether monetary or otherwise, due to ‘‘other pertinent information’’ required functioning is central to the the SCI event, the number of such only where ‘‘known by the SCI entity’’ parties, and an estimate of the aggregate maintenance of fair and orderly markets, within the 24-hour timeframe. For these amount of such loss.891 and that this would particularly be the reasons, the Commission has In response to commenters who case for SCI events that are not yet determined not to adopt a materiality 888 suggested that the Commission limit the resolved. threshold for the requirement that an events for which 24-hour written Adopted Rule 1002(b)(2) is also SCI entity update the Commission notification would be required to responsive to comments urging the within 24 hours after it has a reasonable material events,892 the Commission Commission to require less information basis to conclude that an SCI event has in a 24-hour written notification.889 notes that it has partially responded to occurred. Specifically, whereas proposed Rule such comments by providing an Additionally, the Commission 1000(b)(4) required a detailed exception to the immediate notification disagrees with those commenters who description of the SCI event, adopted requirement for de minimis events in stated that written notification should Rule 1002(b)(2)(i) specifies that an SCI Rule 1002(b)(5). The Commission only be required when reasonably entity must only provide ‘‘a description believes that this exception should 893 of the SCI event, including the system(s) reduce the overall number of SCI events requested by the Commission. The affected.’’ Additional information is subject to immediate notification Commission believes that it should be only required to the extent available as requirements as compared to what notified of all SCI events and that all of the time of the notification, which would have been required if the SCI SCI events (other than those specified in includes an ‘‘SCI entity’s current Rule 1002(b)(5)) should be subject to the assessment of the types and number of 890 Rule 1002(b)(2)(ii). The information required 24-hour written notification market participants potentially affected to be provided in Rule 1002(b)(2)(ii) is a subset of requirement because, by articulating in by the SCI event; the potential impact of information proposed to be required under Rule a single notification what is currently 1000(b)(4)(iv)(A)(1)–(2) of the SCI Proposal. known about an SCI event and the steps the SCI event on the market; a 891 At the same time, if such information is expected to be taken to respond to the description of the steps the SCI entity known at the time of the notification, the SCI entity has taken, is taking, or plans to take, will be required to provide it pursuant to Rule SCI event, the Commission will be with respect to the SCI event; the time 1002(b)(2)(ii)’s requirement that the SCI entity better able to assess the nature and the SCI event was resolved or timeframe provide ‘‘any other pertinent information known scope of, and respond to, SCI events and . . . about the SCI event.’’ Additionally, such potentially assist SCI entities in within which the SCI event is expected information would be provided under the to be resolved; and any other pertinent requirement to provide the Commission with identifying the appropriate response, information known by the SCI entity regular updates under Rule 1002(b)(3)’s including ways to mitigate the impact of requirement to provide any of the information listed SCI events on investors and promote the in Rule 1002(b)(2)(ii) if it becomes available after 886 maintenance of fair and orderly markets. See infra note 909 and accompanying text. the time of submission of the 24-hour notification. 887 See supra notes 867–869 and accompanying The Commission also notes that Rule 1002(b)(4)(ii) In response to the comment that the text; and Proposing Release, supra note 13, at requires that an SCI entity include in the final Commission should accept the same 18119. report a copy of any information disseminated notifications of service interruptions 888 See supra notes 868 and 872 and pursuant to Rule 1002(c) by the SCI entity to date accompanying text. regarding an SCI event to any of its members or that an ATS provides to its 889 See supra notes 870–872 and accompanying participants. text. 892 See supra note 880 and accompanying text. 893 See supra note 882 and accompanying text.

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subscribers,894 the Commission believes extent this information is available as of Other commenters addressed the that SCI ATSs can use the types of the time of the notification, rather than method of providing updates. For information contained in ATS notices to an exact computation. In addition, the example, one commenter stated that subscribers when completing Form SCI, rule does not require that the only oral communication should be but nevertheless believes that it is more assessment be submitted only if the SCI required when an SCI event is ongoing, useful and efficient for the Commission entity ensures that it is free of and that the rule should allow a written and its staff to be able to have all SCI inaccuracies. Further, contrary to the supplement to a final or post mortem event notifications standardized in a commenter’s suggestion, the report if additional information comes single format (i.e., Form SCI). Commission believes that such to light regarding the SCI event.906 As discussed above, the information estimates will be of significant use to Another commenter suggested that required under the adopted 24-hour the Commission and its staff in updates should be permitted to be in written notification requirement has understanding the potential severity of writing or provided orally based on the been refined as compared with the the SCI event. In addition, because the judgment of the SCI entity.907 Finally, requirements in the proposal. SCI entity is likely to be in the best one commenter stated that requests for Consequently, the Commission believes position to assess an SCI event, the updates regarding SCI events should that SCI entities should be able to Commission also believes that an only be permitted to come from senior 908 provide the Commission with this assessment of the impact of an SCI event staff at the Commission. information in a written format, and on markets and participants is useful does not agree that such information Regular Updates: Adopted Rule because it afford the Commission the 1002(b)(3) should be provided in an oral format, as opportunity to learn the SCI entity’s requested by some commenters, Rule 1002(b)(3) requires that, until perspective on the potential or actual regardless of the manner in which the such time as an SCI event is resolved, impact of an SCI event.900 immediate notification was provided to and the SCI entity’s investigation of the the Commission.895 The Commission Written Commission Updates: Proposed SCI event is closed, an SCI entity emphasizes that regular updates Rule 1000(b)(4)(iii) provide the Commission with updates provided under Rule 1002(b)(3) may, pertaining to the SCI event on a regular however, be provided either orally or in Commenters also addressed proposed basis, or at such frequency as reasonably written form.896 Rule 1000(b)(4)(iii), which required an requested by a representative of the In response to commenters that stated SCI entity to provide the Commission Commission. Updates are required to SCI entities should not be required to written updates pertaining to an SCI correct any materially incorrect include an estimate of the market event on a regular basis, or at such information previously provided, or participants impacted by an SCI event frequency as reasonably requested by a when new material information is or to quantify such impact because this representative of the Commission, until discovered, including not limited to, requirement may create a risk of civil the SCI event was resolved. Some any of the information listed in Rule liability for the SCI entity,897 the commenters urged the Commission to 1002(b)(2)(ii). Commission notes that the information provide clarity on the definition of While the Commission recognizes that submitted to the Commission pursuant ‘‘resolved.’’ 901 For example, one providing the Commission with such to Regulation SCI will be treated as commenter suggested that the updates imposes an additional reporting confidential, subject to applicable law, Commission should define the requirement on SCI entities, the including amended Rule 24b–2.898 resolution of an SCI event to be when Commission also believes that updates Moreover, the requirement to provide a the affected SCI systems have been are important to allow the Commission 24-hour written notification does not normalized,902 and another commenter to fully monitor the SCI event. In itself create a risk of civil liability, but stated that there should be a precise addition, the Commission believes that the Commission acknowledges that the definition of when an SCI event is the update requirement will encourage information provided to it may be resolved and that definition should be SCI entities to formalize their processes subject to FOIA requests. linked directly to the definition of the for gathering information on SCI events, Regarding the comment that the SCI event itself.903 Other commenters which will help to ensure that requirement to include an estimate of expressed concern that the continuing responsible SCI personnel receive the markets and participants impacted update requirement could divert accurate and updated information on by an SCI event or to quantify such resources from resolution of the SCI SCI events as they are being resolved, impact would be difficult to compute, event and suggested that updates be and further, that this process may be likely inaccurate, and of little use to the required only to the extent they would helpful to SCI entities when providing Commission,899 the Commission not interfere with event resolution.904 information about SCI events to their disagrees. The rule requires an SCI One commenter stated that continual members or participants. Also, because entity to provide its current assessment updates should only be necessary if the the Commission has revised the of the types and number of market SCI entity had not resolved the event requirements of the 24-hour notification participants potentially affected by the within a reasonable period, such as 10 to allow SCI entities to provide SCI event and the potential impact of to 15 days.905 information on a good faith, best efforts the SCI event on the market, to the basis and has limited the scope of 900 The Commission notes that SCI entities retain information required in that report as 894 See supra note 879 and accompanying text. the flexibility to provide additional information to discussed above, the Commission 895 See supra notes 872 and 882 and the Commission as part of their assessments, such believes that updates to the Commission accompanying text. as providing the ‘‘business impact’’ of an SCI event, to correct materially incorrect 896 as suggested by one commenter. See supra note 870. See infra note 911 and accompanying text. information previously reported or 897 901 See DTCC Letter at 11; and Omgeo Letter at See supra note 871. when new material information is 898 See supra notes 802–803 and accompanying 18. text. For a discussion of the amendment to Rule 902 See DTCC Letter at 11. 24b–2, see infra notes 1245–1248 and 903 See Omgeo Letter at 18. 906 See Omgeo Letter at 17. accompanying text. 904 See MSRB Letter at 19; and OCC Letter at 14. 907 See MSRB Letter at 19. 899 See supra note 871 and accompanying text. 905 See FINRA Letter at 20. 908 See NYSE Letter at 24.

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discovered as required by the rule is streamlined because SCI entities will Final Report: Adopted Rule 1002(b)(4) important to keep the Commission up to not need to devote resources to Adopted Rule 1002(b)(4) requires that date with accurate information, providing written updates while an SCI if an SCI event is resolved and the SCI including the following: The SCI event is ongoing. entity’s investigation of the SCI event is entity’s current assessment of the types At the same time, the Commission is closed within 30 days of the occurrence and number of market participants cognizant of the burdens associated of the SCI event, then within five potentially affected by the SCI event; the with requiring written updates and business days after the resolution of the potential impact of the SCI event on the therefore has revised the update SCI event and closure of the SCI entity’s market; a description of the steps the requirement in adopted Rule 1002(b)(3) investigation regarding the SCI event, SCI entity has taken, is taking, or plans to remove the proposed requirement the SCI entity is to submit a final to take, with respect to the SCI event; that such updates be provided in written notification pertaining to such the time the SCI event was resolved or written form. Thus, submission of SCI event to the Commission (‘‘final timeframe within which the SCI event is updates may be provided either orally report’’). The final report is required to expected to be resolved; and any other or in written form, and will result in a include: (i) A detailed description of: pertinent information known by the SCI lighter burden on SCI entities than the The SCI entity’s assessment of the types entity about the SCI event. proposed requirement, and is and number of market participants Consequently, the Commission does not responsive to commenters that affected by the SCI event; the SCI agree with the commenter who suggested that SCI entity resources entity’s assessment of the impact of the suggested that updates should be only would be better directed to resolving an SCI event on the market; the steps the required if an SCI event has not been SCI event.911 SCI entity has taken, is taking, or plans resolved within a reasonable amount of to take, with respect to the SCI event; 909 In response to comment that the time, such as 10 to 15 days. Commission provide guidance to clarify the time the SCI event was resolved; the The Commission believes that when an SCI event has been SCI entity’s rule(s) and/or governing updates regarding this information are ‘‘resolved’’ 912 and in line with the document(s), as applicable, that relate to important to enhance the Commission’s particular comment that the concept of the SCI event; and any other pertinent oversight of the securities markets and resolution should be linked directly to information known by the SCI entity its informed and continued the definition of the SCI event itself,913 about the SCI event; (ii) a copy of any understanding of an SCI event. the Commission believes that an SCI information disseminated pursuant to Moreover, the Commission underscores Rule 1002(c) by the SCI entity to date that updates are only required to the event is resolved when the event no longer meets the definitions of a systems regarding the SCI event to any of its extent that they correct any materially members or participants; and (iii) an incorrect information previously disruption, systems intrusion, or systems compliance issue, as defined in analysis of parties that may have provided or when new material experienced a loss, whether monetary or information is discovered, including but Rule 1000, and that an SCI entity’s Rule 1002(b) reporting obligations are otherwise, due to the SCI event, the not limited to, any of the information number of such parties, and an estimate listed in Rule 1002(b)(2)(ii), thereby completed when an SCI entity submits a final report as required by Rule of the aggregate amount of such loss. alleviating the burden to SCI entities of Rule 1002(b)(4) also specifies that, if an providing such updates absent such 1002(b)(4). Further, the Commission 910 does not believe that it is necessary to SCI event is not resolved or the SCI circumstances. The Commission has entity’s investigation of the SCI event is also eased the requirements of the prescribe that requests to SCI entities regarding updates should come solely not closed within 30 days of the proposed update provision by occurrence of the SCI event, then, the eliminating the proposed requirements from senior Commission staff, as suggested by one commenter.914 The SCI entity is required to submit a that an SCI entity attach a copy of any written notification pertaining to such information disseminated to date Commission believes that requiring an SCI entity to update the Commission at SCI event to the Commission within 30 regarding the SCI event to its members days after the occurrence of the SCI or participants or on the SCI entity’s such frequency as reasonably requested by a representative of the Commission event containing the information publicly available Web site; a required in Rules 1002(b)(4)(i)–(iii), to description of the SCI entity’s rule(s) provides appropriate flexibility to the Commission to request additional the extent known at the time. Within and/or governing document(s), as five business days after the resolution of applicable, that relate to the SCI event; information as necessary, but does not anticipate that requests will be made by such SCI event and closure of the an analysis of parties that may have investigation regarding such SCI event, experienced a loss, whether monetary or multiple members of the Commission staff because the Commission expects the SCI entity is required to submit a otherwise, due to the SCI event, the final written notification pertaining to number of such parties, and an estimate that such requests would be coordinated by a particular group of Commission such SCI event to the Commission of the aggregate amount of such loss. containing the information specified in Instead, these information requirements staff that are assigned to handle specific reports from SCI entities. the rule. must only be provided as part of the As an initial matter, the Commission final report required by Rule 1002(b)(4), notes that several of the items that are and the Commission therefore believes 911 See supra note 791 and accompanying text. SCI entities may, but are not required to, utilize specifically required to be described in that burdens associated with the Form SCI to submit such updates. See Section IV.D the final report (as specified in adopted continuing update requirement will be (discussing Form SCI). The Commission also Rule 1002(b)(4)) were proposed to be believes that, to the extent commenters suggested required to be provided to the 909 See supra note 870 and accompanying text. that the Commission permit oral updates, they did Commission under proposed Rule 910 The requirement that updates regarding new so because, at least in part, oral updates are less burdensome to SCI entities than written updates. 1000(b)(4)(ii), within a shorter time or corrected information be provided on a regular 915 basis (unless an alternative, specific frequency is See supra notes 906–907 and accompanying text. frame. The Commission believes that reasonably requested by a representative of the 912 See supra notes 902–903 and accompanying Commission) is designed to take into account the text. 915 The Commission notes that while proposed fact that new or updated information may develop 913 See supra note 903 and accompanying text. Rule 1000(b)(4)(iv)(C) specified that an SCI entity at different frequencies for different SCI events. 914 See supra note 802 and accompanying text. Continued

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the adopted rule, by requiring that this SCI entities provide a copy of any provide the Commission with a copy of information be submitted to the information ‘‘disseminated pursuant to all information disclosed to members or Commission after resolution of an SCI paragraph (c) of [Rule 1002]’’ by the SCI participants, which could include event and closure of the SCI entity’s entity to date regarding the SCI event to hundreds of individual communications investigation, will encourage SCI any of its members or participants. The via email or telephone for each SCI entities to devote resources first to Commission believes that this refined event. resolving the SCI event, and providing requirement will more appropriately The Commission also believes that, if status reports when required, and then capture only the information needed for an SCI event is not resolved or the SCI to preparing a comprehensive final the Commission to assess compliance entity’s investigation of the SCI event is report. In particular, as some with the dissemination requirements of not closed within 30 days of the commenters suggested, certain Rule 1002(c). Further, to limit the occurrence of the SCI event, it is information would be more accurate, burden on, and provide additional reasonable to require that an SCI entity and therefore more useful, if provided flexibility to, SCI entities as they resolve submit within thirty business days after after an SCI event is resolved.916 The SCI events, the adopted rule does not the occurrence of the SCI event the Commission believes that the require this information to be included information required in Rule information required under Rule as part of a Form SCI submission until 1002(b)(4)(ii), to the extent known at the 1002(b)(4) will provide the Commission the final report is to be submitted to the time, because this timeframe provides with a comprehensive analysis to more Commission. The Commission believes SCI entities with flexibility to continue fully understand and assess the impact that it is sufficient to require that this their investigation while also apprising caused by the SCI event. In addition, the information be included in the final the Commission of relevant information Commission ordinarily would expect an report because it is an important part of discovered during the course of the SCI SCI entity to include the root cause of the record of an SCI event and SCI entity’s investigation. Moreover, the rule an SCI event as part of ‘‘any other entity’s response to such event.918 As takes into account the Commission’s pertinent information’’ known about the noted above, one commenter questioned recognition that an SCI entity’s SCI event. The Commission also the purpose of this requirement and investigation regarding an SCI may not believes that certain of the information expressed concern that it may yet be complete despite the fact that the requested by Rule 1002(b)(4) is more negatively impact open communication SCI event itself has resolved. In such suitable to be provided after, rather than between an SCI entity and its members cases, within five business days after the prior to, resolution of an SCI event. and participants,919 while another SCI event has resolved and the Specifically, much of the information commenter questioned the feasibility, investigation regarding the SCI event required by Rule 1002(b)(4) (an analysis need, and potential impact of this has closed, the Commission believes of parties that may have experienced a requirement in light of the numerous that it is reasonable and necessary to loss, whether monetary or otherwise, communications that SCI entities will provide it with a comprehensive and due to the SCI event, the number of engage in with their members or complete understanding of the SCI such parties, and an estimate of the participants.920 While the Commission event. Consequently, SCI entities are aggregate amount of such loss) can only recognizes that it is possible that the required to submit a final written be comprehensively known after the requirement could have some chilling notification that contains all final resolution of an SCI event.917 effect on such communications, it information required by Rule 1002(b). Similarly, the Commission is revising believes that this information is Goals of Adopted Commission the proposed requirement that SCI important for SCI entities to share with Notification Rule entities provide to the Commission a the Commission because it is an copy of any information disclosed by efficient means for the Commission to As discussed in greater detail above, the SCI entity to date regarding the SCI assess whether SCI entities are the Commission has carefully event to any of its members or complying with the dissemination considered the views of commenters as participants. First, rather than requiring requirements of Rule 1002(c). Further, well as what it believes is necessary for that SCI entities provide a copy of ‘‘any the Commission believes that, by the Commission and its staff with information disclosed by the SCI requiring that SCI entities provide a respect to the timing and content of entity,’’ the adopted rule requires that copy only of information disseminated notifications regarding SCI events, and pursuant to Rule 1002(c) (rather than all believes that the adopted rule will be was required to provide a copy of any information information disclosed to members or less burdensome for SCI entities than if disseminated on the SCI entity’s publicly available participants regarding the SCI event), it the proposed rule was adopted without Web site, adopted Rule 1002(b)(4) specifies that an addresses one commenter’s concern that modification, while still resulting in SCI entity provide a copy of any information meaningful notice to the Commission disseminated pursuant to Rule 1002(c) by the SCI it would be difficult, unnecessary, and entity to date regarding the SCI event to any of its could impede open communication, to and its staff with information about SCI members or participants. events in a timely manner that permits 916 See supra notes 870–878 and accompanying 918 Under Rule 1002(b)(4), SCI entities are the Commission to fulfill its oversight text. required to provide a copy of any information role. 917 The Commission notes that a notification disseminated pursuant to Rule 1002(c) by the SCI With regard to comments on the required pursuant to proposed Rule 1000(b)(4)(ii) entity to date regarding the SCI event to any of its required the SCI entity to provide information on members or participants. resource and efficiency demands of the 921 the ‘‘potential impact of the SCI event on the 919 See supra note 877. notification requirements, the market,’’ whereas adopted Rule 1002(b)(4)(ii)(A) 920 See supra note 878 and accompanying text. Commission believes that while SCI requires a description of ‘‘the SCI entity’s Specifically, this commenter noted that there could entities will need to devote resources to assessment of the impact of the SCI event on the be hundreds of communications between the SCI fulfilling the notification requirements, market.’’ Because adopted Rule 1002(b)(4) requires entity and its members or participants during a a final report upon resolution of an SCI event and systems incident and questioned the feasibility of, the Commission does not believe that the closure of the SCI entity’s investigation of the and need for, recreating and providing to the these resources will diminish SCI SCI event, the Commission believes it is appropriate Commission a copy of all such communications. entities’ ability to respond to SCI events that an SCI entity provide its assessment of the Further, the commenter noted that this requirement impact of the SCI event in the final report, rather could have an unintended effect of discouraging because it is the Commission’s than information on the SCI event’s potential open communication between the SCI entity and its impact. members. 921 See supra notes 790–793.

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experience that the staff that engages in oversight of U.S. securities market provide regular updates to members or corrective action is generally distinct infrastructure and foster cooperation participants on any of the information from the staff that has been charged between the Commission and SCI required to be disseminated under with notifying the Commission of entities in responding to SCI events. The proposed Rules 1000(b)(5)(i)(A) and systems issues. Consequently, the Commission also believes that the (i)(B). In the case of a systems intrusion, Commission does not believe that, due aggregated data that will result from the the proposed rule permitted a limited to this requirement, staff that engages in reporting of SCI events will enhance its delay in dissemination if the corrective action will be unable to fulfill ability to comprehensively analyze the dissemination would compromise the its responsibilities after implementation nature and types of various SCI events security of the SCI entity’s systems.929 of Regulation SCI. and identify more effectively areas of Except for the delay in dissemination of The Commission believes that persistent or recurring problems across information for systems intrusions in adopted Rules 1002(b)(1)–(4) are the systems of all SCI entities. Some specified circumstances, the proposed responsive to concerns that the commenters suggested that the rule did not distinguish dissemination proposed Commission notification Commission provide to SCI entities obligations based on the severity or requirements would have required SCI regular summary-level feedback on SCI impact of a dissemination SCI event. 927 entities to notify the Commission of entities’ notifications or provide ii. Comments Regarding Information information before all relevant facts are examples of the types of SCI events that Dissemination known.922 As discussed, in tandem with warrant notification.928 To the extent it the revised triggering standard, which believes that guidance or other Two commenters generally supported 930 affords an SCI entity time to assess information, including summary-level proposed Rule 1000(b)(5). One whether an SCI event has occurred,923 feedback, publications, or reference commenter characterized it as ‘‘one of 931 the adopted rule affords an SCI entity blueprints, would be appropriate to the major benefits of th[e] proposal.’’ the flexibility to gather information for share, the Commission or its staff may Another commenter suggested the 24-hour written notification on a do so in the future. broadening the proposal to require an good faith best, efforts basis,924 and SCI entity to reveal dissemination SCI d. Dissemination of Information—Rule adopted Rule 1002(b)(3) makes clear events to the public at large, and not just 1002(c) 932 that an SCI entity is required to update to its members or participants. This the Commission to correct any i. Proposed Rule 1000(b)(5) commenter believed that public materially inaccurate information dissemination of the facts of an SCI Proposed Rule 1000(b)(5) would have event would help enhance investor previously provided, or when pertinent required an SCI entity to provide confidence by preventing speculation new information is discovered, until specified information relating to and misinformation, and would provide such time as the SCI event is resolved, ‘‘dissemination SCI events’’ to SCI important learning opportunities for the and the SCI entity’s investigation of the entity members or participants. The industry and other SCI entities.933 SCI event is closed. Further, the final term ‘‘dissemination SCI event’’ was In contrast, many commenters urged report for a given SCI event is only proposed to mean an SCI event that is the Commission to revise the proposed required once, when both the SCI event a: (1) Systems compliance issue; (2) dissemination requirement.934 For is resolved and the SCI entity’s systems intrusion; or (3) systems example, a few commenters expressed investigation of the SCI event is closed, disruption that results, or the SCI entity concern that the proposal would require with an interim report required only reasonably estimates would result, in dissemination of too much information when an SCI event is not resolved or the significant harm or loss to market too soon.935 One of these commenters SCI entity’s investigation of the SCI participants. stated that the proposed rule would be event is not closed within 30 days of the Proposed Rule 1000(b)(5)(i)(A) would counterproductive and harmful because occurrence of the SCI event. Taken have required an SCI entity, promptly together, the Commission believes that after any responsible SCI personnel 929 See proposed Rule 1000(b)(5)(ii) (permitting a Rule 1002(b) does not require reporting becomes aware of a dissemination SCI delay in dissemination of information regarding a before all relevant fact are known, event other than a systems intrusion, to systems intrusion if ‘‘the SCI entity determines that dissemination of such information would likely which one commenter suggested would disseminate to its members or 925 compromise the security of the SCI entity’s SCI be counterproductive and harmful. participants the following information systems or SCI security systems, or an investigation Instead, the Commission believes that about such SCI event: (1) The systems of the systems intrusion, and documents the the rule is designed to provide SCI affected by the SCI event; and (2) a reasons for such determination’’). 930 entities with a process that gives them summary description of the SCI event. See Angel Letter at 5; and MFA Letter at 7. sufficient time to submit information to 931 See Angel Letter at 5. This commenter stated: Proposed Rule 1000(b)(5)(i)(B) would ‘‘Instead of keeping information about hardware the Commission when known. In have required an SCI entity to further failures, system intrusions, and software glitches addition, and in response to comment disseminate to its members or private, sharing the information will alert others in questioning the usefulness of the participants, when known: (1) A the industry about such problems and help to reduce system wide costs of diagnosing problems, notification requirement for the detailed description of the SCI event; (2) 926 as well as result in improved responses to Commission, the Commission the SCI entity’s current assessment of technology problems. These will serve as warnings believes that adopted Rule 1002(b) will the types and number of market to the other SCI entities to stay vigilant to prevent foster a system for comprehensive participants potentially affected by the similar problems from occurring on their platforms.’’ Angel Letter at 5. reporting of SCI events, which should SCI event; and (3) a description of the enhance the Commission’s review and 932 See MFA Letter at 7. progress of its corrective action for the 933 See id. SCI event and when the SCI event has 934 See, e.g., NYSE Letter at 28–29; FINRA Letter 922 See supra note 804 and accompanying text. been or is expected to be resolved. at 24; BATS Letter at 13; DTCC Letter at 11–12; OCC 923 See supra Section IV.B.3.a (discussing the Proposed Rule 1000(b)(5)(i)(C) would Letter at 16; CME Letter at 9–10; ICI Letter at 4; triggering standard). Oppenheimer Letter at 2; Direct Edge Letter at 8; 924 See supra discussion of ‘‘good faith, best have further required an SCI entity to Omgeo Letter at 21; ITG Letter at 13; and FIA PTG efforts’’ above. Letter at 3. 925 See supra note 804. 927 See supra note 806 and accompanying text. 935 See, e.g., DTCC Letter at 12, NYSE Letter at 29; 926 See supra note 793. 928 See supra note 807 and accompanying text. and ITG Letter at 13.

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it would cause the release of events and would have limited information only for material or information before all relevant facts are usefulness.943 Some of these significant systems compliance known and suggested dissemination commenters stated that the proposed issues.951 One of these commenters should only be required when the SCI approach would result in SCI entity stated that prompt dissemination of entity has credible information that can members and participants becoming information regarding systems be acted upon.936 Another commenter immunized to the notifications because compliance issues to members or suggested that dissemination should they would receive too many participants might lead to widespread only be required when the information notifications and therefore would not dissemination of extraneous and to be disseminated is certain and focus on the truly significant events.944 potentially inaccurate information.952 clear.937 Another commenter urged that, Several commenters suggested that Regarding systems intrusions, a few if immediate dissemination is required, the Commission apply the proposed commenters stated that dissemination of then the information required to be dissemination requirement to fewer systems intrusions information could disseminated should be limited to types of SCI events.945 For example, raise significant risks and security communication of the basic fact that several commenters stated that concerns.953 One commenter there is a systems issue and additional information dissemination should only recommended that a dissemination information will be provided when be required for material or significant requirement apply only in the case of known.938 SCI events.946 One commenter members, participants, or clients for Several commenters opposed suggested that, for an SCI event that is whom confidential data was disclosed, requiring information dissemination to ‘‘de minimis,’’ information processing was impacted, or where such all members and participants.939 For dissemination to members or member, participant, or client could example, some commenters urged that participants should not be required at take further action to mitigate the risk of an SCI entity be required to provide all.947 This commenter suggested that a such disclosure.954 This commenter also information only to members or de minimis SCI event would be one that expressed support for the limited participants actually impacted by an SCI is limited in impact, brief in duration, exception for intrusions that would event, or that interact with the SCI or involves little or no member or compromise an investigation or system impacted, rather than to all participant harm.948 Another resolution of the systems intrusion, members or participants of an SCI commenter noted that, as proposed, noting that once dissemination would entity.940 One commenter Commission notification would be no longer compromise an investigation recommended that an SCI entity be required for a systems disruption if the or the resolution of the issue, the entity required to disseminate information systems disruption had a ‘‘material should notify materially affected only to persons reasonably likely to be impact’’ on the SCI entity’s operations members, participants, or clients. affected by a significant systems or on market participants, whereas One commenter stated that issue.941 Two commenters stated that information dissemination to members information should not be disseminated SCI entities should have reasonable or participants would be required if an regarding disruptions in regulatory or discretion to determine who among SCI entity reasonably estimated that the surveillance systems, nor should their members and participants should systems disruption would result ‘‘in information be disseminated about receive notification of an SCI event, as significant harm or loss to market intrusions or compliance issues, arguing well as the manner and timing for participants.’’ 949 This commenter that the information could be misused, providing notice.942 A few commenters criticized the differing standards for or if disseminated too soon, could be 955 more broadly expressed concern that the Commission notification and member/ inaccurate and misleading. Two other proposed rule would result in over- participant notification and suggested commenters also expressed concern that reporting of information about SCI that the Commission clarify the information dissemination should not standards or adopt a uniform standard be required when the information 936 See ITG Letter at 13. See also supra note 804 for both types of notifications.950 provided might be misused to the and accompanying text. Several commenters specifically detriment of the markets or investors, 937 See DTCC Letter at 12. opposed the proposed dissemination such as with respect to systems 938 See NYSE Letter at 29 (stating also that the requirement for systems compliance intrusions or issues relating to scope of the information required to be provided is surveillance systems.956 too extensive, particularly given the timing issues. Some commenters urged that an requirements of the proposed rule). SCI entity be required to disseminate iii. Rule 1002(c) 939 See, e.g., MSRB Letter at 20–21; DTCC Letter at 11; CME Letter at 10; NYSE Letter at 28; FINRA In the SCI Proposal, the Commission 943 See, e.g., CME Letter at 9; FIA PTG Letter at Letter at 24–25; ISE Letter at 6–7; SIFMA Letter at 3; and Omgeo Letter at 39. See also Fidelity Letter stated that the intended purpose of the 15; and OCC Letter at 17. at 5 (requesting that the Commission provide proposed rule was twofold: To aid 940 See MSRB Letter at 20–21; DTCC Letter at 11; greater specificity regarding the types of members or participants of SCI entities CME Letter at 9; NYSE Letter at 28; FINRA Letter dissemination SCI events that must be disclosed at 25; and ISE Letter at 6–7. In addition, one of these and to whom disclosure must be made). commenters sought clarification on whether the 951 See, e.g., FINRA Letter at 24; Joint SROs Letter 944 See, e.g., Omgeo Letter at 40; FIA PTG Letter term ‘‘participant’’ refers to a formal participant or, at 9; SIFMA Letter at 12; BATS Letter at 13; MSRB at 3; and CME Letter at 9. more broadly speaking, any market participant that Letter at 6; and CME Letter at 10. 945 interacts with the SCI system in question. See See, e.g., NYSE Letter at 28; FIA PTG Letter 952 See Joint SROs Letter at 8. MSRB Letter at 20. See also Omgeo Letter at 21, and at 3; FINRA Letter at 24; BATS Letter at 13; OCC 953 See DTCC Letter at 11; and NYSE Letter at 29. infra note 954. Letter at 16–17; CME Letter at 9–10; ICI Letter at See also Direct Edge Letter at 3 (suggesting that, to 4; Oppenheimer Letter at 2; and Direct Edge Letter 941 See NYSE Letter at 28. ensure that sensitive information does not fall into at 8. 942 See SIFMA Letter at 15 (urging that an SCI the wrong hands, the Commission should require 946 See NYSE Letter at 28; FIA PTG Letter at 3; entity should have discretion to determine which reporting of systems intrusions to the Commission, FINRA Letter at 24; BATS Letter at 13; OCC Letter participants or members are affected and how to and only require public disclosure in instances at 16–17; CME Letter at 9–10; ICI Letter at 4; notify them); and OCC Letter at 17 (urging that an where there is a risk of significant harm to the SCI Oppenheimer Letter at 2; and Direct Edge Letter at SCI entity should be able to limit the entity’s customers). 8. 954 communication to those members and participants See Omgeo Letter at 21. 947 that are actually affected and to provide the See BATS Letter at 13. 955 See NYSE Letter at 29. See also supra note 935 communication on a confidential and secure basis 948 See id. and accompanying text. when the SCI entity has reasonable certainty of the 949 See OCC Letter at 16. 956 See ICI Letter at 4; and Oppenheimer Letter at information that is required to be provided). 950 See id. 2.

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in determining whether their trading requires an SCI entity to disseminate affected by the SCI event and make activity has been or might be impacted information to all of its members or appropriate decisions based on that by the occurrence of an SCI event at an participants. At the same time, as with determination.963 Adopted Rule SCI entity so that they could consider other SCI events, any SCI event that 1002(c)(1)(i) requires that the that information in making trading meets the definition of major SCI event information initially disseminated decisions, seeking corrective action or that has had, or the SCI entity include the systems affected by the SCI pursuing remedies, or taking other reasonably estimates would have, no or event and a summary description of the responsive action; and to provide an a de minimis impact on the SCI entity’s SCI event, and only after responsible incentive for SCI entities to devote more operations or on market participants is SCI personnel have a reasonable basis to resources and attention to improving the excepted from the information conclude that a systems disruption or integrity and compliance of their dissemination requirement.961 The systems compliance issue has occurred. systems and preventing the occurrence Commission believes the revised Implicit in this requirement is that the of SCI events.957 Although commenters approach will better achieve the disseminated information be accurate. generally did not object to the purpose of maximizing the utility of Without the dissemination of accurate Commission’s stated rationale for information disseminated to SCI entity information, the impact on the SCI proposed Rule 1000(b)(5), several members and participants while entity’s members or participants or the commenters suggested that the proposed simultaneously reducing compliance market may be more pronounced approach did not adequately consider burdens for SCI entities. because market participants may not recognize that an SCI event is occurring, circumstances in which the proposed Rule 1002(c)(1): Information or may mistakenly attribute unusual information dissemination might not be Dissemination for Systems Disruptions market activity to some other cause. helpful to the market or market and Systems Compliance Issues participants, or could be detrimental to Adopted Rule 1002(c)(1) also requires the markets or market participants. One Adopted Rule 1002(c)(1) generally that required information be 964 commenter, however, urged that public addresses dissemination requirements disseminated ‘‘promptly.’’ Although dissemination of information regarding for systems disruptions and systems the Commission agrees that SCI entities SCI events would help to prevent compliance issues. Rule 1002(c)(1)(i) should not prematurely disseminate speculation and misinformation requires an SCI entity, promptly after information regarding an SCI event, lest regarding such events.958 any responsible SCI personnel has a it be inaccurate, speculative, The Commission has carefully reasonable basis to conclude that an SCI misleading, or otherwise unhelpful, as considered the views of commenters event that is a systems disruption or some commenters were concerned 965 with respect to proposed Rule systems compliance issue has occurred, about, the Commission does not agree 1000(b)(5), and has determined to adopt to disseminate information about such with the commenter who suggested that it as Rule 1002(c), with several SCI event, unless an exception applies. information dissemination be provided When the dissemination obligation is at a time chosen by the SCI entity.966 modifications in response to comment. 962 In particular, the Commission has triggered, Rule 1002(c)(1)(i) requires The Commission believes that accurate determined to eliminate the definition an SCI entity to disseminate to the information that is timely is more likely of ‘‘dissemination SCI event’’ from the persons specified in Rule 1002(c)(3) to aid a market participant in final rule and adopt an information information on the system(s) affected by determining whether its trading activity dissemination requirement that scales the SCI event and a summary has been or might be impacted by the dissemination obligations in accordance description of the SCI event. Thereafter, occurrence of an SCI event than with the nature and severity of an SCI Rule 1002(c)(1)(ii) provides that, when accurate information that is delayed. event. In response to comment that the known, an SCI entity shall promptly However, as compared to Commission proposed rule would result in over- further disseminate: A detailed notification, which is required to be reporting of information about SCI description of the SCI event; the SCI provided immediately after an SCI events and have limited usefulness, the entity’s current assessment of the types entity has a reasonable basis to conclude Commission has further focused the rule and number of market participants that an SCI event has occurred, and from the proposal by requiring potentially affected by the SCI event; which notice may be provided orally, dissemination of information about SCI and a description of the progress of its dissemination of information to SCI events that are not major SCI events corrective action for the SCI event and entity members or participants is only to affected SCI entity members and when the SCI event has been or is required to be provided promptly. The participants, and excepting de minimis expected to be resolved. Rule requirement for prompt dissemination, SCI events and SCI events regarding 1002(c)(1)(iii) provides that, until as opposed to immediate dissemination, market regulation or market surveillance resolved, an SCI entity shall provide is designed to provide some limited systems from the information regular updates of any information flexibility to an SCI entity to determine required to be disseminated under Rules an efficient way to disseminate dissemination requirement.959 In the 1002(c)(1)(i) and (ii). The specified information to multiple potentially case of a ‘‘major SCI event,’’ the types of information and the update affected members or participants, or all Commission agrees with the commenter requirements are unchanged from the of its members or participants, as the who stated that requiring dissemination proposal. The Commission continues to case may be, in a timely manner. should help to prevent speculation and believe that, for the dissemination of Likewise, as new information becomes misinformation regarding such information to be meaningful, it is events.960 Therefore, in the case of a necessary for an SCI entity to describe 963 See Proposing Release, supra note 13, at ‘‘major SCI event,’’ the adopted rule the SCI event in sufficient detail to 18120. permit a member or participant to 964 The persons to whom the required information 957 See Proposing Release, supra note 13, at about systems disruptions and systems compliance 18120. determine whether and how it was issues is to be disseminated are specified in Rules 958 See supra note 933 and accompanying text. 1002(c)(3) and (4). 959 See supra notes 943–956 and accompanying 961 See Rule 1002(c)(4)(ii). 965 See also supra notes 935–938 and 933 and text. 962 See supra Section IV.B.3.a (discussing the accompanying text. 960 See supra note 933 and accompanying text. triggering standard). 966 See supra note 942 and accompanying text.

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known, immediate updates are not systems intrusion is less detailed than SCI entity that any responsible SCI required, but an SCI entity is obligated required for other types of SCI events. personnel has reasonably estimated may to also disseminate updated information These provisions are unchanged from have been affected by the SCI event, and ‘‘promptly’’ after it is known. The the SCI Proposal.970 As stated in the SCI promptly disseminated to any Commission believes that adopted Rule Proposal, the Commission continues to additional members or participants that 1002(c)(1) strikes an appropriate balance believe that there may be circumstances any responsible SCI personnel by requiring an SCI entity to in which the dissemination of subsequently reasonably estimates may disseminate specific information about information related to a systems have been affected by the SCI event. The SCI events, but also permits an SCI intrusion should be delayed to avoid rule further requires that, for major SCI entity to have time to check relevant compromising the investigation or events, such information shall be facts before disseminating that resolution of a systems intrusion.971 disseminated by the SCI entity to all of information. The Commission therefore Also, as stated in the SCI Proposal, the its members or participants. As noted, believes that adopted Rule 1002(c)(1) is affirmative documentation required by several commenters urged that an SCI responsive to comment that the Rule 1002(c)(2) is important to allow the entity be required to disseminate proposed rule would have required Commission to ensure that SCI entities information relating to an SCI event release of information too soon, before are not improperly invoking the limited only to those members or participants it is determined to be credible, or before exception provided by Rule affected by the SCI event.975 Some relevant facts were known.967 1002(c)(2).972 This delayed suggested that an SCI entity have dissemination provision permits an SCI discretion to determine who should Rule 1002(c)(2): Information entity to delay providing information receive information regarding SCI Dissemination for Systems Intrusions about an intrusion to its members or events,976 and one suggested that SCI Adopted Rule 1002(c)(2) requires an participants to protect legitimate events warrant public disclosure.977 SCI entity, promptly after any security concerns. However, under Rule Others expressed more general concern responsible SCI personnel has a 1002(c)(2), if an SCI entity cannot, or that the breadth of the proposed reasonable basis to conclude that an SCI can no longer, determine that dissemination requirement would result event that is a systems intrusion has information dissemination as required in over-reporting of information about occurred, to disseminate a summary by Rule 1002(c)(2) would likely SCI events because they believed that description of the systems intrusion, compromise the security of the SCI SCI entities would over-report out of an including a description of the corrective entity’s SCI systems or indirect SCI abundance of caution 978 or that SCI action taken by the SCI entity and when systems, or an investigation of the entity members and participants would the systems intrusion has been or is systems intrusion, no delay (or further become immunized to reports of SCI expected to be resolved, unless the SCI delay, if applicable) in dissemination is events and not focus on significant entity determines that dissemination of permitted.973 Pursuant to Rule events.979 such information would likely 1002(c)(2), information about a systems After careful consideration of the compromise the security of the SCI intrusion is required to be disseminated comments, the Commission believes entity’s SCI systems or indirect SCI eventually, as the Commission believes that, to maximize the utility of systems, or an investigation of the that circumstances permitting a delay information dissemination, a more systems intrusion, and documents the (i.e., dissemination of information tailored approach to who should receive reasons for such determination. This would likely compromise the security of information about an SCI event is rule applies to systems intrusions that the SCI entity’s SCI systems or indirect warranted, based on an SCI event’s are not de minimis events. In response SCI systems, or an investigation of the impact. Because information about an to commenters stating that information systems intrusion), will not continue SCI event is likely to be of greatest value about a systems intrusion in many cases indefinitely.974 to those market participants affected by will be sensitive and raise security it, who can use such information to Rule 1002(c)(3): To Whom Information evaluate the event’s impact on their concerns, and those urging that the Is To Be Disseminated dissemination requirement apply only trading and other activities and develop in limited cases,968 the Commission Adopted Rule 1002(c)(3) provides that an appropriate response, adopted Rule notes that, although it does not wholly the information required to be provided 1002(c)(3) requires prompt exclude systems intrusions from the under Rules 1002(c)(1) and (2) promptly dissemination to those members or dissemination requirement, the rule after any responsible SCI personnel has participants of the SCI entity that any permits a delay in dissemination of any a reasonable basis to conclude that an responsible SCI personnel has information about a systems intrusion if SCI event has occurred, shall be reasonably estimated may have been dissemination would compromise the promptly disseminated by the SCI entity affected by the SCI event. With respect security of the SCI entity’s SCI systems to those members or participants of the to more serious SCI events, however, the or indirect SCI systems, or an Commission believes that dissemination 970 investigation of the systems intrusion, The persons to whom the required information to all members or participants of an SCI about a systems intrusion is to be disseminated entity is warranted. Accordingly, under and the SCI entity documents the reason (provided the circumstances warranting a delay do for such determination.969 Adopted not apply) is specified in Rules 1002(c)(3) and (4). adopted Regulation SCI, certain SCI Rule 1002(c)(2) also provides that the 971 See Proposing Release, supra note 13, at events will be defined as ‘‘major SCI content of the required disclosure for a 18120. events.’’ 972 See id. Adopted Rule 1000 defines ‘‘major 973 See id. 967 SCI event’’ as ‘‘an SCI event that has See supra notes 935–938 and accompanying 974 Some commenters urged modifications to the text. proposed rule that would further circumscribe the 975 968 See, e.g., supra notes 953–954 and proposed dissemination requirement for systems See supra note 940 and accompanying text. 976 accompanying text. intrusions. See, e.g., supra notes 953–954 and See supra note 942 and accompanying text. 969 See Rule 1002(c)(4) (excepting de minimis accompanying text (urging that dissemination for 977 See supra notes 932–933 and accompanying systems intrusions and intrusions into market systems intrusions only be required for affected text. regulation or market surveillance systems from the persons and only if material). These comments are 978 See supra note 943 and accompanying text. dissemination requirement) and Rule 1001(c)(2) addressed in the discussion of adopted Rules 979 See supra notes 943–944 and accompanying (permitting a delay in dissemination). 1002(c)(3) and (4). text.

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had, or the SCI entity reasonably information about a systems issue to all The Commission believes that an SCI estimates would have: (1) Any impact of its members or participants (e.g., on entity is generally in the best position to on a critical SCI system; or (2) a the entity’s Web site), and that identify those of its members or significant impact on the SCI entity’s information has the potential to affect participants that are or are reasonably operations or on market participants.’’ the market and investors more broadly likely to be affected by such events. The Commission believes that (including market participants that may Under this approach, as commenters dissemination of information regarding not be members or participants of the urged, members or participants not a major SCI event to all members or SCI entity reporting the event), such reasonably estimated to be affected by participants of an SCI entity is information is routinely picked up by such events will not be the recipients of appropriate because major SCI events financial or other media outlets, and information likely to be irrelevant to are likely to impact a large number of also may be relayed to market them. The Commission believes that SCI market participants (e.g., with respect to participants for whom such information entities will be able to analyze which critical SCI systems, a disruption of is relevant (e.g., by members or members or participants are or consolidated market data or the participants of SCI entities to their own reasonably likely will be impacted, and clearance and settlement system, or an clients). Therefore, the Commission the rule requires SCI entities to event significantly impacting the believes that when information about a disseminate information to such operations of an exchange).980 As noted, systems issue with broad potential members or participants. The one commenter suggested broadening impact is disseminated to all of an SCI requirement that information is to be the proposed rule to generally require entity’s member or participants, such disseminated only to those members or an SCI entity to reveal dissemination dissemination is tantamount to public participants that any responsible SCI SCI events (other than intrusions) to the dissemination.982 As such, the personnel has reasonably estimated may public at large. This commenter Commission believes that it can achieve have been affected by the SCI event expressed the view that public the purposes of the rule without (other than a major SCI event or a de dissemination of the facts of an SCI requiring public dissemination, and minimis SCI event) addresses the event would help ‘‘enhance investor believes that any additional gain in concern raised by some commenters confidence by presenting the facts of the benefits from public dissemination that members and participants will SCI event, preventing speculation and would be minimal. Rule 1002(c)(3) does become immunized by receiving misinformation, and informing the not specify how an SCI entity is to irrelevant notifications 985 because, public of corrective action being taken’’ disseminate information to all of its under the adopted approach, members and would ‘‘serve as an important members or participants when required or participants should only receive collective learning opportunity’’ that to do so, but the Commission believes notifications relevant to them. would allow for ‘‘SCI [e]ntities and that posting the information on a Web Whereas the proposed rule would market participants [to] learn from [the site accessible to, at a minimum, all of have required dissemination of event] . . . and build upon their its member or participants (for example, information about certain SCI events to policies and controls as appropriate.’’ on a ‘‘systems status alerts’’ page) would all SCI entity members and participants, This commenter stated further that such meet the rule’s requirements.983 the adopted rule requires dissemination an ‘‘industry protocol would help For an SCI event that is neither a only to those members and participants strengthen and enhance the integrity major SCI event nor an event identified reasonably estimated to be affected by and security of our markets.’’ 981 The in Rule 1002(c)(4), however, the an SCI event (other than a major SCI Commission agrees with this commenter information specified in Rule 1002(c)(1) event or a de minimis SCI event). that it is appropriate for an SCI entity to or (2), as applicable, is required to be Because it is possible that an SCI present the facts, prevent speculation disseminated by the SCI entity to those entity’s reasonable estimate of members and misinformation, and provide members or participants of the SCI or participants affected may change as transparency about corrective action entity that any responsible SCI an SCI event unfolds, the adopted rule being taken when the impact of an SCI personnel has reasonably estimated may also requires prompt dissemination of event is most likely to be felt by many have been affected by the SCI event.984 information to newly identified market participants (i.e., when it is a members or participants reasonably major SCI event). In the context of a 982 The Commission notes that one commenter estimated to be affected by an SCI major SCI event, the Commission referred to the dissemination provision in the SCI event.986 This provision reflects the Proposal as the ‘‘public dissemination provision of believes these goals can be achieved by Proposed Reg SCI.’’ See NYSE Letter at 28. See also view that newly identified affected requiring an SCI entity to disseminate ICI Letter at 4 and Oppenheimer Letter at 4 (each members or participants should receive information to all of its members or supporting ‘‘transparency of SCI events to members prompt dissemination of information participants (as opposed to the ‘‘public and participants of an SCI entity’’ but about an SCI event, just as those recommending that the Commission only require at large’’). Moreover, the Commission ‘‘public dissemination’’ where such information originally identified as affected believes it is appropriate to require enhances investor protection). members or participants. Although dissemination of information on major 983 The Commission notes that, irrespective of the compliance with this requirement may SCI events to all of the SCI entity’s medium chosen to disseminate information to the result in an SCI entity disseminating SCI entity members or participants, the SCI entity information at several different times to members or participants because these would also be required to submit the disseminated market participants are the most likely information to the Commission as part of the report to act on this information. Based on the submitted pursuant to Rule 1002(b)(4). See supra MSRB, but does not include ‘‘a member of the experience of the Commission and its Section IV.B.3.c. Board,’’ which is the definition of ‘‘member’’ in 984 MSRB Rule D–5. staff, when an entity disseminates In response to the commenter seeking clarification on whether the term ‘‘participant’’ 985 See supra notes 944 and 952 and refers to a formal participant or, more broadly accompanying text. 980 At the same time, the Commission recognizes speaking, any market participant that interacts with 986 Rule 1002(c)(1) requires that, among other that some SCI events that meet the definition of the SCI system in question (see supra note 940), for things, the SCI entity must disseminate the SCI ‘‘major SCI event’’ could also qualify as de minimis purposes of adopted Rule 1002, the term entity’s current assessment of the types and number SCI events. Like other de minimis SCI events, they ‘‘participant’’ refers to a formal participant. The of market participants potentially affected by the are excepted from the information dissemination Commission also notes that, with respect to the SCI event, and until resolved, provide regular requirement. See Rule 1002(c)(4). MSRB, the term ‘‘members’’ as used in Regulation updates of this and any other information required 981 See supra notes 932–933. SCI includes entities that are registered with the to be disseminated under the rule.

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different members and participants, Information about an SCI event that their affiliates under other federal consistent with commenters’ impacts other SCI systems would still be securities laws or regulations. suggestions, the Commission believes required to be disseminated in Accordingly, in the case of an SCI event, that this requirement is appropriately accordance with Rule 1002(c) even if SCI entities or their affiliates subject to tailored to result in information that same SCI event also impacts market the public company reporting dissemination being provided to the regulation or market surveillance requirements of Section 13 or Section relevant members or participants of an systems. 15(d) of the Exchange Act would need SCI entity.987 The exception in Rule 1002(c)(4)(ii) to comply with their disclosure If an SCI event is a de minimis for de minimis SCI events is consistent obligations pursuant to those provisions event—i.e., is an SCI event that has had, with the Commission’s approach to (including, for example, with respect to or the SCI entity reasonably estimates excluding de minimis SCI events from Regulation S–K and Forms 10–K, 10–Q, would have, no or a de minimis impact the immediate Commission notification and 8–K) in addition to their disclosure on the SCI entity’s operations or on requirements in Rule 1002(b), and is and reporting obligations under market participants—the adopted rule therefore responsive to comment that Regulation SCI.994 In addition, the does not impose any dissemination notification and dissemination of Commission also wishes to highlight requirement.988 systems disruptions were subject to that the requirements of Rule 1002(c) differing standards under the Adopted Rule 1002(c)(4): Exceptions to address to whom and when SCI entities proposal,990 as well as to the comment the General Rules on Information are obligated under Regulation SCI to that a de minimis SCI event should not Dissemination disseminate information. Subject to any be subject to dissemination.991 With applicable laws or regulations, SCI Adopted Rule 1002(c)(4) provides that respect to the comment that entities still retain the flexibility to the requirements of Rules 1002(c)(1)–(3) dissemination should only be required disseminate information—e.g., to their shall not apply to: (i) SCI events to the for material or significant SCI events,992 members or participants, the public, or extent they relate to market regulation while the Commission is not limiting market participants that interact with or market surveillance systems; or (ii) the dissemination requirement as the affected SCI systems—at any time any SCI event that has had, or the SCI suggested by these commenters, the they determine to be appropriate. entity reasonably estimates would have, exception for de minimis SCI events is no or a de minimis impact on the SCI responsive to this comment, to an 4. Notification of Systems Changes— entity’s operations or on market extent. Moreover, the Commission Rule 1003(a) participants. The Commission has believes that a materiality threshold a. Proposed Definition of Material added the exception in adopted Rule would likely exclude from the Systems Change, Proposed Rules 1002(c)(4)(i) in response to comments information dissemination requirement 1000(b)(6) and (b)(8)(ii) that information should not be a large number of SCI events that are not Proposed Rule 1000(a) would have disseminated regarding disruptions in de minimis SCI events, but that an SCI defined the term ‘‘material systems regulation and surveillance systems, entity’s members or participants should change’’ as a change to one or more: (1) because dissemination of such be made aware of so that they can SCI systems of an SCI entity that: (i) information to an SCI entity’s members quickly assess the nature and scope of Materially affects the existing capacity, or participants or the public at large those SCI events and identify the integrity, resiliency, availability, or could encourage prohibited market appropriate response, including ways to security of such systems; (ii) relies upon activity.989 The Commission notes that mitigate the impact of the SCI events. materially new or different technology; the exception for market regulation or The Commission also believes that, even (iii) provides a new material service or market surveillance systems is limited without adopting a materiality material function; or (iv) otherwise to dissemination of information about threshold, the adopted definitions of materially affects the operations of the SCI events related to market regulation SCI systems and indirect SCI systems SCI entity; or (2) SCI security systems of or market surveillance systems. significantly focus the scope of the an SCI entity that materially affects the Commission dissemination 987 The Commission notes that an SCI entity existing security of such systems. In the requirements from the SCI Proposal. SCI Proposal, the Commission set forth would be in compliance with the rule if it Consistent with its statements in the disseminated the required information to all examples that it preliminarily believed members or participants, rather than disseminating SCI Proposal, the Commission notes that could be included within the proposed only to those members and participants it the requirements relating to definition of material systems reasonably initially estimated to be affected by the dissemination of information in change.995 event (which might require subsequent Regulation SCI relate solely to dissemination(s) to additional members or 993 participants if its estimate regarding those members Regulation SCI. Nothing in adopted 994 As an additional example, nothing in adopted or participants that were affected by a given SCI Regulation SCI should be construed as Regulation SCI should be construed as superseding event changes over time). superseding, altering, or affecting the any obligations under Regulation FD. SCI entities 988 See discussion of adopted Rule 1002(c)(4) reporting obligations of SCI entities or may also wish to consider staff guidance on this below (excepting, among other things, de minimis topic. See CF Disclosure Guidance: Topic No. 2, systems SCI events from the dissemination Cybersecurity (October 13, 2011), available at: requirement). See also supra Section IV.B.3.c 990 See supra notes 949–950 and accompanying http://www.sec.gov/divisions/corpfin/guidance/ (discussing Rule 1002(b)(5), which requires that, for text. cfguidance-topic2.htm. de minimis SCI events, an SCI entity is required to: 991 See supra notes 947–948 and accompanying 995 These examples included: Major systems (i) Make, keep, and preserve records relating to all text; Section IV.B.3.c (discussing Rule 1002(b)) and architecture changes; reconfiguration of systems such SCI events; and (ii) submit to the Commission supra note 988 and accompanying text. The that would cause a variation greater than five a report, within 30 calendar days after the end of Commission notes that, because major SCI events percent in throughput or storage; the introduction each calendar quarter, containing a summary are a subset of SCI events, the exception in Rule of new business functions or services; changes to description of such systems disruptions and 1002(c)(4)(ii) also applies to major SCI events that external interfaces; changes that could increase systems intrusions, including the SCI systems and, meet the requirements of that rule. susceptibility to major outages; changes that could for systems intrusions, indirect SCI systems, 992 See supra note 946 and accompanying text; increase risks to data security; changes that were, affected by such systems disruptions and systems see also supra notes 941 and 944 and accompanying or would be, reported to or referred to the entity’s intrusions during the applicable calendar quarter). text. board of directors, a body performing a function 989 See supra notes 955–956 and accompanying 993 See Proposing Release, supra note 13, at similar to the board of directors, or senior text. 18119, n. 235. management; and changes that could require

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Proposed Rule 1000(b)(6)(i) would one commenter believed that the Some commenters also noted that have required an SCI entity, absent Commission significantly Regulation ATS already requires an ATS exigent circumstances, to notify the underestimated the number of material to report material changes to the Commission in writing at least 30 systems changes, and suggested that the operation of the ATS at least 20 calendar days before implementation of proposal might require reporting of as calendar days prior to their any planned material systems changes, many as 60 material systems changes implementation.1003 One of these including a description of the planned per week, rather than that same amount commenters noted that it is common for material systems changes as well as the per year, as the Commission estimated an ATS to finalize the systems expected dates of commencement and in the SCI Proposal.997 Some specifications for a change close to completion of implementation of such commenters stated that many SCI when the ATS wants to go live with the changes. If exigent circumstances entities implement frequent agile change, but the ATS must wait 20 days existed, or if the information previously modifications rather than major before implementation, and provided to the Commission regarding episodic or ‘‘waterfall’’ changes, and occasionally the questions from any planned material systems change therefore viewed the proposed 30-day Commission staff can further delay had become materially inaccurate, advance notification requirement as implementation.1004 This commenter proposed Rule 1000(b)(6)(ii) would have favoring a model that employs waterfall expressed concern that Regulation SCI required the SCI entity to notify the changes over agile changes.998 Several would lengthen the notification Commission, either orally or in writing, commenters stated more broadly that requirement to 30 calendar days and with any oral notification to be the proposed requirement would broaden the requirement to include any memorialized within 24 hours after mandate constant reporting that would such oral notification by a written stifle innovation, interfere with an SCI significant systems change, not just a notification, as early as reasonably entity’s natural planning and material change to the operation of the 1005 practicable. A written notification to the development process, and potentially ATS. Commission made pursuant to proposed do more harm than good by curtailing The Commission continues to believe Rule 1000(b)(6) would have been an SCI entity’s ability to respond to that it is important to receive required to be made electronically on systems issues with appropriate fixes.999 notifications of planned and Form SCI and include all information as Several commenters also expressed implemented material changes to SCI prescribed in Form SCI and the concern that the burden of reporting systems or the security of indirect SCI instructions thereto. would incentivize an SCI entity to systems in connection with its oversight Proposed Rule 1000(b)(8)(ii) would change its systems less often instead of of U.S. securities market have required each SCI entity to submit making smaller and more frequent infrastructure.1006 However, after to the Commission a report, within 30 iterative systems adjustments, which considering the views of commenters calendar days after the end of June and they believed would be inconsistent regarding the 30-day advance December of each year, containing a with current software best practices, notification requirement, the summary description of the progress of curtail innovation, and expose their Commission is instead adopting a any material systems change during the systems to increased risk.1000 One quarterly reporting requirement, which six month period ending on June 30 or commenter questioned the purpose of will permit the Commission and its staff December 31, as the case may be, and the proposed requirement, stating that to have up-to-date information regarding the date, or expected date, of the Commission has not presented any an SCI entity’s systems development completion of implementation of such empirical evidence that major or progress and plans, to aid in changes. A written notification to the material technology changes by SCI understanding the operations and Commission made pursuant to proposed entities are in fact the leading cause of functionality of the systems and any Rule 1000(b)(8)(ii) would have been market disruption, and that non- material changes thereto, without required to be made electronically on material systems changes by SCI entities requiring SCI entities to submit a Form SCI and include all information as and non-SCI entities have a high notification to the Commission for each prescribed in Form SCI and the likelihood of causing market instructions thereto. disruptions, but they are not captured 1003 by the proposal.1001 At the same time, See BIDS Letter at 14; and ITG Letter at 8. b. Quarterly and Supplemental Material 1004 See ITG Letter at 8. this commenter stated that providing Systems Change Reports—Rule 1003(a) 1005 See id. 30-day advance notification of these 1006 See Proposing Release, supra note 13, at i. Adopted Rule 1003(a)(1): Quarterly non-material systems changes would 18122, 18144. As noted above, one commenter Material Systems Change Reports hamstring SCI entities.1002 argued that the Commission has not presented any empirical evidence that major or material Many commenters viewed the technology changes by SCI entities are in fact the 997 See BATS Letter at 14. See also NYSE Letter proposed 30-day advance notification leading cause of market disruption, and that non- at 26; and ISE Letter at 8 (stating that the proposal material systems changes have a high likelihood of requirement for material systems would require reporting of too many routine causing market disruptions. See supra note 1001 changes as burdensome.996 For example, changes), and infra discussion of the definition of and accompanying text. The Commission notes that material systems change. the primary purpose of Rule 1003(a) is not to 998 allocation or use of significant resources. See See KCG Letter at 19; FIF Letter at 5; UBS prevent market disruptions. Rather, it is to keep the Proposing Release, supra note 13, at 18105–06. Letter at 4; and ITG Letter at 8. ‘‘Agile’’ software Commission and its staff informed of the systems These examples were cited in the 2001 Staff ARP development, which involves smaller, more changes that SCI entities determine to be material, Interpretive Letter. The Commission also stated its frequent changes in software code, is contrasted which will assist the Commission with its oversight with the ‘‘waterfall’’ methodology, which involves preliminary belief that any systems change of U.S. securities market infrastructure. While the larger, episodic software overhauls. occurring as a result of the discovery of an actual Commission acknowledges that non-material 999 or potential systems compliance issue would be See KCG Letter at 19; FIF Letter at 5; UBS systems changes could cause market disruptions, material. See id. Letter at 4; BATS Letter at 14; and ITG Letter at 8. the Commission agrees with this commenter that 996 See, e.g., NYSE Letter at 26; BATS Letter at 14; See also SunGard Letter at 3. requiring Commission notification of all systems ISE Letter at 8; BIDS Letter at 14; UBS Letter at 3– 1000 See KCG Letter at 19; FIF Letter at 5; UBS changes would be burdensome. See supra note 1002 4; SIFMA Letter at 15; ITG Letter at 8 and 13; FIF Letter at 4; BATS Letter at 14; and ITG Letter at 8. and accompanying text (noting this commenter’s Letter at 5; MFA Letter at 5–6; CME Letter at 11; See also SIFMA Letter at 16. view that providing 30-day advance notification of FINRA Letter at 27; Joint SROs Letter at 7; and OTC 1001 See SunGard Letter at 3. non-material systems changes would hamstring SCI Markets Letter at 20. 1002 See id. entities).

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material systems change.1007 notifying the Commission in order to One commenter expressed concern Specifically, Rule 1003(a)(1) requires an implement a material systems change. that the proposed exception for exigent SCI entity, within 30 calendar days after Therefore, the adopted rule is circumstances was too narrow.1013 the end of each calendar quarter, to responsive to commenters who stated Because adopted Rule 1003(a)(1) submit to the Commission a report that the proposed rule would stifle requires quarterly reports of material describing completed, ongoing, and innovation, interfere with an entity’s systems changes rather than 30-day planned material systems changes to its planning and development process, and advance notification of each material SCI systems and security of indirect SCI expose SCI entities’ systems to risk. systems change, the Commission is not systems, during the prior, current, and Moreover, the Commission believes that adopting the proposed ‘‘exigent subsequent calendar quarters, including elimination of the proposed 30-day circumstances’’ exception. Specifically, the dates or expected dates of advance notification requirement is the Commission notes that the purpose commencement and completion.1008 responsive to commenters’ concern that of the exception was to accommodate The Commission believes that ATSs are already required to report situations where it would not be elimination of the 30-day advance material changes to the operation of the prudent or desirable for an SCI entity to notification requirement for material ATSs at least 20 calendar days prior to delay a systems change simply to systems changes is responsive to implementation, and that proposed provide 30-day advance notification of commenters who were concerned that Regulation SCI would extend the the change. At the same time, the the proposed approach was unsuited to advance notification period to 30 Commission notes that, because Rule the agile systems development calendar days.1010 1003(a)(1) requires in part a description methodology that some SCI entities use The Commission also believes that of completed, ongoing, and planned today. In particular, an SCI entity will adopting the quarterly reporting material systems changes during the have the ability to implement material requirement instead of the 30-day prior and current calendar quarters, an systems changes without having to advance notification requirement SCI entity’s quarterly report will be individually report each material lessens SCI entities’ burden of required to include a description of all systems change to the Commission 30 compliance as compared to the material changes to its SCI systems or days in advance, which commenters proposal.1011 For example, rather than the security of its indirect SCI systems, noted could lead SCI entities to favor submitting a Form SCI for each material including those that have been the waterfall methodology of systems systems change, an SCI entity is now implemented in response to exigent changes over the agile methodology.1009 required to submit four reports each circumstances during the prior and The Commission also believes that the year pursuant to Rule 1003(a)(1) and, as current calendar quarters. adopted quarterly reporting requirement applicable, supplemental reports Several commenters suggested provides more flexibility to SCI entities pursuant to Rule 1003(a)(2). To the possible alternatives to the proposed with respect to the timing of extent certain material systems changes requirements related to material systems implementing material systems changes. are related or similar, an SCI entity will changes. Some commenters suggested In particular, SCI entities will not be not be required to separately notify the eliminating the proposed advance required to wait 30 calendar days after Commission of each change. Instead, the notification requirement for material SCI entity can describe such related systems changes.1014 One of these 1007 As discussed in more detail below, the changes within the single quarterly commenters explained that information Commission is also not adopting the proposed report. The Commission also believes regarding material systems changes definition of material systems change or the would be available to the Commission proposed semi-annual reporting requirement. that this quarterly report process will 1008 Using the quarter ending December 31, 2014 provide the Commission and its staff during an inspection, but stated that, if as an example, an SCI entity would be required to with a more efficient framework to an advance notification requirement is submit a report by January 30, 2015 (i.e., within 30 review material systems changes that adopted, it should be folded into the calendar days after December 31, 2014) that are described in the larger context proposed semi-annual reporting describes material systems changes that the SCI requirement.1015 Another commenter entity has made (including the dates when those afforded by such periodic reports, rather changes commenced and were completed), are than parsing every submission that similarly urged that the Commission currently implementing (including the dates when reports a material systems change.1012 require only semi-annual reporting of those changes commenced and are expected to be material systems changes, as proposed completed), and plan to make (including the dates in Rule 1000(b)(8).1016 One commenter those changes are expected to commence and 1010 The Commission notes that the adoption of complete) for the period from October 1, 2014 (the Rule 1003(a) does not affect an SCI ATS’s existing supported the reporting of material beginning of the prior calendar quarter) through obligation under Rule 301(b)(2)(ii) of Regulation systems changes in the annual SCI June 30, 2015 (the end of the subsequent calendar ATS to file amendments on Form ATS at least 20 review report.1017 One commenter quarter). The next report that corresponds to the calendar days prior to implementing material believed that information related to quarter ending March 31, 2015 would be required change to the operation of the ATS. Therefore, with to be submitted by April 30, 2015. As discussed in respect to a material systems change, an SCI ATS systems changes should be reported more detail below, Rule 1003(a)(2) requires an SCI may be required to describe such change in a periodically.1018 Another commenter entity to promptly submit a supplemental report quarterly report under Rule 1003(a) and submit an noted that if the Commission retains the notifying the Commission of a material error in or amendment to Form ATS. 30-day advance notification material omission from a report previously 1011 See supra notes 996–997 and accompanying submitted under Rule 1003(a)(1). text. requirement, it should be limited to 1009 At the same time, because systems changes 1012 The Commission acknowledges that some material systems changes of only higher utilizing the waterfall methodology are often systems changes deployed by an SCI entity may not priority SCI systems and that planned well in advance, these systems changes by themselves be considered material by the SCI would generally be included in the quarterly report, entity, but that, in the aggregate, can be considered 1013 See BATS Letter at 15. as Rule 1003(a) requires the quarterly report to material by the SCI entity (e.g., making a series of 1014 See MFA Letter at 7 and ITG Letter at 13–14. describe, among other things, planned material small systems changes over time in order to See also Joint SROs Letter at 8 (stating that material systems changes during the subsequent calendar implement a broad systems change). The systems changes should be reported in a periodic, quarter. However, this requirement of Rule 1003(a) Commission believes that the adopted quarterly post-hoc basis, as was required under ARP). is not limited to planned material systems changes reporting requirement is better suited to capture 1015 utilizing the waterfall methodology, but also would such changes than the proposed 30-day advance See MFA Letter at 7. apply to planned material systems changes utilizing notification requirement (i.e., 30-day advance 1016 See Direct Edge Letter at 8. other development methodologies, including the notification for each single systems change that is 1017 See CME Letter at 11. agile methodology. by itself considered material by the SCI entity). 1018 See NYSE Letter at 27.

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notifications of changes to lower agree with the commenters who consistent with the practice of some criticality systems could be provided at suggested that the Commission entities under the ARP Inspection the time of the change or completely eliminate the advance Program.1031 periodically.1019 notification requirements. The The Commission does not agree with Some commenters suggested that the Commission believes that advance the commenter who suggested that Commission provide more flexibility notifications of planned material Regulation SCI should only require SCI and allow SCI entities more time to systems changes will help ensure that entities to keep records of all systems report material systems changes.1020 the Commission has up-to-date changes and make that information One commenter supported giving SCI information regarding important future available to the Commission upon entities discretion to determine the systems changes at an SCI entity, to aid request.1032 Similarly, the Commission appropriate timing and format for in its understanding of the operations does not agree with commenters who reporting changes to the Commission, and functionality of the systems post- suggested that SCI entities be given and stated that the current practice change.1026 As adopted, Rule 1003(a)(1) discretion to determine the timing of the under ARP to submit quarterly reports requires an SCI entity to provide the reports.1033 The Commission believes that cover changes for the previous and Commission with advance notification that quarterly reporting of material upcoming quarters has proven effective of planned material systems changes in systems changes will help ensure that in keeping the Commission staff the current and subsequent quarters the Commission has, on an ongoing apprised of planned and completed through the quarterly reports. As noted basis, a comprehensive view and up-to- systems changes.1021 above, after considering the views of date information regarding material One commenter suggested that SCI commenters, the Commission is not systems changes at an SCI entity. entities be required to keep records of adopting the proposed 30-day advance With respect to the commenter who all systems changes and technical notification requirement for each suggested that all 30-day advance issues, and make that information material systems change. material systems change notifications available to the Commission upon The Commission is also not adopting should be provided orally, and request.1022 If the Commission decides commenters’ suggestion that material submitted in writing only after the to retain the notification requirement, systems changes be reported semi- changes are fully tested and this commenter recommended that it be annually or annually.1027 As noted in implemented,1034 the Commission notes satisfied through periodic (ideally, the SCI Proposal, proposed Rule that it is not adopting the proposed 30- quarterly) reporting of material systems 1000(b)(8)(ii) required semi-annual day advance notification requirement changes.1023 One commenter believed reports because the proposal would for material systems changes. the Commission should allow all 30-day have separately required information With respect to the commenter who advance notifications regarding pending relating to each planned material suggested giving SCI entities discretion material systems changes to be systems change to be submitted at least to determine the format for reporting communicated orally, and only 30 calendar days before its changes to the Commission,1035 the submitted in writing after development implementation.1028 Thus, in the SCI Commission notes that Rule 1003(a) and testing is completed and the feature Proposal, the Commission stated its does not prescribe a specific style that is finalized.1024 preliminary view that requiring ongoing the quarterly reports should take. The The Commission believes that the summary reports more frequently would Commission intends for the quarterly adopted quarterly reporting requirement not be necessary.1029 At the same time, report to allow the Commission and its is responsive to commenters who the Commission expressed the concern staff to gain a sufficient level of requested additional flexibility or time that a longer period of time would understanding of the material systems for material systems change permit significant updates and changes that have been implemented, notifications, as well as to commenters milestones relating to systems changes are on-going, and are planned for the who suggested that such notices be to occur without notice to the future, which would aid the submitted on a periodic or quarterly Commission.1030 Because the Commission and its staff in 1025 basis. The Commission does not Commission is not adopting the 30-day understanding the operations and advance notification requirement, the functionality of the systems of an SCI 1019 See SIFMA Letter at 15. Commission believes that it is entity and any changes to such systems. 1020 See NYSE Letter at 27; FINRA Letter at 27; appropriate to require more frequent and MSRB Letter at 22. See also CME Letter at 11 In particular, the Commission notes that (stating ‘‘instead of setting firm time limits under reports of material systems changes than Rule 1003(a)(1) only specifically which an entity is required to submit notifications on a semi-annual basis. Further, as requires the quarterly reports to of material systems changes under Rule 1000(b)(6), noted above, some commenters ‘‘describe’’ the material systems changes the Commission should instead simply require suggested quarterly reports, which is ‘timely advance notice of all material planned and the dates or expected dates of their changes to SCI systems that may impact the commencement and completion. reliability, security, or adequate scalable capacity of systems changes, the adopted approach is Therefore, Rule 1003(a)(1) gives each such systems’’’). responsive to a commenter’s suggestion that 1021 See FINRA Letter at 27. notifications of changes to lower criticality systems 1031 See supra notes 1021, 1023 and 1022 See OTC Markets Letter at 20. could be provided at the time of the change or periodically. See supra note 1019 and accompanying text. 1023 See id. This commenter also noted that this accompanying text. 1032 would allow for the elimination of proposed Rule See supra note 1022 and accompanying text. 1026 1000(b)(6)(ii), which required notices for material The Commission acknowledges that there As discussed above, this commenter also stated inaccuracies in prior notifications. See OTC may occasionally be unexpected material systems that, if the Commission decides to retain the Markets Letter at 20–22. According to this changes that are not reported to the Commission in notification requirement for material systems commenter, quarterly updates would disclose advance, but expects that material systems changes changes, the Commission should require periodic material deviations from plans described in a generally will be planned well in advance and (ideally, quarterly) reporting. See supra note 1023 previous report, whether stemming from reported in the quarterly report accordingly. and accompanying text. Adopted Rule 1003(a)(1) is inaccuracies in prior reports or new information 1027 See supra notes 1015–1017 and consistent with this commenter’s alternative that prompts beneficial deviations from a systems accompanying text. suggestion. implementation plan. See id. 1028 See Proposing Release, supra note 13, at 1033 See supra note 1021 and accompanying text. 1024 See Omgeo Letter at 22. 18124. See also supra note 1020. 1025 Because the Commission is only adopting a 1029 See id. 1034 See supra note 1024 and accompanying text. quarterly reporting requirement for material 1030 See id. 1035 See supra note 1021 and accompanying text.

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SCI entity reasonable flexibility in with 30 days’ advance notification of the rules of an SCI SRO. Therefore, determining precisely how to describe the material systems changes).1040 This technical information regarding systems its material systems changes in the commenter also noted that where a changes is usually not set forth in rule report in a manner that best suits the material systems change would be filed filings. In addition, the Commission needs of that SCI entity as well as the for approval under Section 19(b)(2) of notes that the rule filing process and the needs of the Commission and its the Exchange Act, the Section 19(b)(2) material systems change reports serve staff.1036 In addition, to the extent the approval process provides the different purposes. In particular, the Commission seeks additional Commission sufficient notification of material systems change reports are information about a given change noted the systems change.1041 One commenter intended to inform the Commission and in a quarterly report, an SCI entity stated that proposed Rule 1000(b)(6) its staff of important technical changes would be required to provide was improperly premised on the notion to an SCI entity’s systems. On the other Commission staff with such information that the Commission should be hand, the rule filing process provides in accordance with Rule 1005 responsible for a minutely-detailed notice of changes to an SCI entity’s (Recordkeeping Requirements Related to understanding of the IT infrastructure of rules, including, for example, the Compliance with Regulation SCI).1037 SCI entities and for assessing statutory basis for such changes, and in The Commission also notes that the prospective changes in advance of their some cases seeks approval by the quarterly reports are required to include implementation.1042 Commission of the rule changes. descriptions of material systems The Commission disagrees with Therefore, if an SCI SRO submits a rule changes during the prior calendar commenters who believed that material filing regarding a particular systems quarter that were completed, ongoing, or systems change reports are redundant change and the change is also included planned. Therefore, if a report for the given the rule filing requirements of in a material systems change report, the first quarter of a given year discusses the Rule 19b–4 under the Exchange Act, or information included in the rule filing SCI entity’s plan to implement a that material systems change reports may not necessarily further the goal of particular series of material changes to should not be required if the SCI entity the material systems change reporting an SCI system, Rule 1003(a)(1) requires submitted certain types of rule filings requirement, and the information that, in the report for the second quarter regarding the same change.1043 The included in the material systems change of that year, the SCI entity describe the Commission acknowledges that some report may not necessarily assist in the material systems changes that were systems changes require proposed rule Commission’s review of the rule filing. completed, ongoing, and planned in the changes under Rule 19b–4, and some Moreover, commenters’ concern first quarter, including the planned Rule 19b–4 proposed rule changes result regarding the redundancy between the changes discussed in the prior quarter’s in systems changes. However, based on rule filing process and the material report, as applicable. Commission staff’s experience with the systems change reports stemmed from Several commenters expressed ARP Inspection Program and the rule concerns regarding the 30-day advance concern that the proposed 30-day filing process, the Commission believes notification requirement. As discussed advance notification requirement would that the type of information regarding above, the Commission is not adopting potentially give the Commission new systems changes included in rule filings a 30-day advance notification authority to ‘‘reject’’ a Form SCI filing is different from the type of information requirement. describing material systems changes, that will be included in reports on The Commission also reiterates that similar to the way the Commission may material systems changes. In particular, the material systems change reports are reject an improperly filed proposed rule the technical details or specifications of intended to inform the Commission and change pursuant to Rule 19b–4 under SCI systems and indirect SCI systems its staff of such changes and help the the Exchange Act.1038 Three are generally not specifically set forth in Commission in its oversight of U.S. commenters requested that the securities market infrastructure. Commission clarify how proposed Rule 1040 See MSRB Letter at 22. Regulation SCI does not provide for a 1041 See MSRB Letter at 22. This commenter also 1000(b)(6) would relate to Rule 19b–4, suggested that material systems changes (other than new approval process for SCI entities’ suggesting that there may be those filed pursuant to Rule 19b–4 under the material systems changes. As such, unnecessary redundancy between the Exchange Act) be reported semi-annually, or that de Commission staff will not use material two processes.1039 Another commenter minimis changes be excepted from the notice systems change reports to require any requirement altogether if the Commission continues suggested limiting the types of changes to require 30-day advance notification. See MSRB approval of prospective systems changes that would require 30-day advance Letter at 22–23. As discussed above, the in advance of their implementation notification to those changes that are Commission is adopting a quarterly reporting pursuant to any provision of Regulation already required to be filed with the requirement for systems changes that an SCI entity SCI,1044 or to delay implementation of determines to be material. Commission as proposed rule changes 1042 See Direct Edge Letter at 1, 8. See also ITG material systems changes pursuant to for immediate effectiveness under Letter at 13–14 (stating that the Exchange Act does any provision of Regulation SCI.1045 Section 19(b)(3)(A) of the Exchange Act not enable the Commission to ‘‘bootstrap its SRO Three commenters questioned the (excluding those filings that would not rule review authority or its national market system Commission’s legal authority to adopt authority to force regulated entities to submit become operative for 30 days after the upcoming material systems changes for agency the proposed material systems change date of the filing because those filings approval’’ and that ‘‘the Commission need only notification requirements, including, in would already provide the Commission receive notifications when they are a significant particular, those set forth in proposed part of proposed rule changes by SROs or Rule 1000(b)(6).1046 For the reasons amendments to Form ATS of material changes to 1036 See also Omgeo Letter at 43 (requesting that the operation of the ATS’’). the Commission specify in the final rule the 1044 1043 See supra notes 1039–1041 and See supra note 1042 and accompanying text. required content for a planned material systems 1045 accompanying text. The Commission notes that the See supra note 1038 and accompanying text. change notification). requirement under Regulation SCI to submit reports 1046 See NYSE Letter at 4 (stating the belief that 1037 See infra Section IV.C. of material systems changes does not alter an SRO’s ‘‘[a]uthority to facilitate a national market or assure 1038 See Omgeo Letter at 23; and SIFMA Letter at obligation to file proposed rule changes, the economically efficient execution of securities 16. See Section 19(b) of the Exchange Act, 15 U.S.C. obligation of participants of an SCI Plan to file a transaction is remote from close, minute regulation 78s(b). proposed amendment to such SCI Plan, or any other of computer systems and computer security’’); ITG 1039 See KCG Letter at 19; Joint SROs Letter at 8; obligation any SCI entity may have under the Letter at 13 (stating the belief that the proposed and FIF Letter at 5. Exchange Act or rules thereunder. notification requirement for material systems

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discussed above in Section IV.B.3.c, the advocated for creating a risk-based to its SCI systems and the security of Commission disagrees with these definition whereby, for example, indirect SCI systems as material and to comments and believes that adopted notifications are only required for those report to the Commission those changes Rule 1003(a) will assist the Commission material systems changes that pose a the SCI entity identified as material in in its oversight of U.S. securities market risk to critical operations of an accordance with such criteria. This infrastructure consistent with its legal entity.1051 One commenter suggested change is responsive to a commenter’s authority under the Exchange Act. that the requirement focus on SCI suggestion that SCI entities should be In light of the 30-day advance systems only.1052 One commenter stated granted flexibility to establish notification requirement in proposed that SCI entities should be afforded reasonable standards for determining Rule 1000(b)(6), some commenters flexibility to establish reasonable whether a systems change is material. In suggested eliminating the semi-annual standards for defining material systems addition, the Commission does not reporting requirement in proposed Rule changes for their systems.1053 believe that it is appropriate to adopt a 1000(b)(8)(ii) because they considered it Several commenters sought guidance precise definition for the term ‘‘material duplicative and unnecessary.1047 One from the Commission on the materiality systems change’’ because SCI entities commenter believed that the required threshold, which commenters believed differ in nature, size, technology, semi-annual reporting requirement was was unclear, explaining, for example, business model, and other aspects of excessive and should instead be that the term ‘‘material’’ appears both in their businesses. The Commission notes incorporated into the annual reporting the term ‘‘material systems change’’ and that there currently is no industry obligations in proposed Rule in the definition of that term.1054 definition of ‘‘material systems change’’ 1000(b)(8)(i).1048 As discussed above, Similarly, several commenters requested that is applicable to all SCI entities that the Commission is adopting a quarterly that the Commission provide more can serve as the basis for a precise reporting requirement under Rule guidance on the meaning of ‘‘material’’ definition of the term ‘‘material systems 1003(a)(1) and is not adopting the in the context of systems changes change’’ in Regulation SCI, and believes proposed 30-day advance notification because, although the wording of the that whether a systems change is requirement. Therefore, the Commission proposed definition contained the material is dependent on the facts and is not adopting the requirement in concept of ‘‘materiality,’’ the circumstances, such as the reason for proposed Rule 1000(b)(8)(ii) for semi- commenters believed some of the the change and how it may impact annual progress reports. examples provided in the SCI Proposal operations. Moreover, requiring SCI 1055 ii. Definition of Material Systems to be non-material. One commenter entities to establish their own Change asked that the Commission clearly reasonable criteria for identifying define what types of systems changes material systems changes reflects the Commenters generally opposed the are not subject to the prior notification Commission’s view that an SCI entity is proposed definition of material systems requirement in order to avoid receiving change. Many commenters stated their in the best position to determine, in the notices of all systems changes, material first instance, whether a change, or belief that the term was too broad and or otherwise.1056 One commenter asked would therefore necessitate an excessive series of changes, is material in the that the Commission clarify the meaning context of its systems. Because adopted number of notifications of material of ‘‘material’’ and confirm that prior systems changes.1049 Some commenters Rule 1003(a)(1) allows each SCI entity to notification would not be required for identify material systems changes, it is believed that the definition should be changes that do not pertain to the revised and offered a variety of responsive to commenters’ concern that production environment.1057 suggestions.1050 Several commenters the proposed definition was too broad Rather than adopting a detailed and would result in an excessive definition of material systems change as changes ‘‘would extend the SEC’s reach far beyond number of notifications, and to that of a securities regulator and instead enable it proposed, Rule 1003(a)(1) requires an commenters’ suggestion that the to regulate the IT process of marketplace SCI entity to establish reasonable definition should be revised. participants’’ and that the Exchange Act does not written criteria for identifying a change enable the Commission to ‘‘bootstrap its SRO rule Further, the Commission’s review authority or its national market system determination to not adopt the proposed than reporting to ‘‘senior management’’); BIDS authority to force regulated entities to submit Letter at 14–15 (stating its belief that the definition of material systems change upcoming material systems changes for agency mitigates commenters’ concern that the approval’’); and KCG Letter at 19 (stating the belief Commission should define a ‘‘material systems that ‘‘[t]he Commission does not have authority to change’’ to be a large-scale architectural upgrade, proposed definition was unclear. In stop implementation of systems changes by ATSs the implementation of industry-wide rules or other particular, by eliminating the proposed market structure changes, or other technology or systems changes that exchanges are not required definition of material systems change, to submit under Section 19(b) of the Exchange changes that may be required because of changes in Act’’). trading rules defined in the exchange’s or the ATS’s the Commission seeks to eliminate the trading rule book); and FIF Letter at 5 1047 See Omgeo Letter at 24–25; and OCC Letter confusion caused by the proposed (recommending that the term be defined to include at 16. definition of this term, which contained significant functional enhancements, major 1048 See CME Letter at 11. technology infrastructure changes, or changes the word ‘‘material.’’ Moreover, some 1049 See, e.g., BATS Letter at 14; MFA Letter at requiring member/participant notifications). commenters requested additional clarity 6; ICI Letter at 4; BIDS Letter at 14; Liquidnet Letter 1051 See, e.g., OCC Letter at 15; DTCC Letter at 16; on the definition of material systems at 3; FINRA Letter at 24–26; MSRB Letter at 22; Liquidnet Letter at 3; MFA Letter at 6; ICI Letter at change because they believed that some NYSE Letter at 26–27; Joint SROs Letter at 7; CME 4; CME Letter at 5; and Direct Edge at 4. Letter at 5; Oppenheimer Letter at 3; OTC Markets of the examples the Commission 1052 See NYSE Letter at 27. Letter at 20–21; and Direct Edge Letter at 3. 1053 See FINRA Letter at 27. provided in the SCI Proposal were not 1050 See, e.g., BATS Letter at 14–15 1054 material systems changes. Because (recommending that only those material systems See Direct Edge Letter at 3–4; OCC Letter at changes that are reported to an SCI entity’s board 15; and NYSE Letter at 26. adopted Rule 1003(a)(1) requires SCI of directors or similar body should be required to 1055 See, e.g., Joint SROs Letter at 7; DTCC Letter entities to establish reasonable written be reported to the Commission, which BATS stated at 15–16; Omgeo Letter at 23; OCC Letter at 15; criteria for identifying material systems is the standard it uses currently for the ARP FINRA Letter at 27; OTC Markets Letter at 20–21; changes, SCI entities will not be Inspection Program); OCC Letter at 15 (stating that BIDS Letter at 14; Direct Edge Letter at 3–4; and ISE the reporting of systems changes to the board of Letter at 8. See also supra note 1050. required to identify material systems directors, or to a similar governing body, is a more 1056 See KCG Letter at 20. changes in accordance with the detailed appropriate standard for determining materiality 1057 See SIFMA Letter at 15–16. definition and examples from the SCI

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Proposal. Rather, an SCI entity will have that Rule 1003(a)(1) provides that each requirement applies only if the error or reasonable discretion in establishing the SCI entity establish its own reasonable omission in a prior report is material. written criteria in order to capture the criteria for identifying a change to the 5. SCI Review—Rule 1003(b) systems changes that it believes are security of its indirect SCI systems as material. Specifically, the Commission material. Therefore, to the extent that an Proposed Rule 1000(b)(7) required an believes that adopted Rule 1003(a) is SCI entity determines that certain SCI entity to conduct an SCI review of sufficiently flexible to allow each SCI changes to the security of its indirect the SCI entity’s compliance with entity to identify changes that it believes SCI systems are not material in Regulation SCI not less than once each are material, which may include some accordance with its reasonable written calendar year, and submit a report of the of the suggestions identified by the criteria, such changes are not required SCI review to senior management of the commenters if an SCI entity determines to be reported to the Commission. SCI entity no more than 30 calendar such changes to be appropriate to As with an SCI entity’s other policies days after completion of such SCI include in its criteria for identifying and procedures under Regulation SCI, review.1060 Further, proposed Rule material systems changes. For example, Commission staff may review an SCI 1000(b)(8)(i) required an SCI entity to if an SCI entity reasonably believes that entity’s established criteria relating to submit to the Commission a report of its systems changes are material if they the materiality of a systems change (e.g., the SCI review required by paragraph involve significant functional in the course of an examination) to (b)(7), together with any response by enhancements, major technology determine whether it agrees with the senior management, within 60 calendar infrastructure changes, or changes SCI entity’s assessment that such days after its submission to senior requiring member/participant criteria is reasonable and in compliance management of the SCI entity.1061 notifications, and such criteria is set with the requirements of Rule 1003(a). Proposed Rule 1000(a) defined the forth in the SCI entity’s reasonable The Commission believes that, by term ‘‘SCI review’’ to mean a review, written criteria, the SCI entity may providing SCI entities flexibility in following established procedures and identify material systems changes in establishing the criteria and reviewing standards, that is performed by objective accordance with such written criteria. SCI entities’ established criteria, it personnel having appropriate Likewise, if an SCI entity reasonably strikes the proper balance between experience in conducting reviews of SCI believes that some of the examples of granting discretion to SCI entities and systems and SCI security systems, and material systems changes identified in ensuring that SCI entities carry out their which review contains: (1) A risk the SCI Proposal can appropriately serve obligations under Regulation SCI. assessment with respect to such systems as criteria for identifying material of the SCI entity; and (2) an assessment systems changes, and such criteria is set iii. Adopted Rule 1003(a)(2): of internal control design and forth in the SCI entity’s reasonable Supplemental Material Systems Change effectiveness to include logical and written criteria, the SCI entity may Reports physical security controls, development identify material systems changes in A commenter who advocated for a processes, and information technology accordance with such written criteria. quarterly reporting requirement noted governance, consistent with industry 1062 In response to a commenter’s that quarterly updates would disclose standards. In addition, the proposed suggestion that the Commission clearly material deviations from plans definition provided that such review define what types of systems changes described in a previous report, must include penetration test reviews of are not subject to the prior notification including those stemming from the SCI entity’s network, firewalls, and requirement in order to avoid inaccuracies in prior reports.1058 production systems at a frequency of not 1063 notification of all systems changes, Another commenter similarly noted that less than once every three years. material or otherwise, the Commission periodic reporting of any inaccuracies is The Commission is adopting the notes that Rule 1003(a)(1) specifically sufficient for oversight purposes.1059 provisions relating to SCI reviews with requires SCI entities to identify material The Commission believes that there may modifications in response to comment. systems changes and report only be circumstances in which an SCI entity In addition, the Commission is adopting material systems changes. With respect realizes that information previously a definition of ‘‘senior management’’ in to a commenter’s question regarding provided to the Commission in a Rule 1000 for purposes of the SCI whether prior notification would be quarterly report was materially review requirement. required for changes that do not pertain inaccurate or that the quarterly report Some commenters expressed support to the production environment, the omitted material information. The for the proposed requirements for SCI 1064 Commission notes that SCI systems do Commission believes that it should, on reviews, with a few advocating that not include development and testing an ongoing basis, have complete and the SCI review be conducted by an systems, although indirect SCI systems correct information regarding material independent third party, rather than 1065 could include development and testing systems changes at an SCI entity, rather ‘‘objective personnel.’’ One systems if they are not walled-off from than waiting until the next quarterly commenter noted that it agreed that SCI systems. Therefore, Rule 1003(a) report to receive corrected information, annual SCI reviews and reports can could apply to material changes to the as suggested by these commenters. The have a meaningful impact on improving security of development and testing Commission is therefore adopting Rule systems that are not walled-off from SCI 1003(a)(2), which requires an SCI entity 1060 See proposed Rule 1000(b)(7) and Proposing Release, supra note 13, at Section III.C.5. systems. Finally, with respect to a to promptly submit a supplemental 1061 See proposed Rule 1000(b)(8)(i) and commenter’s suggestion that Rule report to notify the Commission of a Proposing Release, supra note 13, at Section III.C.6. 1003(a) focus only on SCI systems, the material error in or material omission 1062 See proposed Rule 1000(a) and Proposing Commission believes that notifications from a report previously submitted Release, supra note 13, at Section III.C.5. of material systems changes regarding under Rule 1003(a)(1). The Commission 1063 See id. the security of indirect SCI systems is notes that the supplemental report 1064 See, e.g., MSRB Letter at 23; Lauer Letter at 5; Better Markets Letter at 5; and Direct Edge Letter important to the Commission’s oversight at 9. of U.S. securities market infrastructure. 1058 See OTC Markets Letter at 22. 1065 See Lauer Letter at 5; Better Markets Letter at At the same time, the Commission notes 1059 See NYSE Letter at 28. 5; and BlackRock Letter at 4.

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technology and business practices.1066 place to mitigate such conflicts or to as a practical matter, an SCI entity may Another commenter expressed support help ensure that certain departments determine that, to comply with these for proposed Rule 1000(b)(7), but asked and/or specified personnel (such as requirements, it is necessary to conduct for clarification that any review of a internal audit departments) are separate assessments and analysis for processor under an NMS plan be appropriately insulated from such each capacity of the SCI entity, because performed independently of reviews of conflicts so as to be able to objectively the standards used, risk assessments, the same entity in other capacities (e.g., conduct SCI reviews.1071 applicable policies and procedures, and as an exchange or other SCI entity).1067 Accordingly, the Commission believes assessment of internal control design With regard to the suggestion that the that the goals of Regulation SCI can be and effectiveness are different with Commission adopt a requirement that achieved through reviews by either regard to the distinct and differing SCI reviews be conducted by an internal objective personnel or external functions of the SCI entity in each independent third party rather than objective personnel. Taking into capacity. For example, an entity that ‘‘objective personnel’’ as proposed,1068 consideration the advantages and meets both the definition of an SCI SRO the Commission continues to believe disadvantages associated with each and a plan processor may determine that it is appropriate to permit SCI approach, each SCI entity should make that it is necessary to conduct separate reviews to be performed by personnel of its own determination regarding the reviews for each function performed, the SCI entity or an external firm, levels of review or assurance that can be because, for instance, the findings of a provided that such personnel are, in provided by different personnel, the risk assessment determine that certain fact, objective and, as required by rule, best means to ensure their objectivity, SCI systems fall into the category of have the appropriate experience to and whether it is appropriate to incur ‘‘critical SCI systems’’ with regard to the conduct reviews of SCI systems and the additional costs of an independent functions of the plan processor, but not indirect SCI systems. Experienced third party review. An SCI entity may, with regard to the functions of the SRO. personnel should have the knowledge for example, determine that it is At the same time, the Commission notes and skills necessary to conduct such appropriate to utilize personnel not that, even where separate reviews are reviews. In the SCI Proposal, the employed by the SCI entity (i.e., third conducted, there may be certain overlap Commission noted that to satisfy the parties) to conduct such review each in conducting such reviews (for criterion that an SCI review be year or only on a less frequent, periodic example, the entity may use the same conducted by ‘‘objective personnel,’’ it basis (e.g., every three years), or only objective reviewer for each function should be performed by persons who with regard to certain of its systems. In performed), such reviews may be have not been involved in the addition, with regard to one conducted at the same time, and a single development, testing, or commenter’s suggestion that an SCI SCI review report may contain findings implementation of such systems being review should be performed for each capacity. reviewed.1069 The Commission independently for each capacity in While other commenters also continues to believe that persons who which an SCI entity acts, the supported some form of review, many of were not involved in the process for Commission notes that the definition of these commenters stated that the term development, testing, and SCI review and provisions of Rule SCI review is defined too broadly and/ implementation of the systems being 1003(b) require that an SCI entity or that the SCI review requirements reviewed would generally be in a better perform a review, following established should allow more flexibility.1072 Some position to identify weaknesses and procedures and standards, for commenters expressed concerns about deficiencies that were not identified in compliance with Regulation SCI that the need to review all systems on an the development, testing, and includes a risk assessment of the SCI annual basis, which they argued could implementation stages. The Commission entity’s SCI systems and indirect SCI be costly, burdensome, and believes that, given the requirement that systems and an assessment of internal unnecessary.1073 Several commenters such personnel be ‘‘objective,’’ any control design and effectiveness of such suggested the adoption of a risk-based personnel with conflicts of interest that systems and does not require an SCI approach for determining the scope of have not been adequately mitigated to entity that serves in two different the review, which would entail allow for objectivity should be excluded capacities with respect to Regulation conducting a risk assessment to from serving in this role. In particular, SCI to conduct two independent SCI determine which systems should be the Commission believes that a person reviews. The Commission believes that, reviewed and how often.1074 Under or persons conducting an SCI review such an approach, the highest risk should not have a conflict of interest 1071 For example, the Commission believes that systems would be reviewed more that interferes with their ability to many entities implement a reporting structure pursuant to which internal audit employees or frequently than other, less critical exercise judgment, express opinions, systems, which could be reviewed less and present recommendations with departments report directly to the board of directors or an audit committee of the board. The frequently than annually or on a impartiality. While the Commission Commission notes that, while utilizing external rotational basis. Similarly, one recognizes that, as one commenter personnel (i.e., third parties) to conduct an SCI asserted, all personnel of an SCI entity entity’s SCI review generally would not raise the 1072 See, e.g., FINRA Letter at 39–41; Omgeo could be viewed as having some level of same concerns regarding objectivity, the SCI entity would likewise need to mitigate any conflicts of Letter at 23–24; OCC Letter at 19; NYSE Letter at 1070 conflict of interest, the Commission interest that would prevent such personnel from 35; SIFMA Letter at 17; DTCC Letter at 16–17. believes that SCI entities can have meeting the objectivity standard required for an SCI 1073 See, e.g., FINRA Letter at 39–41; Omgeo appropriate policies and procedures in review. For example, among the factors an SCI Letter at 23–24; OCC Letter at 19; NYSE Letter at entity may consider in evaluating the objectivity of 35; DTCC Letter at 16–17; and BIDS Letter at 11. a third party review could be who within the SCI 1074 See, e.g., FINRA Letter at 39–41; OCC Letter 1066 See FIF Letter at 6 (expressing support for the entity is managing the third party review, is setting at 19; NYSE Letter at 35; SIFMA Letter at 17; DTCC SCI review requirement while also providing the scope of review, is authorizing payment for Letter at 16–17; LiquidPoint Letter at 3; and Omgeo suggestions for modifications to the rule). such review, and has the authority to review and Letter at 24. One commenter noted that the 1067 See Direct Edge Letter at 9. comment on the third party report, among others. proposed SCI review requirement essentially 1068 See supra note 1065 and accompanying text. Further, an SCI entity may consider the third eliminated the ability to utilize its current risk 1069 See Proposing Release, supra note 13, at party’s ability to remain objective in light of any assessment approach to determine the frequency of 18123. other services provided by the third party to the SCI review for each system (ranging from annually to 1070 See Better Markets Letter at 5. entity. once every four years). See FINRA Letter at 40.

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commenter recommended that SCI inflexibility of the proposed rule and recognition of the potentially significant reviews should be focused only on those the recommendation that the proposed costs that may be associated with the core systems capable of having a rule utilize a more risk-based approach, performance of such tests.1080 However, material impact on members or the adopted rule is being revised to consistent with modifications to the participants, and ‘‘adjacent’’ systems allow assessments of SCI systems definition of SCI systems, references to should not be subject to the review directly supporting market regulation or development and test systems have been process.1075 market surveillance to be conducted, deleted in adopted Rule After considering the views of based upon a risk-assessment, at least 1003(b)(1)(i).1081 The Commission notes commenters, the Commission has once every three years, rather than that SCI entities may, however, determined to adopt the provisions annually.1079 SCI entities would be determine that based on its risk relating to SCI reviews with required to determine the specific assessment, it is appropriate and/or modifications in response to frequency with which to conduct necessary to conduct such penetration comment.1076 Thus, adopted Rule assessments of these systems depending test reviews more frequently than once 1003(b) requires an SCI entity to on the risk assessment that they conduct every three years. conduct an SCI review of the SCI as part of the annual SCI review, The Commission is not, however, entity’s compliance with Regulation SCI provided that these systems are assessed adopting a broader risk-based approach not less than once each calendar at least once every three years. The to determine the required frequency of year.1077 However, the Commission Commission believes that market an SCI review (i.e., for SCI systems other notes that, because it has revised the regulation and market surveillance than market regulation and market scope of the definition of ‘‘SCI systems’’ systems have the potential to pose less surveillance systems), as suggested by as described above, fewer systems of risk to an entity or the market than other some commenters.1082 The Commission each SCI entity will be subject to the SCI SCI systems. While the Commission believes that a critical element to review, thereby focusing the overall believes that these systems are essential ensuring the capacity, integrity, scope of the SCI review requirement.1078 to investor protection and market resiliency, and availability of SCI Further, to address some commenters’ integrity and that they can pose a systems and indirect SCI systems is concerns about the burdens and significant risk to the markets in the conducting an annual objective review event of a systems issue, the to assess the risks of an SCI entity’s 1075 See FIF Letter at 6. Commission also believes that certain systems and the effectiveness of its 1076 See adopted Rule 1003(b). However, the market regulation and market internal information technology controls Commission is moving the clause regarding and procedures. Such reviews will not penetration test reviews from the definition of SCI surveillance systems may not have as review into Rule 1003(b), which addresses the immediate or widespread of an impact only assist the Commission in timing of reviews. Further, the adopted definition on the maintenance of fair and orderly improving its oversight of the of SCI review will require that the objective markets or an entity’s operational technology infrastructure of SCI entities, reviewer have ‘‘appropriate experience to conduct but also each SCI entity in assessing the reviews’’ rather than ‘‘appropriate experience in capability as the other categories of conducting reviews’’ as proposed. The Commission systems included within the definition effectiveness of its information believes this revision is appropriate given that, of SCI systems. While a systems issue technology practices, helping to ensure prior to the adoption of Regulation SCI today, no affecting a trading system could result compliance with the safeguards individual or entity would have experience in provided by the requirements of conducting the specific SCI reviews required by in the immediate inability of a market, Rule 1003(b). Rather, the Commission believes that and thus market participants, to Regulation SCI, identifying potential there are individuals or entities that have continue trading on such system and areas of weakness that require experience in conducting reviews, audits, and/or potentially impact trading on other additional or modified controls, and testing similar to the functions that would be determining where to best devote necessary to address certain aspects of the SCI markets as well, the Commission review requirement, and thus, the objective believes that the temporary disruption resources. Further, the Commission reviewer should have this type of appropriate or failure of a SCI entity’s market believes that the competitive experience that would allow them to conduct SCI regulation and/or market surveillance environment of today’s securities reviews in accordance with the requirements of Regulation SCI. Thus, as adopted, the term ‘‘SCI systems in the wake of a wide-scale markets drives SCI entities to review’’ means ‘‘a review, following established disruption would likely not have as continually update, modify, and procedures and standards, that is performed by direct an impact on market participants’ introduce new technology and systems, objective personnel having appropriate experience ability to continue to trade. Thus, after often in an effort to meet specific to conduct reviews of SCI systems and indirect SCI systems, and which review contains: (1) A risk considering commenters’ views business needs and achieve ‘‘quick-to- assessment with respect to such systems of an SCI regarding the costs and burdens of the market’’ results, potentially without entity; and (2) An assessment of internal control proposed SCI review requirements, as design and effectiveness of its SCI systems and well as the suggestion that the 1080 As noted by some commenters, penetration indirect SCI systems to include logical and physical Commission incorporate more of a risk- tests are highly technical and would require special security controls, development processes, and expertise, and thus the Commission believes such information technology governance, consistent with based approach in Regulation SCI, the testing could potentially require substantial costs. industry standards.’’ See Rule 1000. Further, the Commission believes that a longer See, e.g., DTCC Letter at 17; and Omgeo Letter at Commission is moving the requirement relating to frequency of review of these systems 44. See also infra Sections V.D.2.d and VI.C.2.b.vi reports to the Commission on SCI reviews from (discussing estimated costs associated with the SCI proposed Rule 1000(b)(8) into Rule 1003(b) so that may be appropriate in cases where the review requirement, which takes into consideration all provisions regarding SCI reviews are in the same risk assessment conducted as part of the the costs of penetration testing) and Proposing rule. SCI review results in such a Release, supra note 13, at 18123 (stating that the 1077 See adopted Rule 1003(b)(1). determination. The Commission also Commission seeks to balance the frequency of such 1078 The Commission also notes that it has notes that, as originally proposed the tests with the costs associated with performing the clarified that the definition of ‘‘indirect SCI tests). As noted in the SCI Proposal, the systems’’ includes only those systems that have not rule would have required penetration Commission believes that the penetration test been effectively logically or physically separated test reviews of the SCI entity’s network, reviews should help an SCI entity evaluate the from SCI systems. Thus, the scope of the SCI review firewalls and development, testing, and system’s security and resiliency in the face of attempted and successful intrusions. See id. is also more focused than what some commenters production systems at a frequency of not may have believed. It is also further focused by the 1081 See supra Section IV.A.2.b (discussing elimination of references to development and test less than once every three years in elimination of development and test systems from systems from the penetration test requirement in the definition of SCI systems). adopted in Rule 1003(b)(1)(i). 1079 See adopted Rule 1003(b)(1)(ii). 1082 See supra note 1074 and accompanying text.

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adequate focus on ensuring the assessment of internal control design methodology and vulnerability continuous integrity of its systems. In and effectiveness to include logical and assessment; (2) be performed on a addition, given today’s fast-paced nature physical security controls, development cyclical basis by competent and of technological advancement, existing processes, and information technology independent audit personnel following controls can quickly become obsolete or governance, consistent with industry established audit procedures and ineffective and the relative criticality or standards 1088 and performing standards; and (3) result in the risk nature of a system can change over penetration test reviews at least once presentation of a report to senior SRO time as well.1083 Further, as one every three years.1089 management on the recommendations commenter noted, it is not uncommon Some commenters sought clarification and conclusions of the independent for entities to experience repeated on various aspects of the SCI review reviewer, which report should be made unsuccessful attempts to gain access to requirement. One commenter stated that available to Commission staff for its their systems,1084 which the the term SCI review, as proposed, review and comment.’’ 1096 Similar to Commission believes can expose certain expanded significantly on what is (1) above, the definition of SCI review vulnerabilities not identified previously required under ARP and asked for requires the review to contain an and, if successful, also create new greater specificity as to the objectives assessment of internal control design vulnerabilities and risk. For these and intended scope of the SCI and effectiveness of its SCI systems and reasons, the Commission believes that it review.1090 This commenter suggested, indirect SCI systems to include logical is appropriate to require an SCI entity to as an alternative, that the Commission and physical security controls, conduct an SCI review of its applicable establish an ‘‘agreed upon procedures’’ development processes, and information systems not less than once every 12 approach, which would involve technology governance, consistent with months.1085 outlining specific SCI review objectives industry standards. Consistent with Further, the Commission notes that, and procedures that would be element (2), an SCI review must be as described in detail above, Regulation performed by an objective reviewer.1091 performed by objective personnel SCI is consistent with a risk-based One commenter also requested that the having appropriate experience to approach in several areas, and thus, a Commission clarify whether there is a conduct reviews of SCI systems and risk assessment is appropriate in order distinction between the existing ARP indirect SCI systems and must be to determine the standards and report and the SCI review and whether performed following established requirements applicable to a given SCI the ARP practice of on-site inspections procedures and standards. Finally, like 1092 system. As such, the Commission would be eliminated. item (3), Rule 1003(b)(2)–(3) requires believes that it is appropriate to require With regard to the comment seeking SCI entities to submit a report of the SCI SCI entities to conduct a risk-based clarity on the scope of the review as review to senior management after assessment with regard to its SCI compared to what is done under the 1093 completion of the review, and following systems and indirect SCI systems as part current ARP Inspection Program, as submission to senior management, to of its SCI review at least annually to noted in the SCI Proposal, the submit a report of the SCI review to the help ensure that SCI entities are meeting requirement for an annual SCI review Commission, along with any response the requirements of Regulation SCI.1086 was intended to formalize a practice in by senior management. Senior For the reasons noted above, the place under the current ARP Inspection management, after reviewing the report, Commission believes it is appropriate to Program in which SROs conduct annual should note, in addition to any other require that SCI reviews be conducted at systems reviews following established response that may be made, any least annually, rather than utilizing a audit procedures and standards that material inaccuracy or omission that, to risk-based approach to determine the result in the presentation of a report to their knowledge, is in the report. In this frequency of the required SCI senior SRO management on the regard, the Commission recognizes that review.1087 At the same time, the recommendations and conclusions of 1094 senior managers, by virtue of their Commission notes that this provision is the review. Specifically, the ARP positions and experience, may have consistent with a risk-based approach in Policy Statements called for each SRO differing levels of knowledge regarding that SCI entities may design the scope to have its automated systems reviewed their entity’s SCI systems and indirect and rigor of the SCI review for a annually by an ‘‘independent 1095 SCI systems and compliance with particular system based on its risk reviewer’’ and stated that Regulation SCI. assessment of such system, provided independent reviews and analysis While the SCI review requirement in that the review meets the requirements should: ‘‘(1) Cover significant elements Rule 1003 is based on the ARP review of the rule, such as including an of the operations of the automation and report, a greater number of process, including the capacity planning automated systems meeting the 1083 In addition, the Commission believes changes and testing process, contingency definition of SCI system or indirect SCI in personnel with access to SCI systems throughout planning, systems development the year can create additional risk that should be system would be subject to the SCI considered in evaluating the risks of any particular 1088 review requirements because the scope system. See adopted Rule 1000 (definition of ‘‘SCI review’’). of Regulation SCI expands upon the 1084 See SIFMA Letter at 11. 1089 See adopted Rule 1003(b)(1)(i). current ARP Inspection Program. The 1085 The Commission notes that, while the rule 1090 requires that an SCI review be conducted ‘‘not less See FINRA Letter at 39–40. Commission notes that the SCI review is than once each calendar year,’’ an SCI entity may 1091 See id. at 40. not a substitute for inspections and determine that it is appropriate to conduct an 1092 See OCC Letter at 19. assessment of an SCI system more frequently, 1093 See supra note 1092 and accompanying text. 1096 See ARP II, supra note 1, at 22491. In ARP particularly for critical SCI systems. See adopted See also supra note 1090 and accompanying text. II, the Commission also explained that, in its view, Rule 1003(b)(1). 1094 See Proposing Release, supra note 13, at ‘‘a critical element to the success of the capacity 1086 See adopted Rule 1003(b) and Rule 1000 18123. planning and testing, security assessment and (definition of ‘‘SCI review’’). 1095 See ARP I, supra note 1, at 48706–07. ARP contingency planning processes for [automated] 1087 However, as discussed above, an SCI entity I provided that an ‘‘independent reviewer’’ could be systems is obtaining an objective review of those may conduct an SCI review of its market regulation either an internal auditor group or an external audit planning processes by persons independent of the and market surveillance systems based upon its risk firm so long as the independent reviewer had the planning process to ensure that adequate controls assessment of such systems, but not less than once competence, knowledge, consistency, and and procedures have been developed and every three years. See adopted Rule 1003(b)(1)(ii). independence sufficient to perform the role. implemented.’’ Id.

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examinations conducted by Commission such reports to senior management to ensure that senior management staff, and therefore SCI entities should would be more appropriate as a target receives and reviews reports of SCI expect that technology systems timeframe given the complexity of the reviews, is made aware of issues relating inspections and examinations will issues addressed in an SCI review, and to compliance with Regulation SCI, and continue following the adoption of that should this target fail to be met, the is encouraged to promptly establish Regulation SCI. Along with notifications Board of Directors Audit Committee (or plans for resolving such issues. of material systems changes under similar governing body) should be The Commission is also adopting a adopted Rule 1003(a) and SCI event informed of the reason therefor.1101 Two definition of ‘‘senior management’’ in notifications pursuant to adopted Rule commenters recommended that the Rule 1000 to make clear which 1002(b), one purpose of SCI reviews will distribution cycle within proposed Rule individuals at an SCI entity must be to aid the Commission and its staff 1000(b)(8)(i) be modified so that receive and review the report of the SCI in understanding the operations and individual, focused audit reports review. The Commission believes that, risks associated with the applicable resulting from rotational reviews could in the context of the SCI review systems of an SCI entity. be bundled and distributed to the requirement, senior management should In addition, as noted above, one Commission on a regular basis (semi- not be limited to a single individual or commenter, in seeking further clarity on annually or quarterly).1102 officer of an SCI entity. Thus, ‘‘senior the scope of the SCI review requirement, The Commission does not believe that management,’’ for purposes of adopted suggested that the Commission take an it is necessary to require senior Rule 1003(b) is defined as an SCI ‘‘agreed upon approach’’ which would management certification of the report entity’s Chief Executive Officer, Chief outline more specific review objectives of the SCI review, as suggested by one Technology Officer, Chief Information and procedures that would be commenter.1103 Adopted Rules Officer, General Counsel, and Chief performed by the objective reviewer. 1003(b)(2)–(3) require that the SCI entity Compliance Officer, or the equivalent of The Commission believes that an SCI submit a report of the SCI review to such employees or officers of an SCI entity should have the ability to design senior management of the SCI entity no entity. The Commission believes that, in the specific parameters of an SCI review more than 30 calendar days after order to achieve the goals of the rule to within the confines of the general completion of such SCI review, and that promote increased awareness and framework of the rule, including the SCI entity submit a report of the SCI oversight of the technology identifying its own review objectives review, together with any response by infrastructure at an SCI entity by its and procedures, given the SCI entity’s senior management, to the Commission most senior employees and officers, it is in-depth knowledge of, and familiarity and the board of directors of the SCI important that the SCI entity’s senior with, its own systems and their entity or the equivalent of such board management team receive and carefully attendant risks. As such, the adopted within 60 calendar days after its review reports of SCI reviews. The rule is designed to provide a general submission to senior management. Commission believes that these framework for the scope of the SCI Because reports of SCI reviews and any employees and officers, or their review by specifying that the review responses by senior management are functional equivalent, represent the must include a risk assessment of SCI required to be filed using Form SCI executive, technology, legal, and systems and indirect SCI systems and an under the Exchange Act and Regulation compliance functions that are necessary assessment of the internal control SCI, it is unlawful for any person to to effectively review the reports of SCI design and effectiveness of its systems willfully or knowingly make, or cause to reviews. The Commission also believes in certain areas.1097 At the same time, be made, a false or misleading statement that awareness by an SCI entity’s senior the rule provides flexibility by with respect to any material fact in such management of SCI reviews and issues permitting the review to be conducted reports or responses.1104 with Regulation SCI compliance should ‘‘following established procedures and The Commission recognizes that help to promote a focus by senior standards,’’ which would be identified senior management certifications are management on such reviews and and established by the SCI entity used in other regulatory contexts, issues, enhance communication and itself.1098 including in some Commission rules coordination regarding such reviews Some commenters expressed views on and regulations.1105 However, at this and issues among business, technology, the provisions requiring SCI entities to time, the Commission believes that, in legal, and compliance personnel, and, in submit reports of the SCI review to light of the other requirements for an turn, strengthen the capacity, integrity, senior management of the SCI entity and SCI entity, the goals of Regulation SCI resiliency, and availability of the to the Commission. Specifically, two can be achieved without the imposition systems of SCI entities. To help ensure commenters supported the proposed of an additional requirement on SCI that persons at the highest levels of an requirement that reports of the SCI entities for senior management SCI entity are made aware of any issues review be submitted to senior certification. Specifically, the raised in the SCI review, the management of the SCI entity no later Commission believes that the adopted Commission is also adopting a than 30 days after completion of the SCI requirements promote the responsibility requirement for each SCI entity to review.1099 One commenter urged that and accountability of senior submit to its board of directors or the senior management of an SCI entity management of an SCI entity by helping equivalent of such board a report of the certify the report before it is submitted SCI review and any response by senior to the Commission in order to promote 1101 See DTCC Letter at 17. management within 60 calendar days accountability at the highest ranks of the 1102 See OCC Letter at 19; and DTCC Letter at 17. after the submission of the report to 1103 SCI entity.1100 Another commenter See supra note 1100 and accompanying text. senior management of the SCI entity. believed that 45 days for submission of 1104 See, e.g., Section 32(a) of the Exchange Act, 15 U.S.C. 78ff(a). With regard to one commenter’s 1105 See, e.g., 17 CFR 240.15c3–5(e)(2) (chief suggestion that SCI entities should be 1097 See adopted Rule 1000 (defining ‘‘SCI executive officer certification under the Market given 45 days rather than 30 days to review’’). Access Rule); and 17 CFR 240.13a–14 (principal submit the report of the SCI review to 1098 See id. executive and principal financial officer 1099 See MSRB Letter at 23; and FIF Letter at 6. certification of disclosure in annual and quarterly senior management (and that it should 1100 See Better Markets Letter at 6. reports). be only a target timeframe rather than a

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requirement),1106 the Commission notes Contrary to the suggestion of some to proposed Rule 1000(b)(9), and is that the 30-day timeframe is based on commenters, the Commission does not adopted with certain modifications in the Commission’s experience with the believe it is appropriate to allow an SCI response to comment, as discussed current ARP Inspection Program that an entity to delay the submission of SCI below. ARP entity is able to consider the review reports to the Commission in a. Proposed Rule 1000(b)(9) review and prepare a report for senior order to bundle several reports together management consideration prior to the and submit them on a quarterly or semi- Proposed Rule 1000(b)(9)(i) required submission to the Commission.1107 The annual basis. Rather, the Commission each SCI entity, with respect to its BC/ Commission acknowledges that a greater believes that it is important to receive DR plans, to require participation by number of systems will be subject to the such reports in a timely manner after designated members or participants in SCI review requirement than the current completion of the SCI review, so that scheduled functional and performance ARP Inspection Program given the the Commission is made aware of testing of the operation of such plans, in definitions of SCI system and indirect potential areas of weakness in an SCI the manner and frequency specified by SCI system,1108 and that the issues entity’s systems that may pose risk to the SCI entity, at least once every 12 addressed in an SCI review may be the entity or the market as a whole, as months. Proposed Rule 1000(b)(9)(ii) complex. However, the Commission well as areas of non-compliance with further required each SCI entity to notes that the adopted timeframe, while the provisions of Regulation SCI, coordinate the testing of such plans on based on experience with the current without undue delay. an industry- or sector-wide basis with ARP Inspection Program, also takes into With respect to clearing agencies, two other SCI entities. Proposed Rule account these factors.1109 Further, the commenters noted that the SCI review 1000(b)(9)(iii) would have additionally Commission believes that the requirement potentially might overlap required each SCI entity to designate complexity of the issues presented with staff guidance for clearing agencies those members or participants it deems during an SCI review would more likely that calls for an annual report on necessary, for the maintenance of fair affect the timing of conducting and internal controls and recommended that and orderly markets in the event of the completing the SCI review, rather than the Commission consider further activation of its BC/DR plans, to the timing for submitting a report of the coordination on potential participate in the testing of such plans, 1111 review to senior management. The redundancies. The Commission and notify the Commission of such Commission, therefore, continues to notes that the section in the guidance designations and its standards for such believe that this requirement is provided in the Announcement for designation on Form SCI. Standards for the Registration of appropriate. The Commission also notes b. Comments and Commission Response that the requirement to submit the Clearing Agencies referenced by annual report to the Commission within commenters is distinct from the adopted The Commission received significant 60 calendar days after its submission to SCI review requirement, as such section comment on proposed Rule 1000(b)(9) senior management is similarly based in the guidance relates to the review and and is adopting it with revisions, as evaluation of clearing agencies’ Rule 1004. As more fully discussed on the Commission’s experience with 1112 the ARP Inspection Program that this accounting controls. In contrast, the below, the adopted rule requires time period is a sufficient period to SCI review requirement involves a risk designation of a more limited set of SCI enable senior management to consider assessment and assessment of internal entity members and participants for such review or report before submitting control design and effectiveness of all of mandatory participation in BC/DR an SCI entity’s SCI systems and indirect it to the Commission.1110 Because an testing than the proposed rule. Further, SCI systems. the adopted rule does not require an SCI SCI entity will already have prepared Finally, it should be noted that the the report and any response by senior entity to file designation standards or required review and timely reporting to member/participant designations with management for filing with the the Commission will enable the Commission, the Commission believes the Commission on Form SCI, as was Commission and Commission staff to proposed, but instead an SCI entity that an SCI entity will not need monitor the quality of compliance with significant additional time to submit the must keep records of its standards and Regulation SCI, thoroughness and designations. The scope, frequency, and same report and response to its board of robustness of SCI reviews, and the directors or the equivalent of such coordination aspects of the proposed responses of senior management to such rule are adopted as proposed. board. reviews. Accordingly, the Commission will be in a position to consider i. Mandatory BC/DR Testing Generally 1106 See supra note 1101 and accompanying text. enhancing these regulatory 1107 See Proposing Release, supra note 13, at Some commenters expressed general 18123. requirements in the future, if necessary. support for the goals of proposed Rule 1108 The Commission also notes, however, that as 6. SCI Entity Business Continuity and 1000(b)(9).1113 One commenter in discussed above, the scope of systems subject to particular stated that ‘‘[i]t is vital that as Regulation SCI has been refined from what was Disaster Recovery Plans Testing proposed. Requirements for Members or many firms as possible participate in 1109 The Commission notes that, while the ARP II Participants—Rule 1004 [market-wide] testing with conditions as Release recommended that an SRO’s independent realistic as possible.’’ 1114 According to review should result in the presentation of a report Adopted Rule 1004 addresses testing of SCI entity business continuity and this commenter, broader mandatory to senior SRO management on the participation in testing would be ‘‘one recommendations and conclusions of the disaster recovery plans, including independent review and such report should be backup systems, by SCI entity members of the most valuable parts of Regulation made available to Commission staff, it did not or participants. Rule 1004 corresponds SCI and will do the most to ensure provide recommended time periods for the improved market network submission of such reports. See ARP II Release, 1115 supra note 1. The adopted 30-day time period is 1111 See OCC Letter at 19–20; and DTCC Letter at reliability.’’ Another commenter based on experience with the ARP Inspection 18 (citing Securities Exchange Act Release No. Program, as well as a consideration of the scope of 16900, 45 FR 41920, available at: http://sec.gov/ 1113 See, e.g., Angel Letter at 9; UBS Letter at 4– the review required under Regulation SCI. rules/other/34-16900.pdf). 5; and FIF Letter at 6–7. 1110 See Proposing Release, supra note 13, at 1112 See Securities Exchange Act Release No. 1114 See Angel Letter at 9. 18124. 16900 (June 17, 1980), 45 FR 41920 (June 23, 1980). 1115 See id. at 10.

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expressed support for broad entity of its business continuity assuring the smooth and effective participation in BC/DR testing, but also capabilities should not be required to be implementation of an SCI entity’s BC/ expressed concern that the testing coordinated with members.1126 DR plans.1131 The Commission requirement would put SCI entities at a According to this commenter, ‘‘[t]he continues to believe that a testing competitive disadvantage versus non- entire point of [business continuity plan participation requirement will help an SCI entities.1116 testing] would be to not coordinate it SCI entity to ensure that its efforts to Several commenters objected to the with customers, and assess whether develop effective BC/DR plans are not proposed mandatory testing operations out of [backup] facilities was undermined by a lack of participation requirement for SCI ATSs.1117 For seamless to members and other market by members or participants that the SCI example, two commenters suggested participants.’’ 1127 One commenter entity believes are necessary to the that few ATSs are critical enough to stated that it would be more appropriate successful activation of such plans.1132 warrant inclusion in the proposed for SCI entities’ members and As stated in the SCI Proposal, the mandatory testing requirement.1118 One participants to be responsible for their Commission believes that a factor in the commenter urged that only SCI entities own business continuity plans and shutdown of the equities and options that provide market functions on which testing.1128 The Commission has markets in the wake of Superstorm other market participants depend be carefully considered commenters’ views Sandy was the exchanges’ belief subject to the requirements for separate on the need for all SCI entities to be regarding the inability of some market backup and recovery capabilities.1119 subject to the proposed mandatory participants to adequately operate from Another commenter stated that the testing requirement. The Commission the backup facilities of all market added benefit of requiring fully continues to believe that adopted Rule centers.1133 And, although testing redundant backup systems is almost 1004 should apply to all SCI entities. protocols were in place and the chance impossible to measure while the cost of Whereas adopted Rule 1001(a)(2)(v) to participate in such testing was implementation is significant, and requires that each SCI entity’s policies available, the member participation rate added further that fully redundant and procedures include BC/DR plans was low.1134 The Commission does not systems and increased testing do not and specifies recovery goals and agree with comments that seamless guarantee a flawless backup plan.1120 geographic diversity requirements for operation of backup facilities should not 1129 Two commenters stated that the such plans, adopted Rule 1004 sets require coordination of testing, or that current voluntary coordinated testing forth certain minimum requirements for the fact that members and participants organized by SIFMA 1121 already attracts SCI entity testing of its BC/DR plans. have their own BC/DR plans and testing significant participation without any Adopted Rule 1004, like proposed Rule means that they should not be required, mandate in place.1122 However, a 1000(b)(9), aims to reduce the risks if designated, to participate in the different commenter noted the associated with an SCI entity’s decision testing of an SCI entity’s BC/DR 1135 difficulties it has encountered in to activate its BC/DR plans and help to plans. The Commission continues to fostering participation in its voluntary ensure that such plans operate as believe that testing of the effectiveness disaster recovery exercises, and stated intended, if activated, by requiring that of back-up arrangements in recovering that, despite encouraging users to an SCI entity include participation by from a wide-scale disruption is a sound participate in its disaster recovery certain members and participants in principle, and that, without the exercises, participation levels were only testing of the SCI entity’s BC/DR plans. participation of significant members or 20 percent of its targeted high volume Although some commenters, including participants of SCI entities, the client base.1123 One commenter sought several ATSs, argued that ATSs should effectiveness of such testing could be clarification on whether the be excluded from requiring members or 1131 requirements of proposed Rule participants to test because, according to See supra Section IV.A.1 (discussing the these commenters, ATSs are less critical Commission’s rationale for adopting the definition 1000(b)(9) would apply only to trading of SCI entity as proposed). See supra Section and clearance systems, or would extend to the orderly functioning of the markets IV.B.1.b (discussing the BC/DR requirements in 1130 to other SCI systems as well.1124 Two than other SCI entities, the Rule 1001(a)(2)(v) for SCI entities). See also infra commenters asked whether third parties Commission believes that eliminating Sections VI.C.1.c and VI.C.2.b.vii (discussing any category of SCI entity—including competitive concerns raised by requiring SCI that perform critical market functions entities to require members or participants to for an SCI entity, such as data vendors SCI ATSs—from the testing requirement participate in the SCI entities’ BC/DR testing). and service bureaus, would be subject to would undermine the goal of 1132 See Proposing Release, supra note 13, at the proposed requirement.1125 One maintaining fair and orderly markets in 18125. the wake of a wide-scale disruption, and 1133 See id. at 18158. See also id. at 18091. The commenter stated that testing by an SCI Commission notes that its basis for adopting a mandatory testing rule is independent of whether 1126 1116 See FIF Letter at 7. See Direct Edge Letter at 9. the market closures in the wake of Superstorm 1127 1117 See SIFMA Letter at 17; BIDS Letter at 8; and See id. Sandy were appropriate to protect the health and ITG Letter at 15. 1128 See SIFMA Letter at 17. In addition, some safety of exchange personnel. 1118 See BIDS Letter at 5, 8; and ITG Letter at 15. commenters believed that ATSs should be excluded 1134 See id. at 18158 and text accompanying n. 83 from requiring members or participants to test, 1119 See KCG Letter at 8. at 18091. In addition, based on the discussions of given that ATSs and their broker-dealer participants Commission staff with market participants in the 1120 See Group One Letter at 3. are already subject to FINRA Rule 4370, which months following Superstorm Sandy, the 1121 SIFMA organizes an annual industry-wide relates to BC/DR plans. See FIA PTG Letter at 5; and Commission understands that many market testing exercise for firms and exchanges to submit BIDS Letter at 9. participants had previously engaged in connectivity and process test orders using their backup facilities. 1129 See supra Section IV.B.1.b (discussing the testing with backup facilities, and yet remained Participation is voluntary. See http:// requirement that an SCI entity have reasonable uncomfortable about switching over to the use of www.sifma.org/services/bcp/industry-testing/. policies and procedures that include business backup facilities in advance of the storm. 1122 See CME Letter at 13; and Tellefsen Letter at continuity and disaster recovery plans that include 1135 Nor does the Commission agree that Rule 7–8. maintaining backup and recovery capabilities 1004 would be duplicative of FINRA Rule 4370, as 1123 See Omgeo Letter at 26 (noting also that it sufficiently resilient and geographically diverse and Rule 1004 relates to participation by members or lacks the ability to require participation by its that are reasonably designed to achieve next participants in the testing of an SCI entity’s clients). business day resumption of trading and two-hour business continuity plans, whereas FINRA Rule 1124 See FINRA Letter at 37. resumption of critical SCI systems following a 4370 relates to the testing of the member’s or 1125 See FINRA Letter at 39; and MSRB Letter at wide-scale disruption). participant’s own business continuity plan. See 25. 1130 See supra note 1118 and accompanying text. supra note 539 and accompanying text.

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undermined. Based on its experience and participants, regardless of their and orderly markets under its BC/DR with the ARP Inspection Program, the market significance, the Commission plan.1146 Commission understands that many SCI believes it is appropriate to adopt a Several commenters suggested entities have already made significant more measured approach to mandatory eliminating SCI entity discretion and investments in their backup participation in BC/DR testing.1142 The setting forth in the rule clear, objective facilities.1136 The Commission believes Commission is therefore adopting a BC/ criteria (such as trading volume) for that the requirements of Rule 1004 will DR testing designation requirement that which members or participants would help to ensure that such facilities will applies to all SCI entities, but does not be required to participate in testing.1147 be effective in the event they are apply to all members and participants of One commenter suggested that the needed.1137 SCI entities, as discussed below.1143 Commission require that all members or In response to commenters who participants that represent a meaningful questioned the need for mandatory ii. SCI Entity Designation of Members or percentage of the volume in the participation by SCI entity members and Participants for Participation in BC/DR marketplace participate in the testing in participants,1138 the Commission Testing—Rules 1004(a)–(c) order to capture the more significant believes that current voluntary industry- market participants, while recognizing led testing has been useful because it Several commenters raised concerns the financial burden such testing may annually brings together a wide variety about the proposed requirement that SCI pose for smaller entities.1148 This of market participants, including many entities exercise discretion to designate commenter believed that giving SCI entities, and involves a range of members or participants for discretion to SCI entities in this area asset classes.1139 The current industry- participation in coordinated BC/DR might lead to regulatory arbitrage and a led testing program coordinated by testing under proposed Rule race to the bottom regarding how many SIFMA therefore could provide a 1000(b)(9).1144 After careful and which members or participants are foundation for the development of the consideration of the views of designated to participate in testing.1149 testing required by Rule 1004. However, commenters, the Commission is On the other hand, another commenter because participation rates by members adopting the requirement that SCI commented that the discretion and participants in voluntary testing entities designate certain members or contemplated by the proposal keeps the generally has been low, the Commission participants to participate in testing BC/ rule flexible enough to accommodate believes that a mandatory participation DR plans with certain modifications SCI entities conducting a diverse range requirement is the best means to achieve from the proposal. As proposed, the rule of business activities.1150 This effective and coordinated BC/DR testing would have required each SCI entity to commenter also suggested that SCI with assured participation by the more designate those members or participants entities should not be required to report significant SCI entity members and it ‘‘deems necessary, for the to the Commission who they have participants.1140 In addition, although maintenance of fair and orderly markets designated to test, and instead should the Commission generally agrees with in the event of the activation of its only be required to keep a record of who 1151 the comment that ‘‘[i]t is vital that as business continuity and disaster they have designated. many firms as possible participate in recovery plans . . .’’ The Commission In response to commenters who were [market-wide] testing with conditions as has determined instead to require that concerned about the discretionary 1141 aspect of the designation realistic as possible,’’ because of the each SCI entity designate those requirement,1152 the Commission burden and costs of requiring members or participants ‘‘that the SCI participation by all SCI entity members believes the SCI entity is in the best entity reasonably determines are, taken position to determine which of its as a whole, the minimum necessary for 1136 See infra Section VI.B.2 (stating that nearly members or participants collectively all national securities exchanges already have the maintenance of fair and orderly represent sufficient liquidity for the SCI backup facilities that do not rely on the same markets in the event of the activation of entity to maintain fair and orderly infrastructure components as those used by their such plans.’’ This change is broadly markets in a BC/DR scenario following primary facility). consistent with the suggestion of one 1137 See 2003 BCP Policy Statement, supra note a wide-scale disruption. The 512, at 56658 (stating: ‘‘The effectiveness of back- commenter to revise the criteria for Commission believes such up arrangements in recovering from a wide-scale designation to those firms ‘‘critical to determinations require the exercise of disruption should be confirmed through testing.’’). the operation of the SCI entity.’’ 1145 See also Interagency White Paper, supra note 512, reasonable judgment by each SCI entity, at 17811 (identifying ‘‘a high level of confidence, However, the Commission believes that and are not well-suited for a ‘‘one-size- through ongoing use or robust testing, that critical the adopted standard is more fits-all’’ objective measure determined internal and external continuity arrangements are appropriate in that it focuses on the by the Commission. For example, if the effective and compatible’’ as one of three important ability of the SCI entity to maintain fair business continuity objectives). See also supra Commission were to establish an Section IV.B.1.b (discussing adopted Rule objective measure (e.g., based on a 1001(a)(2)(v)). 1142 In addition, because the Commission specified percentage of trading volume), 1138 See supra notes 1117–1122 and recognizes that the coordination of such testing is accompanying text. complex and time-consuming, it has provided for 1146 As discussed more fully in Section IV.B.6.b.iv 1139 See http://www.sifma.org/services/bcp/ a compliance date for the coordination requirement infra, the Commission also believes that the industry-testing/ (in which SIFMA describes its of Rule 1004(d) that is 12 months after the adopted standard could, but would be unlikely to, annual BC/DR test held annually in October, which compliance date required for other provisions of cause members or participants to elect to withdraw includes assets classes such as commercial paper, Regulation SCI. See Section IV.F. from participation in an SCI entity (particularly a equities, options, futures, fixed-income, settlement, 1143 In response to commenters seeking smaller SCI entity) to save on the cost of payments, Treasury auctions and market data). clarification on the types of systems that would be connectivity fees. 1140 See supra note 1123 (noting Omgeo’s subject to the mandatory testing requirement (see 1147 See NYSE Letter at 33; Omgeo Letter at 26; comment that voluntary participation levels are supra notes 1124–1125 and accompanying text), Angel Letter at 10; and FIF Letter at 6. low). See also Proposing Release, supra note 13, at because the required testing is BC/DR testing, all 1148 18091, n. 83 and accompanying text (noting that systems necessary for an SCI entity to successfully See NYSE Letter at 33. press reports indicated that a large number of NYSE activate it BC/DR plan would be included. 1149 See NYSE Letter at 33. members did not participate in NYSE’s contingency 1144 See NYSE Letter at 33; FIF Letter at 6–7; 1150 See CME Letter at 12. plan testing that occurred seven months prior to Omgeo Letter at 26; Fidelity Letter at 6; and Angel 1151 See id. at 13. Superstorm Sandy). Letter at 10. 1152 See supra notes 1144, 1147–1149 and 1141 See supra note 1114 and accompanying text. 1145 See ISE Letter at 9. accompanying text.

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it might represent a meaningful intrusions, which may occur with designed to, among other things, foster percentage for some SCI entities, but not regularity (and for which a quarterly cooperation and coordination with for others. Thus, the rule requires that summary report would aid Commission persons engaged in regulating, clearing, each SCI entity establish standards for oversight of systems whose proper settling, processing information with the designation of those members or functioning is central to the respect to, and facilitating transactions participants that the SCI entity maintenance of fair and orderly in securities, to remove impediments to ‘‘reasonably’’ determines are, taken as a markets), the establishment of standards and perfect the mechanism of a free and whole, the minimum necessary for the for designation, the designations open market and a national market maintenance of fair and orderly markets themselves, and updates to such system, and, in general, to protect in the event of the activation of its BC/ standards or designations are likely to investors and the public interest.1158 DR plans. This adopted provision is in occur less frequently. Thus, the Further, SCI entities that are not SROs lieu of the proposed requirement, which Commission believes it is sufficient for have the ability to include provisions in would have required an SCI entity to the Commission to review records their contractual agreements with their designate those members or participants relating to such designations when the participants (such as their subscriber or it ‘‘deems necessary’’ for the Commission determines that it is participant agreements) requiring such maintenance of fair and orderly markets necessary to do so to fulfill its oversight parties to engage in BC/DR testing. in the event of the activation of its BC/ role, such as during its examination of Other commenters focused on the DR plans. Because the adopted rule an SCI entity.1154 More broadly, the potential impact of the rule on the requires an SCI entity’s determination to Commission believes this revision is members or participants designated to be reasonable, it provides some degree generally consistent with modifications participate in testing. One commenter of flexibility to SCI entities but also that the Commission has made in pointed out that, without clearly imposes a check on SCI entity response to comment that proposed defined industry level coordination, discretion, which the Commission Regulation SCI would have required some members or participants may be believes should help prevent an SCI unnecessary and burdensome notice overburdened by being subject to entity’s designations from being overly and reporting submissions. multiple individual tests with various limited. In response to concerns that a Some commenters questioned SCI entities.1159 Another commenter discretionary designation requirement whether many SCI entities, particularly asked the Commission to clarify what would lead to regulatory arbitrage and a non-SROs and ATSs, have the authority the obligation is for firms that are race to the bottom regarding how many to require their members or participants members or participants at multiple SCI and which members or participants are to participate in such testing.1155 entities.1160 Several commenters designated to participate in testing, the Another commenter more generally expressed concern that the Commission Commission believes that this is stated that it was unclear how an SCI underestimated the costs and burdens of unlikely to occur because each SCI entity could enforce a requirement that the proposed testing.1161 According to entity will be subject to the same its customers engage in BC/DR some of these commenters, under the requirement and will be required to testing.1156 In response to these proposal, certain firms, such as market make a reasonable determination that comments, the Commission believes makers and other firms performing the designated members or participants that SCI SRO rulemaking authority and important market functions, could be are those that are the minimum non-SRO contractual arrangements required to maintain connections to the necessary for it to maintain fair and would enable SCI entities to implement backup sites of a number of SCI entities, orderly markets in the event of this requirement.1157 Specifically, SROs at significant cost.1162 A group of activation of its BC/DR plans. Further, have the authority, and legal commenters requested that the scope be the Commission believes that broad responsibility, under Section 6 of the targeted to only cover those instances in participation in BC/DR testing will Exchange Act, to adopt and enforce which an SCI entity determines to enact enhance the utility of the testing, and rules (including rules to comply with its disaster recovery plans.1163 One that allowing non-designated members Regulation SCI’s requirements relating commenter agreed that the designation or participants the opportunity to to BC/DR testing) applicable to their requirement could be relaxed and still participate in such testing generally will members or participants that are achieve the provision’s aim, because the further this goal. Therefore, the bulk of the liquidity at a market center Commission encourages SCI entities to 1154 See supra Sections IV.A.3 and IV.B.3.c is provided by a small number of permit non-designated members or (discussing the rationale for quarterly reporting of firms.1164 Another commenter asked the participants to participate in the testing de minimis systems disruptions and de minimis Commission to give designated firms the of the SCI entity’s BC/DR plans if they systems intrusions). 1155 See Omgeo Letter at 26; MSRB Letter at 24; 1158 See Section 6 of the Exchange Act, 15 U.S.C. request to do so. BIDS Letter at 8; LiquidNet Letter at 4; and SIFMA 78f. Consistent with the recommendation Letter at 17. See also ITG Letter at 15–16. 1159 See OCC Letter at 18. of one commenter, however, the 1156 See SIFMA Letter at 17–18 (suggesting that 1160 Commission has determined not to the Commission instead adopt a ‘‘BCP testing See DTCC Letter at 13. 1161 See FINRA Letter at 37–39; OCC Letter at 18; require that each SCI entity notify the requirement more akin to the ‘best practices’ described in the Interagency White Paper’’). Fidelity Letter at 6; Joint SROs Letter at 15–16; ISE Commission of its designations and its 1157 While some designated members or Letter at 9; and Group One Letter at 3. See also infra standards for designation on Form SCI participants of SCI entities might choose to Section VI (discussing the costs and burdens of the as proposed. Instead, an SCI entity’s withdraw from membership or participation in an requirement, including the costs for members or participants to participate in BC/DR testing). standards, designations, and updates, if SCI entity if they assess the cost of participating in BC/DR testing to be too great, the Commission 1162 See FINRA Letter at 37–39; OCC Letter at 18; applicable, would be part of its records believes that other aspects of their involvement and Fidelity Letter at 6 (expressing concern an SCI and therefore available to the with the SCI entity, including an interest in entity might cast a wide net with its designation Commission and its staff upon maintaining a profitable business relationship, will powers to include more firms than necessary). request.1153 Unlike de minimis systems factor significantly into any decision regarding their 1163 See Joint SROs Letter at 16 (noting the continued membership or participation in the SCI complexity of testing a scenario in which a market disruptions and de minimis systems entity. See also infra Sections VI.C.1.c and participant may have enacted its business VI.C.2.b.vii (discussing competition between SCI continuity plan but can still access an SCI entity 1153 See infra Section IV.C.1 (discussing SCI entities and non-SCI entities in relation to the through the primary facility). entity recordkeeping requirements). requirements under Rule 1004). 1164 See Tellefsen Letter at 9.

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ability to opt-out if they have a good the testing of their BC/DR plans than to achieved.’’ 1169 Although the reason.1165 a firm designated by only one SCI Commission recognizes that testing of a The Commission believes that entity. However, the Commission BC/DR plan does not guarantee flawless adoption of a more focused designation believes that these greater costs are execution of that plan, the Commission requirement that requires SCI entities to warranted for such firms, as they believes that a tested plan is likely to be exercise reasonable discretion to represent significant participants in more reliable and effective than an identify those members or participants each of the SCI entities for which they inadequately tested plan.1170 that, taken as a whole, are the are designated, and their participation ‘‘minimum necessary’’ for the in the testing of each such SCI entity’s iii. Scope, Timing, and Frequency of maintenance of fair and orderly markets BC/DR plans is necessary to evaluate BC/DR Testing—Rule 1004(b) in the event of the activation of such whether such plans are reliable and plans is likely to result in a smaller effective. The designation of a firm to The SCI Proposal specified that the number of SCI entity members or participate in the BC/DR testing of an type of testing for which designees participants being designated for SCI entity means that such firm is would be required to participate was participation in testing as compared to significant, as the SCI entity has ‘‘scheduled functional and performance the SCI Proposal. Because the reasonably determined it to be included testing of the operation of [BC/DR] Commission believes that SCI entities in the set of its members or participants plans, in the manner and frequency have an incentive to limit the that is, ‘‘taken as a whole, the minimum specified by the SCI entity, at least once imposition of the cost and burden necessary for the maintenance of fair every 12 months.’’ 1171 After careful associated with testing to the minimum and orderly markets in the event of the consideration of the views of necessary to comply with the rule, it activation of such plans.’’ Nonetheless, commenters, the Commission is also believes that, given the option, the Commission acknowledges that adopting the scope, frequency, and most SCI entities would, in the exercise there may be instances in which an SCI timing requirements in the rule as of reasonable discretion, prefer to entity has reasonably designated a firm proposed. Specifically, adopted Rule designate fewer members or participants to participate in BC/DR testing, and the 1004(b) requires that an SCI entity’s to participate in testing, than to firm is unwilling to bear the cost of designees participate in ‘‘scheduled designate more. On balance, the participation in BC/DR testing with a functional and performance testing of Commission believes that adopted rule given SCI entity. In such instances, the operation of [BC/DR] plans, in the will incentivize SCI entities to designate there may be firms that opt out of such manner and frequency specified by the those members and participants that are testing by withdrawing as a member or SCI entity, provided that such frequency in fact the minimum necessary for the subscriber of one or more SCI entities, shall not be less than once every 12 maintenance of fair and orderly markets but the Commission believes that is months.’’ in the event of the activation of their unlikely. In particular, the Commission BC/DR plans, and that this should believes that it is unlikely that a firm In the SCI Proposal, the Commission reduce the number of designations to determined to be significant enough to noted that functional testing is which any particular member or be designated to participate in testing by commonly understood to examine participant would be subject, as an SCI entity would choose to withdraw whether a system operates in compared to the SCI Proposal, and its membership or participation in an accordance with its specifications, would potentially simplify efforts for SCI entity solely because of the costs whereas performance testing examines SCI entities to coordinate BC/DR testing, and burdens of Regulation SCI’s BC/DR whether a system is able to perform as required by adopted Rule 1004(d). testing provisions. The Commission also under a particular workload.1172 The Despite the modifications from the believes that such firm is likely to be a Commission added that functional and proposal, it remains possible, as some larger firm with greater resources and a performance testing should include not commenters noted, that firms that are significant level of participation in such only testing of connectivity, but also members of multiple SCI entities will be SCI entity, and is likely to already be testing of an SCI entity’s systems, such the subject of multiple designations, and connected to the backup facility of the as order entry, execution, clearance and that multiple designations could require SCI SRO that is designating it to test.1166 settlement, order routing, and the certain firms to maintain connections to Moreover, the Commission does not transmission and/or receipt of market and participate in testing of the backup agree with the suggestion made by one data, as applicable, to determine if they sites of multiple SCI entities. The commenter that the Commission give can operate as contemplated by its Commission believes this possibility, designated firms the ability to ‘‘opt-out’’ business continuity and disaster though real, may be mitigated by the if they have a good reason,1167 because recovery plans.1173 With regard to the fact that multiple designations are likely the ability to opt-out in this manner proposed scope of testing, several to be made to firms that are already would render participation in BC/DR connected to one or more SCI entity testing voluntary which, as discussed commenters expressed specific concerns backup facilities, since they represent above, is unlikely to result in adequate about the requirement for ‘‘functional significant members or participants of BC/DR testing.1168 The Commission and performance’’ testing of BC/DR the applicable SCI entities; and that, continues to believe, as stated in the SCI because some SCI entity backup Proposal, that ‘‘unless there is effective 1169 See Proposing Release, supra note 13, at facilities are located in close proximity participation by certain of its members 18091, 18125. 1170 Further, because the Commission believes to each other, multiple connections to or participants in the testing of [BC/DR] that increased participation in BC/DR testing is such backup facilities may be less costly plans, the objective of ensuring resilient likely to enhance the utility of the testing, the than if SCI entity backup facilities were and available markets in general, and Commission encourages SCI entities to permit not so located. The Commission the maintenance of fair and orderly members or participants that do not meet the SCI recognizes that there will be greater entity’s reasonable designation standards to markets in particular, would not be participate in such testing if they request to do so. costs to a firm being designated by 1171 See proposed Rule 1000(b)(9)(i). multiple SCI entities to participate in 1166 See infra Section IV.B.6.b.iv. 1172 See Proposing Release, supra note 13, at 1167 See Fidelity Letter at 6. 18125, n. 267. 1165 See Fidelity Letter at 6. 1168 See supra note 1140 and accompanying text. 1173 See id. at 18126.

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plans.1174 Specifically, one commenter coordinated test script that captures the Commission notes that the testing of expressed concern about the logistical significant number of possibilities that BC/DR plans, which is required by Rule challenges of conducting functional and may occur to each significant market 1004, is different from testing of the performance testing at the same participant or SCI entity’’ and function and performance of backup time.1175 Two commenters expressed recommended that the scope of the facilities generally.1183 What Rule 1004 concern that requiring firms to perform coordinated functional and operational requires is coordinated testing to industry-wide, end-to-end testing by testing requirements be revised to cover evaluate annually whether such backup processing transactions in their disaster those instances in which an SCI entity facilities of SCI entities can function recovery systems would introduce risk determines to enact its disaster recovery and perform in accordance with the to the markets because such testing plan.1179 Two commenters believed the operation of BC/DR plans in the event would increase the chance that test tests should be ‘‘scenario-based’’ to of wide-scale disruption. In addition, transactions could inadvertently be recreate as closely as possible the actual the Commission notes that performance introduced into production systems.1176 conditions that would trigger testing, which examines whether a Another commenter stated that a full widespread use of BC/DR plans.1180 system is able to perform under a functional test across all primary and Adopted Rule 1004(b) provides that particular workload, is not synonymous recovery data centers for any significant the scope of required testing is with ‘‘stress testing,’’ in which capacity number of members or participants ‘‘functional and performance testing of limits are tested, and therefore should would require substantial time to the operation of BC/DR plans.’’ As not require as much time to conduct as conduct and may require market stated in the SCI Proposal, such one commenter suggested. downtime, as would a full performance functional and performance testing In response to commenters concerned test.1177 One group of commenters should include not only testing of that the required testing would suggested that the scope of the connectivity, but also testing of an SCI necessitate system reconfigurations,1184 requirement should be revised to only entity’s systems, such as order entry, the Commission understands that the cover ‘‘functional and operational execution, clearance and settlement, requirement to test backup facilities testing’’ of disaster recovery plans, but order routing, and the transmission and/ may require technology adjustments to requested additional guidance with or receipt of market data, as applicable, permit testing activity to be processed regard to the scope of testing required to to determine if they can operate as by BC/DR systems, and believes that establish the effectiveness of disaster contemplated by its business continuity such adjustments to permit testing are recovery plans.1178 This group of and disaster recovery plans.1181 In warranted to achieve the goal, as commenters expressed concern about response to commenters expressing discussed above, of achieving reliable the ‘‘complexity and cost associated concern about the breadth of the and effective BC/DR plans at SCI with establishing an effective requirement, the Commission notes that entities. The Commission also believes the rule requires functional and that such system reconfigurations would 1174 See, e.g., FINRA Letter at 37; OCC Letter at performance testing of the ‘‘operation of be less burdensome than a Commission 18; and DTCC Letter at 12. [BC/DR] plans.’’ While the type of rule requiring the establishment of a 1175 See FINRA Letter at 37 (stating that dedicated environment for safe end-to- combining performance testing with functional testing required by adopted Rule testing on weekends would be difficult and possibly 1004(b) is more rigorous than some end testing that accurately simulates the not feasible because an end-to-end functional test types of testing urged by some trading environment, which some combined with a stress test would require much commenters, the Commission does not commenters suggested might be more time to accommodate processing volumes appropriate. One group of commenters believe that the requirement for than would be afforded in an abbreviated non- noted the ‘‘complexity and cost business day session). ‘‘functional and performance testing of 1176 associated with establishing an effective See OCC Letter at 17–18 (stating that its the operation of such plans’’ requires systems and systems of many member firms are coordinated test script,’’ and urged that additional testing that is as burdensome configured to prevent test activity from being the scope of the coordinated testing be as that feared by some of those processed by production or disaster recovery ‘‘narrowed to cover those instances in systems); and DTCC Letter at 12 (stating similarly commenters. Importantly, ‘‘functional which an SCI entity determines to enact that the testing proposed by Rule 1000(b)(9) (as and performance testing of the operation opposed to communication and connectivity its disaster recovery plan.’’ The of [BC/DR] plans’’ entails testing that testing) would not be supported by most SCI Commission acknowledges that entities’ current systems configurations, and goes beyond communication and encouraging the Commission to consider this in establishment of an effective connectivity testing, and beyond coordinated test script will involve adopting testing requirements). validation testing, which are more 1177 See Omgeo Letter at 26–27. This commenter urged a more limited scope of testing. Specifically, limited types of testing urged by some a range of possibilities, as SCI entities determine to this commenter urged the Commission to focus on commenters. But the requirement to be appropriate, including weekend testing, as well ‘‘smoke testing,’’ which it characterized as a more conduct ‘‘functional and performance as testing in segments over the course of a year, if limited form of testing to validate that system testing of the operation of [BC/DR] SCI entities determine that, to meet the functionality is fully deployed and operational in requirements of the rule, a single annual test cannot the new recovered or resumed production plans’’ does not mean that a full test of be properly conducted within a single period of environment, and with respect to the goals of the functional and performance time (e.g., over the course of a weekend). performance testing, a more limited set of system characteristics of each backup facility is 1183 Testing of the function and performance of operations to assure that the recovery system would required to be conducted all at once and backup facilities generally would occur before such perform those operations at roughly comparable facilities are launched into production (such as speeds as those performed on the main production in coordination with other SCI entities pursuant to Rule 1001(a)), and Regulation SCI does systems. This commenter further stated that, in both all at the same time, as some not impose a requirement for coordinating such cases, the purpose of these tests would be to commenters characterized the proposed testing with other SCI entities. validate that the backup or recovery systems have requirement.1182 Specifically, the 1184 See supra note 1176 and accompanying text. the necessary functionality to perform the service See also Tradebook Letter at 2–3 (stating its view required of the SCI systems, and have sufficient 1179 that ‘‘the only way to test integration from order capacity to process the production workloads at See id. at 16. generation to allocation and then through to final roughly comparable levels of performance, rather 1180 See FIF Letter at 7; and UBS Letter at 4. settlement, is in the production environment’’ and than to test the actual functional or performance 1181 See Proposing Release, supra note 13, at ‘‘test tickers that operate in the production characteristics of the backup or alternate recovery 18126. environment are the only way to reliably simulate systems in their own right. See Omgeo Letter at 27. 1182 Conducting the required testing is not exactly what will happen in the production 1178 See Joint SROs Letter at 15–16. intended to require market downtime, but permits environment with a live order’’).

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some costs and complexity, but believes think about how to establish a dedicated testing requirement will help to improve that this is an important first step in environment where end-to-end testing securities market infrastructure establishing robust and effective testing could be done safely, and where it could resilience by helping to ensure not only under the rule. The Commission accurately simulate the trading that an SCI entity can operate following encourages SCI entities to develop one environment.1189 This commenter also an event that triggers its BC/DR plans, or more test scripts contemplating a suggested that testing plans concentrate but also that it can do so with a greater wide-scale disruption and the on high volume periods, stress testing level of confidence that its core enactment by SCI entities in the region common order types, and focusing on members or participants are also ready of the wide-scale disruption of their BC/ securities that generally experience low based on experience during testing. The DR plans. liquidity.1190 This commenter believed Commission is adopting Rule 1004(b) Further, the Commission notes that that industry-wide testing should substantively as proposed because it nothing in Rule 1001(a) nor Rule 1004 include derivatives and cross-asset gives SCI entities discretion to develop requires that an SCI entity’s BC/DR plan scenarios, and possibly include some a test that meets the requirements of the specify that its backup site must fully involvement by foreign regulators and rule. replicate the capacity, speed, and other markets as well.1191 While the One commenter recommended features of the primary site. Similarly, suggestions of these commenters are not requiring that each entity be run entirely SCI entity members and participants are inconsistent with the rule’s requirement under its backup plan at least one day not required by Regulation SCI to for functional and performance testing a year for a full trading day, and that the maintain the same level of connectivity of BC/DR plans, the Commission has entire market run off of the backup sites with the backup sites of an SCI entity as determined not to require them because at least once a year.1192 While adopted they do with the primary sites.1185 In the Commission does not believe, at this Rule 1004 would not preclude this the event of a wide-scale disruption in time, that these suggestions are approach, the Commission notes that the securities markets, the Commission necessary in every instance to achieve other commenters disagreed with the acknowledges that an SCI entity and its reliable and effective BC/DR plans at wisdom of it.1193 Specifically, one group members or participants may not be able SCI entities. However, to the extent an of commenters stated that the risks of to provide the same level of liquidity as SCI entity believes them to be testing in a ‘‘live production on a normal trading day. In addition, the appropriate for its systems, these environment on a periodic basis’’ Commission recognizes that the concept suggestions could be utilized in its BC/ outweigh the benefits.1194 Another of ‘‘fair and orderly markets’’ does not DR plans testing. commenter stated that requiring SCI require that trading on a day when Importantly, the adopted rule does entities to operate using their backup business continuity and disaster not prescribe how SCI entities are to facilities would increase the risk of recovery plans are in effect will reflect develop plans for functional and erroneous quotes and orders entering the same levels of liquidity, depth, performance testing of order entry, the marketplace.1195 volatility, and other characteristics of execution, clearance and settlement, After careful consideration of these trading on a normal trading day. order routing, and the transmission and/ comments, the Commission has Nevertheless, the Commission believes or receipt of market data, as applicable, determined not to prescribe the time of it is critical that SCI entities and their to determine if these functions can day or week during which testing shall designated members or participants be operate as contemplated by SCI entity occur. In addition, the adopted rule able to operate with the SCI entities’ BC/DR plans. Thus, as with the does not require an SCI entity to test its proposed requirement, the adopted rule backup systems in the event of a wide- BC/DR plan in live production, but also provides an SCI entity with discretion to scale disruption. Therefore, Rule 1004 does not prohibit an SCI entity from determine the precise manner and requires that an SCI entity’s BC/DR plan testing its BC/DR plans in live content of the BC/DR testing required that meets the requirements of Rule production, either, if an SCI entity pursuant to Rule 1004, and SCI entities 1001(a)(2)(v) be tested for both its determines such a method of testing to have discretion to determine, for functionality and performance as be appropriate. The Commission example, the duration of the testing, the specified by the SCI entity’s BC/DR continues to believe that SCI entities are sample size of transactions tested, the plan. in the best position to structure the In addition, several commenters scenarios tested, and the scope of the details of the test in a way that would addressed testing more generally.1186 test. Therefore, while comments urging maximize its utility. the creation of uniform test tickers, For example, some commenters urged With respect to testing frequency, one establishment of principles for end-to- that comprehensive, industry-wide, commenter agreed with the proposal end testing, mandatory types of test end-to-end testing could be enhanced if that an SCI entity’s BC/DR plans, scripts, and cross-asset and cross- there were uniform test tickers including its backup systems, be tested supported by the testing infrastructure jurisdictional coordination are matters ‘‘at least once every 12 months.’’ 1196 at all SCI entities.1187 Two commenters that SCI entities may wish to consider in implementing the testing required by One commenter stated that the rule urged the establishment of principles for should explicitly set forth the required end-to-end, integrated testing.1188 the rule, the Commission does not frequency of testing.1197 One commenter Specifically, one of these commenters believe it is appropriate to mandate such details in Regulation SCI. To do so believed that two coordinated industry suggested that SCI entities, the tests per year would be more Commission, and relevant third-parties would be more prescriptive than the 1198 Commission believes is appropriate, as appropriate. One commenter 1185 See infra Section VI.C.2.b.vii (discussing the this requirement is designed to provide 1192 estimated costs of adopted Rule 1004). SCI entities flexibility and discretion in See Angel Letter at 10. 1193 See Joint SROs Letter at 15; and Group One 1186 See Tradebook Letter at 1–3; CAST Letter at determining how to meet it. The 9; FIA PTG Letter at 2; and CoreOne Letter at 3– Letter at 2. 7. Commission believes that the adopted 1194 See Joint SROs Letter at 15. 1187 See Tradebook Letter at 2–3; CAST Letter at 1195 See Group One Letter at 2. 9; and FIA PTG Letter at 2. 1189 See CoreOne Letter at 3. 1196 See DTCC Letter at 13 1188 See CoreOne Letter at 3; and Tradebook 1190 See id. at 3–4. 1197 See NYSE Letter at 33. Letter at 1–3. 1191 See id. at 7. 1198 See FIF Letter at 6.

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believed that testing once per year is and more comprehensive BC/DR testing on an industry- or sector-wide basis arbitrary, and suggested that a risk- paradigm.1205 with other SCI entities.’’ The based approach might justify testing In contrast, some commenters Commission recognizes that certain systems with more or less opposed the proposed comprehensive, coordinating industry- or sector-wide frequency.1199 coordinated testing structure.1206 Some testing among SCI entities and their The Commission is adopting as commenters stated that coordinating designated members or participants may proposed the requirement that testing testing presents significant present logistical challenges. Because of occur not less than once every 12 technological and logistical challenges these challenges, the Commission does months. Although commenters offered that need to be weighed carefully.1207 not believe that a more prescriptive differing views on the appropriate One commenter stated that coordinated approach is warranted. Instead, the frequency for the required testing,1200 testing is a good aspirational goal, but coordination requirement provides the Commission continues to believe expressed concern that too much is discretion to SCI entities to determine that a testing frequency of once every 12 outside of the control of an individual how to meet it. months is an appropriate minimum SCI entity, and therefore the rule The Commission does not agree with frequency that encourages regular and should, at most, require SCI entities to commenters suggesting that the focused attention on the establishment attempt to coordinate such testing.1208 Commission should assume leadership of meaningful and effective testing. In Another commenter stated that the on the organization of coordinated the context of coordinated BC/DR fixed-income market is so fragmented testing, designate an organization to testing, the Commission believes the key that coordinated testing is difficult to fulfill that role, or require a is for testing to occur regularly enough conduct and much less imperative.1209 ‘‘Commission-approved plan’’ for to offer practical utility in the event of Some commenters offered suggestions testing, because it believes at this time a wide-scale disruption without on how to improve the proposed that SCI entities can achieve imposing undue cost, and that a coordination requirement. One coordination more quickly and minimum frequency of one year commenter urged that coordination only efficiently without the imposition of a achieves this balance. This requirement be required among providers of singular formal procedural framework that these does not prevent SCI entities from services in the market (i.e., exchanges suggestions would entail.1214 In testing more frequently, but rather is that list securities, exclusive processors response to comment suggesting that intended to give SCI entities the under NMS plans, and clearing and coordination should be aspirational 1210 flexibility to test their BC/DR plans, settlement agencies). Some rather than required, the Commission including their backup systems, at more commenters believed that coordination believes that, because trading in the U.S. frequent intervals if they find it would work best if it was organized by securities markets today is dispersed appropriate to do so. an entity with regulatory authority over among a wide variety of exchanges, SCI entities, or by an organization ATSs, and other trading venues, and is iv. Industry- or Sector-Wide designated by the Commission to fulfill often conducted through sophisticated Coordination—Rule 1004(d) that role.1211 One such commenter trading strategies that access many Proposed Rule 1000(b)(9)(a)(ii) supported coordinating testing through trading platforms simultaneously, specified that an SCI entity would be a Commission-approved plan, provided requiring SCI entities to coordinate required to coordinate the testing of BC/ SCI entities have the right to maintain testing would result in testing under DR plans on an industry- or sector-wide the confidentiality of certain critical more realistic market conditions.1215 basis with other SCI entities. The information.1212 Another commenter The Commission also continues to Commission received significant recommended that the Commission believe that it would be more cost- comment on this aspect of the proposal. work with the CFTC to adopt a effective for SCI entity members and Two commenters supported the coordinated approach to dealing with participants to participate in testing of coordinated testing requirement.1201 technology issues across financial SCI entity BC/DR plans on an industry- Specifically, one of these commenters markets, including through or sector-wide basis than to test with stated that a coordination requirement participation by derivatives exchanges each SCI entity on an individual basis targets an area where technology risks in testing alongside their equity markets because such coordination would likely have left the markets more vulnerable, counterparts.1213 reduce duplicative testing efforts.1216 In namely, the complex ways that firms After careful consideration of the interact.1202 This commenter favored comments, the Commission has 1214 With respect to the suggestion that there be market-wide testing as a way to better determined to adopt the coordination a Commission approved plan, the Commission notes that Rule 608 of Regulation NMS is designed 1203 requirement as proposed. Specifically, manage that risk. This commenter to facilitate participation in NMS plans by self- also stated that coordination is vital Rule 1004(d) requires that an SCI entity regulatory organizations, which does not include because the more SCI entities and ‘‘coordinate the testing of [BC/DR] plans SCI entities that are not SCI SROs, including SCI member firms that participate in testing, ATSs. The Commission notes that at least one 1205 commenter suggested that the Commission work the more realistic that testing will See UBS Letter at 4–5. This commenter also stated that improved BC/DR testing should not be with the CFTC to adopt a coordinated approach to 1204 be. Another commenter noted that delayed until Regulation SCI is adopted. See UBS testing. But, as discussed above, the Commission one of the most important steps in Letter at 5. believes that Regulation SCI is an important step to validating and maintaining systems 1206 See DTCC Letter at 12–13; FINRA Letter at reduce the risks associated with a decision to 37–39; OCC Letter at 17–18; and ISE Letter at 8. activate BC/DR plans. And, although the integrity is an effective BC/DR model Commission may in the future consider additional 1207 See LiquidPoint Letter at 4; and SIFMA Letter and urged the Commission to promptly initiatives to promote further coordination with the at 17–18. See also supra notes 1175–1177 and CFTC, in the Commission’s view, this initial step advance a program to introduce a new accompanying text. of adopting Regulation SCI should not be delayed. 1208 See CME Letter at 13. 1215 See Proposing Release, supra note 13, at 1199 See MSRB Letter at 24. 1209 See TMC Letter at 3. 18126. 1200 See supra notes 1196–1199. 1210 See Direct Edge Letter at 9. 1216 In response to comment that coordinated BC/ 1201 See Angel Letter at 9; and UBS Letter at 4. 1211 See DTCC Letter at 13; OCC Letter at 18; and DR testing is not needed in the current fixed- 1202 See Angel Letter at 9. NYSE Letter at 33. income market, the Commission notes that it has 1203 See id. 1212 See NYSE Letter at 33. determined to exclude ATSs trading only municipal 1204 See id. 1213 See Angel Letter at 12. securities or corporate debt securities from the

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addition, if SCI entities that are and burdens of participating in every 1. Recordkeeping—Rules 1005–1007 ‘‘providers of singular services’’ in the such test to be too great, and makes its a. Recordkeeping Related to Compliance markets (i.e., which the Commission own business decision to withdraw its With Regulation SCI—Rule 1005 believes would be synonymous with SCI membership or participation in one or entities that are providers of ‘‘critical more such SCI entities so as to avoid the Proposed Rule 1000(c) required SCI SCI systems’’) lead coordination efforts costs and burdens of such testing, but SROs to make, keep, and preserve all on behalf of all SCI entities, such an believes such scenario to be unlikely. documents relating to their compliance approach would not be impermissible Specifically, the Commission believes with Regulation SCI, as prescribed in under Rule 1004(d), provided all SCI that it is unlikely that a firm determined Rule 17a–1 under the Exchange Act. entities agreed to such an approach. to be significant enough to be Proposed Rule 1000(c) required SCI In response to commenters who more designated to participate in testing by an entities other than SCI SROs to: Make, generally expressed concern about the SCI entity (even a smaller SCI entity) keep, and preserve at least one copy of rule subjecting SCI entity members and would choose to withdraw its all documents relating to their participants to multiple duplicative and membership or participation in an SCI compliance with Regulation SCI; keep costly testing requirements,1217 the entity solely because of the costs and these documents for not less than five Commission notes that the flexibility burdens of Regulation SCI’s BC/DR years, the first two years in a place that provided in the adopted coordination testing provisions. The Commission also is readily accessible to the Commission requirement, in tandem with the more believes that such firm is likely to be a or its representatives for inspection and focused adopted mandatory designation larger firm with greater resources and a examination; and promptly furnish to requirement should mitigate these significant level of participation in such Commission representatives 1220 copies concerns. As discussed above, adoption SCI entity, and is likely to already be of any of these documents upon request. of a more focused designation connected to the backup facility of the Further, proposed Rule 1000(c) requirement that requires SCI entities to SCI SRO that is designating it to test. provided that, upon or immediately exercise reasonable discretion is likely The Commission continues to believe prior to ceasing to do business or to reduce the extent to which SCI entity that SCI entities are best suited to find ceasing to be registered under the member or participant designations the most efficient and effective manner Exchange Act, an SCI entity must ensure overlap and possibly result in a smaller in which to test its BC/DR plans.1218 that the required records are accessible number of SCI entity members or to the Commission and its Furthermore, the Commission is also participants being designated for representatives in a manner required by adopting a longer compliance period participation in testing than as Rule 1000(c) for the remainder of the with regard to the industry- or sector- contemplated by the SCI Proposal, and period required by Rule 1000(c). wide coordinated testing requirement in a fewer number of members or The Commission received one adopted Rule 1004(d).1219 Specifically, participants designated to participate in comment letter supporting proposed SCI entities will have 21 months from testing should simplify efforts to Rule 1000(c).1221 the Effective Date to coordinate the The Commission is coordinate testing. However, as some adopting Rule 1000(c) as proposed, but commenters noted, it remains possible testing of an SCI entity’s business 1222 continuity and disaster recovery plans re-designated as Rule 1005. that, despite coordination, some firms As noted in the SCI Proposal, SCI that are members of multiple SCI on an industry- or sector-wide basis with other SCI entities pursuant to entities are already subject to entities may be designated to participate recordkeeping requirements,1223 but in testing with multiple SCI entities at adopted Rule 1004(d). In sum, the Commission believes that Rule 1004, as records relating to Regulation SCI may greater cost than if they had been not be specifically addressed in certain designated by only one SCI entity, and adopted, will enhance the resilience of may be required to test more than once the infrastructure of the U.S. securities markets. 1220 As discussed above, the Commission has annually, as this may be necessary for renamed the ARP Inspection Program the each SCI entity to meet its obligations C. Recordkeeping, Electronic Filing on Technology Controls Program. See supra note 6. 1221 under the rule. Though the Commission Form SCI, and Access—Rules 1005– See MSRB Letter at 25. As discussed above, some commenters suggested recordkeeping in lieu recognizes that the possibility of being 1007 designated by multiple SCI entities to of certain Commission reporting requirements. See, e.g., supra note 881 and accompanying text. participate in the testing of their BC/DR Adopted Rules 1005 through 1007 1222 The Commission notes that adopted Rule plans may be costly, the Commission specify several additional requirements 1005 replaces the term ‘‘SCI security systems’’ with ultimately believes that such a cost is of Regulation SCI relating to ‘‘indirect SCI systems’’ as described in more detail appropriate to help ensure that the BC/ in Section IV.A.2.d. Furthermore, internal cross recordkeeping and electronic filing and references to Rules 1000(c)(2)(i) and (c)(2)(ii) in DR plan of each SCI entity is useful and submission. As discussed below, the Rule 1000(c)(2)(iii) were updated to paragraphs effective. If, for example, a firm is Commission has determined not to (b)(1) and (b)(2) of Rule 1005 in accordance with the designated for mandatory testing by adopt the proposed provision regarding renumbering of the rule. multiple SCI entities, it would be so Commission access to the systems of an 1223 See, e.g., 17 CFR 240.17a–1, applicable to SCI designated because each such SCI entity SROs; 17 CFR 240.17a–3 and 17a–4, applicable to SCI entity because the Commission can broker-dealers; and 17 CFR 242.301–303, applicable determines that such firm is necessary adequately assess an SCI entity’s to ATSs. to the successful activation of its BC/DR compliance with Regulation SCI It has been the experience of the Commission that plan. The Commission recognizes that it through existing recordkeeping SCI entities presently subject to the ARP Inspection is conceivable that a firm that is requirements and examination Program (nearly all of whom are SCI SROs that are required to participate in testing with also subject to the recordkeeping requirements of authority, as well as through the new Rule 17a–1(a)) do generally keep and preserve the multiple SCI entities assesses the costs recordkeeping requirement in Rule 1005 types of records that would be subject to the of Regulation SCI. requirements of Rule 1005. Nevertheless, the scope of Regulation SCI. See supra notes 189–192 Commission continues to believe that Regulation and accompanying text (discussing the exclusion of SCI’s codification of these preservation practices ATSs trading only fixed-income securities from the 1218 See Proposing Release, supra note 13, at will support an accurate, timely, and efficient definition of SCI ATS). 18126. inspection and examination process and help 1217 See supra notes 1159–1160 and 1219 See infra Section IV.F (discussing the delayed ensure that all types of SCI entities keep and accompanying text. implementation time for adopted Rule 1004(d)). preserve such records.

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current recordkeeping rules.1224 As requirements applicable to SROs under particular, Rule 1005 should facilitate adopted, Rule 1005 specifically Rule 17a–1 under the Exchange Act. Commission examination of SCI entities addresses recordkeeping requirements The Commission believes it is important by helping to reduce delays in obtaining for SCI entities with respect to records to require such records be kept at both relevant records during an examination. relating to Regulation SCI compliance. SCI SROs and SCI entities other than Therefore, as noted in the SCI Proposal, With respect to SCI SROs, Rule 17a– SCI SROs because such records are the Commission’s ability to examine for, 1(a) under the Exchange Act requires essential to understanding whether an and enforce compliance with, every national securities exchange, SCI entity is meeting its obligations Regulation SCI could be hampered if an national securities association, under Regulation SCI, to assess whether SCI entity were not required to registered clearing agency, and the an SCI entity has appropriate policies adequately provide accessibility to its MSRB to keep and preserve at least one and procedures with respect to its records for the full proposed retention copy of all documents, including all technology systems, to help identify the period. correspondence, memoranda, papers, causes and consequences of an SCI Further, while many SCI events may books, notices, accounts, and other such event, and to understand the types of occur, be discovered, and be resolved in records as shall be made and received material systems changes occurring at a short time frame, there may be other by it in the course of its business as such an SCI entity.1229 SCI events that may not be discovered and in the conduct of its self-regulatory Further, as noted above, the until months or years after their activity.1225 In addition, Rule 17a–1(b) definitions of SCI system and indirect occurrences, or may take significant requires these entities to keep all such SCI system include systems operated periods of time to fully resolve. In such documents for a period of not less than ‘‘on behalf of’’ an SCI entity by third cases, having an SCI entity’s records five years, the first two years in an parties. An SCI entity retains legal available even after it has ceased to do easily accessible place, subject to the responsibility for systems operated on business or be registered under the destruction and disposition provisions its behalf and, as such, is responsible for Exchange Act would be beneficial. of Rule 17a–6.1226 Rule 17a–1(c) producing to Commission Because SCI events have the potential to requires these entities, upon request of representatives records required to be negatively impact trade execution, price any representative of the Commission, made, kept, and preserved under discovery, liquidity, and investor to promptly furnish to the possession of Regulation SCI, even if those records are participation, the Commission believes Commission representatives copies of maintained by third parties, and the SCI that its ability to oversee the securities any documents required to be kept and entity is responsible for ensuring that markets could be undermined if it is preserved by it pursuant to Rules 17a– such third parties produce those unable to review records to determine 1(a) and (b).1227 Therefore, as noted in requested documents, upon the causes and consequences of one or the SCI Proposal, the breadth of Rule examination or other request. more SCI events experienced by an SCI 17a–1 under the Exchange Act is such Accordingly, the Commission believes entity that deregisters or ceases to do that it would require SCI SROs to make, that an SCI entity should have processes business. This information should keep, and preserve records relating to and requirements in place, such as provide an additional tool to help the their compliance with Regulation contractual provisions with a third Commission reconstruct important SCI.1228 The Commission continues to party, to ensure that it is able to satisfy market events and better understand believe that it is appropriate to cross- the requirements of Regulation SCI for how such events impacted trade reference Rule 17a–1 in Rule 1005 to be systems operated on its behalf by a third execution, price discovery, liquidity, clear that all SCI entities are subject to party, including the recordkeeping and investor participation. the same recordkeeping requirements requirements in Rule 1005.1230 The b. Service Bureau—Rule 1007 regarding compliance with Regulation Commission believes that if an SCI Proposed Rule 1000(e) required that, SCI. The Commission also continues to entity is unable to ensure compliance if the records required to be filed or kept believe that it is appropriate to adopt with Regulation SCI with regard to third by an SCI entity under Regulation SCI recordkeeping requirements for SCI party systems or recordkeeping, it were prepared or maintained by a entities other than SCI SROs that are should reassess its decision to outsource service bureau or other recordkeeping consistent with the recordkeeping its systems or recordkeeping. service on behalf of the SCI entity, the The Commission believes that Rule SCI entity ensure that the records are 1224 See Proposing Release, supra note 13, at 1005 will facilitate its inspections and available for review by the Commission 18128. examinations of SCI entities and assist 1225 See 17 CFR 240.17a–1(a). Such records and its representatives by submitting a it in evaluating an SCI entity’s would, for example, include copies of incident written undertaking, in a form compliance with Regulation SCI. In reports and the results of systems testing. acceptable to the Commission, by such 1226 See 17 CFR 240.17a–1(b). Rule 17a–6(a) service bureau or other recordkeeping under the Exchange Act states: ‘‘Any document 1229 To achieve the goals for which the kept by or on file with a national securities recordkeeping requirements are designed, and to service and signed by a duly authorized exchange, national securities association, registered comply with the recordkeeping requirements of person at such service bureau or other clearing agency or the Municipal Securities Rule 17a–1 and Rule 1005 of Regulation SCI, SCI recordkeeping service. Further, the Rulemaking Board pursuant to the Act or any rule entities must ensure that the records that they written undertaking was required to or regulation thereunder may be destroyed or make, keep, and maintain are complete and otherwise disposed of by such exchange, accurate. include an agreement by the service association, clearing agency or the Municipal 1230 See also Rule 1007, which states that, if bureau designed to permit the Securities Rulemaking Board at the end of five years records required to be filed or kept by an SCI entity Commission and its representatives to or at such earlier date as is specified in a plan for under Regulation SCI are prepared or maintained by examine such records at any time or the destruction or disposition of any such a service bureau or other recordkeeping service on documents if such plan has been filed with the behalf of the SCI entity, the SCI entity is required from time to time during business Commission by such exchange, association, clearing to ensure that the records are available for review hours, and to promptly furnish to the agency or the Municipal Securities Rulemaking by the Commission and its representatives by Commission and its representatives Board and has been declared effective by the submitting a written undertaking, in a form true, correct, and current electronic files Commission.’’ 17 CFR 240.17a–6(a). acceptable to the Commission, by such service 1227 See 17 CFR 240.17a–1(c). bureau or other recordkeeping service, signed by a in a form acceptable to the Commission 1228 See Proposing Release, supra note 13, at duly authorized person at such service bureau or or its representatives or hard copies of 18128. other recordkeeping service. any, all, or any part of such records,

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upon request, periodically, or authenticating, acknowledging, or Regulation SCI.1238 Rule 1006 should continuously and, in any case, within otherwise adopting his or her signature therefore allow SCI entities to efficiently the same time periods as would apply that appears in typed form within the draft and submit the required reports, to the SCI entity for such records. electronic filing. This document would and for the Commission to efficiently Proposed Rule 1000(e) also provided be required to be executed before or at review, analyze, and respond to the that the preparation or maintenance of the time Form SCI is electronically information provided.1239 In addition, records by a service bureau or other submitted and would be required to be the Commission believes that filing recordkeeping service would not relieve retained by the SCI entity in accordance Form SCI in an electronic format would an SCI entity from its obligation to with the recordkeeping requirements of be less burdensome and more efficient prepare, maintain, and provide the Regulation SCI. The Commission is for SCI entities and the Commission 1240 Commission and its representatives adopting Rule 1000(d) substantially as than mailing and filing paper forms. with access to such records. proposed, as discussed below, but re- Further, after considering comments The Commission did not receive any designated as Rule 1006. regarding the burden of submitting comments on proposed Rule 1000(e) Form SCI in a tagged data format such and is adopting Rule 1000(e) as One commenter supported the as XBRL, the Commission is not 1233 proposed, but re-designated as Rule electronic submission of Form SCI. requiring the use of XBRL formatting for 1007. As noted in the SCI Proposal, Rule One commenter suggested that the Form SCI. Rather, certain fields in 1007 is substantively the same as the Commission should make clear that Sections I–III of Form SCI will require requirement applicable to broker-dealers Regulation SCI filings do not need to be information to be provided by SCI under Rule 17a–4(i) of the Exchange made in a tagged data format such as entities in a format that will allow the Act.1231 The Commission continues to XBRL, which could be costly.1234 Commission to gather information in a believe that this requirement will help Another commenter stated that the structured manner (e.g., the submission ensure the Commission’s ability to electronic signature requirement was type and SCI event type in Section I), obtain required records that are held by appropriate only if the final rule whereas the exhibits to Form SCI will a third party who may not otherwise included a safe harbor for good faith allow SCI entities to provide narrative have an obligation to make such records reporting of SCI events.1235 According responses, such as through a text format. available to the Commission. In to this commenter, the requirement that Further, the Commission also is addition, the Commission continues to there be an electronic signature and a specifying that documents filed through believe that the requirement that SCI manual signature could put SCI entity the EFFS system must be in a text- entities obtain from such third parties a personnel at risk if it is later determined searchable format without the use of written undertaking will also help that there were factual errors, omissions, optical character recognition. If, ensure that such service bureau or other or other flaws in the initial filing.1236 however, a portion of a Form SCI recordkeeping service is aware of its After consideration of the comments, submission (e.g., an image or diagram) cannot be made available in a text- obligation with respect to records the Commission is adopting Rule searchable format, such portion may be relating to Regulation SCI. The 1000(d) substantially as proposed, and submitted in a non-text-searchable Commission believes that this with updated internal cross references format.1241 The Commission believes requirement will help ensure that the to reflect revisions to other aspects of that requiring documents to be Commission has prompt and efficient Regulation SCI, as adopted. Specifically, access to all required records, including submitted in a text-searchable format Rule 1006 provides that notifications (with the limited exception noted) is those housed at a service bureau or any made pursuant to Rule 1002(b)(1) other recordkeeping service.1232 necessary to allow Commission staff to (immediate Commission notification of efficiently review and analyze 2. Electronic Filing and Submission of SCI events) and updates made pursuant information provided by SCI entities. In Reports, Notifications, and Other to Rule 1002(b)(3) (updates regarding particular, a text-searchable format Communications—Rule 1006 SCI events) are not required to be filed allows Commission staff to better gather, on Form SCI.1237 As noted in the SCI Proposed Rule 1000(d) required that, analyze and use data submitted as Proposal, Rule 1006 is intended to except with respect to notifications to exhibits, whereas a non-text-searchable provide a uniform manner in which the the Commission made pursuant to format submission would require Commission would receive—and SCI proposed Rule 1000(b)(4)(i) significantly more steps and labor to entities would provide—written (Commission notification of certain SCI review and analyze data. The notifications, reviews, descriptions, events) or oral notifications to the Commission notes that word processing analyses, or reports made pursuant to Commission made pursuant to proposed and spreadsheet applications that are Rule 1000(b)(6)(ii) (Commission widely used by many businesses, notification of certain material systems 1233 See MSRB Letter at 25. including SCI entities, generate 1234 changes), any notification, review, See OTC Markets Letter at 4. See also FINRA documents in this format. Letter at 28. As noted above, one commenter description, analysis, or report to the 1235 See Omgeo Letter at 20. stated that the electronic signature Commission required under Regulation 1236 See id. requirement was appropriate only if the SCI be submitted electronically on Form 1237 See supra Section IV.B.3.c (discussing the SCI and include an electronic signature. Commission notification requirement for SCI 1238 Proposed Rule 1000(d) also required events). Adopted Rule 1006 refers to an See Proposing Release, supra note 13, at electronically ‘‘filed’’ Form SCI, rather than an 18129–30. that the signatory to an electronically electronically ‘‘submitted’’ Form SCI as proposed in 1239 See id. at 18130. submitted Form SCI manually sign a Rule 1000(d)(1). This change clarifies that notices 1240 The Commission will implement Form SCI signature page or document, in the and reports required to be submitted under through the electronic form filing system (‘‘EFFS’’) manner prescribed by Form SCI, Regulation SCI are filings under the Exchange Act currently used by SCI SROs to file Form 19b–4 and Regulation SCI. See proposed and adopted 17 filings. See Securities Exchange Act Release No. CFR 249.1900 (stating that Form SCI shall be used 50486 (October 4, 2004), 69 FR 60287 (October 8, 1231 17 CFR 240.17a–4(i). See Proposing Release, to ‘‘file’’ notices and reports as required by 2004) (adopting the EFFS for use in filing Form supra note 13, at 18129. Regulation SCI). See also amended Rule 24b–2 19b–4). See also Proposing Release, supra note 13, 1232 See 17 CFR 240.17a–4(i) (records preserved (referring to material ‘‘filed’’ in electronic format on at 18130. or maintained by a service bureau). Form SCI). 1241 See General Instructions to Form SCI, Item A.

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final rule included a safe harbor for an electronic means by which an SCI representatives could test an SCI entity’s good faith reporting of SCI events. The entity may request confidential firewalls and vulnerability to Commission is adopting the electronic treatment of its filings on Form SCI. intrusions.1249 Further, the Commission signature requirement as proposed. The New paragraph (g) will provide that an noted that the proposed rule was Commission notes that, as discussed SCI entity’s electronic filings on Form intended to be consistent with the above in Section IV.B.3.c, immediate SCI pursuant to Regulation SCI must Commission’s current authority with Commission notification following an include any information with respect to respect to access to records SCI event and updates regarding the SCI which confidential treatment is generally 1250 and could help ensure event may be given orally; the 24-hour requested (‘‘confidential portion’’), and that Commission representatives have Commission notification is required to provide that, in lieu of the procedures ready access to the SCI systems and SCI be made on a good faith, best efforts described in Rule 24b–2b, an SCI entity security systems of SCI entities in order basis; and the final Commission may request confidential treatment of all to evaluate an SCI entity’s practices notification is not required until the information submitted on Form SCI by with regard to the requirements of resolution of the SCI event and the completing Section IV of Form SCI. The Regulation SCI.1251 As discussed below, completion of the SCI entity’s Commission’s amendment provides an the Commission has determined not to investigation of the SCI event. The exception from Rule 24b–2’s paper-only adopt the proposed requirement because Commission also notes that the purpose request for confidential treatment for all it believes it can achieve the goal of the of the electronic signature requirement Form SCI filings, and specifically proposed rule through its existing on Form SCI is to ensure that the person permits an SCI entity to electronically recordkeeping requirements and submitting the form to the Commission request confidential treatment of all examination authority, as well as has been properly authorized by the SCI information filed on Form SCI in through the new recordkeeping entity to submit the form on its accordance with Regulation SCI. The requirement in Rule 1005 of Regulation behalf.1242 Therefore, the electronic Commission believes that allowing for SCI. signature requirement would not put electronic submission of confidential Many commenters criticized the SCI SCI entity personnel at risk if the SCI treatment requests will reduce the Proposal’s discussion of the proposed entity later determines that there were burden on SCI entities by not requiring access requirement as permitting factual errors, omissions, or other flaws a separate paper submission, and unfettered access by third parties that in the initial filing. As such, the provided the confidential treatment could pose significant security risks to Commission does not agree with the request is properly made, will expedite an SCI entity’s systems.1252 Potential comment that the electronic signature Commission review of the requests for issues identified by commenters requirement was appropriate only if the confidential treatment, as all included unauthorized access to final rule included a safe harbor for information submitted on Form SCI will 1253 1243 confidential information, risk and good faith reporting of SCI events. be deemed to be the subject of the damage to systems,1254 and contractual request for confidential treatment. issues with third party vendors.1255 One Amendment To Facilitate Electronic If such a confidential treatment commenter stated that the Commission Filing Requirements request is properly made, the should bear in mind that access to such In addition, to permit implementation Commission will keep the information highly sensitive environments of SCI of Rule 1006,1244 the Commission is collected pursuant to Form SCI entities carries a duty of care adopting an amendment to Rule 24b–2 confidential to the extent permitted by under the Exchange Act.1245 Rule 24b– 1247 commensurate with the sensitivity of law. 1256 2 currently provides confidential the access and information involved. treatment requests and the confidential 3. Access to the Systems of an SCI While several commenters advocated portion of an electronic filing may be Entity for the elimination of the proposed submitted in paper format only.1246 The Proposed Rule 1000(f) would have access provision,1257 some commenters Commission is amending Rule 24b–2 by required each SCI entity to provide recommended ways to refine the amending the rule’s preliminary note, Commission representatives reasonable proposed requirement while still and paragraph (b) of the rule to clarify access to its SCI systems and SCI achieving its goals.1258 These that under Rule 24b–2, confidential security systems to assess the SCI treatment requests and the confidential entity’s compliance with Regulation 1249 See Proposing Release, supra note 13, at portion of an electronic filing may be SCI.1248 In the SCI Proposal, the 18130. 1250 See Proposing Release, supra note 13, at submitted in paper format only, unless Commission noted that the proposed 18130 (citing Section 17(b) of the Exchange Act, as Rule 24b–2 provides otherwise. The rule would facilitate the access of well as Sections 11A, 6(b)(1), 15A(b)(2), and Commission also is adding a new representatives of the Commission to 17A(b)(3)(A) of the Exchange Act). paragraph (g) to Rule 24b–2 to provide such systems of an SCI entity either 1251 See Proposing Release, supra note 13, at remotely or on site, noting, for example, 18130. 1252 See, e.g., NYSE Letter at 34; BATS Letter at 1242 Additionally, similar to use of the EFFS in that with such access, Commission 15; ISE Letter at 10; MSRB Letter at 25–26; Omgeo the context of electronic filing of Form 19b–4, by Letter at 28–29; SIFMA Letter at 18–19; FIF Letter using a digital ID for each duly authorized signatory 1247 The Freedom of Information Act (‘‘FOIA’’) at 7; Fidelity Letter at 5–6; LiquidPoint Letter at 4; providing an electronic signature, both the provides at least two pertinent exemptions under ITG Letter at 16; KCG Letter at 20–21; Joint SROs Commission and an SCI entity may be assured of which the Commission has authority to withhold the authenticity and integrity of the electronic filing Letter at 17–18; OCC Letter at 20; UBS Letter at 5; certain information. FOIA Exemption 4 provides an of Form SCI. See infra Section V.D.2.e (noting the Tellefsen Letter at 10; and FINRA Letter at 41. exemption for ‘‘trade secrets and commercial or 1253 necessity of completing a form to gain access to See, e.g., FINRA Letter at 41; and Omgeo financial information obtained from a person and EFFS). Letter at 29. privileged or confidential.’’ 5 U.S.C. 552(b)(4). FOIA 1243 1254 See, e.g., Omgeo Letter at 29; and ITG Letter The same rationale also applies to the Exemption 8 provides an exemption for matters that at 16. requirement for manual signature in Rule 1006. are ‘‘contained in or related to examination, 1255 1244 See Rule 1006, 17 CFR 242.1006; see also operating, or condition reports prepared by, on See, e.g., SIFMA Letter at 19. General Instruction E to Form SCI (requiring Form behalf of, or for the use of an agency responsible 1256 See OCC Letter at 20. SCI and exhibits to be filed electronically under for the regulation or supervision of financial 1257 See, e.g., ITG Letter at 16; and CME Letter at Rule 1006). institutions.’’ 5 U.S.C. 552(b)(8). 11. 1245 17 CFR 240.24b–2. 1248 See proposed Rule 1000(f) and Proposing 1258 See, e.g., NYSE Letter at 34; OCC Letter at 20; 1246 See 17 CFR 240.24b–2. Release, supra note 13, at Section III.D.3. ISE Letter at 10; DTCC Letter at 14; CME Letter at

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suggestions included: Limiting the existing recordkeeping requirements time, or from time to time,’’ as the category of Commission staff to whom and its examination authority, as well as Commission ‘‘deems necessary or access could be provided; 1259 providing through the new recordkeeping appropriate in the public interest, for the Commission with access to requirement in Rule 1005 of Regulation the protection of investors, or otherwise ‘‘configuration and information flows of SCI. As discussed in the SCI Proposal, in furtherance of the purposes of [the the system, instead of direct the reasonable access provision was Exchange Act].’’ 1275 access;’’ 1260 providing the Commission designed to help ensure that the Taken together, the Commission with reports and metrics on systems Commission was able to evaluate an SCI believes that these provisions afford the vulnerabilities rather than direct entity’s practices with regard to the Commission the authority and ability to access; 1261 requiring only that SCI requirements of proposed Regulation assess SCI entities’ compliance with the entities demonstrate for Commission SCI.1271 The Commission believes that it requirements of Regulation SCI, staff their controls and safeguards and can adequately assess an SCI entity’s rendering the adoption of a reasonable compliance with the rule; 1262 compliance with Regulation SCI access provision unnecessary. Pursuant mandating training of Commission staff through its authority provided by to this authority, in some circumstances, and supervision of Commission staff existing provisions of the Exchange Act the Commission’s assessment of an SCI access by SCI entity personnel; 1263 and and rules thereunder, as well as through entity’s compliance may require requiring that an SCI entity’s staff the additional recordkeeping provisions appropriate access to certain SCI conduct any tests while Commission being adopted today in Rule 1005 of systems in coordination with the staff observed, rather than providing Regulation SCI, as described above. In relevant SCI entity. In particular, the Commission staff with direct access.1264 this regard, as discussed above, Section Commission’s ability to assess the One commenter also noted that the 17(a) of the Exchange Act provides the accuracy and completeness of an SCI concept of reasonable access was Commission with the authority to adopt entity’s records with regard to vague.1265 Other commenters asked that recordkeeping rules, and the breadth of Regulation SCI, including the written the Commission more clearly prescribe Rule 17a–1 thereunder is such that it policies and procedures established and what would constitute ‘‘reasonable would require SCI SROs to make, keep, maintained pursuant to Rule 1001 and access.’’ 1266 One commenter also and preserve records relating to their the report of the SCI review prepared in recommended that SCI entities provide compliance with Regulation SCI, accordance with Rule 1003(b), and to an individual contact for a designated including records produced by SCI evaluate whether SCI entities are Commission representative to systems and indirect SCI systems.1272 otherwise complying with Regulation communicate and meet with regarding Further, adopted Rule 1005 specifically SCI, may necessitate the observation of an SCI entity’s systems.1267 imposes requirements on each SCI SCI systems and indirect SCI systems by A few commenters also questioned entity (other than SCI SROs) to, among Commission representatives.1276 whether the proposed access other things: Make, keep, and preserve The Commission believes that such requirement is authorized by Section at least one copy of all documents access would not require an SCI entity 17(b) or Section 11A of the Exchange relating to its compliance with to agree to remote or direct access by Act, as stated in the SCI Proposal.1268 Regulation SCI; keep all such Commission personnel to an SCI entity’s Other commenters considered the documents for a period of not less than systems, such as by permitting proposed access requirement five years, the first two years in a place Commission staff to run tests or use unnecessary and questioned the that is readily accessible to the system scanning tools on its SCI systems Commission’s justification for needing Commission or its representatives for or indirect SCI systems. Rather, as this authority.1269 Another commenter inspection and examination; and upon suggested by some commenters, access pointed out that this type of access is request of any representative of the would entail allowing Commission staff authorized by other sections of the Commission, promptly furnish to the to observe the SCI entity’s SCI systems Exchange Act and an additional possession of such representative copies and indirect SCI systems with provision in Regulation SCI is of any documents required to be kept appropriate safeguards, including redundant.1270 and preserved by it pursuant to Rules through systems demonstrations for After consideration of the views of 1005(b)(1) and (2).1273 The Commission Commission staff performed by the SCI commenters, the Commission has also notes that Section 17(b) of the entity and running tests on an SCI determined not to adopt the proposed Exchange Act authorizes the system with Commission staff onsite to reasonable access provision because it Commission to conduct reasonable observe.1277 The Commission believes believes it can achieve its goals through periodic, special, or other examinations that such access does not raise the of all records maintained by the entities potential security risks posed by 11; Omgeo Letter at 29; Joint SROs Letter at 18; and described in Section 17(a).1274 These unrestricted third party access to SCI MSRB Letter at 26. examinations can be conducted ‘‘at any systems.1278 1259 See, e.g., NYSE Letter at 34. D. Form SCI 1260 See NYSE Letter at 34. 1271 See Proposing Release, supra note 13, at 1261 See, e.g., ISE Letter at 10; DTCC Letter at 14; 18130. Pursuant to proposed Rule 1000(d), OCC Letter at 20; and CME Letter at 11. 1272 See supra note 1251 and accompanying text. subject to certain exceptions, notices, 1262 See, e.g., Omgeo Letter at 28–29; and DTCC 1273 See supra Section IV.C.1 (discussing reports, and other information required Letter at 14. recordkeeping requirements of adopted Rule 1005). 1263 See MSRB Letter at 26. As noted above, the recordkeeping requirements 1275 1264 See OCC Letter at 20. also extend to records of third parties. Specifically, Id. 1276 The Commission notes that, under the ARP 1265 See, e.g., ITG Letter at 16. an SCI entity is responsible for producing to Inspection Program, such access has been routinely 1266 See, e.g., MSRB Letter at 26; Joint SROs Letter Commission representatives records required to be made, kept, and preserved under Regulation SCI, requested by Commission staff and provided by at 18; and FINRA Letter at 41. even if those records are maintained by third ARP entities. 1267 See SIFMA Letter at 19. parties, and the SCI entity is responsible for 1277 See supra notes 1262 and 1264 and 1268 See NYSE Letter at 34; BATS Letter at 15; and ensuring that such third parties produce those accompanying text. CME Letter at 11. requested documents, upon examination or other 1278 The Commission believes that the 1269 See FINRA Letter at 41; BATS Letter at 15; request. See id. elimination of the proposed reasonable access Omgeo Letter at 28–29; and Fidelity Letter at 5. 1274 See Section 17(b) of the Exchange Act, 15 provision addresses the other comments on this 1270 See Angel Letter at 18. U.S.C. 78q(b). provision.

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to be provided to the Commission under updates regarding SCI events pursuant and reports needed to be translated into Regulation SCI would have been to Rule 1002(b)(3). Moreover, if an SCI plain English.1283 Another commenter required to be submitted electronically entity decides to withdraw a previously requested that the electronic filing through the EFFS on proposed Form submitted Form SCI, it would complete system that the Commission puts in SCI.1279 Proposed Form SCI included page 1 of Form SCI and select the place to receive Form SCI submissions detailed instructions regarding the appropriate check box to indicate the be made available on weekends and specific information that SCI entities withdrawal. A filing on Form SCI also outside normal business hours.1284 This would have been required to submit to requires that an SCI entity provide commenter also suggested that the the Commission. After careful additional information on attached Commission remain open to changes to consideration of comments, the exhibits, as discussed below. Because Form SCI as it and SCI entities gain Commission is adopting Form SCI with Form SCI is a report that is required to experience with the use of Form SCI certain modifications, as further be filed under the Exchange Act and and that the Commission should work discussed below. These modifications to Regulation SCI, it is unlawful for any with SCI entities to test the electronic proposed Form SCI correspond to the person to willfully or knowingly make, submission system to ensure its changes to the Commission notification or cause to be made, a false or operational capability.1285 and reporting requirements as adopted, misleading statement with respect to The Commission has considered these each of which is discussed in greater any material fact in Form SCI.1281 comments and has addressed many of detail above.1280 Several commenters addressed the the issues raised by commenters by Adopted Rule 1006 provides that, information required by Form SCI as revising the substantive requirements of except with respect to notifications to well as the submission process for the adopted Rules 1002 and 1003, as well as the Commission made pursuant to Rule form. One commenter asked a number making certain changes to the adopted 1002(b)(1) or updates to the Commission of questions on how the submission form. With respect to a commenter’s made pursuant to Rule 1002(b)(3), all process would work in practice, question regarding whether a Form SCI notifications, reviews, descriptions, including: (i) Whether the form would would be rejected if information was analyses, or reports to the Commission be rejected by the Commission if missing,1286 as stated in the General required to be submitted under information was missing; (ii) whether Instructions for Form SCI, an SCI entity Regulation SCI must be filed the Commission would deem it a failure must provide all information required electronically on Form SCI. Form SCI to comply with Regulation SCI if a Form by the form, including the exhibits. The solicits information through a series of SCI is rejected for incompleteness and General Instructions for Form SCI also questions designed to elicit short-form the SCI entity is unable to resubmit state that a filing that is incomplete or answers, but also requires SCI entities to within the applicable reporting time similarly deficient may be returned to provide information and/or reports in frame; (iii) how SCI entities would the SCI entity, and any filing so narrative form by attaching specified update or correct information returned will be deemed not to have exhibits. All filings on Form SCI require previously submitted on Form SCI; (iv) been filed with the Commission.1287 In that an SCI entity identify itself and will the EFFS system be available for response to the commenter who indicate the basis for submitting the Form SCI submissions during non- expressed concern that a submission form. Specifically, an SCI entity would business hours and whether there is an that needed to be updated or corrected indicate on the form the specific type of alternative means to submit would not be considered timely filed, submission it is making: A notification notifications if the EFFS system is down the Commission notes that an SCI entity regarding an SCI event pursuant to Rule or unavailable; (v) who at the is responsible for submitting a complete 1002(b)(2); a final report or interim Commission would be reviewing and correct Form SCI within the time status report regarding an SCI event submissions and whether they would be period specified in the relevant pursuant to Rule 1002(b)(4); a quarterly familiar with technical jargon; and (vi) provisions under Regulation SCI.1288 At report on de minimis systems whether the SCI entities will be the same time, the Commission notes disruptions and de minimis systems expected to attach documentation intrusions pursuant to Rule supporting the descriptions provided in 1283 See id. 1002(b)(5)(ii); a quarterly report of the exhibits.1282 The commenter also 1284 See MSRB Letter at 19, 25. See also FINRA material systems changes pursuant to Letter at 29 (questioning whether the EFFS system expressed several concerns, including: would be available during non-business hours for Rule 1003(a)(1); a supplemental report (i) The amount of time it would take SCI Form SCI submissions). of material system changes pursuant to entities to master the new submission 1285 See MSRB Letter at 25–26. Rule 1003(a)(2); or a submission of the process for proposed Form SCI and 1286 See supra note 1282 and accompanying text. report of an SCI review, together with suggested a delayed implementation or 1287 While the Commission has the ability to any response by senior management, transition period; (ii) that the form reject a Form SCI filing, the Commission notes that the Form SCI submission process is different from pursuant to Rule 1003(b)(3). In addition, could encourage SCI entities to guess the Form 19b–4 filing process. Specifically, SCI Form SCI permits, but does not require, where they are missing information if a entities file Form SCI to provide notification to the SCI entities to utilize the form to submit form could be rejected for incomplete Commission regarding SCI events and material initial notifications of SCI events systems changes, and reports of SCI reviews. On the information; (iii) that a submission that other hand, SROs file Form 19b–4 for immediately pursuant to Rule 1002(b)(1), as well as needs to be updated or corrected would effective rule changes or to seek Commission not be considered timely filed; (iv) that approval of rule changes. Therefore, the process for 1279 Proposed Rule 1000(d) provided exceptions the updating procedure could become rejecting a Form 19b–4 filing does not apply to for notifications under proposed Rule 1000(b)(4)(i) burdensome if the SCI entity needed to Form SCI submissions. and oral notifications pursuant to proposed Rule 1288 With respect to a commenter’s concern that 1000(b)(6)(ii). explain the reason for any changes to SCI entities may have to guess where information 1280 See supra Sections IV.B.3.c, IV.B.4, and information previously provided; and is missing if a form could be rejected for incomplete IV.B.5 (discussing the reporting requirements of the (v) that submissions would be more information, the Commission intends there to be adopted regulation). See also supra Section IV.B.6 burdensome if technical notifications communication between Commission staff and SCI (discussing the business continuity and disaster entity personnel in instances where a Form SCI is recovery plans testing requirement for SCI entity rejected to discuss the information missing in the members or participants, and elimination of the 1281 See, e.g., Section 32(a) of the Exchange Act, submission and anything else necessary to comply proposed Commission notification requirement 15 U.S.C. 78ff(a). with the form requirements. See supra note 1283 related to member or participation designations). 1282 See FINRA Letter at 28–30. and accompanying text.

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that, while the SCI event notification and correct Form SCI within the time be available during non-business hours under Rule 1002(b)(2) is required to be period specified in the relevant and whether there is an alternative provided within 24 hours of any provisions under Regulation SCI.1291 means to submit notifications if the responsible SCI personnel having a In addition, in response to EFFS system is down or unavailable,1293 reasonable basis to conclude that an SCI comments,1292 the Commission notes the Commission notes that, as is the event occurred, information for such that Form SCI does not require SCI case with Rule 19b–4 and Rule 19b–7 notifications is only required to be entities to attach documentation filings, EFFS is available 24 hours a day. provided on a good faith, best efforts supporting the descriptions in the If EFFS becomes unavailable for a basis. For other types of notifications exhibits, although SCI entities will be period of time, the Commission and reports required to be submitted on able to do so if they so choose by recognizes that SCI entities will not be Form SCI, SCI entities have more time attaching the documentation as part of able to submit any required notifications to prepare such submission, and to the relevant exhibit. Moreover, in during that time period, and the ensure that the information provided is response to the commenter who asked Commission would expect the SCI complete and correct. who at the Commission would be entities to file any required notifications With respect to a commenter’s reviewing submissions and whether promptly once it becomes available. In question regarding how SCI entities they would be familiar with technical response to the commenter who would update or correct information jargon, the Commission notes that suggested that the Commission remain previously submitted on Form SCI, the appropriate Commission staff from open to changes to Form SCI and that Commission notes that the rules under different offices or divisions with the the Commission work with SCI entities Regulation SCI already provide for necessary expertise to understand the to test the electronic submission system updates for many of the Form SCI Form SCI submission will review it to ensure its operational capability, the submissions. Specifically, Rule depending on the nature of the Commission expects, as it has done with 1002(b)(2) requires certain information submission (i.e., legal or technical), and the SRO rule filing process, to to be submitted on a good faith, best thus, it is not necessary for SCI entities periodically evaluate the effectiveness efforts basis within 24 hours of any to translate technical jargon into plain of the submission process for Form SCI, responsible SCI personnel having a English. as well as the form itself, and may reasonable basis to conclude that an SCI In response to the commenter who consider improvements in the future as event has occurred. Rule 1002(b)(3) expressed concern as to the amount of appropriate.1294 The Commission also requires SCI entities to provide updates time it would take SCI entities to master notes that it expects, prior to the regarding SCI events until the SCI event the Form SCI submission process and compliance date, that its staff will is resolved and the SCI entity’s suggested delayed implementation, the provide materials to SCI entities investigation of the SCI event is Commission believes that, by utilizing regarding the operation of the electronic the EFFS system currently used by closed.1289 As such, SCI entities may filing system to submit Forms SCI. many SROs for Rule 19b–4 and Rule use the updates under Rule 1002(b)(3) to Furthermore, the Commission will 19b–7 filings, it will allow for a quicker correct or update previously submitted perform internal testing to help ensure and smoother implementation of the information. Also, Rule 1003(a)(2) the operational capability of EFFS prior Form SCI submission process for certain requires SCI entities to submit to the compliance date. SCI entities, and allow the Commission supplemental reports to notify the to apply its experience with EFFS to 1. Notice of SCI Events Pursuant to Rule Commission of any material error in or facilitate the submissions of 1002(b) material omission from a previously notifications and reports required by submitted material systems change Proposed Rule 1000(b)(4) would have Regulation SCI. Nevertheless, the required each SCI entity to submit report. Commission notes that it is delaying the certain information regarding SCI events With respect to the Form SCI date for compliance with Regulation to the Commission using proposed Form submissions where the rules do not SCI, as discussed in Section IV.F below. SCI.1295 The Commission is adopting specifically provide for updates (i.e., The Commission does not expect that proposed Rule 1000(b)(4) as Rule SCI event notifications under Rule the Form SCI submission process will 1002(b) with certain modifications, 1002(b)(4), quarterly SCI event require substantial time for SCI entities which are discussed above in Section notifications under Rule 1002(b)(5), to master and the delayed date for IV.B.3.c. report of SCI reviews under Rule compliance with Regulation SCI With respect to Commission 1003(b)(3)), if an SCI entity discovers provides SCI entities with more time to notifications under Rule 1002, adopted that a previously submitted Form SCI learn and adopt it. must be corrected or updated, the SCI With respect to commenters’ question Form SCI requires an SCI entity to entity should contact Commission staff regarding whether the EFFS system will provide the following information in a as it corrects or updates the prior short, standardized format: (i) Whether submission. In addition, an SCI entity 1291 As noted above, one commenter expressed the Commission has previously been will be able to withdraw and re-submit concern that an updating procedure could become notified of the SCI event pursuant to a previously submitted Form SCI.1290 burdensome if the SCI entity needs to explain the Rule 1002(b)(1); (ii) the type of However, as noted above, an SCI entity reason for any changes to information previously submission (i.e., an initial notification provided. See supra note 1283 and accompanying is responsible for submitting a complete text. The Commission notes that, with respect to pursuant to Rule 1002(b)(1), a rules under Regulation SCI that require updates, notification pursuant to Rule 1002(b)(2), 1289 As discussed in detail in Section IV.B.3.c those rules specify the information that is required an update pursuant to Rule 1002(b)(3), above, Rule 1002(b)(3) allows SCI entities to discuss to be contained in an update, and do not require a final report pursuant to Rule the update with Commission staff orally, rather an explanation of the reason for the update. With than by completing the form, although an SCI entity respect to the Form SCI submissions where the 1002(b)(4), or an interim status report may use Form SCI if it chooses to do so. To the rules do not specifically provide for updates, as extent an SCI entity chooses to utilize the form for noted above, the SCI entity can contact Commission 1293 See supra notes 1282, 1284 and such updates, the written updates can facilitate the staff as the SCI entity corrects or updates the prior accompanying text. Commission’s tracking and assessment of SCI submission. 1294 See supra note 1285 and accompanying text. events. 1292 See supra notes 1282–1283 and 1295 Proposed Rule 1000(d) provided an exception 1290 See General Instructions to Form SCI, Item F. accompanying text. for notifications under proposed Rule 1000(b)(4)(i).

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pursuant to Rule 1002(b)(4)); (iii) the by the SCI event; the potential impact of SCI event to any of its members or type(s) of SCI event (i.e., systems the SCI event on the market; a participants; and (iii) an analysis of compliance issue, systems disruption, description of the steps the SCI entity parties that may have experienced a or systems intrusion); 1296 (iv) the date/ has taken, is taking, or plans to take, loss, whether monetary or otherwise, time the SCI event occurred; (v) the with respect to the SCI event; the time due to the SCI event, the number of duration of the SCI event; (vi) when the SCI event was resolved or timeframe such parties, and an estimate of the responsible SCI personnel had a within which the SCI event is expected aggregate amount of such loss. As noted reasonable basis to conclude that an SCI to be resolved; and any other pertinent above, if an SCI entity submits an event occurred; (vii) whether the SCI information known by the SCI entity interim written notification under Rule event has been resolved and, if so, the about the SCI event. 1000(b)(4)(i)(B), the SCI entity is date/time of resolution; (viii) whether If an SCI entity chooses to utilize required to provide the information the SCI entity’s investigation of the SCI Form SCI to submit an update required specified in Exhibit 2, but only to the event is closed and, if so, the date of by Rule 1002(b)(3), an SCI entity will be extent known at the time. The SCI entity closure; (ix) the estimated number of able to submit a short description of the is also required to subsequently submit market participants potentially update, and be allowed to attach a final report under Rule 1000(b)(4)(i)(B) impacted by the SCI event; (x) whether documents regarding such update as and provide all the information the SCI event is a major SCI event; (xi) part of Exhibit 6 of Form SCI if the SCI specified in Exhibit 2. the types of systems impacted (i.e., entity chooses to do so. Rule 1002(b)(5) states that the trading, clearance and settlement, order For a submission required by Rule Commission notification requirements routing, market data, market regulation, 1002(b)(4), in addition to providing the under Rules 1002(b)(1)–(4) do not apply market surveillance, or indirect SCI applicable standardized information on to any SCI event that has had, or the SCI systems) and the name of such Form SCI as discussed above, adopted entity reasonably estimates would have, system(s); and (xii) whether any critical Form SCI also requires an SCI entity to no or a de minimis impact on the SCI SCI system(s) are impacted by the SCI indicate if it is a final report or an entity’s operations or on market event and, if so, the types of such interim status report and submit an participants. Rule 1002(b)(5)(i) instead critical SCI systems (i.e., systems that Exhibit 2. If an SCI event is resolved and requires that an SCI entity make, keep, directly support functionality relating the SCI entity’s investigation of the SCI and preserve records relating to all such to: Clearance and settlement systems of event is closed within 30 calendar days SCI events and Rule 1002(b)(5)(ii) clearing agencies; openings, reopenings, of the occurrence of the SCI event, an requires an SCI entity to submit to the and closings on the primary listing SCI entity must file a final report under Commission quarterly reports market; trading halts; initial public Rule 1002(b)(4)(i)(A) within five containing a summary description of business days after the resolution of the offerings; the provision of consolidated such de minimis systems disruptions SCI event and closure of the market data; exclusively listed and de minimis systems intrusions. For investigation regarding the SCI event. securities; or systems that provide a quarterly report required by Rule However, if an SCI event is not resolved functionality to the securities markets 1002(b)(5), an SCI entity is required to or the SCI entity’s investigation of the for which the availability of alternatives indicate the end date of the applicable SCI event is not closed within 30 is significantly limited or nonexistent calendar quarter for which the report is calendar days of the occurrence of the and without which there would be a being submitted. The SCI entity is also SCI event, an SCI entity must file an required to submit an Exhibit 3, material impact on fair and orderly interim status report under Rule containing a summary description of markets) and a description of such 1002(b)(4)(i)(B)(1) within 30 calendar such de minimis systems disruptions systems. days after the occurrence of the SCI If an SCI entity chooses to utilize and de minimis systems intrusions, event. For SCI events in which an Form SCI to submit an initial including the SCI systems and, for interim status report is required to be notification required by Rule 1002(b)(1), systems intrusions, the indirect SCI filed, an SCI entity must file a final an SCI entity will be able to submit a systems, affected by such de minimis report under Rule 1002(b)(4)(i)(B)(2) short description of the SCI event, and systems disruptions and de minimis within five business days after the systems intrusions during the applicable be allowed to attach documents resolution of the SCI event and closure calendar quarter. regarding such SCI event as part of of the investigation regarding the SCI Exhibit 6 of Form SCI if the SCI entity event. For any submission required by 2. Notices of Material Systems Changes chooses to do so. Rule 1002(b)(4), an SCI entity is Pursuant to Rule 1003(a) For a notification required by Rule required to provide the following Proposed Rule 1000(b)(6) would have 1002(b)(2), in addition to providing the information in the Exhibit 2: (i) A required an SCI entity to provide applicable standardized information on detailed description of: The SCI entity’s advance Commission notifications of Form SCI as discussed above, an SCI assessment of the types and number of material systems changes. Proposed entity is required to submit an Exhibit market participants affected by the SCI Rule 1000(b)(8)(ii) would have required 1. An SCI entity is required to provide event; the SCI entity’s assessment of the an SCI entity to submit to the the following information on a good impact of the SCI event on the market; Commission semi-annual reports on faith, best efforts basis in the Exhibit 1: the steps the SCI entity has taken, is material systems changes. As discussed (i) A description of the SCI event, taking, or plans to take, with respect to in detail in Section IV.B.4 above, many including the system(s) affected; and (ii) the SCI event; the time the SCI event commenters were critical of the to the extent available as of the time of was resolved; the SCI entity’s rule(s) proposed reporting framework with notification, the SCI entity’s current and/or governing document(s), as respect to material systems changes, assessment of the types and number of applicable, that relate to the SCI event; including the 30-day advance market participants potentially affected and any other pertinent information notification procedure. After known by the SCI entity about the SCI considering the views of commenters, 1296 Some SCI events may meet the definition of more than a single SCI event type, and the form event; (ii) a copy of any information the Commission is not adopting the 30- permits SCI entities to check one, two, or all three disseminated pursuant to Rule 1002(c) day advance notification requirement or SCI event types. by the SCI entity to date regarding the the semi-annual reporting requirement

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for material systems changes. Rather, an from a report previously submitted number, and email address of such SCI entity is required to submit under Rule 1003(a)(1).1299 persons. Proposed Form SCI would also quarterly reports for material systems have given the SCI entity an option to 3. Reports of SCI Reviews Pursuant to changes under Rule 1003(a)(1). An SCI provide contact information for an 1003(b) entity is also required under Rule additional systems personnel and 1003(a)(2) to promptly submit a Proposed Rule 1000(b)(8)(i) would regulatory personnel. Finally, proposed supplemental report notifying the have required an SCI entity to submit to Form SCI would have required an Commission of a material error in or the Commission a report of the SCI electronic signature to help ensure the material omission from a report review required by proposed Rule authenticity of the Form SCI previously submitted under Rule 1000(b)(7), together with any response submission. 1003(a). by senior management, within 60 Adopted Form SCI more generally One commenter raised a concern that calendar days after its submission to requires an SCI entity to provide contact an advance notification could be senior management of the SCI entity. As information for a person who is rejected by the Commission for discussed above in Section IV.B.5, the prepared to respond to questions for a inadequate description and result in a Commission is adopting this particular submission. Form SCI delay to a planned systems change.1297 Commission reporting requirement as continues to require an electronic As noted above in Section IV.B.4, the proposed. There were no comments on signature to help ensure the authenticity Commission is adopting a quarterly proposed Form SCI with respect to of the Form SCI submission. The reporting system that does not require reports of SCI reviews. Commission believes that these the advanced notification of individual For a notification required by Rule requirements will expedite planned material systems changes 1003(b), an SCI entity is required to communications between Commission required by proposed Rule 1000(b)(6). indicate on Form SCI the date of staff and SCI entities, because they will The adopted framework is intended to completion of the SCI review and the help identify the person or persons keep the Commission and its staff date of submission of the SCI review to responsible for communicating with apprised of systems changes at SCI the SCI entity’s senior management. An Commission staff about an SCI event entities while reducing the burdens SCI entity is also required to submit an even though one or more other persons Exhibit 5, containing the report of the related to notifying the Commission of may be responsible for addressing and SCI review that was submitted to the such changes and allowing for the resolving the SCI event, and also help SCI entity’s senior management, along various types of development processes ensure that only authorized personnel at with any response to the report by used by SCI entities (including agile each SCI entity submit filings required senior management.1300 development processes). Also, as noted by adopted Regulation SCI. above in Section IV.B.4, Regulation SCI 4. Notification of Member or Participant E. Other Comments Received does not provide for a new review or Designation Standards and List of approval process for SCI entities’ Designees 1. Applying Regulation SCI to Security- material systems changes. As such, Based Swap Data Repositories and Commission staff will not use material Proposed Rule 1000(b)(9) would have required an SCI entity to notify the Security-Based Swap Execution systems change reports to require any Facilities approval of prospective systems changes Commission of its members or in advance of their implementation participants that have been designated As noted in the SCI Proposal, on July pursuant to any provision of Regulation for business continuity and disaster 21, 2010, the President signed the Dodd- SCI, or to delay implementation of recovery plans testing, as well as the Frank Act into law.1301 The Dodd-Frank material systems changes pursuant to standards for such designation. Act was enacted, among other things, to any provision of Regulation SCI.1298 Proposed Rule 1000(b)(9) would have promote the financial stability of the For a notification required by Rule also required SCI entities to promptly United States by improving the 1003(a) (including supplemental reports update such notification after any accountability and transparency of the under Rule 1003(a)(2)), an SCI entity is changes to its list of designees or nation’s financial system.1302 Title VII required to indicate the end date of the standards for designation. As discussed of the Dodd-Frank Act provides the applicable calendar quarter for which above in Section IV.B.6, the Commission and the CFTC with the the report is being submitted and submit Commission is not adopting these authority to regulate over-the-counter an Exhibit 4. For a notification required Commission notification requirements. derivatives. by Rule 1003(a)(1), Exhibit 4, is required 5. Other Information and Electronic In particular, as noted in the SCI to contain a description of completed, Signature Proposal, Section 763 of the Dodd-Frank ongoing, and planned material changes Act amends the Exchange Act by adding to its SCI systems and the security of its Proposed Form SCI would have new statutory provisions to govern the indirect SCI systems, during the prior, required an SCI entity to provide the regulation of various entities, including current, and subsequent calendar Commission with contact information security-based swap data repositories quarters, including the dates or for the systems personnel, regulatory (‘‘SB SDRs’’) and security-based swap expected dates of commencement and personnel, and senior officer execution facilities (‘‘SB SEFs’’).1303 completion. For a notification required responsible for addressing an SCI event, by Rule 1003(a)(2), Exhibit 4 is required including the name, title, telephone 1301 The Dodd-Frank Wall Street Reform and to contain the supplemental report of a Consumer Protection Act (Pub. L. 111–203, H.R. 1299 4173) (‘‘Dodd-Frank Act’’). material error in or material omission See General Instructions to Form SCI, Item C. 1300 As discussed in Section IV.B.5, the SCI 1302 See Dodd-Frank Act Preamble. review would contain: (1) A risk assessment with 1303 See Dodd-Frank Act, Section 763 (adding 1297 See SIFMA Letter at 16. respect to SCI systems and indirect SCI systems of Sections 13(n), 3C, and 3D of the Exchange Act). 1298 At the same time, the Commission notes that an SCI entity; and (2) an assessment of internal The Dodd-Frank Act also directs the Commission to the General Instructions for Form SCI state that a control design and effectiveness of SCI systems and harmonize to the extent possible Commission filing that is incomplete or similarly deficient may indirect SCI systems to include logical and physical regulation of SB SDRs and SB SEFs with CFTC be returned to the SCI entity, and any filing so security controls, development processes, and regulation of swap data repositories (‘‘SDRs’’) and returned will be deemed not to have been filed with information technology governance, consistent with swap execution facilities (‘‘SEFs’’) under the the Commission. industry standards. Continued

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Under the authorities of Section 13(n) of such requirements for SB SDRs and SB One commenter noted that SB SDRs the Exchange Act, applicable to SB SEFs.1308 However, the Commission should have standards that are SDRs, and Section 3D(d) of the also noted that, should the Commission consistent with, but not identical to, Exchange Act, applicable to SB SEFs, decide to propose to apply the those of SCI entities.1316 According to the Commission proposed rules for requirements of Regulation SCI to SB this commenter, the functions that SB these entities with regard to their SDRs or SB SEFs, the Commission SDRs perform are significantly different automated systems’ capacity, resiliency, would issue a separate release from those performed by SCI and security.1304 In the SB SDR discussing such a proposal.1309 entities.1317 However, this commenter Proposing Release and the SB SEF One commenter supported the supported applying to SB SDRs: Proposing Release, respectively, the inclusion of SB SEFs and possibly SB Proposed Rule 1000(b)(1)(i)(A)–(E); 1318 Commission proposed Rule 13n–6 and SDRs under proposed Regulation requirements relating to Commission Rule 822 under the Exchange Act, SCI.1310 Several commenters supported notification of SCI events (by adopting which would set forth the requirements some form of harmonization, but were the notification provisions described in for these entities with regard to their cognizant of the practical differences proposed Rule 13n–6(3)); and automated systems’ capacity, resiliency, between options and equities, on the requirements for business continuity and security. In each release, the one hand, and derivatives, on the planning and testing (but SB SDRs Commission stated that it was proposing other.1311 should not be required to test with other standards comparable to the standards In the context of considering whether SB SDRs given the structure of the applicable to SROs, including Regulation SCI should apply to SB SDRs proposed SB SDR Regulations).1319 exchanges and clearing agencies, and or SB SEFs, one commenter supported Finally, rather than making Regulation other registrants, pursuant to the principles-based rules relating to SCI applicable to SB SDRs, this Commission’s ARP standards.1305 The systems compliance and integrity, and commenter recommended that these SCI Proposal described in detail the SB generally believed that principles provisions be incorporated into Rule SDR and SB SEF proposals relating to applicable to one type of system should 13n–6.1320 systems’ capacity, resiliency, and be applicable to all types of systems.1312 The Commission appreciates the security; the comments received on This commenter noted that the comments received on the potential those proposals; and the differences Commission should not promulgate application of Regulation SCI to SB between proposed Regulation SCI and principles-based rules that would apply SDRs and SB SEFs. As noted above, those proposals.1306 different principles to different systems, should the Commission decide to In the SCI Proposal, the Commission unless such difference is clearly propose to apply the requirements of recognized that there could be warranted by the facts and Regulation SCI to SB SDRs or SB SEFs, differences between Regulation SCI, as circumstances relating to and the the Commission would issue a separate adopted, and Rules 13n–6 and 822, if purpose of a particular system.1313 This release discussing such a proposal and adopted. Therefore, the Commission commenter also commented that, would take these comments into sought comment on whether it should because technology continues to evolve account. propose to apply the requirements of at a rapid pace and because specific and 2. Applying Regulation SCI to Broker- Regulation SCI, in whole or in part, to technical rules may create conflicting Dealers Other Than SCI ATSs and Other SB SDRs and/or SB SEFs.1307 In standards, any attempt to provide Types of Entities addition, the Commission sought specific and technical rules should be comment on what—if the Commission avoided, unless the context clearly Regulation SCI, as proposed and as were to propose to apply some or all of warrants such specific and technical adopted, would apply to national the requirements of Regulation SCI to rules.1314 This commenter concluded securities exchanges, registered SB SDRs or SB SEFs—would be the that the similarities between certain SCI securities associations, registered most appropriate way to implement entities and SB SDRs and SB SEFs do clearing agencies, the MSRB, SCI ATSs, not provide a clear justification for a plan processors, and exempt clearing CFTC’s jurisdiction, an endeavor that Commission different set of rules.1315 agencies subject to ARP. It would not staff is undertaking as it seeks to move the SB SDR apply to other types of market and SB SEF proposals toward adoption. See Dodd- 1308 participants, such as market makers or Frank Act, Section 712 (directing the Commission, See id. at 18137–38. As noted in the SCI before commencing any rulemaking with regard to Proposal, although the Commission has issued a other broker-dealers. As noted in the SB SDRs or SB SEFs, to consult and coordinate with policy statement regarding the anticipated SCI Proposal, recent events have the CFTC for purposes of assuring regulatory sequencing of the compliance dates of final rules to highlighted the significance of systems be adopted by the Commission for certain consistency and comparability to the extent integrity of a broader set of market possible). provisions of Title VII of the Dodd-Frank Act, the precise timing for adoption of or compliance with participants than those included in the 1304 See Securities Exchange Act Release Nos. any final rules relating to SB SDRs or SB SEFs is 1321 63347 (November 19, 2010), 75 FR 77306 definition of SCI entity. Also, as not known at this time. See Securities Exchange Act (December 10, 2010) (proposing new Rule 13n–6 Release No. 67177 (June 11, 2012), 77 FR 35625 under the Exchange Act applicable to SB SDRs) have differing recovery requirements without a (June 14, 2012) (Statement of General Policy on the (‘‘SB SDR Proposing Release’’); 63825 (February 2, clear justification, particularly in light of a Sequencing of the Compliance Dates for Final Rules 2011), 76 FR 10948 (February 28, 2011) (proposing Congressional mandate in the Dodd-Frank Act to Applicable to Security-Based Swaps Adopted new Rule 822 under the Exchange Act applicable ensure regulatory consistency and comparability, to Pursuant to the Securities Exchange Act of 1934 to SB SEFs) (‘‘SB SEF Proposing Release’’). See also the extent possible. See NYC Bar Letter at 5. and the Dodd-Frank Wall Street Reform and Dodd-Frank Act, Section 761(a) (adding Section 1316 See DTCC Letter at 18. Consumer Protection Act). 3(a)(75) of the Exchange Act) (defining the term 1317 See id. 1309 See Proposing Release, supra note 13, at ‘‘security-based swap data repository’’), and Section 1318 However, this commenter noted that specific 761(a) (adding Section 3(a)(77) of the Exchange Act) 18134. 1310 industry standards should be adopted for SB SDRs, (defining the term ‘‘security-based swap execution See Tellefsen Letter at 5. rather than adopting existing standards that were facility’’). 1311 See DTCC Letter at 18–19; and NYC Bar largely developed before repositories were 1305 See SB SDR Proposing Release, supra note Letter at 2–5. See also CoreOne Letter at 5–7. developed and were not intended to cover these 1304, at 77332 and SB SEF Proposing Release, 1312 See NYC Bar Letter at 3. types of entities. See id. supra note 1304, at 10987. 1313 See id. at 3–4. 1319 See id. at 18–19. 1306 See Proposing Release, supra note 13, at 1314 See id. at 4. 1320 See id. at 19. 18133–34. 1315 See id. This commenter also specifically 1321 See Proposing Release, supra note 13, at 1307 See id. at 18134–37. noted that important market systems should not 18138, n. 334.

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noted in the SCI Proposal, some broker- on sophisticated automated systems.1330 Many other commenters stated more dealers have grown in size and Another commenter also believed that generally that broker-dealers should not importance to the market in recent the objectives of Regulation SCI could be captured by the definition of SCI years.1322 As such, the Commission more readily be achieved if the entity.1338 Several commenters stated recognized that systems disruptions, regulation also applied to market that they do not support the expansion systems compliance issues, and systems makers, high-frequency trading firms, of Regulation SCI to all broker-dealers intrusions at broker-dealers could pose and other broker-dealers because the because broker-dealers generally a significant risk to the market.1323 The activities of these types of entities could perform functions that do not have any Commission also noted that Rule 15c3– present systemic risks to the market.1331 systemic impact on the operation of the 5 under the Exchange Act,1324 which In connection with questions in the national market system and are requires brokers or dealers with market SCI Proposal regarding the application presently subject to numerous access to implement risk management of Regulation SCI to broker-dealers other regulations that require the controls and supervisory procedures to than SCI ATSs, one commenter urged establishment of controls (such as the limit risk, already seeks to address the Commission to broaden the Market Access Rule, Rule 17a–3, and certain risks posed to the markets by definition of SCI entity to include any Rule 17a–4), making Regulation SCI broker-dealer systems.1325 entity with direct electronic access to duplicative and unduly The Commission did not propose to equity markets because the equity burdensome.1339 apply Regulation SCI to registered markets can be disrupted by a single One commenter stated that broker- broker-dealers (other than SCI ATSs) or server.1332 Another commenter stated dealers are currently subject to high to other types of entities not covered by that all direct access proprietary trading standards of systems compliance and the definition of SCI entity. As noted in market participants (including high integrity by FINRA and state laws, and the SCI Proposal, if the Commission frequency market participants) should disciplinary actions for failure to were to decide to propose to apply the be included as SCI entities because of maintain sufficient protection of requirements of Regulation SCI to such customer data and supervisory their significant footprint in the 1340 entities, the Commission would issue a markets, past incidents like Knight policies. Moreover, this commenter separate release discussing such a Capital Group’s massive trading losses noted that, if potential systems issues proposal.1326 Nevertheless, in the SCI from a systems malfunction in August could be addressed by Regulation SCI as Proposal, the Commission sought 2012,1333 and flaws in the existing applied to SCI entities, there would be comment on whether such entities compliance controls and practices of no need to apply Regulation SCI to broker-dealers conducting activities on should be subject to Regulation SCI in such firms.1334 One commenter stated 1327 behalf of retail clients.1341 This whole or in part. that Regulation SCI should be extended commenter stated that additional Some commenters stated that the to any trading platforms that transact regulation would only be warranted Commission should expand the significant volume, including systems after a meticulous cost-benefit analysis definition of SCI entity to include that are not required to register as an 1328 and implementation of the additional broker-dealers. One commenter ATS, because all executions are against regulation at the lowest cost to firms stated that the goals of Regulation SCI the bids and offers of a single dealer.1335 could not be met without expanding the and investors.1342 This commenter A few commenters further argued that concluded that the inclusion of broker- definition of SCI entity to include the Rule 15c3–5 under the Exchange Act is following types of broker-dealers: dealers would raise investors’ costs and not sufficient by itself and therefore is unnecessary.1343 Exchange market maker, OTC market some broker-dealers should be treated as maker, and any other broker or dealer Another commenter believed that SCI entities.1336 One of these that executes orders internally by non-SCI ATS broker-dealers should not commenters stated that non-ATS broker- trading as a principal or crossing orders be included in the definition of SCI dealers should be treated as SCI entities as an agent.1329 entity because, despite the longstanding This commenter stated because Rule 15c3–5, concerning the that these entities should be included practice of retail brokers routing their implementation of risk management and customers’ orders to market markers for because they play a critical role in the supervisory controls to limit risk markets, handle market share that execution, those market makers are not associated with routing orders to critical.1344 Moreover, this commenter exceeds that of certain SCI ATSs, and, exchanges or ATSs, does not address like exchanges and ATSs, rely heavily believed that FINRA’s rules with respect reliability or integrity of the systems to broker-dealers are more appropriate that implement such controls.1337 1322 See id. at 18138, n. 335. than the SCI Proposal, and FINRA rules 1323 See id. at 18138. hold broker-dealers accountable and do 1324 17 CFR 240.15c3–5. 1330 See id. not shield them from liability.1345 This 1325 See supra note 114 and Proposing Release, 1331 See Liquidnet Letter at 2. commenter stated that the combination supra note 13, at 18138–39. 1332 See Lauer Letter at 3. See also supra notes of Commission and FINRA rules on 1326 See id. at 18139. 212–213 (explaining that the Commission believes 1327 See id. at 18139–41. that many systems with direct market access are captured by the adopted definition but the 1338 See SIFMA Letter at 3; MFA Letter at 4–5; 1328 See NYSE Letter at 8–10; and Liquidnet Commission is not expanding the scope of FIA PTG Letter at 5; FSI Letter at 3; WF Letter at Letter at 2–3. Another commenter expressed its Regulation SCI to include other broker-dealer 2; Fidelity Letter at 4; KCG Letter at 14–17; view that inclusion of order routing systems within entities and their systems at this time). LiquidPoint Letter at 4; and FSR Letter at 2–3, the definition of ‘‘SCI systems’’ puts SCI entities at 1333 n. 5. a competitive disadvantage against broker-dealers See Proposing Release, supra note 13, at 18090, n. 70 (discussing Knight’s systems 1339 See SIFMA Letter at 3; MFA Letter at 4–5; that are not covered by Regulation SCI. See BATS FIA PTG Letter at 5; WF Letter at 2; KCG Letter at Letter at 4. See also supra notes 48–50, 94–96, and malfunction in August 2012). 1334 See Leuchtkafer Letter at 1–7. See supra notes 15–17; LiquidPoint Letter at 4; and FSR Letter at 2– 152 and accompanying text (discussing comments 3, n. 5. regarding broadening the coverage of ‘‘SCI entity’’ 124–126 and accompanying text (discussing the 1340 See FSI Letter at 3. and ‘‘SCI ATS’’ and the effect of the adopted ATS Commission’s determination to not apply 1341 thresholds on barriers to entry), and infra Section Regulation SCI to non-ATS broker-dealers at this See id. VI.C.1.c (discussing the effect of Regulation SCI on time). 1342 See id. competition between SCI entities and non-SCI 1335 See BlackRock Letter at 4. 1343 See id. entities). 1336 See Lauer Letter at 3 and NYSE Letter at 9. 1344 See KCG Letter at 14. 1329 See NYSE Letter at 9. 1337 See NYSE Letter at 9. 1345 See id. at 14–15.

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broker-dealers ensures that broker- business continuity plans and written Similarly, another commenter dealers are sufficiently regulated, policies and procedures to ensure that recommended that certain systems of although this commenter stated that their systems are robust and will non-ARP participants should be FINRA could provide additional function as intended.1355 In determining provided at least an additional one year guidance on its rules in light of the whether to expand the scope of SCI transition period, after a six-month weaknesses revealed by Superstorm entities, one commenter commented delayed effectiveness after final Sandy.1346 Similarly, another that the Commission should consider approval of Regulation SCI for SCI commenter stated that broker-dealers the role of an entity in the securities systems of current ARP participants that should not be regulated under markets and the risks presented by that are trading, clearance and settlement, Regulation SCI because broker-dealer entity, and stated that transfer agents and order routing systems.1362 Another operational regulation has been should not be covered because they commenter stated that systems currently overseen almost entirely by FINRA.1347 raise fewer risks to the markets than the covered by the ARP Inspection Program Specifically, FINRA member broker- proposed SCI entities, as their systems should be granted two years to phase-in dealers are required to create and do not directly support the functions the rule and that non-ARP systems implement written supervisory intended to be targeted by the SCI would need a phase-in period of at least procedures covering the operation of Proposal.1356 Another commenter four years.1363 One commenter also their business.1348 According to this similarly stated that transfer agents noted more generally that the time commenter, this process allows broker- should not be covered because there is needed to meet the new requirements of dealers to devise procedures that keep little chance that a problem with a Regulation SCI will vary by the type of them in-line with FINRA and transfer agent’s operations would SCI entity and the level of its current Commission regulations, and allows impact market activity.1357 participation in the ARP Inspection FINRA to focus on bigger picture issues The Commission appreciates the Program.1364 impacting the broker-dealer comments received on the potential Some commenters requested a special industry.1349 application of Regulation SCI to broker- phase-in period for ATSs. Specifically, In addition, one commenter stated dealers other than SCI ATSs and other two commenters suggested that ATSs that the Commission should not propose types of entities. As noted above, should should be given six months after a requirement that SCI SROs require the Commission decide to propose to meeting the given threshold in the their members to institute policies and apply the requirements of Regulation definition of SCI ATS to come into procedures similar to those required SCI to these entities, the Commission compliance with Regulation SCI.1365 under Regulation SCI.1350 According to would issue a separate release Other commenters provided detailed this commenter, SCI SROs already discussing such a proposal and would suggestions for a phase-in compliance impose regulatory requirements take these comments into account. timeline for the requirements of addressing similar concerns as those 1366 F. Effective Date and Compliance Dates Regulation SCI. For example, one that Regulation SCI is designed to commenter suggested implementing the address.1351 Several commenters provided rule in three phases so that it would One commenter stated that the term recommendations for when the apply: (1) After initial six-month SCI entity should not encompass requirements of Regulation SCI should delayed effectiveness, to SCI systems of clearing broker-dealers or transfer agents go into effect and/or when SCI entities current ARP participants that are because they are not involved in ‘‘real- should be required to comply with the trading, clearance and settlement, and time’’ trading activities and therefore various requirements of the order routing systems, and after one there would not be any material impact regulation.1358 Each commenter additional year, to such systems of non- on critical market functions should their recommended allowing what they ARP participants (for at least one annual systems fail.1352 Additionally, this believed to be sufficient time for SCI cycle); (2) to indirect SCI systems commenter stated that because entities to prepare for what they relating to the systems in phase one (for Regulation SCI ‘‘is designed to formalize perceived as complex or substantial at least one annual cycle); and (3) to SCI 1359 the Commission’s existing ARP regulatory responsibilities. systems that are market data, regulation Program,’’ and clearing broker-dealers Several commenters suggested that and surveillance systems and related and transfer agents do not participate in the implementation period should vary indirect SCI systems.1367 Another ARP, those entities should not be between those entities and/or systems commenter believed the rule should be included within the scope of Regulation currently subject to the ARP Inspection 1360 phased-in over four stages, where each SCI.1353 Another commenter echoed Program and those that are not. For SCI entity would: (1) Review its SCI these positions with respect to transfer example, one commenter suggested an systems risk-based assessment with agents, and also stated that transfer implementation period of no less than Commission staff; (2) review and update agents should not be included within two years for SCI systems that are its policies and procedures to the definition of SCI entity because the subject to the ARP Inspection Program 1361 reasonably ensure compliance with majority of transfer agents do not have and three years for all other systems. Regulation SCI; (3) implement such electronic connectivity to SCI policies and procedures; and (4) 1354 1355 entities. Additionally, this See id. conduct an annual review.1368 commenter stated that larger transfer 1356 See ICI Letter at 3. 1357 See Oppenheimer Letter at 2. agents are already required to have 1362 1358 See e.g., FINRA Letter at 41–42; DTCC Letter See MSRB Letter at 39–40. 1363 See OTC Markets Letter at 4, 22–23. 1346 at 3; OCC Letter at 2; MSRB Letter at 39–40; KCG See id. at 14–17. Letter at 19; SIFMA Letter at 7; and OTC Markets 1364 See DTCC Letter at 3. 1347 See OTC Markets Letter at 11. Letter at 4, 22–23. 1365 See KCG Letter at 19; and SIFMA Letter at 7. 1348 See id. 1359 See e.g., FINRA Letter at 41–42; DTCC Letter See also adopted Rule 1000 (definition of ‘‘SCI 1349 See id. at 3; OCC Letter at 2; MSRB Letter at 39–40; KCG ATS’’) and supra Section IV.A.1.b (discussing 1350 See WF Letter at 2. Letter at 19; SIFMA Letter at 7; and OTC Markets definition of ‘‘SCI ATS’’). 1351 See id. at 2–3. Letter at 4, 22–23. 1366 See MSRB Letter at 39–40; and OCC Letter at 1352 See Fidelity Letter at 4. 1360 See, e.g., FINRA Letter at 41–42; DTCC Letter 2–3. 1353 See id. at 3; and OTC Markets Letter at 4, 22–23. 1367 See MSRB Letter at 40. 1354 See STA Letter at 2. 1361 See FINRA Letter at 41–42. 1368 See OCC Letter at 3.

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Other commenters recommended with than other provisions of Regulation the Commission believes that many of individual compliance deadlines for SCI.1376 the concerns expressed by commenters certain requirements of Regulation Regulation SCI will become effective regarding the time that would be needed SCI.1369 Specifically, two commenters 60 days after publication of the rules in to prepare for the responsibilities suggested that phased-in compliance the Federal Register (‘‘Effective Date’’). imposed by Regulation SCI have been should be permitted for proposed Rule As proposed, SCI entities would have significantly mitigated or addressed by 1000(b)(9) addressing testing of SCI been required to meet the requirements this overall refinement of the rules and entity business continuity and disaster of Regulation SCI on the Effective Date. obligations of SCI entities. For example, recovery plans by SCI entity members or However, after consideration of the as discussed above, the Commission has participants.1370 Specifically, one views of commenters, the Commission further focused the definition of ‘‘SCI commenter believed that, if end-to-end has determined to adopt a compliance systems’’ and clarified the scope of business continuity and disaster date for Regulation SCI of nine months ‘‘indirect SCI systems,’’ which will recovery plans testing were to be after the Effective Date, except as result in fewer systems being subject to required, it should be phased-in to described below with regard to: (1) the requirements of Regulation SCI.1378 allow SCI entities to conduct testing of ATSs newly meeting the thresholds in In addition, the Commission specific SCI systems over time, rather the definition of ‘‘SCI ATS;’’ and (2) the notification provision will require than be required to conduct a full end- industry- or sector-wide coordinated immediate Commission notice of fewer to-end test, which it stated cannot be testing requirement, which will have SCI events than as proposed as a result done within a reasonable timeframe.1371 different compliance periods. The of the refining of several definitions and The other commenter recommended a Commission believes that the the adoption of an exception from the phased-in approach to implementation importance of strengthening the immediate reporting requirements for de of broader BC/DR testing over a period technology infrastructure of key market minimis SCI events, which will instead of years.1372 One commenter participants, the potential significant be subject to recordkeeping recommended that the Commission risks posed by systems issues to the U.S. requirements and/or a quarterly institute an implementation period for securities markets, and the significant reporting obligation, as applicable.1379 the Commission notification number of recent systems issues at Further, the Commission has clarified requirement under proposed Rule various trading venues, necessitates as that an SCI entity’s policies and 1000(b)(4) to allow SCI entities to prompt an implementation of the procedures relating to the capacity, prepare for what the commenter requirements of Regulation SCI by SCI integrity, resiliency, availability, and believed to be an increase in the number entities as possible. At the same time, security of its SCI systems and indirect of notifications that would be the Commission understands that SCI SCI systems can to be tailored to a required.1373 This commenter also noted entities will need time to prepare for the particular SCI system’s criticality and generally that business continuity and obligations imposed by Regulation SCI risk, contrary to the belief of some end-to-end testing requirements,1374 the and, accordingly, believes that this nine- commenters that the rule required all two-hour recovery time objective,1375 month time frame provides SCI entities systems to be held to the same and adopting the required policies and adequate time to meet the requirements standards.1380 The Commission also procedures may take longer to comply of Regulation SCI. While certain notes that it expects, prior to the commenters suggested longer compliance date, that its staff will 1369 See OCC Letter at 2–3, 11, and 18; and compliance periods or phased-in provide information to SCI entities SIFMA Letter at 18. compliance periods, the Commission regarding the operation of the electronic 1370 See adopted Rule 1004 and supra Section understands that entities currently filing system to submit Forms SCI. IV.B.6 (discussing business continuity and disaster recovery plans testing requirements). subject to the ARP Inspection Program With regard to some commenters’ 1371 See OCC Letter at 18. may already comply with certain suggestions that there should be 1372 See SIFMA Letter at 18. requirements of Regulation SCI. In different compliance periods for SCI 1373 See OCC Letter at 11; see also adopted Rule addition, the Commission also believes entities currently subject to the ARP 1002(b) and supra Section IV.B.3.c (discussing the that SCI entities that have not Inspection Program and those that do Commission notification requirement for SCI events). One commenter also expressed concern previously participated in the ARP not currently participate in the ARP about SCI entities being able to effectively make Inspection Program may also currently Inspection Program (or phased-in submissions on Form SCI upon Regulation SCI operate in accordance with certain of compliance based, in part, on this becoming effective, and urged Commission staff to the adopted requirements. For example, work with the SCI entities in the development, testing, and implementation of the Form SCI the Commission believes that most SCI Section IV (providing a detailed discussion of electronic submission system, including provision entities generally have in place policies changes from the SCI Proposal). of any systems requirements (e.g., supported and procedures designed to ensure its 1378 See supra Sections IV.A.2.b and IV.A.2.d browsers, required certificates, or authentication (discussing the definitions of ‘‘SCI systems’’ and protocols). See MSRB Letter at 25. Another systems’ capacity, integrity, resiliency, ‘‘indirect SCI systems’’). The Commission notes that commenter requested that the Commission provide availability, and security and that most the refining of these definitions also reduces the SCI entities sufficient time to learn the new Form SCI entities already take corrective need to phase-in compliance based on type of SCI submission process, and recommended that the actions in response to systems issues. system as suggested by one commenter, because Commission delay implementation of Form SCI Further, the Commission notes that, fewer systems overall will be subject to the until SCI entities and Commission staff have gained regulation than proposed and many systems for experience with the Regulation SCI reporting as described above, it has further which the commenter urged a delay in compliance requirements. See FINRA Letter at 28. In the focused the scope of the requirements of will not be covered by the regulation, as adopted. alternative, this commenter recommended that the Regulation SCI from the SCI Proposal 1379 See supra Section IV.B.3.c (discussing the Commission provide a transition period for SCI and, thus, has lessened the potential Commission notification requirement). As entities to establish their processes for submission 1377 discussed above, SCI entities will be required to of Form SCI. See FINRA Letter at 28. burdens on SCI entities. Therefore, make, keep, and preserve records relating to all de 1374 See adopted Rule 1004 and supra Section minimis SCI events and to report de minimis IV.B.6 (discussing business continuity and disaster 1376 See OCC Letter at 2–3; see also adopted Rule systems disruptions and de minimis systems recovery plans testing requirements). 1001 and supra Sections IV.B.1–2 (discussing the intrusions quarterly. 1375 See adopted Rule 1001(a)(2)(v) and supra policies and procedures requirement for operational 1380 See supra Section IV.B.1 (discussing the Section IV.B.1.b (discussing the policies and capability and systems compliance). requirement for policies and procedures to achieve procedures requirement and the two-hour recovery 1377 See supra Section III (providing a summary capacity, integrity, resiliency, availability, and time objective). of the key modifications from the SCI Proposal) and security).

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distinction), as noted above, the rather than requiring compliance CFR 1320.11, the Commission Commission believes that both immediately upon meeting the volume submitted these collections of categories of entities already have some thresholds. The Commission also information to the Office of level of processes or procedures in place believes that this additional compliance Management and Budget (‘‘OMB’’) for that are in compliance with the period should give a new ATS entrant review. The title for the collection of requirements of Regulation SCI. Further, the opportunity to initiate and develop information requirement is ‘‘Regulation given the voluntary nature of the current its business by allowing additional time Systems Compliance and Integrity.’’ The ARP Inspection Program, the before a new ATS must incur the costs collection of information was assigned Commission believes that the extent of associated with compliance with OMB Control No. 3235–0703. current compliance with the Regulation SCI.1382 In the SCI Proposal, the Commission requirements of adopted Regulation SCI The Commission is also adopting a solicited comments on the collection of by entities subject to the ARP Inspection longer compliance period with regard to information burdens associated with Program varies for different entities. In the industry- or sector-wide coordinated Regulation SCI. In particular, the addition, as noted above, Regulation SCI testing requirement in adopted Rule Commission asked whether commenters has a broader scope than the current 1004(d).1383 Specifically, SCI entities agree with the Commission’s estimate of ARP Inspection Program and imposes will have 21 months from the Effective the number of respondents and the mandatory requirements on entities Date to coordinate the testing of an SCI burden associated with compliance with subject to the rules, and accordingly entity’s business continuity and disaster Regulation SCI.1386 In addition, the will require all SCI entities (both ARP recovery plans on an industry- or sector- Commission asked whether SCI entities entities and non-ARP entities) to take wide basis with other SCI entities would outsource the work associated steps, including implementing pursuant to adopted Rule 1004(d). with compliance with Regulation necessary systems changes, to meet the Given that the compliance date for the SCI.1387 Some commenters noted that requirements of Regulation SCI. For other requirements of Regulation SCI is the Commission underestimated the these reasons, the Commission believes nine months from the Effective Date, burdens that would be imposed by that it is appropriate to provide all SCI this will provide SCI entities an proposed Regulation SCI.1388 As entities nine months to become additional year (12 months) beyond the discussed above, the Commission compliant with the requirements of compliance date for the other received 60 comment letters on the Regulation SCI. requirements of Regulation SCI (for a proposal. Some of these comments With regard to two commenters’ total of 21 months) to comply with Rule relate directly or indirectly to the PRA. suggestions that the Commission should 1004(d). The Commission believes that These comments are addressed below. adopt specific phased-in compliance this additional time period is A. Summary of Collection of periods based on type of entity (i.e., appropriate in light of commenters’ Information ARP or non-ARP), type of system, or concerns regarding the complexity and other factors, the Commission believes logistical challenges posed by the Regulation SCI includes four that such an approach is not necessary requirement.1384 The Commission categories of obligations that require a for the reasons stated above. Further, the expects SCI entities to work collection of information within the Commission believes that having cooperatively to address these logistical meaning of the PRA. Specifically, an multiple phases of compliance would hurdles and to carefully plan such SCI entity is required to: (1) Establish create unnecessary complexity and raise testing, and believes that the additional specified written policies and practical difficulties for time for compliance should help to procedures, and mandate participation implementation. ensure that such testing is implemented by designated members or participants At the same time, the Commission effectively. in certain testing of the SCI entity’s believes that it is appropriate to provide If any provision of Regulation SCI, or business continuity and disaster additional compliance periods for the application thereof to any person or recovery plans; (2) provide certain limited aspects of Regulation SCI, as circumstance, is held to be invalid, such notifications, disseminate certain requested by some commenters. invalidity shall not affect other information, and create reports; (3) take Specifically, the Commission believes provisions or application of such corrective actions, and identify critical that ATSs meeting the volume provisions to other persons or SCI systems, major SCI events, de thresholds in the definition of ‘‘SCI circumstances that can be given effect minimis SCI events, and material ATS’’ for the first time should be without the invalid provision or systems changes; and (4) comply with provided an additional six months from application. recordkeeping requirements. the time that the ATS first meets the V. Paperwork Reduction Act 1. Requirements To Establish Written applicable thresholds to comply with Policies and Procedures and Mandate 1381 Certain rules under Regulation SCI the requirements of Regulation SCI. Participation in Certain Testing The Commission believes that this impose new ‘‘collection of information’’ additional six-month period is requirements within the meaning of the Rule 1001 requires SCI entities to appropriate and necessary to allow an Paperwork Reduction Act of 1995 establish policies and procedures with SCI ATS the time needed to take steps (‘‘PRA’’).1385 An agency may not respect to various matters. Rule 1001(a) to meet the requirements of the rules, conduct or sponsor, and a person is not requires each SCI entity to establish, required to respond to, a collection of maintain, and enforce written policies 1381 See supra note 1365 and accompanying text. information unless it displays a and procedures reasonably designed to See also supra Section IV.A.1.b (discussing the currently valid control number. In ensure that its SCI systems and, for definition of ‘‘SCI ATS,’’ including the applicable accordance with 44 U.S.C. 3507 and 5 purposes of security standards, indirect volume thresholds and the inclusion of a six-month SCI systems, have levels of capacity, compliance period within the definition). For example, if a new ATS begins operations in January 1382 See supra note 152 and accompanying text. 2016 and subsequently meets the volume 1383 See supra Section IV.B.6.b.iv (discussing the 1386 See Proposing Release, supra note 13, at thresholds in the definition of ‘‘SCI ATS’’ for four coordinated testing requirement of adopted Rule 18155. out of the six months ending December 31, 2016, 1004(d)). 1387 See id. at 18154–55. it would have until June 30, 2017 to become 1384 See id. 1388 See, e.g., Joint SRO Letter at 18–19; CME compliant with the requirements of Regulation SCI. 1385 44 U.S.C. 3501 et seq. Letter at 4–5; OCC Letter at 11–12.

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integrity, resiliency, availability, and SCI systems operate in a manner that backup systems, to: (a) Establish security, adequate to maintain the SCI complies with the Act and rules and standards for the designation of those entity’s operational capability and regulations thereunder and the entity’s members or participants that the SCI promote the maintenance of fair and rules and governing documents, as entity reasonably determines are, taken orderly markets. Rule 1001(a)(2) applicable. Rule 1001(b)(2) specifies as a whole, the minimum necessary for specifies that such policies and that such policies and procedures are the maintenance of fair and orderly procedures are required to include, at a required to include, at a minimum: (i) markets in the event of the activation of minimum: (i) The establishment of Testing of all SCI systems and any such plans; and (b) designate members reasonable current and future changes to SCI systems prior to or participants pursuant to such technology infrastructure capacity implementation; (ii) a system of internal standards and require participation by planning estimates; (ii) periodic controls over changes to SCI systems; such members or participants in capacity stress tests of such systems to (iii) a plan for assessments of the scheduled functional and performance determine their ability to process functionality of SCI systems designed to testing of the operation of such plans, in transactions in an accurate, timely, and detect systems compliance issues, the manner and frequency as specified efficient manner; (iii) a program to including by responsible SCI personnel by the SCI entity, at least once every 12 review and keep current systems and by personnel familiar with months (e.g., for SCI SROs, by development and testing methodology applicable provisions of the Act and the submitting proposed rule changes under for such systems; (iv) regular reviews rules and regulations thereunder and Section 19(b) of the Exchange Act; for and testing, as applicable, of such the SCI entity’s rules and governing SCI ATSs, by revising membership or systems, including backup systems, to documents; and (iv) a plan of subscriber agreements and internal identify vulnerabilities pertaining to coordination and communication procedures; for plan processors, through internal and external threats, physical between regulatory and other personnel an amendment to an SCI Plan under hazards, and natural or manmade of the SCI entity, including by Rule 608 of Regulation NMS; and, for disasters; (v) business continuity and responsible SCI personnel, regarding exempt clearing agencies subject to disaster recovery plans that include SCI systems design, changes, testing, ARP, by revising participant agreements maintaining backup and recovery and controls designed to detect and and internal procedures). Rule 1004(c) capabilities sufficiently resilient and prevent systems compliance issues. requires an SCI entity to coordinate geographically diverse and that are Rule 1001(b)(3) requires each SCI entity such required testing on an industry- or reasonably designed to achieve next to periodically review the effectiveness sector-wide basis with other SCI business day resumption of trading and of the policies and procedures required entities. two-hour resumption of critical SCI by Rule 1001(b), and take prompt action 2. Notification, Dissemination, and systems following a wide-scale to remedy deficiencies in such policies Reporting Requirements for SCI Entities disruption; (vi) standards that result in and procedures. Further, pursuant to such systems being designed, Rule 1001(b)(4), personnel of an SCI Certain rules under Regulation SCI developed, tested, maintained, operated, entity is deemed not to have aided, require SCI entities to notify or report and surveilled in a manner that abetted, counseled, commanded, information to the Commission, or facilitates the successful collection, caused, induced, or procured the disseminate information to their processing, and dissemination of market violation by an SCI entity of Rule members or participants. Rules 1002 data; and (vii) monitoring of such 1001(b) if the person: (i) Has reasonably and 1003 each contain notification, systems to identify potential SCI events. discharged the duties and obligations dissemination, or reporting Rule 1001(a)(3) requires each SCI entity incumbent upon such person by the SCI requirements.1389 entity’s policies and procedures; and (ii) to periodically review the effectiveness Rule 1002(b) requires Commission was without reasonable cause to believe of the policies and procedures required notification of SCI events. Rule that the policies and procedures relating by Rule 1001(a), and take prompt action 1002(b)(1) requires an SCI entity to to remedy deficiencies in such policies to an SCI system for which such person was responsible, or had supervisory immediately notify the Commission and procedures. Rule 1001(a)(4) states responsibility, were not established, upon any responsible SCI personnel that an SCI entity’s policies and maintained, or enforced in accordance having a reasonable basis to conclude procedures shall be deemed to be with Rule 1001(b) in any material that an SCI event has occurred. These reasonably designed if they are respect. notifications may be made orally or in consistent with current SCI industry Rule 1001(c)(1) requires each SCI writing. standards, which are required to be entity to establish, maintain, and Rule 1002(b)(2) requires an SCI entity, comprised of information technology enforce reasonably designed written within 24 hours of any responsible SCI practices that are widely available to policies and procedures that include the personnel having a reasonable basis to information technology professionals in criteria for identifying responsible SCI conclude that an SCI event has the financial sector and issued by an personnel, the designation and occurred, to submit a written authoritative body that is a U.S. documentation of responsible SCI notification to the Commission on Form governmental entity or agency, personnel, and escalation procedures to SCI pertaining to such SCI event.1390 association of U.S. governmental quickly inform responsible SCI entities or agencies, or widely personnel of potential SCI events. Rule 1389 To access EFFS, the secure Commission Web recognized organization, though 1001(c)(2) requires each SCI entity to site for filing of Form SCI, an SCI entity will submit compliance with current SCI industry periodically review the effectiveness of to the Commission an External Application User standards is not the exclusive means to Authentication Form (‘‘EAUF’’) to register each the policies and procedures required by individual at the SCI entity who will access the comply with the requirements of Rule Rule 1001(c)(1), and take prompt action EFFS system on behalf of the SCI entity. Upon 1001(a). to remedy deficiencies in such policies receipt and verification of the information in the Rule 1001(b)(1) requires each SCI and procedures. EAUF process, the Commission will issue each such person a User ID and Password to permit entity to establish, maintain, and Rule 1004 requires an SCI entity, with access to the Commission’s secure Web site. enforce written policies and procedures respect to its business continuity and 1390 This notification is required to be submitted reasonably designed to ensure that its disaster recovery plans, including its on a good faith, best efforts basis.

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Rule 1002(b)(2) requires that this an SCI event is not resolved or the SCI intrusion, including a description of the notification include: (i) A description of entity’s investigation of the SCI event is corrective action taken by the SCI entity the SCI event, including the system(s) not closed within 30 days of the and when the systems intrusion has affected; and (ii) to the extent available occurrence of the SCI event, then the been or is expected to be resolved, as of the time of the notification, the SCI SCI entity is required to submit an unless the SCI entity determines that entity’s current assessment of the types interim written notification pertaining dissemination of such information and number of market participants to such event within 30 calendar days would likely compromise the security of potentially affected by the SCI event, the after the occurrence of the event, the SCI entity’s SCI systems or indirect potential impact of the SCI event on the containing the information required by SCI systems, or an investigation of the market, a description of the steps the Rule 1002(b)(4)(ii) to the extent known systems intrusion, and documents the SCI entity has taken, is taking, or plans at that time. Within 5 business days reasons for such determination.1391 to take, with respect to the SCI event, after the resolution of such event and Rule 1002(c)(4) provides that the the time the SCI event was resolved or closure of the investigation, the SCI information dissemination requirement timeframe within which the SCI event is entity is required to submit a final does not apply to SCI events to the expected to be resolved, and any other written notification to the Commission, extent they relate to market regulation pertinent information known by the SCI containing the information required by or market surveillance systems, or to entity about the SCI event. Rule 1002(b)(4)(ii). any de minimis SCI events. Rule 1002(b)(3) requires an SCI entity, Rule 1002(b)(5) states that the Rule 1003(a)(1) requires an SCI entity, until an SCI event is resolved and the requirements of Rules 1002(b)(1)–(4) do within 30 calendar days after the end of SCI entity’s investigation of the SCI not apply to de minimis SCI events. each calendar quarter, to submit to the event is closed, to provide updates Instead, for these types of SCI events, an pertaining to such SCI event to the SCI entity is required to make, keep, and Commission a report describing Commission on a regular basis, or at preserve records relating to these events, completed, ongoing, and planned such frequency as reasonably requested and submit to the Commission quarterly material changes to its SCI systems and by a representative of the Commission, reports containing a summary the security of indirect SCI systems, to correct any materially incorrect description of de minimis systems during the prior, current, and information previously provided, or disruptions and de minimis systems subsequent calendar quarters, including when new information is discovered intrusions, including the SCI systems the dates or expected dates of (including but not limited to any of the and, for systems intrusions, indirect SCI commencement and completion. Rule information listed in Rule systems, affected by such systems 1003(a)(2) further requires an SCI entity 1002(b)(2)(ii)). The updates under Rule disruptions and systems intrusions to promptly submit a supplemental 1002(b)(3) may be made orally or in during the applicable calendar quarter. report to notify the Commission of a writing. Rule 1002(c) requires the material error in or material omission Rule 1002(b)(4) states that, if an SCI dissemination of information regarding from a report previously submitted event is resolved and the SCI entity’s certain SCI events and specifies the under Rule 1003(a). investigation of the SCI event is closed nature and timing of such Rules 1003(b)(1) and (2) require an within 30 calendar days of the dissemination. Rule 1002(c)(1)(i) SCI entity to conduct periodic SCI occurrence of the event, then within 5 requires an SCI entity, promptly after reviews of its compliance with business days after the resolution of the any responsible SCI personnel has a Regulation SCI,1392 and to submit a SCI event and closure of the reasonable basis to conclude that a report of the SCI review to senior investigation regarding the SCI event, systems disruption or systems management of the SCI entity for review the SCI entity is required to submit a compliance issue has occurred, to no more than 30 calendar days after final written notification to the disseminate the following information completion of such SCI review. Rule Commission pertaining to the SCI event. about such SCI event: (A) The system(s) 1003(b)(3) also requires an SCI entity to This notification is required to include: affected by the SCI event; and (B) a submit to the Commission, and to the (i) A detailed description of the SCI summary description of the SCI event. board of directors of the SCI entity or entity’s assessment of the types and In addition, Rule 1002(c)(1)(ii) requires the equivalent of such board, a report of number of market participants affected an SCI entity, when known, to further the SCI review, together with any by the SCI event, the SCI entity’s disseminate the following information: response by senior management, within assessment of the impact of the SCI (A) A detailed description of the SCI event on the market, the steps that the event; (B) the SCI entity’s current 1391 Rule 1002(c)(3) provides that the information SCI entity has taken, is taking, or plans assessment of the types and number of specified in Rules 1002(c)(1) and (2) is required to to take with respect to the SCI event, the market participants potentially affected be disseminated to members or participants of the SCI entity that a responsible SCI personnel has time the SCI event was resolved, the SCI by the SCI event; and (C) a description reasonably estimated may have been affected by the entity’s rule(s) and/or governing of the progress of its corrective action SCI event, and promptly disseminated to any document(s), as applicable, that relate to for the SCI event and when the SCI additional members or participants that any the SCI event, and any other pertinent event has been or is expected to be responsible SCI personnel subsequently reasonably information known by the SCI entity resolved. Rule 1002(c)(1)(iii) requires estimates may have been affected by the SCI event. However, information regarding major SCI events about the SCI event; (ii) a copy of any that an SCI entity provide regular must be disseminated to all members or information disseminated pursuant to updates of the information required to participants of an SCI entity. Rule 1002(c) by the SCI entity to date be disseminated under Rule 1392 SCI entities are required to conduct an SCI regarding the SCI event to any of its 1002(c)(1)(i) and (ii). review not less than once each calendar year. However, under Rule 1003(b)(1)(i), penetration test members or participants; and (iii) an With respect to systems intrusions, reviews of the network, firewalls, and production analysis of parties that may have Rule 1002(c)(2) states that, promptly systems are required to be conducted not less than experienced a loss, whether monetary or after any responsible SCI personnel has once every three years. Under Rule 1003(b)(1)(ii), otherwise, due to the SCI event, the a reasonable basis to conclude that a assessments of SCI systems directly supporting market regulation or market surveillance are number of such parties, and an estimate systems intrusion has occurred, an SCI required to be conducted at a frequency based on of the aggregate amount of such loss. entity is required to disseminate a risk assessment, but not less than once every three Rule 1002(b)(4)(iv) further states that, if summary description of the systems years.

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60 calendar days after its submission to systems as compared to other SCI form acceptable to the Commission, by senior management of the SCI entity. systems, an SCI entity must determine such service bureau or other Rule 1006 requires any notifications whether an SCI system is a critical SCI recordkeeping service and signed by a to the Commission required to be system.1393 As such, SCI entities would duly authorized person at such service submitted under Regulation SCI, except likely work to develop a written process bureau or other recordkeeping service. notifications pursuant to Rule 1002(b)(1) for ensuring that they are able to make or 1002(b)(3), to be filed electronically timely and accurate determinations B. Use of Information on Form SCI, include all information as regarding the nature of an SCI system or 1. Requirements To Establish Written prescribed in Form SCI and the SCI event, and periodically review this Policies and Procedures and Mandate instructions thereto, and contain an process. Participation in Certain Testing electronic signature. In addition, The requirement that SCI entities pursuant to Rule 1006(b), the signatory 4. Recordkeeping Requirements establish policies and procedures under to an electronically filed Form SCI is Rule 1005 sets forth recordkeeping adopted Rule 1001(a) should advance required to manually sign a signature requirements for SCI entities. Under the goal of improving Commission page or document authenticating, Rule 1005(a), SCI SROs are required to acknowledging, or otherwise adopting make, keep, and preserve all documents review and oversight of U.S. securities his or her signature that appears in relating to their compliance with market infrastructure by requiring an typed form within the electronic filing. Regulation SCI as prescribed in Rule SCI entity’s policies and procedures to Such document is required to be 17a–1 under the Exchange Act. Under be reasonably designed to ensure its retained by the SCI entity in accordance Rule 1005(b), each SCI entity that is not own operational capability, including with Rule 1005. an SCI SRO is required to make, keep, the ability to maintain effective and preserve at least one copy of all operations, minimize or eliminate the 3. Requirements To Take Corrective documents, including correspondence, effect of performance degradations, and Action and Identify Critical SCI memoranda, papers, books, notices, have sufficient backup and recovery Systems, Major SCI Events, De Minimis accounts, and other such records, capabilities. Because an SCI entity’s SCI Events, and Material Systems relating to its compliance with own operational capability can have the Changes Regulation SCI, including, but not potential to impact investors, the overall Rule 1002(a) requires an SCI entity, limited to, records relating to any market, or the trading of individual upon any responsible SCI personnel changes to its SCI systems and indirect securities, the Commission believes that having a reasonable basis to conclude SCI systems. Each SCI entity that is not these policies and procedures will help that an SCI event has occurred, to begin an SCI SRO is required to keep all such promote the maintenance of fair and to take appropriate corrective action, documents for a period of not less than orderly markets. which is required to include, at a five years, the first two years in a place The Commission believes that Rule minimum, mitigating potential harm to that is readily accessible to the 1001(b), which requires each SCI entity investors and market integrity resulting Commission or its representatives for to establish, maintain, and enforce from the SCI event and devoting inspection and examination. Upon written policies and procedures adequate resources to remedy the SCI request of any representative of the reasonably designed to ensure that its event as soon as reasonably practicable. Commission, such SCI entities would be SCI systems operate in a manner that The Commission believes that SCI required to promptly furnish to the complies with the Exchange Act and the entities are likely to work to develop a possession of such representative copies rules and regulations thereunder and written process for ensuring that they of any documents required to be kept the entity’s rules and governing are prepared to comply with the and preserved by it under Rules documents, as applicable, will help to corrective action requirement and are 1005(b)(1) and (2). Under Rule 1005(c), prevent the occurrence of systems likely to also periodically review this upon or immediately prior to ceasing to compliance issues. In addition, the process. do business or ceasing to be registered Commission believes Rule 1001(b) will In connection with the reporting of under the Exchange Act, an SCI entity help to: Ensure that SCI SROs comply material systems changes, Rule is required to take all necessary action with Section 19(b)(1) of the Exchange 1003(a)(1) requires an SCI entity to to ensure that the records required to be Act; reinforce existing SRO rule filing establish reasonable written criteria for made, kept, and preserved by Rule 1005 processes to assist market participants identifying a change to its SCI systems will be accessible to the Commission and the public in understanding how and the security of indirect SCI systems and its representatives in the manner the SCI systems of SCI SROs are as material. In addition, because the required by Rule 1005 and for the intended to operate; and assist SCI SROs Commission notification and remainder of the period required by in meeting their obligations to file plan information dissemination requirements Rule 1005. amendments to SCI Plans under Rule under Rules 1002(b) and (c), In addition, Rule 1007 provides that, 608 of Regulation NMS. It should respectively, apply differently to SCI if the records required to be filed or kept similarly help other SCI entities to events depending on whether an event by an SCI entity under Regulation SCI achieve operational compliance with is a ‘‘major SCI event’’ or whether the are prepared or maintained by a service the Exchange Act, the rules and event has no or a de minimis impact on bureau or other recordkeeping service regulations thereunder, and their the SCI entity’s operations or on market on behalf of the SCI entity, the SCI governing documents. participants, when an SCI event occurs, entity is required to ensure that the The requirement to establish policies an SCI entity must determine whether records are available for review by the and procedures pursuant to Rule an SCI event is a major SCI event or a Commission and its representatives by 1001(c) that include the designation and de minimis SCI event. Moreover, submitting a written undertaking, in a documentation of responsible SCI because the business continuity and personnel should help make it clear to disaster recovery policies and 1393 Also, pursuant to the definition of ‘‘major SCI all employees of the SCI entity who the procedures requirement under Rule event,’’ in determining whether an SCI event is a designated responsible SCI personnel major SCI event, an SCI entity is required to 1001(a)(2)(v) imposes different consider whether an SCI event can have any impact are for purposes of the escalation resumption goals for critical SCI on a critical SCI system. See Rule 1000. procedures and so that Commission staff

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can easily identify such responsible SCI minimis impact on the entity’s 3. Requirements To Take Corrective personnel in the course of its operations or on market participants. Action and Identify Critical SCI inspections and examinations and other Further, submission and review of Systems, Major SCI Events, De Minimis interactions with SCI entities. The regular reports should facilitate SCI Events, and Material Systems Commission also believes that Commission staff comparisons among Changes escalation procedures to quickly inform SCI entities and thereby permit the The requirement that SCI entities responsible SCI personnel of potential Commission and its staff to have a more begin to take appropriate corrective SCI events will help ensure that the holistic view of the types of systems action upon any responsible SCI appropriate person(s) are provided operations challenges that were posed to personnel having a reasonable basis to notice of potential SCI events so that SCI entities in the aggregate. conclude that an SCI event has any appropriate actions can be taken in occurred, and the policies and accordance with the requirements of Adopted Rule 1002(c) advances the Commission’s goal of promoting fair and procedures SCI entities would likely use Regulation SCI without unnecessary to implement this requirement, should delay. orderly markets by disseminating help facilitate SCI entities’ responses to The Commission believes that the information about an SCI event to some SCI events, including taking appropriate requirement that SCI entities establish or all of the SCI entity’s members or standards that require designated participants, who can use such steps necessary to remedy the problem members or participants to participate information to evaluate the event’s or problems causing such SCI event and mitigate the negative effects of the SCI in the testing of their business impact on their trading and other event, if any, on market participants and continuity and disaster recovery plans activities and develop an appropriate the securities markets more broadly. will help reduce the risks associated response. with an SCI entity’s decision to activate The requirement that each SCI entity The quarterly material systems change its BC/DR plans and help to ensure that establish written criteria for identifying reports required by Rule 1003(a) should such plans operate as intended, if material systems changes should help permit the Commission and its staff to activated. The testing participation the Commission ensure that it is kept requirement should help an SCI entity have up-to-date information regarding apprised of the systems changes that SCI to ensure that its efforts to develop an SCI entity’s systems development entities believe to be material and aid effective BC/DR plans are not progress and plans, and help the the Commission and its staff in undermined by a lack of participation Commission with its oversight of U.S. understanding the operations and by members or participants that the SCI securities market infrastructure. functionality of the systems of an SCI entity believes are necessary to the The SCI reviews under Rule 1003(b) entity and any changes to such systems. successful activation of such plans. This should not only assist the Commission The Commission expects that the requirement should also assist the in improving its oversight of the application of different requirements (e.g., Commission notification Commission in maintaining fair and technology infrastructure of SCI entities, requirements and information orderly markets in a BC/DR scenario but also each SCI entity in assessing the dissemination requirements) to critical following a wide-scale disruption. effectiveness of its information SCI systems, major SCI events, and de 2. Notification, Dissemination, and technology practices, helping to ensure minimis SCI events, and the policies Reporting Requirements for SCI Entities compliance with the safeguards and procedures required by SCI entities Adopted Rule 1002(b), including provided by the requirements of to make these determinations, will help adopted Rules 1002(b)(1)–(3), will foster Regulation SCI, identifying potential to ensure that the Commission is kept a system for comprehensive reporting of areas of weakness that require apprised of SCI events, and that relevant SCI events, which should enhance the additional or modified controls, and market participants have basic Commission’s review and oversight of determining where to best devote information about SCI events so that U.S. securities market infrastructure and resources. those notified can better develop an foster cooperation between the Rule 1006 provides a uniform manner appropriate response. These policies Commission and SCI entities in in which the Commission would and procedures should also assist SCI responding to SCI events. The receive—and SCI entities would entities in complying with the Commission also believes that the provide—written notifications, reviews, notification, dissemination and aggregated data that will result from the descriptions, analyses, or reports made reporting requirements of Regulation reporting of SCI events will enhance its pursuant to Regulation SCI. The SCI. ability to comprehensively analyze the Commission believes that Rule 1006 4. Recordkeeping Requirements nature and types of various SCI events therefore allows SCI entities to and identify more effectively areas of efficiently draft and submit the required Rule 1005 requires each SCI entity to persistent or recurring problems across reports, and for the Commission to make, keep, and preserve records relating to its compliance with the systems of all SCI entities. The efficiently review, analyze, and respond information in the final report required Regulation SCI because such records to the information provided. under Rule 1002(b)(4) should provide should assist the Commission in the Commission with a comprehensive As noted above, in order to access understanding whether an SCI entity is analysis to more fully understand and EFFS, an SCI entity will submit to the meeting its obligations under Regulation assess the impact caused by the SCI Commission an EAUF to register each SCI, assessing whether an SCI entity has event. The Commission expects that the individual at the SCI entity who access appropriate policies and procedures quarterly reporting required by Rule the EFFS system on behalf of the SCI with respect to its technology systems, 1002(b)(5) will better achieve the goal of entity. The information provided via helping to identify the causes and keeping Commission staff informed EAUF will be used by the Commission consequences of an SCI event, and regarding the nature and frequency of to verify the identity of the individual understanding the types of material systems disruptions and systems submitting Form SCI on behalf of the systems changes occurring at an SCI intrusions that arise but are reasonably SCI entity and provide such individual entity. The Commission expects that estimated by the SCI entity to have a de access to the EFFS. Rule 1005 will also facilitate the

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Commission’s inspections and comply with certain requirements of 1. Requirements To Establish Written examinations of SCI entities and assist Regulation SCI.1399 However, because Policies and Procedures and Mandate it in evaluating an SCI entity’s Regulation SCI has a broader scope than Participation in Certain Testing compliance with Regulation SCI. the current ARP Inspection Program and The rules under Regulation SCI that Moreover, having an SCI entity’s records imposes mandatory recordkeeping would require an SCI entity to establish 1400 available even after it has ceased to do obligations on SCI entities, the policies and procedures and to mandate business or to be registered under the Commission believes Regulation SCI member or participant participation in Exchange Act should provide an will impose paperwork burdens on all business continuity and disaster additional tool to help the Commission SCI entities. recovery plan testing are discussed more to reconstruct important market events The Commission’s total burden fully in Sections IV.B.1, IV.B.2, and and better understand the impact of estimates in this Paperwork Reduction IV.B.6 above. such events. Act section reflect the total burdens on Rule 1007 should help ensure the all SCI entities, taking into account the a. Policies and Procedures Commission’s ability to obtain required extent to which some SCI entities In the SCI Proposal, the Commission records that are held by a third party already comply with some of the estimated that an SCI entity that has not who may not otherwise have an requirements of Regulation SCI. The previously participated in the ARP obligation to make such records Commission also notes that the burden Inspection Program would require an available to the Commission. estimates per SCI entity are intended to average of 210 burden hours initially to reflect the average paperwork burden for develop and draft the policies and C. Respondents each SCI entity to comply with procedures required by proposed Rule The ‘‘collection of information’’ Regulation SCI. Therefore, some SCI 1000(b)(1) (except for the policies and requirements contained in Regulation entities may experience more burden procedures for standards that result in SCI apply to SCI entities, as described than the Commission’s estimates, while systems being designed, developed, below. Currently, there are 27 entities others may experience less. The tested, maintained, operated, and that would satisfy the definition of SCI Commission notes that the burden surveilled in a manner that facilitates SRO,1394 14 entities that would satisfy figures set forth in this section are the the successful collection, processing, the definition of SCI ATS,1395 2 entities Commission’s estimate of the paperwork and dissemination of market data) 1402 that would satisfy the definition of plan burden for compliance with Regulation and 60 hours annually to review and processor,1396 and 1 entity that would SCI based on a variety of sources, update such policies and meet the definition of exempt clearing including Commission staff’s experience procedures.1403 The Commission agency subject to ARP.1397 Accordingly, with the current ARP Inspection estimated that an SCI entity that the Commission estimates that there are Program, other similar estimated currently participates in the ARP currently 44 entities that meet the burdens for analogous rulemakings, and Inspection Program would require an definition of SCI entity and are subject comments received on the burden average of 105 burden hours initially to to the collection of information estimates in the SCI Proposal.1401 develop and draft such policies and requirements of Regulation SCI. procedures 1404 and 30 hours annually 1399 In addition, some SCI entities already comply D. Total Initial and Annual Reporting with certain requirements of Regulation SCI to some Regulation SCI. The Commission recognizes that and Recordkeeping Burdens extent as a matter of prudent business practice or some SCI entities may have additional The Commission notes that national pursuant to other rules. For example, as noted subcategories of staff or managers who will be above, FINRA Rule 4370 includes requirements for involved in compliance with Regulation SCI (e.g., securities exchanges, national securities FINRA members related to business continuity information security staff may be a subcategory of associations, registered clearing plans. See supra note 115. In addition, NASD Rule systems analysts), whereas other SCI entities may agencies, plan processors, one ATS, and 3010 and FINRA Rule 3130 include requirements not have the specific categories of staff or managers one exempt clearing agency currently for FINRA members related to procedures to that are identified in this section. achieve compliance with applicable securities laws 1402 See Proposing Release, supra note 13, at participate in the ARP Inspection and regulations and certain SRO rules. See supra 18145. The 210 burden hours included 80 hours by Program. Under the ARP Inspection note 115. Further, FINRA Rule 4530 includes a Compliance Manager (including senior Program, Commission staff conducts reporting requirements related to certain management review), 80 hours by an Attorney, 25 inspections of these entities, attends compliance issues. See supra note 115. Compliance hours by a Senior Systems Analyst, and 25 hours with existing requirements under FINRA rules by an Operations Specialist. See id. at 18146. This periodic technology briefings by staff of could help SCI ATSs to comply with Regulation estimate was based on Commission staff’s these entities, monitors planned SCI. Therefore, the Commission acknowledges that experience with the ARP Inspection Program and significant systems changes, and SCI ATSs may experience a lower paperwork the Commission’s preliminary estimate in the SB burden in complying with certain provisions of SDR Proposing Release for a similar requirement. responds to reports of systems failures, Regulation SCI than some other SCI entities. See id. at 18145, n. 365. disruptions, and other systems problems However, unlike SCI entities that participate in the 1403 See Proposing Release, supra note 13, at of these entities.1398 ARP Inspection Program (where in many instances 18146. The 60 burden hours included 30 hours by Under Regulation SCI, many of the the Commission has estimated a 50% reduction in a Compliance Manager and 30 hours by an principles of the ARP policy statements SCI entity staff compliance burden as compared to Attorney. See id. This estimate was based on other SCI entities when estimating paperwork costs Commission staff’s experience with the ARP with which some SCI entities are with regard to Regulation SCI requirements due to Inspection Program and the Commission’s familiar are codified. As such, current participation in the ARP inspection program), the preliminary estimate in the SB SDR Proposing practices of these SCI entities already Commission believes that any reduction in burden Release for a similar requirement. See id. at 18146, resulting from compliance with these FINRA and n. 377. NASD rules is unlikely to be significant. 1404 See Proposing Release, supra note 13, at 1394 See supra notes 74–77 and accompanying 1400 As discussed more fully in supra Section 18145. The 105 burden hours included 40 hours by text (listing 18 registered national securities IV.C.1, SCI SROs are already subject to existing a Compliance Manager (including senior exchanges, 7 registered clearing agencies, FINRA, recordkeeping and retention requirements under management review), 40 hours by an Attorney, 12.5 and the MSRB). See also supra note 80 and Rule 17a–1. hours by a Senior Systems Analyst, and 12.5 hours accompanying text. 1401 The Commission also notes that the by an Operations Specialist. See id. at 18146. The 1395 See supra notes 150 and 175 and allocation of burden hours between staff and Commission stated its belief that a fifty percent accompanying text. managers of an SCI entity that are identified in this baseline for SCI entities that participate in the ARP 1396 See supra note 202 and accompanying text. section is intended to reflect the Commission’s Inspection Program is appropriate because, 1397 See supra note 203 and accompanying text. estimate of the broad categories of SCI entity although these entities already have substantial 1398 See supra Section II.A. personnel who will be involved in compliance with Continued

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to review and update such policies and that is not an SRO would spend noted that policies and procedures procedures.1405 With respect to the approximately 60 hours to review and developed to achieve compliance with requirement in proposed Rule update such policies and Regulation SCI can potentially impact 1000(b)(1) for policies and procedures procedures.1412 In the SCI Proposal, the other areas of the SCI entity and other that provide for standards that result in Commission also estimated that all SCI SCI entities, and therefore an SCI entity systems being designed, developed, entities would conduct most of the work would broadly review the policies and tested, maintained, operated, and associated with proposed Rule procedures to ensure that they do not surveilled in a manner that facilitates 1000(b)(2) internally.1413 However, the conflict with other policies, procedures, the successful collection, processing, Commission estimated that SCI entities practices, and processes and revise the and dissemination of market data, the would seek outside legal and/or policies and procedures accordingly.1418 Commission estimated that each SCI consulting services in the initial Therefore, this commenter argued that entity would spend 130 hours preparation of the policies and the Commission did not include annually.1406 In the SCI Proposal, the procedures at an average cost of $20,000 adequate estimates for the substantial Commission also estimated that all SCI per SCI entity.1414 amount of time required by senior entities would conduct most of the work Several commenters noted that the management and others in the associated with proposed Rule Commission underestimated the organization, as well as the persons 1000(b)(1) internally.1407 However, the paperwork burden of proposed Rules identified in the SCI Proposal, in: Commission estimated that SCI entities 1000(b)(1) and (b)(2). One commenter Understanding the breadth and depth of would seek outside legal and/or noted that the systems covered by the requirements established by consulting services in the initial proposed Rules 1000(b)(1) and (b)(2) are proposed Regulation SCI; determining preparation of the policies and very complex and a first draft of the which systems of the SCI entity fall into procedures at an average cost of $20,000 required policies and procedures would the various categories of systems per SCI entity.1408 take far more than the estimated number described in proposed Regulation SCI; With respect to proposed Rule of hours to complete and keep up-to- assessing, growing and potentially 1000(b)(2), the Commission estimated date.1415 With respect to proposed Rule reorganizing large portions of the SCI that each SCI entity would elect to 1000(b)(2), this commenter stated that entity’s workforce to align with the comply with the proposed safe harbor the breadth of the rule is extremely requirements of proposed Regulation provisions.1409 The Commission comprehensive because it requires SCI; and establishing and conducting estimated that each SCI entity would policies and procedures that are extensive training curriculum to ensure spend 180 hours initially to design the designed to ensure that SCI systems appropriate personnel fully understand policies and procedures accordingly.1410 ‘‘comply with the federal securities laws their new or changed duties; and any The Commission estimated that each and rules and regulations thereunder’’ number of other collateral effects of the SCI SRO would spend approximately and operate ‘‘in the manner new requirements.1419 This commenter 120 hours annually to review and intended.’’ 1416 suggested that a more accurate estimate update such policies and Another commenter noted that the of the paperwork burden from proposed procedures,1411 and that each SCI entity hour burdens did not take into account Rule 1000(b)(1) would be three to four the appropriate level of management times the estimate in the SCI Proposal, policies and procedures in place, the rule would review in connection with the and the allocation of the burden hours require these entities to devote substantial time to development of the policies and should be weighted more heavily review and revise their existing policies and 1417 procedures to ensure that they are sufficiently procedures. This commenter also toward more senior staff of the robust. See id. at 18145. organization.1420 1405 See Proposing Release, supra note 13, at 1412 See id. at 18146. The 60 burden hours One commenter stated that the 50% 18146. The 30 burden hours included 15 hours by included 10 hours by a Compliance Attorney and baseline for SCI entities that are a Compliance Manager and 15 hours by an 50 hours by a Senior Systems Analyst. See id. Attorney. See id. 1413 See id. at 18145. currently under the ARP Inspection 1406 See Proposing Release, supra note 13, at 1414 See id. Program does not account for the 18145. The 130 burden hours included 30 hours by 1415 See Omgeo Letter at 31–32, 34. According to significant expansion of the a Compliance Attorney and 100 hours by a Senior this commenter, the implementation of its current requirements if the definition of SCI Systems Analyst. See id. at 18146. This estimate information security policy framework and related system is construed broadly, and as a was based on Commission staff’s experience with standards took approximately 18 months and over the ARP Inspection Program. See id. at 18145, n. 1600 work hours to put in place. See id. This result, the burden estimates may be too 1421 371. The Commission noted in the SCI Proposal commenter noted that proposed Rule 1000(b)(1) low. that this proposed requirement was not addressed would be far more labor and resource intensive One commenter agreed with the by the ARP Inspection Program. See id. at 18145. because security is just one of the proposed seven Commission that ongoing paperwork 1407 See Proposing Release, supra note 13, at areas of policy and standards development this new burdens for compliance with proposed 18145. rule would require. See id. 1408 See id. 1416 See id. at 34. Rules 1000(b)(1) and (b)(2) should be 1422 1409 See id. at 18146, and proposed Rules 1417 See MSRB Letter at 28–29. This commenter lower than the initial burden. 1000(b)(2)(ii) and (iii). stated that the Commission placed too much However, this commenter stated that the 1410 See id. at 18146. The 180 burden hours reliance on its experience with the ARP Inspection estimated ongoing burden is included 30 hours by a Compliance Attorney and Program, which was ‘‘a voluntary program that did understated, but likely to a lesser extent 150 hours by a Senior Systems Analyst. See id. This not create potential legal liabilities for non- estimate was based on Commission staff’s compliance, and may not take into account the than with respect to the initial experience with the ARP Inspection Program and heightened need for high-level supervision that a burden.1423 Another commenter also OCIE examinations, which review policies and rule-based requirement would entail.’’ See id. at 29. noted that, given the complexity of the procedures of registered entities in conjunction See also infra Sections IV.B.3.c and VI.C.2.b with examinations of such entities for compliance (discussing the Commission’s view on the potential does not reflect the review and direction of senior with the federal securities laws. See id. at 18146, for liability resulting from requirements under managers); and CME Letter at 3, n. 5. n. 383. Regulation SCI). See also Omgeo Letter at 32 (noting 1418 See MSRB Letter at 29. 1411 See id. at 18146. The 120 burden hours that the estimate of 210 hours for proposed Rule 1419 See id. at 30. included 20 hours by a Compliance Attorney and 1000(b)(1) is unrealistic because the estimate 1420 100 hours by a Senior Systems Analyst. See id. This should include not only the drafting of the required See id. estimate was based on Commission staff’s policies and procedures, but also their review and 1421 See FINRA Letter at 7. experience with the ARP Inspection Program. See approval by senior management) and 35 (noting that 1422 See MSRB Letter at 31. id. at 18146, n. 384. the burden estimate of proposed Rule 1000(b)(2) 1423 See id.

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underlying systems and the and one adopted element was not the Commission believes that most, if requirements of proposed Rule included in the proposal.1430 not all, SCI entities already have some 1000(b)(1), significantly more effort and As compared to proposed Rule policies and procedures related to time will be required on an ongoing 1000(b)(2), which required written systems capacity, integrity, resiliency, basis to comply with that rule.1424 policies and procedures reasonably availability, security, and compliance, One commenter noted that the designed to ensure that SCI systems although such policies and procedures establishment of the policies and operate ‘‘in the manner intended, differ in a variety of respects from the procedures under proposed Rules including in a manner that complies requirements under Regulation SCI. 1000(b)(1) and (b)(2) would not be with the federal securities laws,’’ Also, in adopting Regulation SCI, the conducive to outsourcing, although an adopted Rule 1001(b)(1) requires an SCI Commission has reduced the burdens SCI entity might incur some cost for entity to establish, maintain, and for proposed Rules 1000(b)(1) and (2) outside counsel for consultation enforce written policies and procedures 1425 from the SCI Proposal in a variety of purposes. On the other hand, reasonably designed to ensure that its ways, including by, for example: another commenter argued that the SCI systems operate in a manner that Refining the definition of SCI systems; Commission’s burden estimate for complies with the Exchange Act and the more explicitly recognizing that some proposed Rule 1000(b)(1) ‘‘is inaccurate rules and regulations thereunder, and systems pose greater risk than others to because of its mistaken assumption that the entity’s rules and governing the maintenance of fair and orderly SCI entities would not seek guidance documents, as applicable.1431 Further, markets and imposing obligations that from outside consultants and rather than adopting the proposed safe allow for risk-based considerations; and attorneys.’’ 1426 This commenter noted harbor for SCI entities, Rule 1001(b)(2) providing that staff guidance on current that, given the rates charged by large provides the minimum required SCI industry standards be characterized law firms and consulting firms, an elements of such policies and as providing examples of publications estimate of approximately $100,000 for procedures. Some of these elements each exempt clearing agency subject to were modified from the proposed safe describing processes, guidelines, ARP is more realistic than the $20,000 harbor elements,1432 and one element of frameworks, or standards for an SCI estimated in the SCI Proposal.1427 This the proposed safe harbor is not included entity to consider looking to in commenter similarly noted that the in Rule 1001(b)(2).1433 developing reasonable policies and burden estimate for proposed Rule With respect to the view of a procedures, rather than strictly as listing 1000(b)(2) failed to account for the costs commenter that the systems covered by industry standards. At the same time, associated with using outside counsel or proposed Rules 1000(b)(1) and (2) are the Commission acknowledges an outside consulting firm to help draft very complex and that the Commission commenters’ feedback with respect to the policies and procedure.1428 underestimated the burdens associated the burden of the rules and thus is As discussed in detail above in with completing and updating the doubling the burden estimates for the Sections IV.B.1 and IV.B.2, the required policies and procedures,1434 policies and procedures under Rules Commission is adopting proposed Rules 1000(b)(1) and (2).1435 The Commission 1000(b)(1) and (b)(2) as Rules 1001(a) policies and procedures with respect to business notes that, as part of this approach, it and (b), respectively, with certain continuity and disaster recovery plans that are doubled the ongoing burden estimates modifications. As adopted, Rule ‘‘reasonably designed to achieve’’ next business day in part in response to comment stating resumption of trading and two-hour resumption of 1001(a)(1), consistent with the proposal, ‘‘critical SCI systems’’ rather than ‘‘to ensure’’ next that significantly more effort and time requires each SCI entity to establish, business day resumption of trading and two-hour will be required on an ongoing basis to maintain, and enforce written policies resumption of ‘‘clearance and settlement services’’). comply with proposed Rule and procedures reasonably designed to See also supra Section IV.B.1.b.ii (discussing 1000(b)(1).1436 modifications from the SCI Proposal in adopted ensure that its SCI systems and, for Rule 1001(a)(2)). As noted above, some commenters purposes of security standards, indirect 1430 See Rule 1001(a)(2)(vii) (requiring policies noted that the policies and procedures SCI systems, have levels of capacity, and procedures with respect to monitoring of could potentially impact other areas of integrity, resiliency, availability, and systems to identify potential SCI events). 1431 the SCI entity and other SCI entities, security, adequate to maintain the SCI See supra Section IV.B.2.a. 1432 and therefore would result in more entity’s operational capability and See Rules 1001(b)(2)(iii) (requiring policies and procedures with respect to ‘‘a plan for burden hours to ensure that the policies promote the maintenance of fair and assessments’’ of systems compliance rather than and procedures do not conflict with orderly markets. Adopted Rule both ‘‘ongoing monitoring’’ and ‘‘assessments’’ of other policies, procedures, practices, 1001(a)(2), consistent with the proposal, systems compliance) and 1001(b)(2)(iv) (requiring and processes, and would require provides the minimum required policies and procedures with respect to ‘‘a plan of coordination and communication between greater involvement of senior elements of such policies and regulatory and other personnel of the SCI entity, management and others in an SCI procedures. Some of these elements including by responsible SCI personnel’’ regarding were modified from the proposal,1429 SCI systems rather than ‘‘review by regulatory personnel of SCI systems’’). See also supra Section not impose significant additional paperwork burden IV.B.2.c (discussing modifications from the SCI on the entity. 1424 See Omgeo Letter at 32, n. 63. Proposal in adopted Rule 1001(b)(2)). 1435 In response to the commenter that suggested 1425 See MSRB Letter at 31. 1433 See proposed Rule 1000(b)(2)(ii)(A)(2) the initial burden for proposed Rule 1000(b)(1) 1426 See Omgeo Letter at 32. (periodic testing of all SCI systems and any changes would be three to four times that estimated in the 1427 See id. at 32, n. 64. to such systems after their implementation). SCI Proposal, the Commission believes that because 1428 See id. at 35. 1434 See supra note 1415 and accompanying text. it further focused the requirements associated with 1429 See, e.g., Rules 1001(a)(2)(i) (requiring As noted above, one commenter stated that its proposed Rules 1000(b)(1) and (2) in a variety of policies and procedures with respect to the current information security policy framework and ways described above, resulting in reduced burden establishment of reasonable current and future related standards took over 1,600 hours to put in estimates as compared to the SCI Proposal, the ‘‘technological infrastructure capacity planning place, and that security is just one of the seven areas commenter’s estimate based on the proposal is too estimates’’ rather than simply ‘‘capacity planning of policies and standards proposed to be required. high. See supra note 1420. Based on Commission estimates’’); 1001(a)(2)(iv) (requiring policies and See supra note 1415. The Commission notes that, staff experience, the Commission believes it is more procedures with respect to ‘‘regular reviews and to the extent an SCI entity already has adequate appropriate to double the estimated initial SCI testing, as applicable,’’ of systems to identify policies and procedures in place with respect to entity staff burden and also add senior management vulnerabilities rather than ‘‘regular reviews and systems capacity, integrity, resiliency, availability, time. testing’’ of systems); and 1001(a)(2)(v) (requiring security, and compliance, Rules 1001(a) and (b) will 1436 See supra note 1424.

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entity.1437 Similarly, some commenters less.1442 Each SCI entity is required to policies and procedures,1445 or 2,226 noted that the establishment, determine for itself what is required for hours for all such SCI entities.1446 maintenance, and enforcement of the its staff and senior managers to do in With respect to SCI entities that policies and procedures would involve order for the SCI entity to comply with currently participate in the ARP senior management review.1438 The Rules 1001(a) and (b). Inspection Program, the Commission Commission agrees with these After considering the views of continues to believe that a 50% percent comments and is adjusting the baseline for these SCI entities in terms estimated paperwork burden. commenters, and because Rule 1001(a) requires an additional element to be of staff burden hours is appropriate Specifically, in the SCI Proposal, the because although these entities already Commission included senior included in the policies and procedures (i.e., monitoring of systems to identify have substantial policies and management review as part of its procedures in place, the rule would SCI events), the Commission estimates estimated burden hours for Compliance require these entities to devote that an SCI entity that has not Managers in connection with the substantial time to review and revise policies and procedures requirements previously participated in the ARP their existing policies and procedures to 1439 under Rules 1001(a) and (b). Inspection Program would require an ensure that they meet all of the rule However, in response to comments and average of 534 burden hours initially to requirements.1447 However, the based on Commission staff experience, develop and draft the policies and Commission does not believe that a 50% the Commission is additionally procedures required by that rule (except baseline would be appropriate for these including burden estimates for a for the policies and procedures for SCI entities in terms of senior Director of Compliance (10 hours standards that result in systems being management review of the policies and initially, 5 hours annually) and Chief designed, developed, tested, 1440 procedures. Specifically, as noted Compliance Officer (20 hours maintained, operated, and surveilled in above, Commission believes that, initially, 10 hours annually) with a manner that facilitates the successful although these entities already have respect to both Rules 1001(a) and 1441 collection, processing, and substantial policies and procedures in (b). The Commission reiterates that dissemination of market data, which is place, senior management of all SCI these estimates are averages across all discussed below),1443 or 7,476 hours for entities, regardless of whether an SCI SCI entities—some SCI entities may 1444 The entity currently participates in the ARP spend more hours in connection with all such SCI entities. Inspection Program, would require a the establishment, maintenance, and Commission estimates that an SCI entity similar number of hours to review the enforcement of the policies and that has not previously participated in SCI entity’s policies and procedures to procedures than the Commission’s the ARP Inspection Program would ensure compliance with the new estimates, while others may spend require an average of 159 hours annually to review and update such requirements under Regulation SCI.1448 1437 See supra notes 1418–1419 and accompanying text. 1445 As noted above, the Commission is doubling 1438 See supra notes 1417, 1419, and 1420 and 1442 For example, some SCI entities have more its estimate of the burden for staff of SCI entities. 60 hours × 2 = 120 hours. 120 hours ÷ 5 × 6 = 144 accompanying text. According to one commenter, complex systems than others, and current practices hours annually to review and update policies and the Commission’s burden estimates for the policies of some SCI entities already comply with certain and procedures did not account for the time procedures that contain six elements, as opposed to requirements of Regulation SCI to some extent. required to determine which systems would fall the five in the SCI Proposal. The 144 burden hours into the various categories of systems. See supra 1443 As noted above, the Commission is doubling include 57 hours by a Compliance Manager, 57 note 1419 and accompanying text. The Commission its estimate of the burden for staff of SCI entities. hours by an Attorney, 15 hours by a Senior Systems disagrees with this view and notes that the burden 210 hours × 2 = 420 hours. 420 hours ÷ 5 × 6 = Analyst, and 15 hours by an Operations Specialist. of identifying various types of systems and events 504 hours to establish policies and procedures that As compared to the proposal, the Commission is are discussed below in Section V.D.3. In addition, contain six elements, as opposed to the five in the additionally allocating burden hours to Senior Systems Analysts and Operations Specialists. Also, this commenter expressed concern that the SCI Proposal. The 504 burden hours include 192 as noted above, as compared to the proposal, the Commission’s estimates did not account for hours by a Compliance Manager, 192 hours by an assessing, growing, and reorganizing an SCI entity’s Commission is estimating an additional 10 hours by Attorney, 60 hours by a Senior Systems Analyst, workforce; establishing and conducting training; a Chief Compliance Officer and 5 hours by a and other collateral effects of the new requirements. and 60 hours by an Operations Specialist. This Director of Compliance to reflect the views of See supra note 1419 and accompanying text. As burden hour allocation is based on the allocation commenters that compliance with the proposed discussed throughout this section, the Commission in the SCI Proposal. See Proposing Release, supra policies and procedures requirements would has increased the burden estimates for Rules note 13, at 18146. As noted above, as compared to require greater senior management involvement. 1001(a) and (b) in response to comments. the proposal, the Commission is estimating an See supra notes 1440–1441 and accompanying text. 1439 See supra note 1402. additional 20 hours by a Chief Compliance Officer 144 hours + Chief Compliance Officer at 10 hours 1440 The Chief Compliance Officer burden and 10 hours by a Director of Compliance to reflect + Director of Compliance at 5 hours = 159 hours. 1446 × estimates include the time spent by other senior the views of commenters that compliance with the 159 hours 14 SCI entities that do not officers, including Chief Information Officers and proposed policies and procedures requirements participate in the ARP Inspection Program = 2,226 hours. The Commission believes that the increases Chief Information Security Officers, as appropriate would require greater senior management for a particular requirement under Regulation SCI. in the ongoing burden estimates for Rules 1001(a) involvement. See supra notes 1440–1441 and 1441 In estimating the number of burden hours to and (b) are consistent with the comment that the accompanying text. 504 hours + Chief Compliance be spent by senior management, the Commission is Commission underestimated the ongoing burdens not making a distinction between SCI entities that Officer at 20 hours + Director of Compliance at 10 associated with proposed Rules 1000(b)(1) and (2), currently participate in the ARP Inspection Program hours = 534 hours. but to a lesser extent than with respect to the initial and SCI entities that do not. In contrast to the 1444 As noted above, all of the national securities burden. See supra notes 1423–1424 and Commission’s estimate with regard to non-senior exchanges (18), national securities associations (1), accompanying text. staff of SCI entities that currently participate in the registered clearing agencies (7), and plan processors 1447 With respect to a commenter’s view that the ARP Inspection Program, who the Commission (2) currently participate on a voluntary basis in the 50% baseline does not account for the significant believes could be subject to less burden in drafting ARP Inspection Program. In addition, 1 ATS and 1 expansion of the requirements, the Commission notes that the 50% baseline merely indicates the the policies and procedures because these SCI exempt clearing agency subject to ARP participate entities already have certain policies and difference between the level of burden imposed on in the ARP Inspection Program, for a total of 30 SCI procedures in place, the Commission believes that SCI entities that participate in the ARP Inspection all senior management, regardless of whether an entities that currently participate in the ARP Program and SCI entities that do not. See supra note SCI entity participates in the ARP Inspection Inspection Program. Therefore, 14 SCI entities do 1421 and accompanying text. As discussed above, Program, would require a similar number of hours not participate in the ARP Inspection Program. 534 the Commission has increased its burden estimates to review such policies and procedures to ensure hours × 14 SCI entities that do not participate in in response to comments. compliance with Regulation SCI. the ARP Inspection Program = 7,476 hours. 1448 See supra note 1441.

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The Commission estimates that an SCI data, the Commission estimates that response to comments that the entity that currently participates in the each SCI entity would spend 160 hours Commission underestimated the burden ARP Inspection Program would require initially,1453 or 7,040 hours for all SCI in the proposal, the Commission an average of 282 burden hours initially entities.1454 The Commission estimates believes it is appropriate to similarly to develop and draft the policies and that each SCI entity would spend 145 double its estimate of the outsourcing procedures required by Rule 1001(a) hours annually,1455 or 6,380 hours cost for complying with Rule 1001(a). (except for the policies and procedures annually for all SCI entities.1456 As noted above in the context of the for standards that result in systems As noted above, one commenter burden estimate for Rule 1001(a), the being designed, developed, tested, argued that, given the rates charged by Commission believes that, by doubling maintained, operated, and surveilled in large law firms and consulting firms, an its outsourcing cost estimate, the a manner that facilitates the successful estimate of $100,000 is more Commission has incorporated the views collection, processing, and appropriate for the cost of outsourcing of commenters that the Commission dissemination of market data),1449 or under proposed Rule 1000(b)(1).1457 underestimated the burden, and at the 8,460 hours for all such SCI entities.1450 After considering the view of this same time accounted for changes to the The Commission estimates that an SCI commenter and because the proposal that reduce the burden from entity that currently participates in the Commission is increasing its estimated the SCI Proposal. Further, the ARP Inspection Program would require burden hours for compliance with Rule Commission acknowledges that some an average of 87 hours annually to 1001(a), the Commission is similarly SCI entities may have more complex review and update such policies and increasing its estimate of the systems and policies and procedures, procedures,1451 or 2,610 hours for all outsourcing cost for complying with may outsource more of the work such SCI entities.1452 Rule 1001(a). In particular, because the associated with the policies and With respect to the requirement in Commission doubled the non-senior procedures,1458 or may outsource the Rule 1001(a)(2)(vi) for policies and staff burden estimate for Rule 1001(a) in work to more expensive law firms and procedures that provide for standards consulting firms than others. Therefore, that result in systems being designed, 1453 This estimate includes 130 hours by staff of the Commission believes that while developed, tested, maintained, operated, an SCI entity, as estimated in the SCI Proposal, and some SCI entities may incur more 30 hours by senior management. The 130 burden and surveilled in a manner that hours include 30 hours by a Compliance Attorney outsourcing cost than the Commission’s facilitates the successful collection, and 100 hours by a Senior Systems Analyst. See estimate, other SCI entities may incur processing, and dissemination of market Proposing Release, supra note 13, at 18146. This less than the Commission’s estimate. burden hour allocation is based on the allocation The Commission does not believe that a in the SCI Proposal. See Proposing Release, supra 1449 As noted above, the Commission is doubling note 13, at 18146. As noted above, as compared to commenter’s $100,000 estimate is more its estimate of the burden for staff of SCI entities. the proposal, the Commission is estimating an appropriate given that there will be 105 hours × 2 = 210 hours. 210 hours ÷ 5 × 6 = additional 20 hours by a Chief Compliance Officer 252 hours to establish policies and procedures that differences among SCI entities in the and 10 hours by a Director of Compliance to reflect contain six elements, as opposed to the five in the extent of outsourcing and in the rates of SCI Proposal. The 252 burden hours include 96 the views of commenters that compliance with the proposed policies and procedures requirements outside firms. hours by a Compliance Manager, 96 hours by an Because Rule 1001(a) requires an Attorney, 30 hours by a Senior Systems Analyst, would require greater senior management and 30 hours by an Operations Specialist. This involvement. See supra notes 1440–1441 and additional element to be included in the burden hour allocation is based on the allocation accompanying text. 130 hours + Chief Compliance policies and procedures as compared to in the SCI Proposal. See Proposing Release, supra Officer at 20 hours + Director of Compliance at 10 proposed Rule 1000(b)(1) (i.e., hours = 160 hours. Unlike the burden estimates for note 13, at 18146. As noted above, as compared to monitoring of systems to identify SCI the proposal, the Commission is estimating an complying with the rest of Rule 1001(a), the additional 20 hours by a Chief Compliance Officer Commission does not believe it would be events), the Commission now estimates and 10 hours by a Director of Compliance to reflect appropriate to double its proposed 130 hour staff that on average, each SCI entity would the views of commenters that compliance with the burden estimate for Rule 1001(a)(2)(vi). Based on seek outside legal and/or consulting Commission staff experience, the Commission proposed policies and procedures requirements services in the initial preparation of the would require greater senior management believes that these policies and procedures would involvement. See supra notes 1440–1441 and not be so complex as to result in doubling the policies and procedures at a cost of accompanying text. 252 hours + Chief Compliance proposed burden estimate. The Commission also approximately $47,000,1459 or Officer at 20 hours + Director of Compliance at 10 notes that the burden estimate for Rule $2,068,000 for all SCI entities.1460 hours = 282 hours. 1001(a)(2)(vi) is already significantly higher than With respect to the view of a the estimated burden for the other individual 1450 282 hours × 30 SCI entities that participate commenter that the Commission in the ARP Inspection Program = 8,460 hours. policies and procedures required under Rule 1001(a)(2). In particular, the Commission estimates 1451 As noted above, the Commission is doubling underestimated the paperwork burden its estimate of the burden for staff of SCI entities. 160 hours for this one provision and 534 hours in under proposed Rule 1000(b)(2) because 30 hours × 2 = 60 hours. 60 hours ÷ 5 × 6 = 72 hours total for the six other provisions of Rule 1001(a)(2) that rule is extremely extensive,1461 the for non-ARP participants (which results in to review and update policies and procedures that Commission notes that, as adopted, Rule contain six elements, as opposed to the five in the approximately 89 hours for each of those six other SCI Proposal. The 72 burden hours include 28 provisions). 1001(b) requires policies and 1454 × hours by a Compliance Manager, 28 hours by an 160 hours 44 SCI entities = 7,040 hours. procedures to be reasonably designed to Attorney, 8 hours by a Senior Systems Analyst, and 1455 This estimate includes 130 hours by staff of ensure, in part, that SCI systems 8 hours by an Operations Specialist. As compared an SCI entity, as estimated in the SCI Proposal, and ‘‘operate in a manner that complies with to the proposal, the Commission is additionally 15 hours by senior management. The 130 burden allocating burden hours to Senior Systems Analysts hours include 30 hours by a Compliance Attorney and Operations Specialists. Also, as noted above, as and 100 hours by a Senior Systems Analyst. See 1458 For example, smaller SCI entities may not compared to the proposal, the Commission is Proposing Release, supra note 13, at 18146. 130 have the same level of in-house expertise as larger estimating an additional 10 hours by a Chief hours + Chief Compliance Officer at 10 hours + SCI entities. Compliance Officer and 5 hours by a Director of Director of Compliance at 5 hours = 145 hours. 1459 As noted above, the Commission is doubling Compliance to reflect the views of commenters that 1456 145 hours × 44 SCI entities = 6,380 hours. its estimate of the outsourcing cost for SCI entities. × compliance with the proposed policies and 1457 See supra note 1427 and accompanying text. $20,000 2 = $40,000. The Commission is also procedures requirements would require greater This commenter also argued that the Commission revising this cost estimate to reflect that Rule senior management involvement. See supra notes mistakenly assumed that SCI entities would not 1001(a) requires seven specific elements to be 1440–1441 and accompanying text. 72 hours + seek guidance from outside consultants or included in the policies and procedures, as opposed ÷ × Chief Compliance Officer at 10 hours + Director of attorneys. See supra note 1426 and accompanying to the six in the proposed rule. $40,000 6 7 = Compliance at 5 hours = 87 hours. text. However, the Commission did account for $46,667. 1452 87 hours × 30 SCI entities that participate in outsourcing cost in the SCI Proposal and does so 1460 $47,000 × 44 SCI entities = $2,068,000. the ARP Inspection Program = 2,610 hours. here, as well. 1461 See supra note 1416.

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the Act and the rules and regulations procedures,1466 or 1,615 hours for all personnel,1472 and escalation thereunder.’’ As adopted, this rule no such SCI entities.1467 procedures to quickly inform longer refers to compliance with ‘‘the As noted above, similar to the burden responsible SCI personnel of potential federal securities laws and rules and estimates for proposed Rule 1000(b)(1), SCI events. Like adopted Rules regulations thereunder’’ and operation one commenter argued that the 1001(a)(3) and (b)(3), Rule 1001(c) ‘‘in the manner intended.’’ Nevertheless, Commission underestimated the requires each SCI entity periodically to as noted above, after considering the outsourcing cost under proposed Rule review the effectiveness of these views of commenters that the 1000(b)(2).1468 Similar to the discussion policies and procedures and to take Commission underestimated the above related to Rule 1001(a),1469 after prompt action to remedy deficiencies in paperwork burden under proposed Rule considering the view of this commenter policies and procedures. The 1000(b)(2), the Commission is doubling and because the Commission is Commission estimates that each SCI its estimates from the proposal (which increasing its estimated burden hours entity would require 114 hours initially were focused on the burden for SCI for compliance with Rule 1001(b), the to establish the criteria for identifying entity staff), and is increasing its Commission is doubling its estimate of responsible SCI personnel and the estimates to account for senior the outsourcing cost for complying with escalation procedures,1473 or 5,016 management review of the policies and Rule 1001(b). The Commission now hours for all SCI entities.1474 The procedures. estimates that on average, each SCI Commission also estimates that each The Commission now estimates that entity would seek outside legal and/or SCI entities would require 39 hours each SCI entity would spend 270 hours consulting services in the initial annually to review and update the initially to design the systems preparation of the policies and criteria and the escalation compliance policies and procedures,1462 procedures at a cost of approximately procedures,1475 or 1,716 hours for all or 11,880 hours for all SCI entities.1463 $27,000,1470 or $1,188,000 for all SCI The Commission estimates that each SCI entities.1471 1472 The paperwork burden associated with the SRO would spend approximately 175 documentation of responsible SCI personnel is Adopted Rules 1001(a)(3) and (b)(3) included in the Commission’s estimate of the hours annually to review and update explicitly require each SCI entity to recordkeeping burden, as discussed in Section 1464 such policies and procedures, or periodically review the effectiveness of V.D.4 below. 4,725 hours for all SCI SROs.1465 The the policies and procedures required by 1473 This estimate is based on the Commission’s Commission estimates that each SCI Rules 1001(a) and (b), respectively, and burden estimate for Rule 1001(a), because Rule entity that is not an SRO would spend 1001(a) and Rule 1001(c) both require policies and to take prompt action to remedy procedures or processes. Because Rule 1001(a) approximately 95 hours to review and deficiencies in such policies and (excluding Rule 1001(a)(2)(vi)) requires the update such policies and procedures. The Commission notes that establishment of six policies and procedures at a minimum and Rule 1001(c) requires the the paperwork burden related to the establishment of two policies and procedures, the 1462 As noted above, the Commission is doubling review of the policies and procedures, Commission estimates that the initial burden to its estimate of the burden for staff of SCI entities. draft the policies and procedures required by Rule 180 hours × 2 = 360 hours. 360 hours ÷ 6 × 4 = and remedying deficiencies in policies 1001(c) is one-third of the initial burden to draft the 240 hours to establish policies and procedures that and procedures, is included in the policies and procedures required by Rule 1001(a) contain four elements at a minimum, as opposed to estimated annual ongoing burden of (excluding Rule 1001(a)(2)(vi)). Further, the the six in the SCI Proposal. The 240 burden hours Rules 1001(a) and (b). Commission believes that, even though Rule include 40 hours by a Compliance Attorney and 200 1001(c) will impose paperwork burdens on SCI hours by a Senior Systems Analyst. This burden Rule 1001(c)(1), which was not included in the proposal, requires each entities, most, if not all, SCI entities, regardless of hour allocation is based on the allocation in the SCI whether they participate in the ARP Inspection Proposal. See Proposing Release, supra note 13, at SCI entity to establish, maintain, and Program, already have some processes in place for 18146. As noted above, as compared to the enforce reasonably designed written the designation of persons responsible for particular proposal, the Commission is estimating an policies and procedures that include the systems and escalation procedures. Therefore, the additional 20 hours by a Chief Compliance Officer Commission believes it is appropriate to assume a and 10 hours by a Director of Compliance to reflect criteria for identifying responsible SCI 50% baseline for all SCI entities (as compared to the the views of commenters that compliance with the personnel, the designation and burden estimate for Rule 1001(a) for SCI entities proposed policies and procedures requirements documentation of responsible SCI that do not participate in the ARP Inspection would require greater senior management Program) in terms of the staff burden for involvement. See supra notes 1440–1441 and ÷ 1466 As noted above, the Commission is doubling compliance with Rule 1001(c). 252 hours 3 = 84 accompanying text. 240 hours + Chief Compliance hours. The 84 burden hours include 32 hours by a its estimate of the burden for staff of SCI entities. Officer at 20 hours + Director of Compliance at 10 Compliance Manager, 32 hours by an Attorney, 10 60 hours × 2 = 120 hours. 120 hours ÷ 6 × 4 = 80 hours = 270 hours. hours by a Senior Systems Analyst, and 10 hours hours to review and update policies and procedures 1463 270 hours × 44 SCI entities = 11,880 hours. by an Operations Specialist. This burden hour that contain four elements at a minimum, as 1464 As noted above, the Commission is doubling allocation is based on the allocation for Rule opposed to the six in the SCI Proposal. The 80 its estimate of the burden for staff of SCI entities. 1001(a) (excluding Rule 1001(a)(2)(vi)). See supra burden hours include 14 hours by a Compliance 120 hours × 2 = 240 hours. 240 hours ÷ 6 × 4 = note 1443. The Commission also estimates that a Attorney and 66 hours by a Senior Systems Analyst. 160 hours to review and update policies and Chief Compliance Officer will spend 20 hours and This burden hour allocation is based on the procedures that contain four elements at a a Director of Compliance will spend 10 hours allocation in the SCI Proposal. See Proposing minimum, as opposed to the six in the SCI reviewing the policies and procedures required by Release, supra note 13, at 18146. 80 hours + Chief Proposal. The 160 burden hours include 26 hours Rule 1001(c). 84 hours + Chief Compliance Officer Compliance Officer at 10 hours + Director of by a Compliance Attorney and 134 hours by a at 20 hours + Director of Compliance at 10 hours Compliance at 5 hours = 95 hours. Senior Systems Analyst. This burden hour = 114 hours. 1467 × allocation is based on the allocation in the SCI 95 hours 17 non-SRO SCI entities = 1,615 The Commission notes that, in the SCI Proposal, Proposal. See Proposing Release, supra note 13, at hours. it also estimated the burden hours for other policies 18146. As noted above, as compared to the 1468 See supra note 1428 and accompanying text. and procedures based on its burden estimate under proposal, the Commission is estimating an 1469 See supra notes 1457–1458 and proposed Rule 1000(b)(1). See, e.g., Proposing additional 10 hours by a Chief Compliance Officer accompanying text. Release, supra note 13, at 18152, n. 442. One and 5 hours by a Director of Compliance to reflect 1470 As noted above, the Commission is doubling commenter stated that it was appropriate to base the the views of commenters that compliance with the its estimate of the outsourcing cost for SCI entities. burden estimate for proposed Rule 1000(b)(3), proposed policies and procedures requirements $20,000 × 2 = $40,000. The Commission is also which would likely result in SCI entities revising would require greater senior management revising this cost estimate to reflect that Rule their policies, on the burden estimate under involvement. See supra notes 1440–1441 and 1001(b) will result in the inclusion of at least four proposed Rule 1000(b)(1). See infra note 1700 and accompanying text. 160 hours + Chief Compliance elements in the policies and procedures, as opposed accompanying text. Officer at 10 hours + Director of Compliance at 5 to the six in the proposed rule. $40,000 ÷ 6 × 4 = 1474 114 hours × 44 SCI entities = 5,016 hours. hours = 175 hours. $26,667. 1475 This estimate is based on the Commission’s 1465 175 hours × 27 SCI SROs = 4,725 hours. 1471 $27,000 × 44 SCI entities = $1,188,000. burden estimate for Rule 1001(a), because Rule

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SCI entities.1476 The Commission comply with proposed Rules processor 1486 and an annual cost of believes that SCI entities will internally 1000(b)(9)(i) and (ii).1480 $1,200 per plan processor.1487 With respect to the Commission’s establish and maintain the policies and In the SCI Proposal, the Commission estimate of the burdens under proposed procedures required by Rule 1001(c) estimated that each SCI entity (other because these policies and procedures Rule 1000(b)(9), one commenter noted than plan processors) would spend that the estimate was effectively limited relate to internal personnel designations approximately 35 hours initially to meet and internal processes. to ministerial tasks of producing a rule the requirements of proposed Rule filing and of undertaking follow-up b. Mandate Participation in Certain 1000(b)(9)(iii) (i.e., establishing work in connection with Testing standards for designating members or implementation and does not take into participants and filing such standards account significant activities relating to In the SCI Proposal, the Commission with the Commission, and determining, the SRO rule change process (e.g., board estimated that each SCI entity (other compiling, and submitting the list of or directors briefing and deliberation, than plan processors) would spend designated members or potential notice for comment, responses approximately 130 hours initially to participants).1481 The Commission to comment letters received on such meet the requirements of proposed estimated that each SCI entity (other notice, responses to comment letters Rules 1000(b)(9)(i) and (ii) (i.e., the than plan processors) would spend received by the Commission on a rule requirement to mandate participation by approximately 3 hours annually to filing, etc.) and understates the activities designated members or participants in comply with proposed Rule necessary to implement testing with testing and the requirement that an SCI 1000(b)(9)(iii) (i.e., to review the industry participants.1488 Another entity coordinate required testing with designation standards to ensure that commenter argued that it has other SCI entities).1477 The 130-hour they remain up-to-date and to prepare contractual relationships with estimate included 35 hours to write a any necessary amendments, to review thousands of clients, and contract negotiations always require a great deal proposed rule, or revise a membership/ the list of designated members or of time and commitment from its legal subscriber agreement or participant participants, and to update prior personnel.1489 This commenter also agreement to establish the participation Commission notifications with respect noted that while a certain significant requirement for designated members or to standards for designation and the list percentage of its clients may sign the 1478 1482 participants. It also included 95 of designees). The Commission also contracts without any negotiation, many hours of follow-up work (e.g., notice estimated that all SCI entities, other do not.1490 According to this and schedule coordination) to ensure than plan processors, would conduct commenter, the requirements under implementation.1479 The Commission the work associated with proposed Rule proposed Rule 1000(b)(9) would create estimated that each SCI entity (other 1000(b)(9) internally.1483 for it many thousands of burden hours than plan processors) would spend For plan processors, the Commission because it would require the commenter approximately 95 hours annually to estimated that proposed Rules to re-negotiate contracts with ‘‘the many 1000(b)(9)(i) and (ii) would carry an thousands of clients it has already 1491 1001(a) and Rule 1001(c) both require policies and initial cost of $52,000 per plan signed up.’’ procedures or processes. Because Rule 1001(a) One commenter noted that the processor 1484 and an annual cost of (excluding Rule 1001(a)(2)(vi)) requires the requirements under proposed Rule maintenance of six policies and procedures at a $38,000 per plan processor.1485 The 1000(b)(9) would not be conducive to minimum and Rule 1001(c) requires the Commission also estimated that maintenance of two policies and procedures, the outsourcing.1492 Commission estimates that the ongoing staff burden proposed Rule 1000(b)(9)(iii) would As discussed in detail above in under Rule 1001(c) is one-third of the ongoing staff carry an initial cost of $14,000 per plan Section IV.B.6, the Commission is burden under Rule 1001(a) (excluding Rule adopting proposed Rule 1000(b)(9) as 1001(a)(2)(vi)). As noted above, the Commission 1480 See id. The 95 burden hours included 10 believes it is appropriate to assume a 50% baseline Rule 1004, with certain modifications. hours by a Compliance Manager, 15 hours by an for all SCI entities in terms of the staff burden for Rule 1004 requires each SCI entity to Attorney, and 70 hours by an Operations Specialist. compliance with Rule 1001(c). 72 hours ÷ 3 = 24 See id. The Commission noted that, although the establish standards for the designation hours. The 24 burden hours include 9.5 hours by of certain members or participants for a Compliance Manager, 9.5 hours by an Attorney, initial burden included 35 hours to write a 2.5 hours by a Senior Systems Analyst, and 2.5 proposed rule, revise an agreement, or amend an business continuity and disaster hours by an Operations Specialist. This burden SCI Plan, the Commission did not believe the 35- recovery plan testing, to designate hour allocation is based on the allocation for Rule hour burden would be applicable on an ongoing basis. See id. at 18147, n. 393. members or participants in accordance 1001(a) (excluding Rule 1001(a)(2)(vi)). See supra with these standards, to require note 1445. The Commission also estimates that a 1481 See Proposing Release, supra note 13, at Chief Compliance Officer will spend 10 hours and 18148. The 35 burden hours included 10 hours by participation by designated members or a Director of Compliance will spend 5 hours a Compliance Manager, 15 hours by an Attorney, participants in such testing at least reviewing the policies and procedures required by and 10 hours by a Compliance Clerk. See id. In annually, and to coordinate such testing Rule 1001(c). 24 hours + Chief Compliance Officer establishing this estimate, the Commission on an industry- or sector-wide basis at 10 hours + Director of Compliance at 5 hours = considered its estimate of the burden for an SRO to 39 hours. file an average proposed rule filing under Rule with other SCI entities. However, 1476 39 hours × 44 SCI entities = 1,716 hours. 19b–4. See id. at 18148, n. 397. 1482 1486 × 1477 See Proposing Release, supra note 13, at See Proposing Release, supra note 13, at 35 hours $400 per hour for outside legal 18147. 18148. The 3 burden hours included 1.5 hours by service = $14,000. See id. at 18148. 1487 × 1478 See id. The 35 burden hours included 10 a Compliance Manager and 1.5 hours by an 3 hours $400 per hour for outside legal hours by a Compliance Manager, 15 hours by an Attorney. See id. In establishing this estimate, the service = $1,200. See id. Attorney, and 10 hours by a Compliance Clerk. See Commission has considered its estimate of the 1488 See MSRB Letter at 38. id. In establishing this estimate, the Commission burden for an SRO to amend a Form 19b–4 rule 1489 See Omgeo Letter at 46. This commenter considered its estimate of the burden for an SRO to filing. See id. at 18148, n. 401. noted that its relationships with clients are often file an average proposed rule change under Rule 1483 See id. at 18145. based on negotiated agreements and that clients do 19b–4. See id. at 18147, n. 389. 1484 130 hours × $400 per hour for outside legal not automatically agree to all terms stated in the 1479 See Proposing Release, supra note 13, at service = $52,000. See Proposing Release, supra standard contract. See id. at 45. 18147. The 95 burden hours included 10 hours by note 13, at 18147. 1490 See id. at 46. a Compliance Manager, 15 hours by an Attorney, 1485 95 hours × $400 per hour for outside legal 1491 See id. and 70 hours by an Operations Specialist. See id. service = $38,000. See id. 1492 See MSRB Letter at 38.

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adopted Rule 1004 does not require an such SCI entities.1496 The Commission of reasonable discretion, prefer to SCI entity to notify and update the continues to believe that SCI entities designate few members or participants Commission of its designated members (other than plan processors) would to participate in testing, than to or participants and its standards for handle internally the work associated designate more. Thus, even if an SCI designation on Form SCI, as proposed. with the requirements of Rule 1004.1497 entity individually negotiates contract Considering commenters’ view that With respect to a commenter’s modifications with certain designated the Commission had underestimated the statement that it has contractual members or participants, the burden hours associated with proposed relationships with thousands of clients Commission believes that the burden Rule 1000(b)(9), the Commission now and that proposed Rule 1000(b)(9) would be substantially less than estimates that the requirements under would create many thousands of burden suggested by the commenter.1500 Rules 1004(a) (i.e., establishment of hours,1498 the Commission notes that Moreover, as noted above, taking into standards for the designation of adoption of a more focused designation account commenters’ view that the members and participants) and (c) (i.e., requirement is likely to result in a Commission underestimated the burden coordination of testing on an industry- smaller number of SCI entity members for proposed Rule 1000(b)(9), the or sector-wide basis) will initially or participants being designated for Commission increased its estimate for require 360 hours for each SCI entity participation in testing as compared to initial burden hours from 130 hours for that is not a plan processor (e.g., the SCI Proposal. Specifically, as the proposed rule to 360 hours for establishing designation criteria by adopted, Rule 1004(a) requires an SCI adopted Rule 1004. The average burden writing a proposed rule; revising a entity to designate ‘‘members or estimate associated with Rule 1004 membership/subscriber agreement or participants that the SCI entity applies to SCI entities that would need participant agreement; providing notice reasonably determines are, taken as a to negotiate contract modifications with to members or participants; scheduling whole, the minimum necessary for the members or participants. the coordinated testing),1493 or 15,120 maintenance of fair and orderly Based on its experience with plan hours for all such SCI entities.1494 markets’’ in the event of the activation processors, the Commission continues Further, the Commission estimates that of the business continuity and disaster to believe that plan processors will the requirements under Rules 1004(a) recovery plans. On the other hand, outsource the work related to and (c) will require 135 hours annually proposed Rule 1000(b)(9) required compliance with Rule 1004. The for each SCI entity that is not a plan participation by members or Commission estimates that Rule 1004 processor,1495 or 5,670 hours for all participants the SCI entity deemed will carry an initial cost of $144,000 per necessary ‘‘for the maintenance of fair plan processor,1501 or $288,000 for all 1493 This estimate includes 90 hours to comply and orderly markets in the event of the plan processors.1502 The Commission with Rule 1004(a) and 270 hours to comply with activation of its business continuity and estimates that Rule 1004 will carry an Rule 1004(c). The 90 hours include 30 hours by an 1499 Attorney, 20 hours by a Compliance Manager, 10 disaster recovery plans.’’ The annual cost of $54,000 per plan 1503 hours by an Assistant General Counsel, 6 hours by Commission believes that SCI entities processor, or $108,000 for all plan a Chief Compliance Officer, 4 hours by a Director have an incentive to limit the processors.1504 of Compliance, and 20 hours by a Senior Operations imposition of the cost and burden 2. Notification, Dissemination, and Manager. The Commission is substantially associated with testing to the minimum increasing the estimated burden over that estimated Reporting Requirements for SCI Entities for proposed Rule 1000(b)(9)(i), and is estimating an necessary to comply with the rule, and additional 10 hours by an Assistant General it also believes that, given the option, The rules under Regulation SCI that Counsel, 6 hours by a Chief Compliance Officer, 4 most SCI entities would, in the exercise would require an SCI entity to notify the hours by a Director of Compliance, and 20 hours by a Senior Operations Manager to reflect senior 1500 As discussed in the Economic Analysis, the management review of the standards for standards will likely not change substantially on an Commission estimates that each SCI entity would designation. With respect to the comment that the annual basis. See Proposing Release, supra note 13, designate an average of 40 members or participants estimates in the proposal did not take into account at 18147, n. 393. The 135 hours include 15 hours to participate in the necessary testing. See infra note significant activities relating to the SRO rule change by an Attorney, 10 hours by a Compliance Manager, 2065. Therefore, an SCI entity will not be required process, the Commission notes that the paperwork 5 hours by an Assistant General Counsel, 10 hours by a Chief Compliance Officer, 5 hours by a Director to re-negotiate contracts with ‘‘the many thousands burden associated with SRO rule filings are of clients it has already signed up.’’ See supra note included as part of the burden associated with Rule of Compliance, 70 hours by an Operations Specialist, and 20 hours by a Senior Operations 1491 and accompanying text. Moreover, this 19b–4. See supra note 1488 and accompanying text. commenter recognized that a significant percentage The 270 hours include 30 hours by an Attorney, 20 Manager. As compared to the estimated ongoing burden for proposed Rule 1000(b)(9)(ii), the of its clients may sign the contracts without any hours by a Compliance Manager, 10 hours by an negotiation. See supra note 1491 and accompanying Assistant General Counsel, 20 hours by a Chief Commission is estimating an additional 5 hours by an Assistant General Counsel, 10 hours by a Chief text. As a result, the Commission does not expect Compliance Officer, 10 hours by a Director of that an SCI entity will need to negotiate with all of Compliance Officer, 5 hours by a Director of Compliance, 140 hours by an Operations Specialist, the estimated 40 members or participants. Compliance, and 20 hours by a Senior Operations and 40 hours by a Senior Operations Manager. The 1501 360 hours × $400 per hour for outside legal Commission is substantially increasing the Manager, consistent with the Commission’s estimate for the initial burden for Rule 1004. service = $144,000. This is based on an estimated estimated burden over that estimated for proposed $400 per hour cost for outside legal services. This 1496 × Rule 1000(b)(9)(ii), and is estimating an additional 135 hours 42 SCI entities other than plan is the same estimate used by the Commission for 10 hours by an Assistant General Counsel, 20 hours processors = 5,670 hours. these services in the ‘‘Exemptions for Advisers to by a Chief Compliance Officer, 10 hours by a 1497 See supra note 1492 (discussing a Venture Capital Funds, Private Fund Advisers with Director of Compliance, and 40 hours by a Senior commenter’s view that the requirements under Less Than $150 Million Under Management, and Operations Manager, in response to the view of a proposed Rule 1000(b)(9) would not be conducive Foreign Private Advisers’’ final rule: SEC Release commenter that the estimates in the SCI Proposal to outsourcing). No. IA–3222 (June 22, 2011); 76 FR 39646 (July 6, underestimated the activities necessary to 1498 See supra notes 1489–1491 and 2011). implement testing with industry participants. See accompanying text. 1502 $144,000 × 2 plan processors = $288,000. supra note 1488 and accompanying text. The 1499 The Commission notes that, because Rule 1503 135 hours × $400 per hour for outside legal estimate of 360 hours includes the burden for 1004 would not require all members or participants service = $54,000. The Commission increased from designating members or participants for testing, as of an SCI entity to participate in business continuity its estimate in the proposal the estimated hours for required by Rule 1004(b). and disaster recovery plan testing, Rule 1004 will the outsourced work for plan processors to be 1494 360 hours × 42 SCI entities other than plan not affect all of an SCI entity’s contractual equivalent to the number of burden hours it processors = 15,120 hours. relationships with clients or members or estimated for an SCI entity that is not a plan 1495 As noted in the SCI Proposal, the participants. Further, the Commission notes that its processor (i.e., increasing the initial burden Commission does not believe that there would be estimated burden for compliance with Rule 1004 is estimate from 130 hours to 360 hours and the significant annual burden under Rule 1004(a), as intended to reflect the average burden for all SCI annual burden estimate from 95 to 135 hours). the Commission believes that the designation entities (other than plan processors). 1504 $54,000 × 2 plan processors = $108,000.

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Commission of SCI events, disseminate number of SCI events.1512 One timely reporting may arise where an information regarding certain SCI commenter stated that, because the issue requires cross-department events, and notify the Commission of proposed definition of SCI event was coordination or coordination with a certain systems changes are discussed broad and would include minor or joint facility or RSA client.1518 This more fully in Sections IV.B.3.c, IV.B.3.d, immaterial events, it is likely that each commenter stated that the Commission and IV.B.4 above. SCI entity could have hundreds if not notification process will take even more thousands of SCI events on an annual time where a third party’s technical and a. Commission Notification of SCI basis.1513 Similarly, another commenter data personnel are relied on to provide Events stated that each SCI entity could be initial drafts or where an RSA client In the SCI Proposal, the Commission required to report hundreds of systems requests that it have the opportunity to estimated that each SCI entity would disruption events each year, although review all written notices before they experience an average of 40 immediate the vast majority of such events would are submitted.1519 Another commenter notification SCI events 1505 per year (i.e., be virtually unnoticed by market noted that senior management of SCI 40 notifications under proposed Rule participants.1514 Another commenter entities would want an SCI event to be 1000(b)(4)(i)), and that one-fourth of the stated that, based on its best reading of investigated before it is reported to the notifications under proposed Rule the more expansive definitions of Commission.1520 This commenter also 1000(b)(4)(i) would be in writing (i.e., disruptions and intrusions, a more noted that any responsible Chief 10 written notifications and 30 oral accurate estimate could be between 200 Administrative Officer, Chief Financial notifications).1506 The Commission to 500 events per year per exchange.1515 Officer, Chief Operations Officer, Chief estimated that each written notification Several commenters noted that the Compliance Officer, Chief Information would require 0.5 hours to prepare and Commission significantly Security Officer, General Counsel, and submit to the Commission.1507 The underestimated the number of updates compliance attorneys and officers Commission also estimated that each that would be required under Rule would want to review any report on an SCI entity would experience an average 1000(b)(4)(iii).1516 SCI event prior to submission to the of 65 SCI events each year and therefore With respect to the Commission’s Commission.1521 In addition, this would submit 65 Commission estimate of the burden for Commission commenter noted that the SCI entity notifications each year under proposed notification generally, one commenter would need to engage outside counsel Rule 1000(b)(4)(ii).1508 The Commission noted that preparation of Form SCI will and possibly other parties to review estimated that each such notification take a fair amount of time, not just to such reports.1522 would require an average of 20 burden compile information about the SCI With respect to the Commission’s hours.1509 In addition, the Commission event, but also to review and edit the estimate of the burden for written estimated that on average, each SCI submission.1517 According to this Commission notification under entity would submit 5 updates per year commenter, further impediments to proposed Rule 1000(b)(4)(i), one under proposed Rule 1000(b)(4)(iii), and commenter noted that considerable that each update would require an 1512 See Omgeo Letter at 35; BATS Letter at 11; amounts of activities may be necessary average of 3 burden hours.1510 Finally, Joint SRO Letter at 18; OTC Markets Letter at 6; and to gather the information needed, to the Commission estimated that SCI NYSE Letter at 18. However, commenters did not specify estimates for the number of systems have appropriate confirmations from entities would handle internally the compliance issues an SCI entity would experience persons with knowledge and authority work associated with the notification each year. with respect to the applicable SCI 1513 requirement under proposed Rule See Omgeo Letter at 35. According to this system, to provide for senior 1511 commenter, many of these SCI events would require 1000(b)(4). management review where appropriate, Several commenters stated that the written notification even though the vast majority of them would be minor and immaterial. See id. and to otherwise be in a position to draft Commission underestimated the 1514 See BATS Letter at 11. This commenter also the notification.1523 Another commenter noted that the Commission did not break down the noted that Commission notification 1505 Immediate notification SCI events included anticipated reportable events into systems systems disruptions that an SCI entity reasonably disruptions, systems intrusions, and systems required by proposed Rule 1000(b)(4)(i) estimated would have a material impact on its compliance issues. See id. would require substantive input from operations or on market participants, all systems 1515 See NYSE Letter at 18. See also FINRA Letter personnel outside of the legal and compliance issues, and all systems intrusions. at 18, n. 32 (stating that depending on the compliance departments, including IT 1506 See Proposing Release, supra note 13, at interpretation of what constitutes a systems 18148. intrusion, it would be required to notify the analysts and managers as well as 1507 See id. The 0.5 burden hour would be spent Commission either: Several times a day under the impacted business analysts and by an Attorney. See id. at 18149. broadest interpretation; three or four times per managers.1524 This commenter 1508 See id. at 18148–49. month under a narrower interpretation; or one or estimated that each notification under 1509 two times per year if limited to intrusions where See id. at 18149. The 20 burden hours proposed Rule 1000(b)(4)(i) would included 10 hours by an Attorney and 10 hours by there is a material impact). 1525 a Compliance Manager. See id. This estimate was 1516 See Joint SRO Letter at 19; NYSE Letter at 24 require 12 hours. This commenter based on Commission staff’s experience with the (noting that it is not realistic, with respect to over also noted that the Commission ARP Inspection Program. In determining this 90% of SCI events, that all required activity is erroneously assumed that verbal estimate, the Commission also considered its complete and reportable on Form SCI within 24 estimate of the burden to complete a Form 19b–4 hours). See also FINRA Letter at 19 (noting that notifications under proposed Rule filing, although the Commission noted that, unlike some complex outages can take up to several days a Form 19b–4 filing, the information contained in to triage, isolate, and begin to resolve, and that 1518 See FINRA Letter at 19. Form SCI would only be factual. See id. at 18149, based on its experience with ARP outage reporting, 1519 See id. n. 410. it can take several days to confirm the root cause 1520 See Omgeo Letter at 35. 1510 of an outage and even longer to determine the See id. at 18149. The 3 burden hours 1521 See id. appropriate resolution and how long it will take to included 1.5 hours by an Attorney and 1.5 hours 1522 by a Compliance Manager. See id. This estimate was complete). See id. at 35–36. This commenter also noted that the Commission’s estimated cost for consulting based on Commission staff’s experience with the 1517 See FINRA Letter at 19. Similarly, another outside experts is too low. See id. at 35, n. 69. ARP Inspection Program. In determining this commenter noted that notifications to the 1523 estimate, the Commission also considered its Commission for SCI events and material systems See MSRB Letter at 33. estimate of the burden for an SRO to amend a Form changes would be considered a serious matter, and 1524 See UBS Letter at 6. This commenter 19b–4. See id. at 18149, n. 410. a diligent and properly considered notification expressed the same concern with respect to 1511 See id. at 18148–49, n. 408, n. 411, and n. would require the time and effort of numerous staff proposed Rule 1000(b)(4)(ii). See id. 413. in different departments. See UBS Letter at 6. 1525 See id.

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1000(b)(4)(i) would not consume the functions would spend approximately provide updates pertaining to an SCI time of any employee.1526 53.5 hours per report.1533 With respect event on a regular basis, or at such With respect to the estimated burden to the burden estimates for proposed frequency as reasonably requested by a under proposed Rule 1000(b)(4)(ii), one Rule 1000(b)(4)(iii), this commenter representative of the Commission, until commenter noted that the estimate did believed that proposed Rule the event is resolved and the SCI not take into account the considerable 1000(b)(4)(iii) could conceivably require entity’s investigation of the event is amounts of activities to be undertaken it to update the Commission closed. However, Rule 1002(b)(3), by other personnel, including persons approximately half of the time it files unlike the proposal, does not require with knowledge and authority with Form SCI.1534 According to this these updates to be in writing. Finally, respect to the applicable SCI system and commenter, each update would result in Rule 1002(b)(4) includes requirements the SCI event as well as senior 1 hour of senior management time, 17 for SCI entities to submit interim management where appropriate, in hours of middle management time, and written notifications, as necessary, and order to collect and assess the 9 hours of associate time.1535 final written notifications regarding SCI appropriate information and to properly One commenter stated its belief that events.1540 Specifically, if an SCI event inform the attorney and compliance none of the activities arising under is resolved and the SCI entity’s manager of such information in order to proposed Rule 1000(b)(4) would be investigation of the SCI event is closed allow them to produce an accurate conducive to outsourcing.1536 within 30 calendar days of the notification in compliance with As discussed above in Section occurrence of the SCI event, then within proposed Rule 1000(b)(4)(ii).1527 This IV.B.3.c, the Commission is adopting five business days after the resolution of commenter had similar concerns with the Commission notification the SCI event and closure of the the burden estimates for proposed Rule requirements in Rule 1002(b), with investigation regarding the SCI event, 1000(b)(4)(iii).1528 Another commenter certain modifications from the proposal. the SCI entity is required to submit a noted that, with respect to proposed As adopted, the Commission final written notification. If an SCI event Rule 1000(b)(4)(ii), no provision was notification requirements under Rules is not resolved or the SCI entity’s made for the time burden that would be 1002(b)(1)–(4) do not apply to SCI investigation of the SCI event is not placed on technology personnel in the events that had, or the SCI entity closed within 30 calendar days of the notification process.1529 Similarly, one reasonably estimates would have, no or occurrence of the SCI event, then the commenter noted that the 20-hour a de minimis impact on the SCI entity’s SCI entity is required to submit an burden estimate failed to take into operations or on market interim written notification within 30 account technology staff and business participants.1537 Rather, each SCI entity calendar days after the occurrence of the operations personnel who spend is required to make, keep, and preserve SCI event. Within five business days considerable time gathering facts and records relating to all such SCI events, after the resolution of such SCI event circumstances of a systems issue.1530 and submit quarterly reports to the and closure of the investigation Another commenter estimated that each Commission regarding such de minimis regarding such SCI event, the SCI entity report under proposed Rule systems disruptions and de minimis is required to submit a final written 1000(b)(4)(ii) will require approximately systems intrusions.1538 notification. 5 hours of senior management time Rule 1002(b)(1), similar to the As noted above, some commenters (including review and discussions proposal, requires immediate expressed their view that the between the Chief Administrative Commission notification upon any Commission underestimated the Officer, the Chief Compliance Officer, responsible SCI personnel having a number of SCI events because they the Chief Information Officer, the Chief reasonable basis to conclude that an SCI considered the definition of SCI event to Operating Officer, and the General event has occurred. Rule 1002(b)(2), be broad and would include minor or Counsel).1531 In addition, this similar to the proposal, requires a immaterial events.1541 These commenter estimated that middle written Commission notification within commenters estimated hundreds and managers from its Compliance, Legal, 24 hours of any responsible SCI even thousands of SCI events annually Technology, Product, and Information personnel having a reasonable basis to for each SCI entity, but noted that the Security functions would spend on conclude that the SCI event has majority of such events would have no average approximately 31 hours per occurred. Rule 1002(b)(2) also report.1532 Further, this commenter specifically states that the 24-hour 1540 The written notification is required to estimated that associates from report is required to be made on a good include (i) a detailed description of: The SCI faith, best efforts basis. In addition, the entity’s assessment of the types and number of Compliance, Legal, Technology, market participants affected by the SCI event; the Product, and Information Security information required to be disclosed to SCI entity’s assessment of the impact of the SCI the Commission under Rule 1002(b)(2) event on the market; the steps the SCI entity has 1526 See id. is less comprehensive than as taken, is taking, or plans to take, with respect to the SCI event; the time the SCI event was resolved; the 1527 See MSRB Letter at 33. proposed.1539 Rule 1002(b)(3), similar to SCI entity’s rule(s) and/or governing document(s), 1528 See id. at 33–34. the proposal, requires SCI entities to as applicable, that relate to the SCI event; and any 1529 See Joint SRO Letter at 18. This commenter other pertinent information known by the SCI entity also opined that, in other sections, the Commission 1533 See id. about the SCI event; (ii) a copy of any information either incorrectly assumes that no legal or outside 1534 See id. disseminated pursuant to Rule 1002(c) by the SCI counsel would be used, or significantly entity to date regarding the SCI event to any of its 1535 See id. underestimates the amount of legal or outside members or participants; and (iii) an analysis of 1536 counsel expenses. See id. at 18–19. See MSRB Letter at 34–35. parties that may have experienced a loss, whether 1530 See OCC Letter at 12. See also NYSE Letter 1537 See Rule 1002(b)(5). monetary or otherwise, due to the SCI event, the at 18 and 34 (stating that a significant number of 1538 See id. number of such parties, and an estimate of the full time staff, including legal, compliance, 1539 For example, an SCI entity is not required to aggregate amount of such loss. The information technical, and operations staff, would be required provide the Commission a detailed description of required to be included in the Rule 1002(b)(4) to comply with the Commission notification the SCI event; a discussion of whether the SCI event notifications is similar to the information required process under proposed Rule 1000(b)(4), and that is a dissemination SCI event; a description of the under proposed Rule 1000(b)(4)(iv)(A), which was no estimate is provided for a technology staff SCI entity’s rules and/or governing documents, as related to the proposed 24-hour Commission member under Rule 1000(b)(4)(ii)). applicable, which relate to the SCI event; or an notification. 1531 See Omgeo Letter at 36. analysis of parties that may have experienced a loss 1541 See supra notes 1513–1515 and 1532 See id. due to the SCI event. accompanying text.

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effect on market participants.1542 As on average, each entity reported estimates one non-de minimis systems discussed above in Section IV.B.3.c, the approximately 12 incidents in 2013, intrusion per SCI entity per year.1549 Commission notification requirements although some entities reported fewer With respect to the notification under adopted Rule 1002(b)(1)–(4) do than 12 incidents, and some entities requirement under Rule 1002(b)(1), the not apply to any SCI event that has had, reported significantly more than 12 Commission notes that the notification or the SCI entity reasonably estimates incidents (i.e., over 100). By defining can be made orally or in writing. As would have, no or a de minimis impact ‘‘systems disruption’’ for purposes of with the SCI Proposal, the Commission on the SCI entity’s operations or on Regulation SCI and requiring estimates that one-fourth of the market participants.1543 Rather, each Commission notification of systems notifications under Rule 1002(b)(1) will SCI entity would be required to keep disruptions, the Commission expects be submitted in writing (i.e., records related to such events and that more incidents will be reported approximately 11 events per year for submit quarterly reports that only pursuant to Regulation SCI than each SCI entity),1550 and three-fourths contain a summary description of such pursuant to the voluntary ARP will be provided orally (i.e., de minimis systems disruptions and de Inspection Program. Therefore, the approximately 34 events per year for minimis systems intrusions.1544 Further, Commission estimates that each SCI each SCI entity).1551 The Commission as noted above in Section IV.A, the entity will report an average of 24 also estimates that each written Commission has refined the definition systems disruptions each year that are notification under Rule 1002(b)(1) will of SCI systems and SCI events in various not de minimis systems disruptions, require 2 hours 1552 for each SCI respects.1545 Therefore, the Commission which is double the average number of entity.1553 The Commission is not does not believe that the number of SCI systems incidents reported by each events subject to Rules 1002(b)(1)–(4) participant under the ARP Inspection 1549 This estimate is lower than those provided by would be substantially higher than the commenters (see supra note 1515 and Program in 2013. accompanying text) because the adopted definitions Commission’s estimate in the SCI Further, based on notifications of SCI systems and indirect SCI systems have been Proposal. received by Commission staff regarding refined from the proposal, and because de minimis After considering the views of systems intrusions are required to be reported in certain SROs, each of these SROs commenters and in light of the more summary format on a quarterly basis. experienced an average of 17 systems 1550 ÷ focused scope of the immediate 45 SCI events 4 = 11.25 SCI events reported compliance-related issues in 2013. The in writing. One commenter noted that most SCI Commission notification requirement, notifications received by Commission entities would submit a writing to document that the Commission now estimates that they had satisfied the notice requirement of each SCI entity will experience an staff indicate that some SROs proposed Rule 1000(b)(4)(i). See Omgeo Letter at 16. average of 45 SCI events each year that experienced fewer than 17 systems However, the Commission continues to estimate that one-fourth of the notifications under Rule are not de minimis SCI events, resulting compliance-related issues, and others experienced more than 17. The 1002(b)(1) will be submitted in writing and that the in 45 written notifications under Rule rest will be provided orally. The Commission 1002(b)(2) and 45 written notifications Commission believes that very few, if believes that it is less burdensome for an SCI entity under Rule 1002(b)(4). The estimated 45 any, of the notifications received in to provide oral notification than to provide written SCI events comprise 24 systems 2013 would qualify as de minimis notification and, given the requirement of Rule systems compliance issues under 1002(b)(2) to provide a written notification to the disruptions, 20 systems compliance Commission within 24 hours, the Commission issues, and one systems intrusion. These Regulation SCI. By defining ‘‘systems believes it is likely that most initial notifications estimates are derived in part from the compliance issue’’ for purposes of submitted under Rule 1002(b)(1) would be done number of systems incidents reported to Regulation SCI and requiring orally. Moreover, based on Commission staff Commission notification of systems experience, ARP participants generally provide the Commission under the ARP initial notifications of systems issues orally. Inspection Program and the number of compliance issues, the Commission 1551 45 SCI events¥11 SCI events reported in compliance-related issues reported to expects that more issues will be writing = 34 SCI events reported orally. the Commission by SROs.1546 reported pursuant to Regulation SCI 1552 The burden estimates for each rule under In particular, the Commission notes than pursuant to self-reporting. Regulation SCI that involves the filing of Form SCI Therefore, the Commission estimates include the burden associated with completing and that approximately 360 ARP incidents electronically submitting Form SCI, and for were reported to the Commission in that each SCI entity will experience an manually signing a signature page or document, 2013 by 29 entities that participated in average of 20 systems compliance issues pursuant to the requirements of Rule 1006. the ARP Inspection Program.1547 Thus, each year that are not de minimis 1553 The 2 hours include 0.5 hours by an systems compliance issues.1548 Attorney, 0.5 hours by a Compliance Manager, 0.5 hours by a Senior Systems Analyst, and 0.5 hours 1542 See id. Based on the Commission’s by a Senior Business Analyst. As compared to the 1543 See Rule 1002(b)(5). experience with the ARP Inspection estimated burden for proposed Rule 1000(b)(4)(i), 1544 See id. Program, the Commission believes each the Commission is estimating an additional 0.5 1545 See Rule 1000 (defining ‘‘SCI systems’’ and hours by Compliance Managers, 0.5 hours by Senior ‘‘SCI event’’). SCI entity will experience on average Systems Analysts, and 0.5 hours by Senior Business 1546 The Commission notes that only one ATS less than one non-de minimis systems Analysts to reflect that legal personnel may need to currently participates in the ARP Inspection intrusion per year. However, for confer with technology and business personnel Program and other ATSs generally do not self-report purposes of the PRA, the Commission before contacting the Commission regarding an SCI system incidents to the Commission. At the same event, in response to the views of commenters. See time, the Commission acknowledges that, to the supra notes 1523–1525 and accompanying text. The extent that some ATSs have less complex systems approximately 6 incidents under the ARP Commission notes that the General Counsel, or perform fewer functions than other SCI entities, Inspection Program in 2011, and estimated that Director of Compliance, Chief Compliance Officer, it is possible that these ATSs will experience fewer there would be an average of 65 SCI event notices or other senior employees or officers of certain SCI SCI events per year than other SCI entities. Also, per year for each SCI entity. See Proposing Release, entities may review Commission notifications as discussed more fully below, many ATSs do not supra note 13, at 18148. under Rule 1002(b)(1) before they are submitted have rulebooks and thus may experience fewer 1548 The Commission acknowledges that SCI (orally or in writing) to the Commission. However, systems compliance issues than other SCI entities. entities other than SCI SROs may experience fewer the Commission estimates that on average, the Nevertheless, the Commission believes that an systems compliance issues than SCI SROs because General Counsel, Director of Compliance, Chief average of 45 SCI events per year (excluding de they may not have rulebooks, and thus, one aspect Compliance Officer, or other senior employees or minimis SCI events) is an appropriate average of the definition of systems compliance issue would officers may spend a small amount of time across all SCI entities, including ATSs. not apply to such SCI entities (i.e., operating in a reviewing each Rule 1002(b)(1) notification. Rather, 1547 In the SCI Proposal, the Commission noted manner that does not comply with the entity’s they will spend more time reviewing the other that each entity reported an average of rules). notifications required by Rule 1002(b).

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significantly increasing its burden 1002(b)(2) will require 24 hours for each Commission in 2013 were reported as estimate for proposed Rule 1000(b)(4)(i) SCI entity.1560 Contrary to the views of resolved within 24 hours. Further, as because Rule 1002(b)(1) requires the a commenter that each notification discussed above, de minimis SCI events immediate notification of SCI events under proposed Rule 1000(b)(4)(ii) are not subject to the update and does not specify the minimum would require approximately 90 burden requirement under Rule 1002(b)(3). information that must be submitted to hours between senior management, Moreover, the Commission believes the Commission. The Commission middle managers, and associates from that, for some SCI events, an SCI entity believes that, for many SCI events, an various functions (e.g., legal, will not need to provide an update SCI entity will simply notify the compliance, technology),1561 the under Rule 1002(b)(3), because the SCI Commission that an SCI event has Commission is not significantly entity will be able to quickly submit a occurred, often in a single phone call, increasing its estimate of the burden final report under Rule 1002(b)(4). and may not provide the Commission hours from its estimate for proposed However, after considering the views of with additional information because it Rule 1000(b)(4)(ii) because Rule a commenter that some complex outages is not yet available to the SCI entity. For 1002(b)(2) requires less information can take up to several days to triage, these reasons, contrary to the view of than proposed Rule 1000(b)(4)(ii), isolate, and begin to resolve,1565 and the some commenters,1554 the Commission although the Commission has revised its views of another commenter that does not expect that the SCI entity will estimated burden hours to account for proposed Rule 1000(b)(4)(iii) could need to gather a considerable amount of the various functions and multiple conceivably require it to update the information or significantly confer with levels of review suggested by the Commission approximately half the interested parties across the entity. In commenter.1562 Also, because Rule time it files Form SCI,1566 the particular, while the Commission 1002(b)(2) explicitly permits Commission is increasing its estimate of estimates some burden for legal and information to be submitted on a good the number of updates from 5 to 24.1567 technology personnel of SCI entities in faith, best efforts basis, the Commission Because Rule 1002(b)(3) does not complying with Rule 1002(b)(1), it does believes that SCI entities will be able to require SCI entities to submit updates in not believe that Rule 1002(b)(1) will expend less resources in reviewing each writing or on Form SCI, the Commission result in significant burden for such notification. Therefore, the Commission estimates that one-fourth of the updates personnel.1555 estimates that each SCI entity would will be submitted in writing, and three- The Commission agrees with the view require an average of 1,080 hours fourths will be provided orally.1568 of a commenter that oral notifications annually to comply with Rule Because the SCI entity will still need to would also result in burdens on an SCI 1002(b)(2),1563 or 47,520 hours for all gather the same type of information in entity,1556 although it expects the SCI entities.1564 order to prepare an oral or a written burden for legal and compliance With respect to the number of updates update, the Commission expects that the personnel to be lower than in the case required under Rule 1002(b)(3), the burden for systems and business of written notifications because they Commission estimates that each SCI analysts will be the same for either type would not need to draft and review a entity will submit 6 written updates and of update. The Commission, however, written document for submission to the 18 oral updates each year under that expects that the burden for legal and Commission. The Commission estimates rule. These estimates are based on compliance personnel would be less in that the burden for systems and Commission staff’s experience with the the case of oral updates because in that business analysts would remain the ARP Inspection Program, systems case, an SCI entity would not need to same as for written notifications because compliance-related issues at SROs, and draft and review a written document for the SCI entity will still need to gather views of commenters. Specifically, most submission to the Commission. The Commission estimates that each the same type of information in order to of the systems incidents reported to the written update under Rule 1002(b)(3) prepare an oral notification. The 1569 1560 will require 6 hours and each oral Commission therefore estimates that The 24 hours include 5 hours by an Attorney, each oral notification under Rule 5 hours by a Compliance Manager, 6 hours by a Senior Systems Analyst, 1 hour by an Assistant 1565 See supra note 1516. 1002(b)(1) will require 1.5 hours for General Counsel, 1 hour by a Chief Compliance 1566 See also supra note 1534 and accompanying each SCI entity.1557 The Commission Officer, and 6 hours by a Senior Business Analyst. text. estimates that each SCI entity would Given the modifications from proposed Rule 1567 The Commission’s estimate of 24 updates is 1000(b)(4)(ii) identified below, the Commission slightly above half of the 45 written notifications require an average of 73 hours annually estimates that legal and compliance personnel will 1558 estimated for Rule 1002(b)(2). See supra note 1534 to comply with Rule 1002(b)(1), or have less work in drafting the written notifications (stating that the rule could conceivably require the 1559 3,212 hours for all SCI entities. under Rule 1002(b)(2), and accordingly reduced the commenter to update the Commission The Commission estimates that each burden hours for Attorneys and Compliance approximately half of the time it files Form SCI). written notification under Rule Managers from 10 to 5. Further, as compared to the 1568 The Commission similarly estimated one- estimated burden for proposed Rule 1000(b)(4)(ii), fourth written notifications and three-fourths oral the Commission is estimating an additional 6 hours notifications in the SCI Proposal for proposed Rule 1554 See supra notes 1523–1526 and by a Senior Systems Analyst, 1 hour by an Assistant 1000(b)(4)(i). See Proposing Release, supra note 13, accompanying text. General Counsel, 1 hour by a Chief Compliance at 18148; see also supra note 1550 and 1555 Given that there is not a minimum amount Officer, and 6 hours by a Senior Business Analyst accompanying text. of information that must be submitted to the to reflect that legal personnel may need to confer 1569 The 6 hours include 1.5 hours by an Commission, the Commission believes its estimated with technology and business personnel and senior Attorney, 1.5 hours by a Compliance Manager, 1.5 burden hours is more appropriate than the 12 hours management, as well as the multiple levels of hours by a Senior Systems Analyst, and 1.5 hours suggested by a commenter. See supra note 1525 and review (e.g., attorney, compliance manager, chief by a Senior Business Analyst. As compared to the accompanying text. compliance officer), before submitting a report estimated burden for proposed Rule 1000(b)(4)(iii), 1556 regarding an SCI event, in response to the views of See supra note 1526 and accompanying text. the Commission is estimating an additional 1.5 1557 commenters. See supra notes 1520–1521, 1527, and The 1.5 hours include 0.25 hours by an hours by a Senior Systems Analyst and 1.5 hours 1529–1533 and accompanying text. Attorney, 0.25 hours by a Compliance Manager, 0.5 by a Senior Business Analyst to reflect that legal 1561 hours by a Senior Systems Analyst, and 0.5 hours See supra notes 1531–1533 and personnel may need to confer with technology and by a Senior Business Analyst. accompanying text. business personnel before contacting the 1558 11 written notifications each year × 2 hours 1562 See supra notes 1539 and 1560. Commission regarding an SCI event, in response to per notification + 34 oral notifications each year × 1563 45 written notifications each year × 24 hours the view of a commenter. See supra note 1528 and 1.5 hours per notification = 73 hours. per notification = 1,080 hours. accompanying text. The Commission notes that the 1559 73 hours × 44 SCI entities = 3,212 hours. 1564 1,080 hours × 44 SCI entities = 47,520 hours. General Counsel, Director of Compliance, Chief

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update will require 4.5 hours.1570 The that the information required to be Finally, the quarterly notification Commission is not significantly provided under Rule 1002(b)(4) is under Rule 1002(b)(5) is required only increasing its burden estimate from similar to the information required to be to include ‘‘a summary description’’ of proposed Rule 1000(b)(4)(iii). The provided in a notification submitted the SCI events. The Commission’s Commission believes that each update under proposed Rule 1000(b)(4)(ii). As estimated burden reflects the will likely only reflect some of the noted above, in the SCI Proposal, the Commission’s belief that most, if not all, information listed under Rules Commission estimated that each SCI entities already have some internal 1002(b)(1) and (2) because certain notification under proposed Rule documentation of de minimis SCI information about SCI events may not 1000(b)(4)(ii) would require an average events. Rule 1002(b)(5) would impose yet be available at the time the SCI of 20 burden hours,1575 and some more burden on SCI entities if they do entity submits such update or may not commenters argued that the not already have such internal need to be updated. Therefore, contrary Commission underestimated this documentation. The Commission to one commenter’s view that each burden.1576 The Commission is estimates that the initial and ongoing update would require 27 hours,1571 the estimating a higher burden for Rule burden to comply with the quarterly Commission does not believe that a Rule 1002(b)(4) as compared to proposed report requirement would be 40 hours 1002(b)(3) update will require Rule 1000(b)(4)(ii) (i.e., 35 hours as per report per SCI entity,1580 or 160 significantly more time than as compared to 20 hours) because the hours annually per SCI entity,1581 and estimated in the SCI Proposal. The reports under Rule 1002(b)(4) constitute 7,040 hours annually for all SCI Commission estimates that each SCI final reports regarding SCI events, and entities.1582 entity would require an average of 117 SCI entities will likely confer with The Commission estimates that while hours annually to comply with Rule technology and business personnel and SCI entities would handle internally 1572 1002(b)(3), or 5,148 hours for all SCI senior management to ensure that the most of the work associated with Rule 1573 entities. information provided is accurate. For 1002(b), SCI entities would seek outside The Commission estimates that the same reason, and because Rule legal advice in the preparation of certain compliance with Rule 1002(b)(4) for a 1002(b)(4) (final report) requires more Commission notifications, at an average particular SCI event (which includes a information than Rule 1002(b)(2), the annual cost of $45,000 per SCI final report under Rule 1002(b)(4)(i)(A) Commission’s burden estimate for Rule entity,1583 or $1,980,000 for all SCI and, as applicable, an interim report 1002(b)(4) is higher than the burden entities.1584 under Rule 1002(b)(4)(i)(B)) will require estimate for Rule 1002(b)(2) (i.e., 35 35 hours.1574 The Commission notes hours as compared to 24 hours).1577 b. Dissemination of Information Nevertheless, the Commission is not Regarding SCI Events Compliance Officer, or other senior employees or substantially increasing the burden officers of certain SCI entities may review the estimate as compared to proposed Rule In the SCI Proposal, the Commission updates under Rule 1002(b)(3) before they are 1000(b)(4)(ii) or adopted Rule 1002(b)(2) estimated that each SCI entity would submitted (orally or in writing) to the Commission. experience an average of 14 However, the Commission estimates that on because it recognizes that some of the average, the General Counsel, Director of information required by Rule 1002(b)(4) Compliance, Chief Compliance Officer, or other may already have been provided in a information as required to be included in a final senior employees or officers may spend a small notification under Rule 1002(b)(4)(i)(A), except that amount of time reviewing each Rule 1002(b)(3) prior notification to the Commission SCI entities are only required to provide the notification because it is not the final report to the and, thus, its burden has been included information to the extent known at the time of the Commission on an SCI event, and the SCI entity can in the burden estimate for Rule interim notification. If an SCI entity submits an subsequently submit additional updates. See supra 1002(b)(2). Therefore, the Commission interim notification, it would also be required to note 1535 and accompanying text (noting a submit a final notification, which is required to commenter’s burden estimate for proposed Rule estimates that each SCI entity would include all of the remaining information that was 1000(b)(4)(iii), which includes estimates for senior require an average of 1,575 hours not provided in the interim notification. Because all management review). annually to comply with Rule SCI entities are required to provide the same 1570 The 4.5 hours include 0.75 hours by an 1002(b)(4),1578 or 69,300 hours for all amount of information in total for a particular SCI Attorney, 0.75 hours by a Compliance Manager, 1.5 1579 event under Rule 1002(b)(4), regardless of whether hours by a Senior Systems Analyst, and 1.5 hours SCI entities. they submit an interim notification, the estimated by a Senior Business Analyst. burden for Rule 1002(b)(4) includes the burden for 1571 See supra note 1535 and accompanying text. need to confer with technology and business both the interim notification and the final 1572 6 written updates each year × 6 hours per personnel and senior management before notification related to a particular SCI event. notification + 18 oral updates each year × 4.5 hours submitting a final report regarding an SCI event. 1580 The 40 burdens hours include 7.5 hours by per notification = 117 hours. 1575 See supra note 1509 and accompanying text. an Attorney, 7.5 hours by a Compliance Manager, 1573 117 hours × 44 SCI entities = 5,148 hours. 1576 See supra notes 1527, 1529–1533 and 2 hours by a Chief Compliance Officer, 2 hours by an Assistant General Counsel, 1 hour by a General 1574 The 35 hours include 8 hours by an Attorney, accompanying text. 1577 Counsel, 10 hours by a Senior Business Analyst, 8 hours by a Compliance Manager, 7 hours by a As compared to the Commission’s burden and 10 hours by a Senior Systems Analyst. Senior Systems Analyst, 2 hours by an Assistant estimate for Rule 1002(b)(2), the Commission is 1581 × General Counsel, 1 hour by a General Counsel, 2 estimating an additional 3 hours by an Attorney, 3 40 hours 4 reports each year = 160 hours. 1582 × hours by a Chief Compliance Officer, and 7 hours hours by a Compliance Manager, 1 hour by a Senior 160 hours 44 SCI entities = 7,040 hours. by a Senior Business Analyst. As compared to Systems Analyst, 1 hour by an Assistant General 1583 See supra note 1522 and accompanying text proposed Rule 1000(b)(4)(ii), the Commission Counsel, 1 hour by a General Counsel, 1 hour by (discussing the view of a commenter that SCI expects the legal and compliance personnel to have a Chief Compliance Officer, and 1 hour by a Senior entities would need to engage outside parties to less work in drafting the written notifications under Business Analyst. The type of personnel involved review the Commission notifications). But see supra Rule 1002(b)(4) because some of the information in compliance with Rule 1002(b)(4) is the same as note 1536 and accompanying text (discussing the required by Rule 1002(b)(4) may already have been those involved in compliance with Rule 1002(b)(2), view of a commenter that none of the activities provided in a prior notification to the Commission, except for the addition of the General Counsel. arising under proposed Rule 1000(b)(4) would be and accordingly reduced the burden hours for 1578 45 written notifications each year × 35 hours conducive to outsourcing). The Commission’s Attorneys and Compliance Managers from 10 to 8. per notification = 1,575 hours. estimate represents an average of $1,000 of Further, as compared to the estimated burden for 1579 1,575 hours × 44 SCI entities = 69,300 hours. outsourced cost for each SCI event that is not a de proposed Rule 1000(b)(4)(ii), the Commission is The Commission notes that this burden estimate minimis SCI event. The $1,000 estimate is estimating an additional 7 hours by a Senior includes the burden for submitting the one interim consistent with the Commission’s estimated Systems Analyst, 2 hours by an Assistant General Commission notification required under Rule outsourcing cost for each SCI event that is subject Counsel, 1 hour by a General Counsel, 2 hours by 1002(b)(4)(i)(B) (if necessary). In particular, the to the dissemination requirements under Rule a Chief Compliance Officer, and 7 hours by a Senior Commission notes that the interim notification 1002(c). 45 SCI events × $1,000 = $45,000. Business Analyst to reflect that legal personnel may requires SCI entities to include the same 1584 $45,000 × 44 SCI entities = $1,980,000.

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dissemination SCI events 1585 each year included any burden for an SCI entity noted that SCI entities would draft that are not systems intrusions, resulting to document its reason for determining different dissemination notices designed in an average of 14 information that dissemination of information to address the particular concerns of the disseminations per year for each SCI regarding a systems intrusion would different client segments it services (e.g., entity under proposed Rule likely compromise the security of the broker-dealers, custodian banks, 1000(b)(5)(i).1586 The Commission SCI entity’s SCI systems or SCI security investment managers, hedge funds).1599 estimated that each information systems, or an investigation of the As such, this commenter estimated that dissemination under proposed Rule systems intrusion.1592 proposed Rule 1000(b)(5)(i)(A) would 1000(b)(5)(i)(A) would require an In the SCI Proposal, the Commission result in a burden of approximately 30 average of 3 hours to prepare and make estimated that while SCI entities would hours to create the dissemination 1600 available to members or internally handle most of work 1601 1587 and 100 hours to review. Further, participants. The Commission associated with compliance with this commenter disagreed that SCI estimated that each information update proposed Rule 1000(b)(5), SCI entities entities are likely to handle internally under proposed Rule 1000(b)(5)(i)(B) would seek outside legal advice in the most of the work associated with would require an average of 5 hours to preparation of the disseminations at an information dissemination.1602 This prepare and make available to members average annual cost of $15,000 per SCI commenter believed that, to the extent or participants.1588 The Commission entity.1593 also estimated that, on average, each SCI With respect to the estimated burden a dissemination SCI event raises the entity would provide one regular update under proposed Rule 1000(b)(5), one possibility of litigation or reputational per year per dissemination SCI event commenter noted that since most of the damage for an SCI entity, the SCI entity under proposed Rule work entailed in producing a will likely engage outside counsel to 1000(b)(5)(i)(C).1589 The Commission notification relating to a dissemination review the facts and prepare the 1603 estimated that each regular update SCI event would occur in connection required materials. This commenter would require an average of 1 hour to with the Commission notification also argued that the Commission’s prepare and make available to members requirements under proposed Rule estimate did not take into account the or participants.1590 1000(b)(4), the Commission’s estimate of burden associated with addressing In the SCI Proposal, the Commission the burden of proposed Rule 1000(b)(5) responses from an SCI entity’s estimated that each SCI entity would is fairly accurate.1594 participants, members, or clients, experience an average of 1 Another commenter stated that the which, according to this commenter, dissemination SCI event that is a Commission underestimated the burden would be hundreds of hours of SCI systems intrusion each year, resulting in associated with information entity associate and management 1 information dissemination per year dissemination.1595 In connection with time.1604 This commenter expressed under proposed Rule 1000(b)(5)(ii). The expressing its concern that almost any similar concerns respect to the burden Commission estimated that each minor or immaterial systems issue estimates for proposed Rules information dissemination would would fall under the proposed 1000(b)(5)(i)(B) and (C) and noted that require an average of 3 hours to prepare definition of SCI event, this commenter each follow-up notice would impose a and make available to members or estimated that there would be at a burden far greater than 5 hours.1605 This 1591 participants. This burden estimate minimum a ten-fold increase in commenter also noted that the reportable events from the 175 incidents Commission underestimated that each 1585 Dissemination SCI events included systems in 2011 under the ARP Inspection compliance issues, systems intrusions, and systems SCI entity would only have to provide 1596 disruptions that resulted, or the SCI entity Program. one update each year under proposed reasonably estimates would result, in significant With respect to the estimated burden Rule 1000(b)(5)(i)(C), and that each harm or loss to market participants. associated with information dissemination would only be prepared 1586 See Proposing Release, supra note 13, at dissemination, this commenter argued 1606 18149. by an attorney and a webmaster. 1587 See id. The 3 burden hours included 2.67 that the Commission incorrectly hours by an Attorney and 0.33 hours by a assumed that such communications Information Security, Legal, Compliance, Product Webmaster. See id. This estimate was based on would be drafted only by a single Management, and Sales and Relationship Commission staff’s experience with the ARP attorney and a webmaster.1597 This Management. See id. at 38, n. 75. Inspection Program. See id. at 18149, n. 416. 1599 See Omgeo Letter at 38. 1588 See id. at 18150. The 5 burden hours commenter believed that properly 1600 This commenter noted that major incidents included 4.67 hours by an Attorney and 0.33 hours drafting such communications will by a Webmaster. See id. This estimate was based require a concerted effort by a number would require far more resources. See id. 1601 See id. This commenter noted that the 100- on Commission staff’s experience with the ARP of individuals, including subject matter Inspection Program. See id. at 18150, n. 420. hour estimate does not include any follow up 1589 See id. at 18150. experts and mid-level and senior communications. See id. at 38, n. 76. 1598 1590 See id. The 1 burden hour included 0.67 managers. This commenter also 1602 See id. at 39. However, another commenter hours by an Attorney and 0.33 hours by a stated its belief that none of the activities arising Webmaster. See id. This estimate was based on the 1592 See id. under proposed Rule 1000(b)(5) would be estimated burden to complete and submit a written 1593 See id. at 18150–51. conducive to outsourcing. See MSRB Letter at 34– update for an SCI event on Form SCI and on 1594 See MSRB Letter at 35. 35. Commission staff’s experience with the ARP 1595 1603 See Omgeo Letter at 39. This commenter also Inspection Program. See id. at 18150, n. 422 and n. See Omgeo Letter at 37. This commenter expressed concern that SCI entities would be forced 423. argued that the Commission mistakenly relied upon experience with the ARP Inspection Program as a to send their clients and participants a constant 1591 See id. at 18150. The 3 burden hours stream of communications detailing minor, included 2.67 hours by an Attorney and 0.33 hours basis for the estimates. See id. 1596 by a Webmaster. See id. This estimate was based See id. at 37–38. inconsequential events that have no impact on on Commission staff’s experience with the ARP 1597 See id. at 38. them, which would cause reputational damage to Inspection Program, and the Commission’s burden 1598 See id. According to this commenter, subject SCI entities. See id. estimate for proposed Rule 1000(b)(5)(i)(A). See id. matter experts would include associates from 1604 See id. at 18150, n. 426. functions such as Technology, Client Support, 1605 See id. at 40–41. 1606 See id. at 41.

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With respect to the burden estimates under the ARP Inspection Program,1612 (iii),1617 or 105 updates each year.1618 for proposed Rule 1000(b)(5)(ii), this as noted above, Rule 1002(c)(4) provides Further, the Commission estimates that commenter expressed similar concern, exceptions to certain SCI events from each SCI entity would disseminate and noted that each dissemination the information dissemination information regarding 1 systems under proposed Rule 1000(b)(5)(ii) requirement. Specifically, SCI events intrusion each year under Rule would require hundreds of burden that relate to market regulation or 1002(c)(2). hours.1607 market surveillance systems and de The Commission estimates that each As discussed above in Section minimis SCI events would not be information dissemination under Rule 1002(c)(1)(i) will require 7 hours.1619 IV.B.3.d, the Commission is adopting subject to the information dissemination The Commission is not significantly the information dissemination requirement.1613 Further, as noted above increasing its burden estimate from the requirements in Rule 1002(c), with in Section IV.A, the Commission has certain modifications from the proposal. proposal because the Commission refined the definition of SCI systems believes that the information required to As adopted, an SCI entity is required to 1614 and SCI event in various respects. be disseminated under Rule disseminate certain information to its Given these changes, the Commission members or participants that may have 1002(c)(1)(i) would likely already be believes that the commenter’s been affected by an SCI event.1608 collected for Commission notification suggestion that there would be at a 1620 However, for major SCI events, an SCI under Rule 1002(b)(1) or (2). minimum a ten-fold increase in entity must disseminate the required Therefore, contrary to the view of a 1621 information to all of its member or reportable events as compared to the commenter, the Commission does participants.1609 Rule 1002(c)(4) further reported incidents under the ARP not believe that Rule 1002(c)(1)(i) will provides that the information Inspection Program is not an result in significantly higher burden for dissemination requirement does not appropriate estimate. The Commission now estimates that each SCI entity 1617 The Commission notes that Rule apply to SCI events to the extent they 1002(c)(1)(ii) requires each SCI entity, when known, relate to market regulation or market would disseminate information to promptly further disseminate for each SCI event surveillance systems, or any SCI event regarding 36 SCI events each year under three types of information: (A) A detailed that has had, or the SCI entity Rule 1002(c),1615 including 1 non-de description of the SCI event; (B) the SCI entity’s minimis systems intrusion each current assessment of the types and number of reasonably estimates would have, no or market participants potentially affected by the SCI 1616 a de minimis impact on the SCI entity’s year. Therefore, the Commission event; and (C) a description of the progress of its operations or on market participants. now estimates that each SCI entity corrective action for the SCI event and when the would disseminate information SCI event has been or is expected to be resolved. Similar to proposed Rule 1000(b)(5), The Commission believes that one or more of these adopted Rule 1002(c)(1) requires SCI regarding 35 SCI events each year under types of information may become known to an SCI entities to promptly disseminate certain Rule 1002(c)(1)(i). The Commission entity at different times, and therefore the information regarding systems estimates that each SCI entity would Commission estimates that each SCI entity will submit two updates per SCI event under Rule disruptions and systems compliance disseminate 3 updates for each such SCI 1002(c)(1)(ii). Rule 1002(c)(1)(iii) requires each SCI issues, to further disseminate certain event under Rules 1002(c)(1)(ii) and entity to provide regular updates of any information information when such information required to be disseminated under Rules becomes known,1610 and to provide 1002(c)(1)(i) and (ii). The Commission estimates that each SCI entity will submit one regular update regular updates of such information under Rule 1002(c)(1)(iii) before the SCI event is until the SCI event is resolved. In resolved. The Commission believes that the number addition, similar to proposed Rule of updates under Rules 1002(c)(1)(ii) and (iii) will 1000(b)(5), adopted Rule 1002(c)(2) vary depending on how quickly information is discovered and how quickly the SCI event is requires SCI entities to promptly resolved, but believes that a total of three updates disseminate certain information for the two provisions is an appropriate estimate. regarding systems intrusions,1611 and 1618 35 SCI events × 3 updates per SCI event = 105 provides an exception when the SCI updates. 1612 1619 entity determines that dissemination of See supra note 1596 and accompanying text. The 7 hours include 2.67 hours by an 1613 Attorney, 1 hour by a Compliance Manager, 0.5 such information would likely These exceptions should address a commenter’s concern that proposed Rule 1000(b)(5) hours by a Chief Compliance Officer, 0.5 hours by a General Counsel, 0.5 hours by a Director of compromise the security of its SCI would result in SCI entities being forced to send systems or indirect SCI systems, or an Compliance, 1 hour by a Senior Systems Analyst, their clients and participants a constant stream of 0.5 hours by a Corporate Communications Manager, investigation of the systems intrusion, communications detailing minor, inconsequential and 0.33 hours by a Webmaster. As compared to the and documents the reasons for such events that have no impact on them. See id. estimated burden for proposed Rule determination. 1614 See Rule 1000 (defining ‘‘SCI systems’’ and 1000(b)(5)(i)(A), the Commission is estimating an With respect to a commenter’s ‘‘SCI event’’). additional 1 hour by a Compliance Manager, 0.5 1615 As discussed above, the Commission hours by a General Counsel, 0.5 hours by a Chief concern that because almost any minor Compliance Officer, 0.5 hours by a Director of estimates that each SCI entity will experience an or immaterial systems issue would fall Compliance, 1 hour by a Senior Systems Analyst, average of 45 SCI events each year that are not de under the proposed definition of SCI and 0.5 hours by a Corporate Communications minimis SCI events. The Commission estimates that Manager to reflect the view of commenters that the event, there would be at a minimum a approximately one-fifth of these SCI events relate to preparation for information dissemination would ten-fold increase in reportable events as market regulation and market surveillance systems. require the involvement of subject matter experts compared to the reported incidents Therefore, the Commission estimates that the and mid-level and senior managers. See supra notes number of SCI events subject to the requirements 1597–1598 and accompanying text. 1620 See also supra note 1594 and accompanying 1607 See id. at 41–42. of Rule 1002(c) would be 36 per year for each SCI entity (45 SCI events ÷ 5 × 4 = 36 SCI events). text (discussing the view of a commenter that since 1608 See Rule 1002(c)(3). most of the work entailed in producing a 1616 Based on Commission’s experience with the 1609 See id. notification relating to a dissemination SCI event 1610 The information required to be disseminated ARP Inspection Program, the Commission believes would occur in connection with the Commission under Rule 1002(c)(1) remains unchanged from the each SCI entity will experience on average less than notification requirements under proposed Rule proposal. one non-de minimis systems intrusion per year. 1000(b)(4), the Commission’s estimate of the burden 1611 The information required to be disseminated However, for purposes of the PRA, the Commission of proposed Rule 1000(b)(5) is fairly accurate). under Rule 1002(c)(2) remains unchanged from the estimates one non-de minimis systems intrusion per 1621 See supra notes 1600–1601 and 1607 and proposal. SCI entity per year. accompanying text.

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SCI entities than as estimated in the Therefore, contrary to the view of a of $36,000 per SCI entity,1635 or proposal. With respect to the view of a commenter,1628 the Commission does $1,584,000 for all SCI entities.1636 commenter that SCI entities would not believe that Rules 1002(c)(1)(ii) and c. Commission Notification of Material create different dissemination notices (iii) will result in significantly higher Systems Changes designed to address the concerns of burden for SCI entities than as estimated different client segments,1622 the in the SCI Proposal. Based on the In the SCI Proposal, the Commission Commission notes that Rule 1002(c) foregoing, the Commission estimates estimated that each SCI entity would only specifies the general information that each SCI entity would require an have an average of 60 planned material that must be disseminated and does not average of 1,365 hours annually to systems changes each year, resulting in require that SCI entities provide comply with Rules 1002(c)(1)(ii) and 60 advance notifications per year.1637 different information to different clients, (iii),1629 or 60,060 hours for all SCI The Commission estimated that each even though SCI entities can decide to entities.1630 notification would require 2 hours to 1638 tailor the information dissemination for The information required to be prepare and submit. For SCI entities 1623 that currently participate in the ARP their clients. Based on the foregoing, disseminated under Rule 1002(c)(2) for Inspection Program, the Commission the Commission estimates that each SCI systems intrusions is similar to the estimated that these entities would start entity would require an average of 245 information required to be disseminated from a baseline of fifty percent.1639 The hours annually to comply with Rule under Rule 1002(c)(1)(i) in that both 1624 Commission also estimated that the 1002(c)(1)(i), or 10,780 hours for all provisions require the dissemination of 1625 initial and ongoing burden to submit SCI entities. a summary description of an SCI event. semi-annual reports to the Commission The Commission estimates that each Therefore, the Commission is using the pursuant to proposed Rule 1000(b)(8)(ii) update under Rules 1002(c)(1)(ii) and burden estimate for Rule 1002(c)(1)(i) as 1626 would be 60 hours per report for each (iii) will require 13 hours. The the basis for its estimate for Rule Commission is not significantly SCI entity.1640 1002(c)(2). However, the Commission With respect to the estimated burden increasing its burden estimate for believes that Rule 1002(c)(2) will proposed Rules 1000(b)(5)(i)(B) and (C) under proposed Rule 1000(b)(6), some impose more burden than Rule because the Commission believes that commenters noted that the Commission 1002(c)(1)(i) because it also requires that the information required to be underestimated the number of material the SCI entity determine whether disseminated under Rules 1002(c)(1)(ii) systems changes.1641 For example, one dissemination of information regarding and (iii) would likely already be a particular systems intrusion would 1635 collected for Commission notification The Commission is increasing its estimate of compromise the security of its SCI under Rules 1002(b)(2)–(4).1627 the outsourcing cost for compliance with Rule systems or indirect SCI systems, or an 1002(c) from its estimate in the proposal because its investigation of the systems intrusion, estimate of the number of information 1622 See supra notes 1599–1601 and dissemination is higher than the estimated number accompanying text. and if the SCI entity determines that it in the proposal (i.e., from 15 to 36). In the SCI 1623 This commenter also noted that the would, to document the reason for such Proposal, the Commission estimated an outsourcing Commission did not take into account the burden determination.1631 Therefore, the cost of $15,000 for 15 SCI events, which results in associated with addressing responses from an SCI Commission estimates that each SCI an average cost of $1,000 per SCI event. The entity’s participants, members, or clients. See supra Commission is continuing to estimate an average note 1604 and accompanying text. The Commission entity will spend an average of 10 hours cost of $1,000 per SCI event subject to information believes that currently, SCI entities already notify to comply with Rule 1002(c)(2),1632 or dissemination, but is increasing the total affected members or participants of certain systems 440 hours for all SCI entities.1633 outsourcing cost to $36,000 based on the increase issues. The Commission also believes that in the number of estimated SCI events to 36. See information regarding many systems issues that fall The Commission estimates that while also supra notes 1602–1603 and accompanying text under the definition of major SCI event is already SCI entities would handle internally (discussing the view of a commenter that SCI made available to members or participants of an SCI some or most the work associated with entities will likely engage outside counsel to review entity, and often to the public through the press or 1634 the facts and prepare the required documents to the otherwise. Therefore, the Commission does not compliance with Rule 1002(c), SCI extent an SCI event raises the possibility of believe that the burden to respond to members or entities would seek outside legal advice litigation or reputational damage). But see supra participants will be significantly higher than SCI in the preparation of the information note 1602 and accompanying text (discussing the entities’ current practices in the absence of dissemination, at an average annual cost view of a commenter that none of the activities Regulation SCI. The Commission also notes that arising under proposed Rule 1000(b)(5) would be Rule 1002(c) does not impose any requirements conducive to outsourcing). related to responding to inquiries about the 1628 See supra notes 1605–1606 and 1636 $36,000 × 44 SCI entities = $1,584,000. information dissemination. accompanying text. 1637 See Proposing Release, supra note 13, at 1624 × 35 information dissemination each year 7 1629 105 updates each year × 13 hours per update 18151. This estimate included instances where the hours per dissemination = 245 hours. = 1,365 hours. information previously provided to the Commission 1625 × 245 hours 44 SCI entities = 10,780 hours. 1630 1,365 hours × 44 SCI entities = 60,060 hours. regarding any planned material systems change 1626 The 13 hours include 4.67 hours by an 1631 See Rule 1002(c)(2). becomes inaccurate. See id. at 18151, n. 431. Attorney, 2 hours by a Compliance Manager, 1 hour 1632 The 10 hours include 3.67 hours by an 1638 See id. at 18151. The 2 burden hours by a Chief Compliance Officer, 1 hour by a General Attorney, 1.5 hours by a Compliance Manager, 0.75 included 0.33 hours by an Attorney and 1.67 hours Counsel, 1 hour by a Director of Compliance, 2 hours by a Chief Compliance Officer, 0.75 hours by by a Senior Systems Analyst. See id. This estimate hours by a Senior Systems Analyst, 1 hour by a a General Counsel, 0.75 hours by a Director of was based on Commission staff’s experience with Corporate Communications Manager, and 0.33 Compliance, 1.5 hour by a Senior Systems Analyst, the ARP Inspection Program. In determining this hours by a Webmaster. As compared to the estimate, the Commission also considered its estimated burden for proposed Rule 0.75 hours by a Corporate Communications burden estimate for the same reporting requirement 1000(b)(5)(i)(B), the Commission is estimating an Manager, and 0.33 hours by a Webmaster. See supra that was proposed for SB SEFs. See id. at 18151, additional 2 hours by a Compliance Manager, 1 note 1619. The burden estimate for Rule 1002(c)(2) n. 432. hour by a General Counsel, 1 hour by a Chief is approximately one and a half times the 1639 Compliance Officer, 1 hour by a Director of Commission’s burden estimate for Rule See id. at 18151. × Compliance, 2 hours by a Senior Systems Analyst, 1002(c)(1)(i). (7 hours 1.5 = 10.5 hours.) 1640 See id. at 18152. The 60 burden hours and 1 hour by a Corporate Communications 1633 10 hours × 44 SCI entities = 440 hours. included 10 hours by an Attorney and 50 hours by Manager to reflect the view of commenters that the 1634 The Commission recognizes that some SCI a Senior Systems Analyst. See id. This estimate was preparation for information dissemination would entities, such as certain SCI SROs, may have the in- based on Commission staff’s experience with the require the involvement of subject matter experts house expertise to complete the work associated ARP Inspection Program. See id. at 18152, n. 440. and mid-level and senior managers. See supra notes with compliance with Rule 1002(c), while other SCI 1641 See BATS Letter at 14. See also NYSE Letter 1597–1598 and accompanying text. entities may not and would therefore need to at 26 (stating that if ‘‘material’’ were interpreted 1627 See supra notes 1594 and 1620 outsource some of the work associated with broadly to cover any functional change to an SCI accompanying text. compliance with Rule 1002(c). system, the number of material systems changes

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commenter stated that, based on the systems analyst and an attorney would and would result in an excessive proposed definition of material systems be involved in the drafting of the number of notifications, and to changes, each SCI entity could be notice.1647 According to this commenters’ suggestion that the reporting 60 material systems changes commenter, a number of subject matter definition should be revised. In each week.1642 One commenter noted experts would need to be involved in particular, an SCI entity will have that the burden estimate was effectively drafting and reviewing these notices reasonable discretion in establishing the limited to ministerial tasks of producing (i.e., Project Management, written criteria in order to capture the material systems change notifications Developments, Quality Assurance, systems changes that it believes are and did not take into account activities Performance Testing, Systems material. Relatedly, with respect to necessary to gather the information Engineering, Systems Architecture, commenters who specifically discussed needed, to have appropriate Capacity Planning, Information the 30-day advance Commission confirmations from persons with Security, Business Continuity, Disaster notification requirement for material knowledge of the material systems Recovery, Legal, and Compliance).1648 systems changes,1652 the Commission change, to provide for senior On the other hand, one commenter notes that it is not adopting a 30-day management review where appropriate, stated that the Commission’s estimate of advance notification requirement for and to otherwise be in a position to draft the burden of proposed rule each material systems change and is the notification.1643 One commenter 1000(b)(8)(ii) is fairly accurate.1649 instead adopting a quarterly reporting stated that the Commission’s estimate of One commenter stated its belief that requirement. Therefore, the Commission 2 hours for each material systems none of the activities arising under does not believe that it is necessary to change notice is too low because proposed Rules 1000(b)(6) and (b)(8) estimate the number of material systems describing systems changes ‘‘involves would be conducive to outsourcing.1650 changes that each SCI entity will the work of a tech-writer, who needs to As discussed in detail above in experience each year in order to collaborate with multiple groups on a Section IV.B.4, the Commission is not estimate the burden associated with project team, including the project adopting the requirement for SCI Rule 1003(a). manager, application development team entities to provide 30-day advance As discussed above in Section IV.B.4, and the testing and implementation notifications or semi-annual reports of Rule 1003(a) requires quarterly reports teams.’’ 1644 Similarly, one commenter material systems changes. Also as on material systems changes and noted that material systems change discussed in detail above in Section supplemental reports under certain notifications would require substantial IV.B.4, the Commission is not adopting circumstances. Specifically, the review by IT management, relevant the proposed definition of material quarterly reports are required to include business supervisors, as well as systems change. Adopted Rule 1003(a) a description of the completed, ongoing, compliance staff, which would increase requires each SCI entity to submit and planned material changes to SCI the burden estimate at least three- quarterly reports describing completed, systems and the security of indirect SCI fold.1645 One commenter noted that, ongoing, and planned material changes systems, during the prior, current, and based on its experience under the ARP to its SCI systems and security of subsequent calendar quarters, including Inspection Program, each notice under indirect SCI systems during the prior, the dates or expected dates of 1653 proposed Rule 1000(b)(6) would require current, and subsequent calendar commencement and completion. at least 62 hours.1646 This commenter quarters. Adopted Rule 1003(b) The Commission notes that the also opined that the Commission additionally requires each SCI entity to quarterly reports under Rule 1003(a) are mistakenly assumed that only a senior promptly submit a supplemental report required to include similar information notifying the Commission of a material as the information required under 1654 could measure in the thousands); and OTC Markets error in or material omission from a proposed Rule 1000(b)(8)(ii). Letter at 21 (stating that it estimated it had a report previously submitted under Rule minimum of 430 reportable changes to its 1652 See supra notes 1643–1648 and production systems over a ten-month time frame 1003(a). accompanying text. based on the proposed notification standards for With respect to the comment that, 1653 Contrary to the views of a commenter, these material systems changes). based on the proposed definition of 1642 quarterly reports are limited in scope and do not See BATS Letter at 14. material systems change, each SCI entity require a detailed description of each systems 1643 See MSRB Letter at 35. could be reporting 60 material systems change that the SCI entity determines to be 1644 See OCC Letter at 15. This commenter stated material. See supra note 1644 (discussing the that a large amount of information needs to be changes each week (rather than each concerns of a commenter that a large amount of assembled from different groups and consolidated year), the Commission notes that it has information would need to be assembled and into a single report, which would include, for not adopted the proposed definition of consolidated into a single report, and that unless example: (i) A high-level description of the material systems change.1651 Rather, as the Commission intends for the scope of the functionality and configuration of the affected information provided to be limited to high level systems; (ii) a description of the systems discussed above in Section IV.B.4, Rule descriptions and generally less detailed, the development process; (iii) the relationship to other 1003(a)(1) requires each SCI entity to preparation of material systems change notices will systems; (iv) changes to production schedules due establish reasonable criteria for require considerably more time than estimated). to the planned system change; (v) any effects on The Commission notes that it intends for the capacity; (vi) a description of test results; (vii) a identifying a change to its SCI systems quarterly report to only require the information summary of test results; (viii) contingency protocols and the security of indirect SCI systems necessary to allow the Commission and its staff to (i.e., fallback options and disaster recovery as material. Because Rule 1003(a)(1) gain a sufficient understanding of the relevant measures); (ix) vulnerability assessments and allows each SCI entity to identify material systems changes, which would aid the security measures; and (x) whether an SEC rule Commission and its staff in understanding the filing under Rule 19b–4 has been made in material systems changes, it is operations and functionality of the systems of an connection with the system change notification. See responsive to commenters’ concern that SCI entity and changes to such systems. id. at 15–16. According to this commenter, unless the proposed definition was too broad Specifically, Rule 1003(a)(1) requires the quarterly the Commission intends for the scope of report to ‘‘describe’’ the material systems changes information provided with these notices to be and gives each SCI entity reasonable flexibility in 1647 limited to high level descriptions and generally less See id. how to describe it. 1648 detailed, the preparation of material systems change See id. at 42–43. 1654 Proposed Rule 1000(b)(8)(ii) required semi- notices generally requires considerably more time 1649 See MSRB Letter at 37. annual reports that include a summary description than estimated. See id. at 16. 1650 See id. at 36–37. of the progress of any material systems changes 1645 See UBS Letter at 6. 1651 See supra notes 1641–1642 and during the six-month period ending on June 30 or 1646 See Omgeo Letter at 42. accompanying text. Continued

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However, because the Commission is With respect to the requirement under Commission’s estimate is sufficient to not requiring 30-day advance Rule 1003(a)(2) for supplemental cover the burden on senior management notification of each material systems material systems change reports, for to produce such response.1666 change, SCI entities may need to spend purposes of this PRA analysis, the Another commenter noted that the more time to gather the information Commission estimates that most Commission’s estimate of the burden required to be included in the quarterly quarterly reports will not contain associated with SCI review is too low reports and to prepare the quarterly material errors or material omissions. and that the SCI review will require reports than the burden estimated for Therefore, the Commission estimates over 1,200 burden hours.1667 In proposed Rule 1000(b)(8)(ii).1655 that each SCI entity will submit 2 connection with advocating for a risk- Therefore, the Commission estimates supplemental reports each year under based approach for SCI reviews, one that the initial and ongoing burden to Rule 1003(a)(2), in order to account for commenter noted that if it were to comply with the quarterly reporting the few instances where a quarterly attempt to conduct all of the market- requirement would be 125 hours per report must be corrected. The related technology application reviews report per SCI entity,1656 or 500 hours Commission estimates that the initial that it currently conducts over four annually per SCI entity 1657 and 22,000 and ongoing burden to comply with the years during one year (excluding hours annually for all SCI entities.1658 supplemental reporting requirement regulatory technology applications such would be 15 hours per report per SCI as those related to member regulation), December 31, and the date, or expected date, of entity,1659 or 30 hours annually per SCI it would require approximately 6,400 to completion of implementation of such changes. 1660 1668 1655 entity and 1,320 hours annually for 8,320 hours. According to this At the same time, the Commission believes 1661 that most, if not all, SCI entities already have some all SCI entities. The Commission commenter, significantly more resources internal procedures for documenting all systems believes that SCI entities would handle would be required to conduct SCI changes. internally the work associated with reviews if the definition of SCI systems 1656 In the SCI Proposal, the Commission reports required under Rule 1003(a).1662 includes non-market regulatory and preliminarily estimated 60 hours per semi-annual surveillance systems, and development report. See Proposing Release, supra note 13, at d. SCI Review 18152. The Commission believes that, although and testing systems.1669 One commenter Rule 1003(a)(1) requires quarterly reports rather In the SCI Proposal, the Commission noted that significant portions of the SCI than semi-annual reports, the reporting burden estimated that the initial and ongoing should not be reduced because the quarterly reports review could be outsourced and that the would cover material systems changes during the burden of conducting an SCI review and Commission’s estimate for the overall prior, current, and subsequent calendar quarters. submitting the SCI review to senior cost of outsourcing is reasonable, On the other hand, the proposed semi-annual management for review would be although some of the assumed hourly reports would have only covered material systems changes during the previous 6 months. In addition, approximately 625 hours for each SCI rates used in the SCI Proposal appear to because the Commission is not requiring 30-day entity.1663 The Commission also be too low in the context of the current advance notification of each material systems estimated that each SCI entity would market environment.1670 change, SCI entities may need more time to gather spend 1 hour to submit the SCI review the information required to be included in the One commenter noted that the quarterly reports and to prepare the quarterly to the Commission pursuant to Commission’s estimate did not take into reports. Therefore, the Commission believes that it proposed Rule 1000(b)(8)(i).1664 account the additional work that would is appropriate to increase by fifty percent its With respect to the burden associated be required by many different SCI entity estimate for the proposed semi-annual reporting requirement and to add additional personnel in with SCI reviews, one commenter stated associates, including managers and response to comment. But see supra note 1649 and that the Commission’s estimate of the subject matter experts, in order to satisfy accompanying text (discussing a commenter’s view burden of proposed Rule 1000(b)(7) is the requirements of proposed Rule that the Commission’s estimate of the burden under fairly accurate.1665 According to this 1671 proposed Rule 1000(b)(8)(ii) is fairly accurate). The 1000(b)(7). This commenter stated 125 burdens hours include 7.5 hours by an commenter, although the burden that the Commission incorrectly Attorney, 7.5 hours by a Compliance Manager, 5 estimate of proposed Rule 1000(b)(7) assumed that only an attorney, manager hours by a Chief Compliance Officer, 30 hours by did not require the inclusion of senior internal audit, and systems analyst a Senior Business Analyst, and 75 hours by a Senior Systems Analyst. In addition to adding fifty percent management’s response, the would be required to work on the SCI to the estimated burden for proposed Rule review.1672 According to this 1000(b)(8)(ii), the Commission is estimating an 1659 The 15 burdens hours include 2 hours by an commenter, subject matter expertise that additional 7.5 hours by a Compliance Manager (and Attorney, 2 hours by a Compliance Manager, 1 hour would be needed to perform such a decreasing the proposed burden estimate for by a Chief Compliance Officer, 3 hours by a Senior Attorney from 10 hours to 7.5 hours), 5 hours by Business Analyst, and 7 hours by a Senior Systems review includes Product Managers, a Chief Compliance Officer, and 30 hours by a Analyst. The Commission believes that the burden Project Managers, Developers, Quality Senior Business Analyst to address commenters’ associated with supplemental material systems Assurance staff, Systems Engineers, view that the estimates in the SCI Proposal did not change reports will be substantially lower than the take into account the activities to gather the burden associated with quarterly material systems Systems Architects, Capacity Planners, information needed, to have appropriate change reports, but the same type of personnel will Information Security experts, Business confirmations from persons with knowledge of the be involved the supplemental report as the Continuity and Disaster Recovery staff, material systems change, and to provide for senior quarterly report. Compliance staff, and management.1673 management review where appropriate (even 1660 15 hours × 2 reports each year = 30 hours. though some of these commenters commented on This commenter estimated that the 1661 30 hours × 44 SCI entities = 1,320 hours. the burden estimate for proposed Rule 1000(b)(6) 1662 See supra note 1650 and accompanying text, only). See supra notes 1643, 1645, 1647, and 1648 1666 See id. at 37. 1663 See Proposing Release, supra note 13, at and accompanying text. The Commission notes that 1667 See ISE Letter at 12. the inclusion of Senior Business Analyst and Senior 18151. The 625 burden hours included 80 hours by 1668 See FINRA Letter at 40. According to this Systems Analyst is intended to cover subject matter an Attorney, 170 hours by a Manager Internal commenter, it currently spends approximately 160 experts for material systems changes, as suggested Auditor, and 375 hours by a Senior Systems hours for each review of a technology application by a commenter. See supra note 1648 and Analyst. See id. This estimate was the in connection with its regulatory audits, and accompanying text. Commission’s preliminary best estimate and was currently it reviews between 10 and 13 market- 1657 125 hours × 4 reports each year = 500 hours. based on Commission staff’s experience with the ARP Inspection Program. This estimate was also the related technology applications annually. See id. The Commission recognizes that, to the extent an 1669 SCI entity develops a template for quarterly same as the Commission’s burden estimate for See id. 1670 material systems change reports, the burden internal audits of SB SEFs. See id. at 18151, n. 437. See MSRB Letter at 36. associated with creating future quarterly reports 1664 See id. at 18151. The 1 burden hour would 1671 See Omgeo Letter at 44. may be reduced. be spent by an Attorney. See id. 1672 See id. 1658 500 hours × 44 SCI entities = 22,000 hours. 1665 See MSRB Letter at 36. 1673 See id.

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annual burden under proposed Rule commenter noted that the Commission’s entities would outsource some of the 1000(b)(7) would be 4,670 hours.1674 burden estimate for proposed Rule work associated with an SCI review, at According to this commenter, if the 1000(b)(7) was fairly accurate.1679 an average annual cost of $50,000 per Commission intended SCI entities to Further, while other commenters SCI entity,1684 or $2,200,000 for all SCI conduct a broader scope review beyond advocated higher burden estimates for entities.1685 those now required by the ARP the SCI review requirement,1680 the With respect to the comment that the Inspection Program, then the annual Commission notes that it has refined the burden estimate for proposed Rule burden would be 11,199 hours.1675 With definition of SCI systems (e.g., by 1000(b)(8)(i) failed to account for the respect to the burden estimate for eliminating development and testing burden on senior management for proposed Rule 1000(b)(8)(i), one systems, and focusing on market reviewing and responding to the report commenter stated that the estimate did regulation and market surveillance of the SCI review,1686 the Commission not address the burden on senior systems) and has incorporated a risk- notes that proposed Rule 1000(b)(8)(i) management for reading, analyzing, and based approach to the frequency of and adopted Rule 1003(b)(3) do not perhaps responding to the SCI testing for market regulation and market require senior management to respond review.1676 surveillance systems. The Commission to the report of the SCI review. Rather, As discussed above in Section IV.B.5, estimates that the initial and ongoing Rule 1003(b)(3) only requires an SCI the Commission is adopting SCI review- burden of conducting an SCI review and entity to submit the already prepared related requirements in Rule 1003(b), submitting the SCI review to senior report of the SCI review, and response with some modifications from the management of the SCI entity for review by senior management if there was any, proposal. Specifically, Rule 1003(b)(1) would be approximately 690 hours for to the Commission and to the board of requires each SCI entity to conduct an each SCI entity,1681 and 30,360 hours directors of the SCI entity or the SCI review of its compliance with annually for all SCI entities.1682 The equivalent of such board. Moreover, the Regulation SCI not less than once each Commission estimates that while SCI Commission is including in its burden calendar year, with an exception for entities would handle internally some estimate for Rules 1003(b)(1) and (2) the penetration test reviews, which are or most of the work associated with burden for senior management review of required to be conducted not less than compliance with Rule 1003(b),1683 SCI the report for the SCI review. Therefore, once every three years.1677 As adopted, with respect to Rule 1003(b)(3), the Rule 1003(b)(1)(ii) provides an 1679 See supra note 1665 and accompanying text. Commission estimates that each SCI exception for assessments of SCI 1680 See supra notes 1667–1668 and 1675 and entity would require 1 hour per year to systems directly supporting market accompanying text. These commenters estimated a submit the report of the SCI review and regulation or market surveillance, which range of 1,200 to 8,320 burden hours. In response to the commenter that stated that it currently any response by senior management to are required to be reviewed at a spends approximately 160 hours for each review of the Commission and to the board of frequency based on the risk assessment a technology application and it reviews between 10 directors of the SCI entity or the conducted as part of the SCI review, but and 13 market-related technology applications equivalent of such board,1687 for a in no case less than once every three annually, the Commission notes that the burden 1678 estimates in this section only include the years. Rules 1003(b)(2) and (3) incremental burden associated with the rule above outsourced. This commenter also noted that the require each SCI entity to submit a what the Commission estimates that SCI entities are Commission’s estimate of the overall cost of report of the SCI review to senior already performing. To the extent an SCI entity outsourcing is reasonable, although it believed management no more than 30 calendar already reviews certain of its systems, the some of the assumed hourly rates appear to be too additional burden imposed by Rule 1003(b) will be low in the context of current market environment. days after completion of the review, and lower than for other SCI entities. See supra note 1670 and accompanying text. The to submit the report to the Commission 1681 The 690 hours include 80 hours by an Commission acknowledges that some SCI entities and to the board of directors of the SCI Attorney, 35 hours by a Compliance Manager, 5 may outsource work related to SCI review to more entity or the equivalent of such board, hours by a General Counsel, 20 hours by a Chief expensive outside firms than others. On average, the Commission believes its hourly rate of $400 for together with any response by senior Compliance Officer, 5 hours by a Director of Compliance, 170 hours by a Manager Internal outsourcing continues to be appropriate. management, within 60 calendar days Audit, and 375 hours by a Senior Systems Analyst. 1684 125 hours × $400 = $50,000. The Commission after its submission to senior As compared to the estimated burden for proposed believes that SCI entities may outsource some of the management. Rule 1000(b)(7), the Commission is estimating an legal and audit work associated with an SCI review. After considering the views of additional 35 hours by a Compliance Manager, 5 In particular, the Commission estimates that, on commenters, the Commission is not hours by a General Counsel, 20 hours by a Chief average, an SCI entity will outsource 40 hours of Compliance Officer, and 5 hours by a Director of legal work and 85 hours of audit work (or half of significantly increasing the burden Compliance, to reflect the view of commenters that the hour burden estimates for Attorney and estimate for compliance with Rules managers would be involved in satisfying the Manager Internal Audit). See supra note 1681. 1003(b)(1) and (2) from its estimates in requirements related to SCI review. See supra notes 1685 $50,000 × 44 SCI entities = $2,200,000. the SCI Proposal. In particular, one 1671–1675 and accompanying text. The 1686 See supra notes 1666 and 1676 and Commission notes that the 20-hour burden estimate accompanying text. One of these commenters, for the Chief Compliance Officer includes the time however, noted that the Commission’s estimated 1674 See id. spent by other members of the senior management burden for proposed Rule 1000(b)(7) is fairly 1675 See id. team (other than the General Counsel, who has a accurate, even though it did not include senior 1676 See id. separate burden estimate). See supra Section IV.B.5 management’s response. See supra notes 1665–1666 1677 As proposed, the rule would have required (discussing senior management involvement in and accompanying text. penetration test reviews of the SCI entity’s network, compliance with Rule 1003(b)). The Commission 1687 The 1 hour would be spent by an Attorney. firewalls and development, testing, and production notes that the inclusion of Manager Internal Audit This estimate is unchanged from the burden systems. However, consistent with modifications to and Senior Systems Analyst is intended to cover estimate for proposed Rule 1000(b)(8)(i), which the definition of SCI systems, references to subject matter experts related to systems review only required submission of the report and any development and test systems have been deleted in (e.g., information security experts, systems response by senior management to the Commission. adopted Rule 1003(b)(1)(i). engineers, quality assurance staff). See supra notes The Commission believes that the additional 1678 These exceptions, along with the exclusion of 1671–1675 and accompanying text. The burden for submitting the same report and response development and testing systems from the Commission also believes that some SCI entities to the SCI entity’s board of directors or the definition of SCI systems, would address, at least already conduct annual reviews of its systems, and equivalent of such board would be modest, and in part, some commenters’ concern regarding the therefore may incur less burden than other SCI thus the estimate of one hour remains unchanged scope of the definition of SCI systems and entities in complying with Rule 1003(b). from the burden estimate for proposed Rule consequently the burden of the SCI review 1682 690 hours × 44 SCI entities = 30,360 hours. 1000(b)(8)(i), which required submission of the requirement. See supra notes 1669 and 1675 and 1683 As noted above, one commenter suggested report and response by senior management only to accompanying text. that significant portions of the SCI review may be the Commission.

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burden of 44 hours for all SCI 3. Requirements To Take Corrective the ARP Inspection Program, already entities.1688 Actions and Identify Critical SCI take corrective action in response to Systems, Major SCI Events, De Minimis systems issues and have some internal e. Access to EFFS SCI Events, and Material Systems processes with respect to corrective As noted above, to access EFFS, an Changes action.1703 The Commission also SCI entity will submit to the The rules under Regulation SCI that continues to believe that Rule 1002(a) Commission an EAUF to register each will likely result in SCI entities revising individual at the SCI entity who will would result in SCI entities establishing additional processes for compliance are their policies, which will help to ensure access the EFFS system on behalf of the that their information technology staff SCI entity. The Commission is including discussed more fully in Sections IV.A, IV.B.3.b, and IV.B.4 above. has the ability to access systems in order in its burden estimates the burden for to take appropriate corrective completing the EAUF for each a. Corrective Actions actions.1704 The Commission therefore individual at an SCI entity that will In the SCI Proposal, the Commission believes that Rule 1002(a) may impose request access to EFFS. The noted that, although SCI entities already a one-time implementation burden on Commission estimates that initially, on take corrective action in response to SCI entities associated with developing average, two individuals at each SCI systems issues, proposed Rule such a process, and periodic burdens in entity will request access to EFFS 1000(b)(3) would likely result in SCI reviewing that process. The Commission through the EAUF, and each EAUF entities revising their policies regarding estimates that the initial burden to would require 0.15 hours to complete taking corrective actions.1696 The implement such a process would be 114 and submit. Therefore, each SCI entity 1705 Commission estimated that the initial hours per SCI entity, or 5,016 hours would initially require 0.3 hours to 1706 burden would be 42 hours per SCI for all SCI entities. The Commission complete the requisite EAUFs,1689 or entity,1697 and the ongoing burden also estimates that the ongoing burden approximately 13 hours for all SCI to review such a process would be 39 1690 would be 12 hours annually per SCI 1707 entities. The Commission also 1698 hours annually per SCI entity, or estimates that annually, on average, one entity. The Commission estimated that SCI entities would establish the individual at each SCI entity will 1703 See Proposing Release, supra note 13, at process for compliance with proposed 18152. request access to EFFS through 1699 EAUF.1691 Therefore, the ongoing Rule 1000(b)(3) internally. 1704 See id. burden to complete the EAUF would be One commenter stated its belief that 1705 This estimate is based on the Commission’s 0.15 hours annually for each SCI basing the estimate for proposed Rule burden estimate for Rule 1001(a), because Rule 1000(b)(3) on the percentage of the 1001(a) and Rule 1002(a) both would result in entity,1692 or approximately 7 hours policies and procedures or processes. As noted 1693 burden estimate under proposed Rule above, one commenter stated that basing the burden annually for all SCI entities. 1700 In addition, the Commission estimates 1000(b)(1) is appropriate. This estimate for proposed Rule 1000(b)(3) on the burden that each SCI entity will designate two commenter also noted that while the estimate under proposed Rule 1000(b)(1) is taking of corrective action might be appropriate. See supra note 1700 and individuals to sign Form SCI each year. accompanying text. Because Rule 1001(a) An individual signing a Form SCI must wholly or partially outsourced with (excluding Rule 1001(a)(2)(vi)) requires the obtain a digital ID, at the cost of regard to systems development establishment of six policies and procedures at a approximately $25 each year. Therefore, activities, the establishment of policies minimum and Rule 1002(a) would result in the and procedures with respect to establishment of one set of policies and procedures, each SCI entity would require the Commission estimates that the initial staff approximately $50 annually to obtain corrective action would not be burden to draft the policies and procedures for Rule digital IDs for the individuals with conducive to outsourcing.1701 1002(a) is one-sixth of the initial staff burden to As discussed in detail above in draft the policies and procedures required by Rule access to EFFS for purposes of signing 1001(a) (excluding Rule 1001(a)(2)(vi)). 504 hours ÷ 1694 Section IV.B.3.b, the Commission Form SCI, or approximately $2,200 6 = 84 hours. The 84 burden hours include 32 hours for all SCI entities.1695 continues to require each SCI entity to by a Compliance Manager, 32 hours by an Attorney, begin to take appropriate corrective 10 hours by a Senior Systems Analyst, and 10 hours by an Operations Specialist. This burden hour 1688 1 hour × 44 SCI entities = 44 hours. action in Rule 1002(a), but the allocation is based on the allocation for Rule 1689 × corrective action requirement is 0.15 hours per EAUF 2 individuals = 0.3 1001(a) (excluding Rule 1001(a)(2)(vi)). See supra hours per SCI entity. These estimates are based on triggered when any responsible SCI note 1443. The Commission also estimates that a Commission staff’s experience with EFFS and personnel has a reasonable basis to Chief Compliance Officer will spend 20 hours and EAUFs pursuant to Rule 19b–4 under the Exchange a Director of Compliance will spend 10 hours Act. The 0.15 hours would be spent by an Attorney. conclude that an SCI event has 1702 reviewing the policies and procedures required by The Commission acknowledges that an SCI SRO occurred. The Commission Rule 1002(a). 84 hours + Chief Compliance Officer may initially submit fewer than two EAUFs because continues to believe that all SCI entities, at 20 hours + Director of Compliance at 10 hours certain individuals at SCI SROs currently already regardless of whether they participate in = 114 hours. have access to EFFS, whereas an SCI entity other 1706 114 hours × 44 SCI entities = 5,016 hours. than an SCI SRO may submit more than two EAUFs 1707 initially because it has not previously submitted 1696 See Proposing Release, supra note 13, at This estimate is based on the Commission’s filings through EFFS. Therefore, the Commission 18152. burden estimate for Rule 1001(a), because Rule believes it is appropriate to estimate that, on 1697 See id. The 42 burden hours included 16 1001(a) and 1002(a) both would result in policies average, each SCI entity will submit two EAUFs hours by a Compliance Manager, 16 hours by an and procedures or processes. See supra note 1700 initially. Attorney, 5 hours by a Senior Systems Analyst, and and accompanying text (stating that basing the 1690 0.30 hours × 44 SCI entities = 13.2 hours. 5 hours by an Operations Specialist. See id. This burden estimate for proposed Rule 1000(b)(3) on the burden estimate under proposed 1000(b)(1) is 1691 The Commission estimates that annually, on estimate was based on the Commission’s burden appropriate). Because Rule 1001(a) (excluding Rule average, one individual at each SCI entity will estimate for proposed Rule 1000(b)(1). See id. at 1001(a)(2)(vi)) requires the maintenance of six request access to EFFS through EAUF to account for 18152, n. 442. policies and procedures at a minimum and 1002(a) the possibility that an individual who previously 1698 See id. at 18152. The 12 burden hours would result in the maintenance of one set of had access to EFFS may no longer be designated as included 6 hours by a Compliance Manager and 6 policies and procedures, the Commission estimates needing such access. hours by an Attorney. See id. This estimate was that the ongoing staff burden under 1002(a) is one- 1692 × based on the Commission’s burden estimate for 0.15 hours per EAUF 1 individual = 0.15 sixth of the ongoing staff burden under Rule 1001(a) proposed Rule 1000(b)(1). See id. at 18152, n. 443. hours. (excluding Rule 1001(a)(2)(vi)). 144 hours ÷ 6 = 24 1693 × 1699 0.15 hours 44 entities = 6.6 hours. See id. at 18152, n. 442. hours. The 24 burden hours include 9 hours by a 1694 $25 per digital ID × 2 individuals = $50 per 1700 See MSRB Letter at 31–32. Compliance Manager, 9 hours by an Attorney, 3 SCI entity. 1701 See id. at 32. hours by a Senior Systems Analyst, and 3 hours by 1695 $50 × 44 SCI entities = $2,200. 1702 See Rule 1002(a). an Operations Specialist. This burden hour

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1,716 hours annually for all SCI notification SCI event or dissemination the ARP Inspection Program would entities.1708 SCI event.1715 require 114 hours initially to establish The Commission continues to believe One commenter stated its belief that the criteria for identifying material that SCI entities will conduct internally the Commission’s burden estimate for systems changes,1719 or 1,596 hours for most of the work related to their policies and procedures to identify an all such SCI entities.1720 The corrective action procedures. As noted SCI event as an immediate notification Commission also estimates that each by a commenter, the establishment of SCI event or dissemination SCI event SCI entity that does not participate in policies and procedures with respect to was effectively limited to ministerial the ARP Inspection Program would corrective action would not be tasks of producing such policies and require 39 hours annually to review and conducive to outsourcing.1709 procedures in isolation from other update the criteria for identifying organizational activities and needs, and material systems changes,1721 or 546 b. Identification of Critical SCI Systems, took into account only minimal hours for all such SCI entities.1722 The Major SCI Events, De Minimis SCI supervisory or decision-making Commission estimates that each SCI Events, and Material Systems Changes activities, therefore significantly entity that currently participates in the In the SCI Proposal, the Commission underestimated the total burden of estimated that requirements under the compliance with this provision.1716 1719 This estimate is based on the Commission’s proposal with respect to immediate This commenter urged the Commission burden estimate for Rule 1001(a), because Rule 1001(a) and Rule 1003(a)(1) both require policies notification SCI events and to adjust the estimate in a manner and procedures or processes. See supra note 1700 dissemination SCI events may impose similar to this commenter’s suggestion and accompanying text (stating, in the context of burdens on SCI entities in developing with regard to proposed Rules proposed Rule 1000(b)(3), that basing the burden and reviewing a process to ensure that 1000(b)(1) and (2).1717 estimate for a set of policies and procedures or As discussed above in Section IV.B.4, processes on the burden estimate under proposed they are able to quickly and correctly 1000(b)(1) is appropriate). Because Rule 1001(a) make a determination regarding the Rule 1003(a)(1) requires each SCI entity (excluding Rule 1001(a)(2)(vi)) requires the nature of an SCI event.1710 For SCI to establish reasonable written criteria establishment of six policies and procedures at a entities that do not participate in the for identifying a change to its SCI minimum and Rule 1003(a)(1) requires the systems and the security of indirect SCI establishment of one set of criteria, the Commission ARP Inspection Program, the estimates that the initial staff burden to draft the Commission estimated that the initial systems as material. As noted in the SCI criteria required by Rule 1003(a)(1) is one-sixth of burden would be 42 hours per SCI Proposal, because the ARP Inspection the initial staff burden to draft the policies and Program already provides for the procedures required by Rule 1001(a) (excluding entity 1711 and the ongoing burden ÷ reporting ‘‘significant systems changes’’ Rule 1001(a)(2)(vi)). 504 hours 6 = 84 hours. The would be 12 hours annually per SCI 84 burden hours include 32 hours by a Compliance entity.1712 For SCI entities that currently to Commission staff, the Commission Manager, 32 hours by an Attorney, 10 hours by a participate in the ARP Inspection believes that, as compared to entities Senior Systems Analyst, and 10 hours by an Operations Specialist. This burden hour allocation Program, the Commission estimated that that do not participate in the ARP Inspection Program, entities that is based on the allocation for Rule 1001(a) the initial burden would be 21 hours per (excluding Rule 1001(a)(2)(vi)). See supra note SCI entity 1713 and the ongoing burden currently participate in the ARP 1443. The Commission also estimates that a Chief Inspection Program would already have Compliance Officer will spend 20 hours and a would be 6 hours annually per SCI Director of Compliance will spend 10 hours entity.1714 The Commission believed some internal processes for determining the significance of a systems issue or reviewing the policies and procedures required by that SCI entities would internally Rule 1003(a)(1). 84 hours + Chief Compliance establish the process for determining systems change. Therefore, the Officer at 20 hours + Director of Compliance at 10 whether an SCI event is an immediate Commission continues to estimate a hours = 114 hours. 50% baseline for the staff burden 1720 114 hours × 14 SCI entities that do not estimates for SCI entities that currently participate in the ARP Inspection Program = 1,596 allocation is based on the allocation for Rule hours. 1001(a) (excluding Rule 1001(a)(2)(vi)). See supra participate in the ARP Inspection 1721 This estimate is based on the Commission’s 1718 note 1445. The Commission also estimates that a Program. However, the Commission burden estimate for Rule 1001(a), because Rule Chief Compliance Officer will spend 10 hours and does not believe that a 50% baseline 1001(a) and Rule 1003(a)(1) both require policies a Director of Compliance will spend 5 hours would be appropriate for these SCI and procedures or processes. See supra note 1700 reviewing the policies and procedures required by and accompanying text (stating, in the context of Rule 1002(a). 24 hours + Chief Compliance Officer entities in terms of senior management proposed Rule 1000(b)(3), that basing the burden at 10 hours + Director of Compliance at 5 hours = review. The Commission believes that, estimate for a set of policies and procedures or 39 hours. although these entities already have processes on the burden estimate under proposed 1708 39 hours × 44 SCI entities = 1,716 hours. some internal processes for determining 1000(b)(1) is appropriate). Because Rule 1001(a) 1709 See supra note 1701 and accompanying text. (excluding Rule 1001(a)(2)(vi)) requires the the significance of a systems change, maintenance of six policies and procedures at a 1710 See Proposing Release, supra note 13, at their senior management would require 18152. minimum and Rule 1003(a)(1) requires the maintenance of one set of criteria, the Commission 1711 See id. at 18153. The 42 burden hours the same number of hours as other SCI estimates that the ongoing staff burden under included 16 hours by a Compliance Manager, 16 entities to review and ensure that the 1003(a)(1) is one-sixth of the ongoing staff burden hours by an Attorney, 5 hours by a Senior Systems process is reasonable, as required by under Rule 1001(a) (excluding Rule 1001(a)(2)(vi)). Analyst, and 5 hours by an Operations Specialist. Rule 1003(a)(1). The Commission 144 hours ÷ 6 = 24 hours. The 24 burden hours See id. This estimate was based on the include 9 hours by a Compliance Manager, 9 hours Commission’s burden estimate for proposed Rule continues to believe that SCI entities will internally establish and maintain by an Attorney, 3 hours by a Senior Systems 1000(b)(1). See id. at 18153, n. 448. Analyst, and 3 hours by an Operations Specialist. 1712 See id. at 18153. The 12 burden hours the policies and procedures required by This burden hour allocation is based on the included 6 hours by a Compliance Manager and 6 Rule 1003(a)(1). allocation for Rule 1001(a) (excluding Rule hours by an Attorney. See id. This estimate was The Commission estimates that each 1001(a)(2)(vi)). See supra note 1445. The based on the Commission’s burden estimate for SCI entity that does not participate in Commission also estimates that a Chief Compliance proposed Rule 1000(b)(1). See id. at 18153, n. 452. Officer will spend 10 hours and a Director of 1713 See id. at 18153. The 21 burden hours Compliance will spend 5 hours reviewing the 1715 included 8 hours by a Compliance Manager, 8 hours See id. at 18153, n. 448, n. 450, n. 452, and policies and procedures required by Rule by an Attorney, 2.5 hours by a Senior Systems n. 454. 1003(a)(1). 24 hours + Chief Compliance Officer at Analyst, and 2.5 hours by an Operations Specialist. 1716 See MSRB Letter at 32. 10 hours + Director of Compliance at 5 hours = 39 See id. 1717 See id. hours. 1714 See id. The 6 burden hours included 3 hours 1718 The 50% baseline for ARP participants is 1722 39 hours × 14 SCI entities that do not by a Compliance Manager and 3 hours by an consistent with the baseline for the Rule 1001(a) participate in the ARP Inspection Program = 546 Attorney. See id. burden estimates. hours.

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ARP Inspection Program would require identify its critical SCI systems because of critical SCI systems, major SCI 72 hours initially to establish the the definition of major SCI event events, and de minimis SCI events. criteria for identifying material systems includes an SCI event that has had, or The Commission estimates that each changes,1723 or 2,160 hours for all such the SCI entity reasonably estimates SCI entity that does not participate in SCI entities.1724 The Commission also would have, any impact on a critical SCI the ARP Inspection Program would estimates that each SCI entity that system. Further, when an SCI event require 198 hours initially to establish currently participates in the ARP occurs, an SCI entity needs to determine the criteria for identifying certain Inspection Program would require 27 whether the event is a major SCI event, systems and events,1729 or 2,772 hours hours annually to review and update the because Rule 1002(c)(3) requires an SCI for all such SCI entities.1730 The criteria,1725 or 810 hours for all such SCI entity to disseminate information Commission also estimates that each entities.1726 regarding major SCI events to all of its SCI entity that does not participate in As adopted, Regulation SCI requires member or participants. In addition, the ARP Inspection Program would SCI entities to identify certain types of Rules 1002(b) and (c) provide certain require 63 hours annually to review and 1731 events, systems, and changes. exceptions from the Commission update such criteria, or 882 hours Specifically, Rule 1000 defines ‘‘critical notification and information SCI systems’’ as any SCI systems of, or 1729 This estimate is based on the Commission’s dissemination requirements for any SCI burden estimate for Rule 1001(a), because Rule operated by or on behalf of, an SCI event that has had, or the SCI entity 1001(a) and the identification of certain systems entity that: (1) Directly support reasonably estimates would have, no or and events both would result in policies and functionality relating to (i) clearance a de minimis impact on the SCI entity’s procedures or processes. See supra note 1700 and and settlement systems of clearing accompanying text (stating, in the context of operations or on market participants. proposed Rule 1000(b)(3), that basing the burden agencies; (ii) openings, reopenings, and Therefore, when SCI events occur, an estimate for a set of policies and procedures or closings on the primary listing market; SCI entity needs to determine whether processes on the burden estimate under proposed (iii) trading halts; (iv) initial public they are de minimis SCI events. 1000(b)(1) is appropriate). Because Rule 1001(a) offerings; (v) the provision of (excluding Rule 1001(a)(2)(vi)) requires the The Commission believes that the establishment of six policies and procedures at a consolidated market data; or (vi) identification of critical SCI systems, minimum and the identification of certain systems exclusively-listed securities; or (2) and events could result in the establishment of two provide functionality to the securities major SCI events, and de minimis SCI policies and procedures (i.e., one for systems and events will impose an initial one-time one for events), the Commission estimates that the markets for which the availability of initial staff burden to draft the policies and alternatives is significantly limited or implementation burden on SCI entities in developing processes to quickly and procedures to identify certain systems and events nonexistent and without which there is one-third of the initial staff burden to draft the would be a material impact on fair and correctly identify the nature of a system policies and procedures required by Rule 1001(a) 1727 ÷ orderly markets. Rule 1000 defines or event. The identification of these (excluding Rule 1001(a)(2)(vi)). 504 hours 3 = 168 systems and events may also impose hours. The 168 burden hours include 64 hours by ‘‘major SCI event’’ as an SCI event that a Compliance Manager, 64 hours by an Attorney, 20 has had, or the SCI entity reasonably periodic burdens on SCI entities in hours by a Senior Systems Analyst, and 20 hours estimates would have any impact on a reviewing and updating the processes. by an Operations Specialist. This burden hour allocation is based on the allocation for Rule critical SCI system or a significant As noted in the SCI Proposal, because the ARP Inspection Program already 1001(a) (excluding Rule 1001(a)(2)(vi)). See supra impact on the SCI entity’s operations or note 1443. The Commission also estimates that a on market participants. Because Rule provides for the reporting ‘‘significant Chief Compliance Officer will spend 20 hours and 1001(a)(2)(v) requires business systems changes’’ and ‘‘significant a Director of Compliance will spend 10 hours reviewing the policies and procedures to identify continuity and disaster recovery plans systems outages’’ to Commission staff, the Commission believes that, as certain systems and events. 168 hours + Chief that are reasonably designed to achieve Compliance Officer at 20 hours + Director of two-hour resumption of critical SCI compared to entities that do not Compliance at 10 hours = 198 hours. systems following a wide-scale participate in the ARP Inspection 1730 198 hours × 14 SCI entities that do not participate in the ARP Inspection Program = 2,772 disruption, each SCI entity needs to Program, entities that currently participate in the ARP Inspection hours. identify its critical SCI systems. In 1731 Program would already have some This estimate is based on the Commission’s addition, each SCI entity needs to burden estimate for Rule 1001(a), because Rule internal processes for determining the 1001(a) and the identification of certain systems and events both would result in policies and 1723 84 hours ÷ 2 = 42 hours. The 42 burden hours significance of a systems issue or procedures or processes. See supra note 1700 and include 16 hours by a Compliance Manager, 16 systems change. Therefore, the accompanying text (stating, in the context of hours by an Attorney, 5 hours by a Senior Systems Commission estimates a 50% baseline proposed Rule 1000(b)(3), that basing the burden Analyst, and 5 hours by an Operations Specialist. for the staff burden for SCI entities that estimate for a set of policies and procedures or The Commission also estimates that a Chief processes on the burden estimate under proposed Compliance Officer will spend 20 hours and a currently participate in the ARP 1000(b)(1) is appropriate). Because Rule 1001(a) Director of Compliance will spend 10 hours Inspection Program.1728 However, the (excluding Rule 1001(a)(2)(vi)) requires the reviewing the policies and procedures required by Commission does not believe that a 50% maintenance of six policies and procedures at a Rule 1003(a)(1). 42 hours + Chief Compliance baseline would be appropriate for these minimum and the identification of certain systems Officer at 20 hours + Director of Compliance at 10 SCI entities in terms of senior and events could result in the maintenance of two hours = 72 hours. policies and procedures, the Commission estimates 1724 × management review. The Commission 72 hours 30 SCI entities that participate in that the ongoing staff burden to draft the policies the ARP Inspection Program = 2,160 hours. believes that SCI entities will internally and procedures to identify certain systems and 1725 24 hours ÷ 2 = 12 hours. The 12 burden hours establish and maintain the policies and events is one-third of the ongoing staff burden include 4.5 hours by a Compliance Manager, 4.5 procedures regarding the identification under Rule 1001(a) (excluding Rule 1001(a)(2)(vi)). hours by an Attorney, 1.5 hours by a Senior 144 hours ÷ 3 = 48 hours. The 48 burden hours Systems Analyst, and 1.5 hours by an Operations include 18 hours by a Compliance Manager, 18 Specialist. The Commission also estimates that a 1727 The Commission’s approach with respect to hours by an Attorney, 6 hours by a Senior Systems Chief Compliance Officer will spend 10 hours and SCI events and SCI systems is responsive to some Analyst, and 6 hours by an Operations Specialist. a Director of Compliance will spend 5 hours commenters’ suggestion for a risk-based regime. This burden hour allocation is based on the reviewing the policies and procedures required by See, e.g., supra notes 784–789 and accompanying allocation for Rule 1001(a) (excluding Rule Rule 1003(a)(1). 12 hours + Chief Compliance text (discussing commenters’ suggestions for 1001(a)(2)(vi)). See supra note 1445. The Officer at 10 hours + Director of Compliance at 5 revising the Commission reporting requirement). Commission also estimates that a Chief Compliance hours = 27 hours. 1728 The 50% baseline for ARP participants is Officer will spend 10 hours and a Director of 1726 27 hours × 30 SCI entities that participate in consistent with the baseline for the Rule 1001(a) Compliance will spend 5 hours reviewing the the ARP Inspection Program = 810 hours. burden estimates. policies and procedures for identifying certain

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for all such SCI entities.1732 The 4. Recordkeeping Requirements for proposed Rules 1000(c)(1) and 1744 Commission estimates that each SCI In the SCI Proposal, the Commission (2). entity that currently participates in the noted that it is not proposing a new One commenter noted that while ARP Inspection Program would require recordkeeping requirement for SCI SROs proposed Rule 1000(c) does not create 114 hours initially to establish the because the documents relating to new recordkeeping requirements for SCI criteria for identifying certain systems compliance with proposed Regulation SROs, the number of records to be and events,1733 or 3,420 hours for all SCI are subject to their existing retained by an SRO would increase due such SCI entities.1734 The Commission recordkeeping and retention to proposed Regulation SCI.1745 This also estimates that each SCI entity that requirements under Rule 17a–1 under commenter stated that such additional currently participates in the ARP the Act.1739 The Commission therefore recordkeeping is not costless and should Inspection Program would require 39 noted its belief that the proposed be considered by the Commission.1746 hours annually to review and update recordkeeping requirements would not As discussed in detail above in such criteria,1735 or 1,170 hours for all result in any burden that is not already Section IV.C.1.a, the Commission is such SCI entities.1736 The Commission accounted for in the Commission’s adopting the recordkeeping believes that the revised burden burden estimates for Rule 17a–1.1740 requirements substantially as proposed. estimates for establishing policies and With respect to SCI entities other than The Commission notes that the burden procedures to identify certain systems SCI SROs, the Commission estimated associated with creating such records, as and events are responsive to a that the initial and ongoing burdens to required of all SCI entities, including commenter’s concern that the estimate make, keep, and preserve records SCI SROs, by Regulation SCI, are in the SCI Proposal only included relating to compliance with proposed discussed and accounted for throughout ministerial tasks and minimal Regulation SCI would be approximately 1741 this Section V. supervisory activities.1737 Specifically, 25 hours annually per SCI entity. The Commission also estimated that the Commission increased from the With respect to SCI SROs, the breadth each SCI entity other than an SCI SRO proposal the estimated burden hours for of Rule 17a–1 under the Exchange would incur a one-time burden to set up Act 1747 is such that it requires SCI SROs the personnel involved in establishing or modify an existing recordkeeping such policies and procedures, and to make, keep, and preserve records system to comply with the proposed relating to their compliance with included senior level review by adding recordkeeping requirements.1742 Regulation SCI.1748 SCI entities that burden estimates for the Chief Specifically, the Commission estimated participate in the ARP Inspection Compliance Officer and Director of that for each SCI entity other than an Compliance. Moreover, because these SCI SRO, setting up or modifying a Program (nearly all of whom are SCI revised burden estimates are based on recordkeeping system would create an SROs) do generally keep and preserve the revised burden estimates for Rule initial burden of 170 hours and $900 in the types of records that are subject to 1001(a), these estimates are responsive information technology costs for the requirements of Rule 1005. to a commenter’s suggestion that they be purchasing recordkeeping software.1743 However, because Regulation SCI revised in a manner similar to its Further, the Commission noted its belief imposes new requirements on SROs, as suggestions with respect to proposed that proposed Rule 1000(c)(3), which noted by a commenter, the number of Rules 1000(b)(1) and (2).1738 would require an SCI entity, upon or records to be retained by an SRO may immediately prior to ceasing to do increase.1749 The Commission believes systems and events. 48 hours + Chief Compliance business or ceasing to be registered that existing recordkeeping systems and Officer at 10 hours + Director of Compliance at 5 under the Exchange Act, to take all processes of SCI SROs will be used to hours = 63 hours. necessary action to ensure that the retain the records required to be created 1732 × 63 hours 14 SCI entities that do not records required to be made, kept, and pursuant to Regulation SCI. As a result, participate in the ARP Inspection Program = 882 hours. preserved by Rules 1000(c)(1) and (2) the Commission believes that the 1733 168 hours ÷ 2 = 84 hours. The 84 burden remain accessible to the Commission burden associated with retaining these hours include 32 hours by a Compliance Manager, and its representatives in the manner additional records is an incrementally 32 hours by an Attorney, 10 hours by a Senior and for the remainder of the period small increase in the burden currently Systems Analyst, and 10 hours by an Operations required by Rule 1000(c), would not Specialist. The Commission also estimates that a incurred by SROs to retain records as Chief Compliance Officer will spend 20 hours and result in any additional paperwork required by Rule 17a–1 and that the a Director of Compliance will spend 10 hours burden that is not already accounted for burden associated with retaining reviewing the policies and procedures for in the Commission’s burden estimates records related to Regulation SCI is identifying certain systems and events. 84 hours + Chief Compliance Officer at 20 hours + Director of already accounted for in the 1739 See Proposing Release, supra note 13, at Compliance at 10 hours = 114 hours. 18153. 1734 × 114 hours 30 SCI entities that participate 1740 See id. 1744 See id. at 18154. in the ARP Inspection Program = 3,420 hours. 1741 See id. at 18154. The 25 burden hours would 1745 See MSRB Letter at 39. 1735 ÷ 48 hours 2 = 24 hours. The 24 burden hours be spent by a Compliance Clerk. See id. This 1746 See id. include 9 hours by a Compliance Manager, 9 hours estimate was based on Commission staff’s 1747 ‘‘Every national securities exchange, national by an Attorney, 3 hours by a Senior Systems experience with examinations of registered entities, securities association, registered clearing agency Analyst, and 3 hours by an Operations Specialist. the Commission’s estimated burden for an SRO to The Commission also estimates that a Chief and the Municipal Securities Rulemaking Board comply with Rule 17a–1, and the Commission’s shall keep and preserve at least one copy of all Compliance Officer will spend 10 hours and a estimated burden for a SB SEF to keep and preserve documents, including all correspondence, Director of Compliance will spend 5 hours documents made or received in the conduct of its memoranda, papers, books, notices, accounts, and reviewing the policies and procedures for business. See id. at 18154, n. 458. other such records as shall be made or received by identifying certain systems and events. 24 hours + 1742 See id. at 18154. Chief Compliance Officer at 10 hours + Director of it in the course of its business as such and in the 1743 See id. These estimates were based on the conduct of its self-regulatory activity.’’ Exchange Compliance at 5 hours = 39 hours. Commission’s experience with examinations of 1736 × Act Rule 17a–1(a), 17 CFR 240.17a–1(a). 39 hours 30 SCI entities that participate in registered entities and the Commission’s estimated the ARP Inspection Program = 1,170 hours. burden for an SB SEF to keep and preserve 1748 See also Rule 1005(a). 1737 See supra note 1716 and accompanying text. documents made or received in the conduct of its 1749 See supra notes 1745–1746 and 1738 See supra note 1717 and accompanying text. business. See id. at 18154, n. 460. accompanying text.

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Commission’s burden estimates for Rule Commission’s burden estimates for Rule such documents be made available for 17a–1.1750 1005(b).1756 examination or inspection by the Commission and its representatives, The Commission continues to believe 5. Total Paperwork Burden Under they would be kept confidential subject that for SCI entities other than SCI Regulation SCI 1761 SROs, the initial and ongoing burden to to the provisions of applicable law. Based on the foregoing, the In addition, the information submitted make, keep, and preserve records Commission estimates that the total one- to the Commission pursuant to relating to compliance with Regulation time initial burden for all SCI entities to Regulation SCI that is filed on Form SCI, SCI, as required by Rule 1005(b), would comply with Regulation SCI would be as required by Rule 1006, will be treated be approximately 25 hours annually per 330,508 hours 1757 and the total one- as confidential, subject to applicable 1751 SCI entity that is not an SCI SRO. time initial cost would be law, including amended Rule 24b–2.1762 Therefore, the Commission estimates a approximately $9.3 million.1758 The The information disseminated by SCI total annual burden of 425 hours for all Commission estimates that the total entities pursuant to Rule 1002(c) under such SCI entities.1752 The Commission annual ongoing burden for all SCI Regulation SCI to their members or also continues to estimate that each SCI entities to comply with Regulation SCI participants will not be confidential. entity other than an SCI SRO would would be 287,722 hours 1759 and the incur a one-time burden to set up or total annual ongoing cost would be G. Reduced Burden From Amendment modify an existing recordkeeping approximately $5.9 million.1760 of Rule 301(b)(6) (OMB Control Number 3235–0509) system to comply with Rule 1005. E. Collection of Information Is Adopted Regulation SCI amends Rule Specifically, the Commission estimates Mandatory that, for each SCI entity other than an 301(b)(6) of Regulation ATS.1763 SCI SRO, setting up or modifying a All collections of information Amendment of Rule 301(b)(6) would recordkeeping system would create an pursuant to Regulation SCI is a eliminate certain collection of initial burden of 170 hours and $900 in mandatory collection of information. information requirements within the information technology costs for F. Confidentiality meaning of the PRA, which the purchasing software.1753 Therefore, the Commission had submitted to OMB in The Commission expects that the accordance with 44 U.S.C. 3507 and 5 Commission estimates a total initial written policies and procedures, burden of 3,315 hours 1754 and a total CFR 1320.11 and OMB had approved. processes, criteria, standards, or other The approved collection of information initial cost of $15,300 for all such SCI written documents developed or revised entities.1755 is titled ‘‘Rule 301: Requirements for by SCI entities pursuant to Regulation Alternative Trading Systems and Form Finally, the Commission continues to SCI will be retained by SCI entities in ATS; ATS–R,’’ and the OMB control accordance with, and for the periods believe that Rule 1005(c), which number for this collection of specified in Exchange Act Rule 17a–1 requires an SCI entity, upon or information is 3235–0509.1764 immediate prior to ceasing to do and Rule 1005, as applicable. Should Some of the information collection business or ceasing to be registered burdens imposed by Regulation ATS under the Exchange Act, to take all 1756 The Commission believes that SCI entities will comply with Rule 1005(c) by, for example, a would be reduced by the amendment of necessary action to ensure that the contractual arrangement with a recordkeeping Rule 301(b)(6). Specifically, the records required to be made, kept, and service. paperwork burdens that would be preserved by Rule 1005 remain 1757 330,508 hours = 54,992 hours (policies and eliminated by the amendment of Rule accessible to the Commission and its procedures, mandate participation in certain testing) + 257,237 (notification, dissemination, 1761 representatives in the manner and for reporting) + 14,964 hours (corrective action, See, e.g., 15 U.S.C. 78x (governing the public the remainder of the period required by identification of certain systems and events, availability of information obtained by the Rule 1005, would not result in any identification of material systems changes) + 3,315 Commission); 5 U.S.C. 552 et seq. 1762 See, e.g., 15 U.S.C. 78x (governing the public additional paperwork burden that is not hours (recordkeeping). 1758 $9,325,500 = $3,544,000 (policies and availability of information obtained by the already accounted for in the procedures, mandate participation in certain Commission); 5 U.S.C. 552 et seq. See also supra testing) + $5,766,200 (notification, dissemination, Section IV.C.2 (discussing confidentiality treatment for Form SCI filings). 1750 See Supporting Statement for the Paperwork reporting) + $15,300 (recordkeeping). 1759 1763 See 17 CFR 242.301(b)(6). See also Securities Reduction Act Information Collection Submissions 287,722 hours = 24,942 hours (policies and Exchange Act Release No. 40760 (December 8, for Rule 17a–1, available at: http://www.reginfo.gov. procedures, mandate participation in certain testing) + 257,231 (notification, dissemination, 1998), 63 FR 70844 (December 22, 1998) (‘‘ATS 1751 See Proposing Release, supra note 13, at reporting) + 5,124 hours (corrective action, Release’’). In the SCI Proposal, the Commission 18154, n. 458. identification of certain systems and events, proposed that Regulation SCI would replace and 1752 × 25 hours 17 non-SRO SCI entities = 425 identification of material systems changes) + 425 supersede Rule 301(b)(6) in its entirety. As hours. hours (recordkeeping). discussed above, the Commission is now amending 1753 See Proposing Release, supra note 13, at 1760 $5,874,200 = $108,000 (mandate participation Rule 301(b)(6) to remove paragraphs (i)(A) and (i)(B) 18154, n. 460. The Commission believes that this in certain testing) + $5,766,200 (notification, so that Rule 301(b)(6) will no longer apply to ATSs burden estimate includes the burden imposed by dissemination, reporting). One commenter noted that trade NMS stocks and non-NMS stocks. Rule 1007. Specifically, Rule 1007 provides that, if that majority of the estimated paperwork burden in However, as described above, the Commission has the records required to be filed or kept by an SCI the SCI Proposal relate to notifications of SCI determined to exclude ATSs that trade only entity under Regulation SCI are prepared or events, rather than the writing and maintenance of municipal securities or corporate debt securities maintained by a service bureau or other the policies and procedures. See NYSE Letter at 18. from the scope of Regulation SCI, and such ATSs recordkeeping service on behalf of the SCI entity, This commenter noted that creating and will remain subject to the requirements of Rule the SCI entity would be required to ensure that the maintaining reasonable policies and procedure to 301(b)(6) if they meet the volume thresholds records are available for review by the Commission seek to ensure that important market systems have therein. The Commission estimates that no ATS and its representatives by submitting a written adequate levels of capacity, integrity, resiliency, that trade only municipal securities or corporate undertaking, in a form acceptable to the availability, and security should be the main focus debt securities currently meet the thresholds of Commission, by such service bureau or other of the regulation, not the reporting provisions. See Rule 301(b)(6). recordkeeping service, which is signed by a duly NYSE Letter at 18. The Commission notes that the 1764 See Rule 301: Requirements for Alternative authorized person at such service bureau or other burden estimates in this section relate solely to the Trading Systems and Form ATS; ATS–R, OMB recordkeeping service. paperwork burden of compliance with Regulation Control No: 3235–0509 (Rule 301 supporting 1754 (170 hours + 25 hours) × 17 non-SRO SCI SCI. The Commission discusses other costs statement), available at: http://www.reginfo.gov. entities = 3,315 hours. associated with compliance with Regulation SCI in This approval has an expiration date of April 30, 1755 $900 × 17 non-SRO SCI entities = $15,300. the Economic Analysis section below. 2017.

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301(b)(6) would be: (i) Burdens on ATSs rules pursuant to the Exchange Act to plan processors. These considerations that trade NMS stocks and non-NMS consider the impact any such rule include: The evolution of the markets to stocks associated with the requirement would have on competition. The become significantly more dependent to make records relating to any steps Exchange Act prohibits the Commission on sophisticated, complex, and taken to comply with systems capacity, from adopting any rule that would interconnected technology; the current integrity and security requirements impose a burden on competition not successes and limitations of the ARP under Rule 301(b)(6) (estimated to be 20 necessary or appropriate in furtherance Inspection Program; the significant hours); 1765 and (ii) burdens on ATSs of the purposes of the Exchange Act.1768 number of, and lessons learned from, that trade NMS stocks and non-NMS In the SCI Proposal, the Commission recent systems issues at exchanges and stocks associated with the requirement solicited comment on the economic other trading venues,1772 including to provide notices to the Commission to effects of the proposed rules, including increased concerns over ‘‘single points report systems outages (estimated to be any effects that the proposed rules may of failure’’ in the securities markets; and 2.5 hours).1766 The Commission have on efficiency, competition, and the views of a wide variety of received no comments regarding the capital formation. The Commission also commenters received in response to the reduced paperwork burdens from the solicited comment on its representation SCI Proposal. proposal to repeal Rule 301(b)(6) of of current practices and its Regulation SCI codifies, updates, and Regulation ATS. characterization of the relevant markets expands the existing ARP Inspection in which SCI entities participate. In Program in an effort to further the goals VI. Economic Analysis addition, the Commission solicited of the national market system. A. Overview comment on reasonable alternatives to Regulation SCI is intended to help to The Commission is sensitive to the the proposed rules and their economic ensure the capacity, integrity, resiliency, economic effects, including the costs effects. The Commission encouraged availability, and security of the and benefits, of its rules. When engaging commenters to identify, discuss, automated systems of entities important in rulemaking pursuant to the Exchange analyze, and supply relevant data, to the functioning of the U.S. securities Act that requires the Commission to information, or statistics regarding any markets. Regulation SCI is also intended consider or determine whether an action economic effects. to strengthen the U.S. securities market The Commission received many is necessary or appropriate in the public infrastructure and improve the comment letters that addressed the interest, Section 3(f) of the Exchange resilience of the U.S. securities markets Commission’s economic analysis of the Act requires the Commission to when technological issues arise. proposed rules.1769 As described further consider, in addition to the protection of Moreover, Regulation SCI is intended to below, some commenters stated that the investors, whether the action will reinforce the requirement that SCI Commission underestimated the costs promote efficiency, competition, and entities operate their systems in (including, for example, the proposed capital formation.1767 In addition, compliance with the Exchange Act and rules’ potential to impact innovation Section 23(a)(2) of the Exchange Act the rules and regulations thereunder. and create barriers to entry) of requires the Commission in making As adopted, Regulation SCI will apply compliance with Regulation SCI.1770 to SCI SROs (including national Other commenters believed that the 1773 1765 The Commission estimated that two securities exchanges, national alternative trading systems that register as broker- costs are justified by the benefits of the securities associations,1774 registered dealers and comply with Regulation ATS would rules.1771 clearing agencies, and the MSRB), SCI trigger this requirement, and that the average As discussed above in Section I, a ATSs, plan processors, and certain compliance burden for each response would be 10 confluence of factors has contributed to hours of in-house professional work at $379 per exempt clearing agencies.1775 As such, hour. Thus, the total compliance burden per year the Commission’s determination that it Regulation SCI covers the trading of was estimated to be 20 hours (2 respondents × 10 is necessary and appropriate at this time NMS stocks, OTC equities, and listed hours = 20 hours). See Rule 301: Requirements for to address the technological options. As discussed below, Regulation Alternative Trading Systems OMB Control No: vulnerabilities, and improve 3235–0509 (Rule 301 supporting statement), SCI also will impact multiple markets available at: http://www.reginfo.gov. As discussed Commission oversight, of the core for services, including the markets for above, the Commission is amending Rule 301(b)(6) technology of key U.S. securities trading services, listing services, so that it will no longer apply to ATSs that trade markets entities, including national regulation and surveillance services, NMS stocks and non-NMS stocks. ATSs that trade securities exchanges and associations, only municipal securities or corporate debt clearance and settlement services, and securities will remain subject to the requirements significant ATSs, clearing agencies, and market data. of Rule 301(b)(6), but the Commission estimates that no such ATS currently meets the thresholds of 1768 15 U.S.C. 78w(a)(2). B. Economic Baseline Rule 301(b)(6). 1769 See, e.g., Tellefsen Letter; Angel Letter; MSRB 1766 The Commission estimated that two Letter; OCC Letter; BIDS Letter; ISE Letter; The Commission recognizes that any alternative trading systems that register as broker- Leuchtkafer Letter; Better Markets Letter; CAST economic effects, including costs and dealers and comply with Regulation ATS would Letter; FINRA Letter; CISQ Letter; Fidelity Letter; benefits and effects on efficiency, meet the volume thresholds that trigger systems CME Letter; Omgeo Letter; Lauer Letter; SIFMA competition, and capital formation, outage notice obligations approximately 5 times a Letter; SunGard Letter; NYSE Letter; BATS Letter; year, and that the average compliance burden for FIA PTG Letter; ITG Letter; KCG Letter; UBS Letter; each response would be .25 hours of in-house Joint SROs Letter; and TMC Letter. 1772 See supra note 15 and accompanying text. professional work at $379 per hour. Thus, the total 1770 See, e.g., BIDS Letter at 2–3; NYSE Letter at 1773 Regulation SCI will not apply to an exchange compliance burden per year was estimated to be 2.5 2; UBS Letter at 5; and Omgeo Letter at 2. that lists or trades security futures products that is hours (2 respondents × 5 responses each × .25 hours 1771 See, e.g., Lauer Letter at 7 (commenting that notice-registered with the Commission as a national = 2.5 hours). See id. As discussed above, the cost burden should not be an appropriate reason to securities exchange pursuant to Section 6(g) of the Commission is amending Rule 301(b)(6) so that it omit an SCI entity and that, if the burden to ensure Exchange Act, including security futures exchanges. will no longer apply to ATSs that trade NMS stocks secure, stable systems is too high for an entity, that See supra note 78 and accompanying text. and non-NMS stocks. ATSs that trade only entity should not be allowed to be in a position to 1774 Regulation SCI will not apply to limited municipal securities or corporate debt securities impact the market); and Better Markets Letter at purpose national securities associations registered will remain subject to the requirements of Rule 9–12 (commenting that the Commission’s with the Commission pursuant to Section 15A(k) of 301(b)(6), but the Commission estimates that no preeminent duty when promulgating rules is to the Exchange Act. See supra note 78 and such ATS currently meets the thresholds of Rule protect investors and the public interest, and these accompanying text. 301(b)(6). goals should not be subordinate to industry 1775 See supra Section IV.A.1 (discussing the 1767 15 U.S.C. 78c(f). concerns over the cost of regulation). definition of SCI entities).

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should be compared to a baseline that believes that, to varying degrees, entities of a report of the independent review, accounts for current practices. The participating in the ARP Inspection and promptly notify the Commission of description of current practices below is Program establish current and future certain systems outages and systems based, among other things, on the capacity estimates, conduct periodic changes. Rule 301(b)(6) of Regulation Commission’s understanding of the capacity stress tests, and conduct an ATS, however, applies only to systems current practices under the ARP annual independent assessment of that support order entry, order routing, Inspection Program (including current whether their automated systems can order execution, transaction reporting, practices influenced by staff guidance perform adequately at their estimated and trade comparison,1782 which is related to the ARP Inspection Program), capacity levels and whether these more targeted than the adopted the requirements under Regulation ATS, systems have adequate protection definition of ‘‘SCI system.’’ rules of SROs, information provided by against threats.1780 Additionally, The Commission recognizes that commenters, and current practices and entities participating in the ARP market participants that do not staff guidance related to systems Inspection Program provide to the participate in the ARP Inspection compliance-related issues. Commission and its staff reports relating Program and are not subject to As noted above, all active registered to system changes and reviews, as well Regulation ATS also take measures clearing agencies, all registered national as information regarding systems consistent with certain aspects of securities exchanges, FINRA, two plan outages. Regulation SCI to avoid systems processors, one ATS, and one exempt In addition, as discussed above, disruptions, compliance issues, and clearing agency currently participate in pursuant to Rule 301(b)(6) of Regulation intrusions. For example, the the ARP Inspection Program. Under the ATS, certain aspects of the ARP Policy Commission believes that many market ARP Policy Statements and through the Statements apply to ATSs that meet the participants document systems events ARP Inspection Program, these entities, thresholds set forth in that rule.1781 as prudent and standard business among other things, are expected to Currently, the Commission believes that practice, even when the entity is not an establish current and future capacity only one ATS meets such thresholds ARP participant or does not report the estimates; conduct capacity stress tests; and, thus, is required by Commission incident as an ARP participant. and conduct annual reviews that cover rule to implement systems safeguard Additionally, commenters provided significant elements of the operations of measures. There is also one ATS that information about their practices for the automation process, including the voluntarily participates in the ARP maintaining suitable levels of systems capacity planning and testing process, Inspection Program. Rule 301(b)(6) of capacity, integrity, resiliency, contingency planning, systems Regulation ATS includes requirements availability, and security. As discussed development methodology, and that are similar to the requirements in Section IV.B.1, the Commission vulnerability assessments. When underlying the policies and procedures understands that some SCI entities are conducting an ARP inspection, required by Rule 1001(a)(2) of already following technology standards Commission staff also evaluates whether Regulation SCI. Specifically, Rule such as ISO 27000 and COBIT.1783 One an ARP entity’s controls over its 301(b)(6) under Regulation ATS requires commenter also stated that NFPA–1600 information technology resources in relevant ATSs to establish certain or BS 25999 was useful for contingency nine general areas, or information capacity estimates, conduct periodic planning.1784 Commenters also technology ‘‘domains,’’ is consistent capacity stress tests of critical systems, provided less specific information on develop and implement reasonable with ARP and industry guidelines.1776 current practices that allow the procedures to review and keep current The ARP Policy Statements and staff Commission to gauge current practices. systems development and testing letters also address, among other things, For example, one commenter stated that methodology, review the vulnerability the reporting of certain systems changes, SCI entities commonly review a variety of their systems and data center intrusions, and outages, and the need to of different standards for frameworks or computer operations to specified comply with relevant laws and best practices, and then adopt a threats, establish adequate contingency rules.1777 Many participants in the ARP derivative of multiple standards, and disaster recovery plans, conduct an Inspection Program have developed customizing them for the systems at independent review of its systems current practices that to some extent issue.1785 In addition, another controls annually for ensuring that overlap with the requirements of commenter stated that the financial Rules 301(b)(6)(ii)(A)–(E) are met and services industry currently uses Regulation SCI. These practices are conduct a review by senior management discussed in more detail throughout this processes for software development that are more ‘‘nimble’’ than the frameworks economic analysis. settlement, order routing, or market data if staff The ARP Policy Statements and the detects red flags. See Proposing Release, supra note listed in Table A, such as the NIST ARP Inspection Program address 13, at 18158. publication under the Systems systems that directly support trading, 1780 See ARP I Release and ARP II Release, supra Development Methodology domain.1786 clearance and settlement, order routing, note 1. FINRA members, including ATSs, are 1781 Specifically, Rule 301(b)(6) of Regulation also subject to FINRA rules that are and market data, which are a subset of ATS applies to ATSs that, during at least four of the systems covered by Regulation the preceding six months, had: (A) With respect to generally related to certain aspects of SCI.1778 Additionally, Commission staff any NMS stock, 20 percent or more of the average Regulation SCI.1787 For example, NASD currently inspects all the categories of daily volume reported by an effective transaction reporting plan; (B) with respect to equity securities 1782 systems that are included in the adopted See 17 CFR 242.301(b)(6)(ii). that are not NMS stocks and for which transactions 1783 See text accompanying supra note 606. definition of ‘‘SCI systems’’ to varying are reported to a self-regulatory organization, 20 1784 See ISE Letter at 11. 1779 percent or more of the average daily volume as degrees. In general, the Commission 1785 calculated by the self-regulatory organization to See NYSE Letter at 20. 1786 See BATS Letter at 6–7 (commenting that the 1776 which such transactions are reported; (C) with See supra Section II.A (discussing the ARP respect to municipal securities, 20 percent or more NIST publication reflects a burdensome staged Policy Statements and Commission staff letters). of the average daily volume traded in the United process to software development that favors the 1777 See id. States; or (D) with respect to corporate debt ‘‘waterfall methodology’’ over ‘‘agile’’ software 1778 See infra note 1900 and accompanying text. securities, 20 percent or more of the average daily development). 1779 Commission staff inspects systems that are volume traded in the United States. See 17 CFR 1787 See supra note 115. As noted above, although not directly related to trading, clearance and 242.301(b)(6)(i). these rules have some broad relation to certain

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Rule 3010(b)(1) requires a member to coordination of industry or sector- entities, the economic effects associated establish, maintain, and enforce written testing of such plans. with compliance with Regulation SCI procedures to supervise the types of Commenters addressed the will be less significant as these entities business in which it engages and to Commission’s consideration of current will need to make incremental supervise the activities of registered practices under the ARP Inspection adjustments to their current practices to representatives, registered principals, Program as part of the baseline. comply with many of the requirements. and other associated persons that are According to a commenter, the ARP The Commission recognizes that there reasonably designed to achieve Inspection Program was implemented is no publicly available information on compliance with applicable securities many years ago in a series of policy voluntary compliance under the ARP laws and regulations. However, this statements setting out guidance for Inspection Program. At the same time, NASD rule does not specifically address voluntary compliance, and was the Commission and its staff have compliance of the systems of FINRA supplemented with informal overseen the ARP Inspection Program members and does not cover more Commission staff guidance over the for over two decades and notes that years, in many cases before the relevant participants in the ARP Inspection broadly policies and procedures relating systems existed.1788 This commenter Program generally follow the ARP to operational capability. Additionally, also noted that Regulation SCI is a Policy Statements. The Commission also FINRA Rule 3130 requires a member’s mandatory regulation with a more notes that, in the ARP II Release, it chief compliance officer to certify that expansive nature, differentiating the stated that Commission staff and the the member has in place written proposed regulation from the voluntary, SROs have discussed the independent policies and procedures reasonably targeted scope of the ARP Inspection review process, ‘‘taking into account designed to achieve compliance with Program.1789 Some commenters that the SROs already engage in testing applicable FINRA rules, MSRB rules, believed that the Commission and quality assurance reviews of new or and federal securities laws and performed the economic analysis from a modified systems, and that there are regulations. Again, this FINRA rule does faulty premise by assuming that SCI other significant controls in place to not specifically address compliance of entities that participate in the ARP prevent, detect or correct problems in the systems of FINRA members and Inspection Program have been in such areas as capacity planning, testing, does not cover more broadly policies compliance with the voluntary systems development, vulnerability and and procedures relating to operational standards and that the cost of contingency planning.’’ 1792 The capability. Further, FINRA Rule 4530 compliance with Regulation SCI would Commission is not assuming in the imposes a reporting regime for, among merely be incremental as compared economic analysis that each SCI entity other things, compliance issues and with the current baseline cost of is fully in compliance with the ARP other events where a member has voluntary compliance with the ARP Inspection Program. Rather, the concluded or should have reasonably regime.1790 One commenter noted that Commission’s and its staff’s experience concluded that a violation of securities there is no publicly available informs the Commission’s view or other enumerated law, rule, or information on voluntary compliance regarding the range of existing practices regulation of any domestic or foreign under the ARP Inspection Program, and of SCI entities. The Commission regulatory body or SRO has occurred. the Commission should calculate the recognizes that some participants in the However, the reporting requirements of actual cost based on its knowledge of ARP Inspection Program may also have FINRA Rule 4530 are different in several the extent to which SCI entities adopted practices that are not precisely respects from the Commission currently participating in the ARP in line with the standards articulated in notification requirements under Inspection Program are actually in the ARP Policy Statements and other Regulation SCI relating to systems compliance with ARP, rather than Commission policy statements. As compliance issues (e.g., scope, timing, simply assuming full compliance.1791 discussed throughout this economic content, the recipient of the reports) and In response to these comments, the analysis, the Commission has would not cover reporting of systems Commission believes that current considered what the economic effects, disruptions or systems intrusions that practices under the ARP Inspection including the costs and benefits of did not also involve a violation of a Program continue to be relevant in an complying with Regulation SCI, will be securities law, rule, or regulation. In economic assessment of Regulation SCI for those entities that may not have addition, FINRA Rule 4370 generally and the current baseline. In particular, practices consistent with the standards requires that a member maintain a as described in more detail throughout articulated in the ARP Policy written continuity plan identifying the economic analysis, based on Statements. For example, some SRO procedures relating to an emergency or comments and staff experience, the backup facilities may be less significant business disruption. Commission believes that ARP entities geographically dispersed from the However, as compared to adopted Rules have developed practices that to some primary facilities than articulated in the extent overlap with the requirements of 1793 1001(a)(2)(v) and 1004, this FINRA rule 2003 BCP Policy Statement. Further, Regulation SCI. Accordingly, the does not include a requirement that the some SROs may report systems issues or Commission believes that, for some business continuity and disaster changes to the Commission in a manner recovery plans be reasonably designed different from what is articulated in the 1788 See NYSE Letter at 2, 6–7. This commenter ARP Policy Statements and Commission to achieve next business day resumption noted that the ARP Inspection Program was never of trading and two-hour resumption of subject to Commission rulemaking, including notice staff letters. Instead of assuming full critical SCI systems following a wide- and public comment, and a cost-benefit analysis. compliance with the ARP Inspection scale disruption, nor does it require the See id. at 6. This commenter further stated that if Program, throughout the economic the Commission were to move forward with analysis the Commission notes that functional and performance testing and Regulation SCI, it should first engage in a detailed public analysis of the costs and benefits of the some SCI entities that participate in the ARP Inspection Program have current aspects of Regulation SCI, the Commission is not existing ARP Inspection Program. See id. at 2. persuaded that the rules, even when taken together, 1789 See id. at 6. are an appropriate substitute for the comprehensive 1790 See ISE Letter at 11; and Joint SROs Letter at 1792 See ARP II, supra note 1, at 22491. approach in Regulation SCI with respect to 18. 1793 See 2003 BCP Policy Statement, supra note technology systems and system issues. See id. 1791 See ISE Letter at 11. 504, at 56658.

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practices that already satisfy some of the 1. SCI Events requirement applicable to SCI entities requirements of Regulation SCI and a. Systems Disruptions and Intrusions that includes the level of specificity in considers the details of those current Regulation SCI for dissemination of practices when assessing the economic Currently, market participants use an information regarding systems effects of the rules. array of preventive and corrective disruptions and systems intrusions, as measures to avoid systems disruptions Finally, in using the ARP Inspection those terms are defined in Regulation and to restore systems when disruptions SCI, to affected members or participants Program as a component of the baseline, occur, including escalation procedures the Commission also recognizes that or to all members or participants of an to notify management of disruptions. SCI entity. Regulation SCI is more expansive than The range of preventive and corrective In 2013, entities that participated in the ARP Inspection Program and has measures varies among market the ARP Inspection Program, including taken this fact into consideration participants and SCI entities, and also at least one of each type of such throughout the economic analysis. For differs among the systems employed by participants (i.e., national securities example, among other things, SCI entities. For instance, clearing exchange, national securities Regulation SCI includes more expansive systems and order matching engines association, registered clearing agency, requirements compared to the ARP generally are given higher priority by plan processor, ATS, and exempt Inspection Program for the SCI entities than other SCI entity clearing agency), reported a total of establishment of policies and systems. approximately 357 systems disruptions procedures regarding systems capacity, Also, as noted by a commenter, to the Commission.1798 These incidents integrity, resiliency, availability, exchanges, member firms, and ATSs had durations ranging from under one security, and compliance; and annual conduct regular and ad hoc testing of hour to well over several hours, with business continuity and disaster mission critical systems for the most incidents having a duration of less recovery plans testing. In addition, the introduction of new software releases, than three hours.1799 The Commission Commission is aware that more entities new features and functions, and systems has also tracked the percentage of will be subject to Regulation SCI than upgrades, among other things.1795 This market outages at SROs and electronic are currently participating in the ARP commenter also noted that the internal communications networks, which were Inspection Program, including a higher IT staff of exchanges, ATSs, trading self-reported to the Commission or number of ATSs. The Commission has platform providers, and clearing houses identified by Commission staff, that considered these differences in the conduct regular systems testing, were corrected within targeted economic analysis. regression testing, stress testing, and timeframes. Specifically, in fiscal year The sections below describe in more failover testing to ensure the 2013, 80% of outages were resolved detail the Commission’s understanding availability, capacity, resilience, and within 2 hours, 86% were resolved of current practices related to areas readiness of newly introduced systems, within 4 hours, and 98% were resolved covered by Regulation SCI, as informed applications, products, and system within 24 hours.1800 functions.1796 However, industry by its experience with the ARP b. Systems Compliance Issues Inspection Program, the OCIE practices are not codified as examination program, as well as by requirements for SCI entities and Currently, systems compliance issues commenters. In particular, the sections systems, except as may be the case in an are not covered by the ARP Inspection below provide an overview of the entity’s rulebook or subscriber Program. However, the Commission frequency and the types of systems agreement. notes that all SROs are required to Market participants also employ a issues addressed by Regulation SCI (i.e., comply with the Exchange Act, the rules wide variety of measures to prevent and systems disruptions, systems intrusions, respond to systems intrusions, and systems compliance issues) and functionality, or security, each potential SCI entity including escalation procedures to informs its subscribers of the problem and the current practices related to these events, notify management of intrusions. expected solution, and generally follows with a post as well as current practices related to mortem. According to this commenter, some Generally, market participants use business continuity and disaster entities provide this notice pursuant to a contract measures such as firewalls to prevent recovery, and material systems changes or general agreement with subscribers, while others systems intrusions, and use detection do so in order to maintain and grow their subscriber notifications. Additionally, the sections software to identify systems intrusions. base. See OTC Markets Letter at 19. See also supra below include a summary of the current Section II.B (describing recent events involving Once an intrusion has been identified, competitive landscape in various systems-related issues, which have been made the affected systems typically would be markets for services related to public). isolated and quarantined, and forensics 1798 One commenter believes that ATSs have not Regulation SCI and why the markets for would be performed. contributed to the recent major systems issues that these services do not provide an While there have been instances in have impacted the market. See ITG letter at 4. adequate competitive incentive to However, as the Commission has noted, FINRA which SCI entities revealed systems 1 prevent the occurrence of these market halted trading for over 3 ⁄2 hours in all OTC equity issues (including disruptions and securities due to a lack of availability of quotation events and reduce the duration and information resulting from a connectivity issue 1794 intrusions) to their members or severity when they occur. Details participants and to the public in the experienced by OTC Markets Group Inc.’s OTC Link ATS. See supra note 33 and accompanying text. regarding the baseline for certain past,1797 there currently is no specific current practices relevant to 1799 The Commission acknowledges that the number of systems incidents reported to the specific provisions of Regulation SCI are 1795 See Tellefsen Letter at 11. Commission by entities that participated in the ARP discussed throughout the consideration 1796 See id. Inspection Program represents the lower end of of costs and benefits and the effect on 1797 One instance of a publicly reported systems expected SCI events under Regulation SCI because efficiency, competition, and capital intrusion at an SCI entity occurred in February the definition of ‘‘SCI event’’ is broader than the formation below. 2011, when NASDAQ OMX Group, Inc. revealed types of events covered by the current ARP that hackers had penetrated certain of its computer Inspection Program. See supra Section V.D.2.a. networks, though Nasdaq reported that at no point 1800 See U.S. Securities and Exchange 1794 Throughout this Economic Analysis, the did this intrusion compromise Nasdaq’s trading Commission FY 2015 Annual Performance Plan, at general concept of a reduction of SCI events may systems. See Proposing Release, supra note 13, at 26 (March 7, 2014), available at: http:// refer to fewer events, shorter duration of events, 18089. One commenter also stated that when www.sec.gov/about/reports/ and/or less severe events. systems issues arise that impact subscriber access, secfy15congbudgjust.pdf.

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and regulations thereunder, and their number of systems compliance issues in regularly augment IT testing with other own rules and governing documents, as 2013 for a variety of reasons, including business continuity management applicable,1801 and securities the proposal of Regulation SCI, recent exercises (e.g., they conduct annual information processors and ATSs are Commission enforcement actions business continuity and disaster subject to similar requirements.1802 relating to systems compliance issues, recovery plan updates, building Further, SROs currently take steps to as well as related press reports, all of evacuation drills, and business ensure that their systems’ operations are which the Commission believes disruption scenario planning consistent with the federal securities increased attention on systems workshops).1811 This commenter also 1805 laws and rules and their own rules, and compliance issues. noted that all of the U.S. exchanges and some SROs notify Commission staff of clearinghouses have participated in the 1803 2. Business Continuity and Disaster certain systems compliance issues. Recovery planning and execution of the annual In particular, the Commission disaster recovery test initiative understands that SCI SROs generally The Commission recognizes that SCI conducted and coordinated by the FIA have procedures to escalate a entities already have business and SIFMA.1812 This commenter noted compliance issue upon discovery, to continuity and disaster recovery plans. include legal and compliance personnel For example, nearly all national that, in 2012, for example, the annual in the review of systems changes, and to securities exchanges already have FIA industry test involved 18 exchanges periodically review rulebooks. However, backup facilities that do not rely on the and clearinghouses, 68 futures although some SCI entities currently same infrastructure components as commission merchants, and 46 trading 1806 notify the Commission of certain those used by their primary facility. participant firms.1813 This commenter systems compliance issues, the Additionally, most participants in the also noted that the exchanges reported Commission does not receive ARP Inspection Program have strived to that the firms engaged in testing comprehensive data regarding such adhere to the recovery timeframes in the represented approximately 80% of their Interagency White Paper and the 2003 clearing members and that these firms issues. 1807 Similar to systems disruptions and BCP Policy Statement. Some SCI reflected approximately 85% of the systems intrusions, while there have entities also already require some of exchanges’ 2012 volumes.1814 been instances in which SCI entities their members or participants to connect 1808 3. Material Systems Changes revealed systems compliance-related to their backup systems. Further, issues to their members or participants some SCI entities already provide their Notifications members or participants with the and to the public in the past,1804 there opportunity to test the SCI entity’s Many entities that participate in the currently is no requirement applicable business continuity and disaster ARP Inspection Program already to SCI entities that includes the level of recovery plans, including its backup voluntarily provide material systems specificity in Regulation SCI for systems.1809 However, because change notifications to the Commission dissemination of information regarding participation in BC/DR testing, on an annual and ad hoc basis. In systems compliance issues, as that term including backup systems, is not always particular, the ARP II Release stated that is defined in Regulation SCI, to affected required by SCI entities, the SROs should notify Commission staff of members or participants, or to all Commission understands that not all significant additions, deletions, or other members or participants of an SCI market participants participate in changes to their automated systems.1815 entity. testing.1810 In addition, based on the Moreover, in the 2001 Staff ARP In the SCI Proposal, based on discussions between Commission staff Commission staff’s experience with Interpretive Letter, Commission staff and market participants in the months provided guidance to ARP entities on SROs and the rule filing process, the following Superstorm Sandy, the Commission estimated that there are how they should report planned Commission understands that many systems changes to the Commission.1816 likely approximately seven systems market participants had previously compliance issues per SCI entity per In addition, Rule 301(b)(6) under engaged in connectivity testing with Regulation ATS requires that ATSs that year. No commenter provided backup facilities, and yet remained additional information regarding the meet the thresholds in that rule notify uncomfortable about switching to the Commission staff of significant systems frequency of systems compliance issues. use of backup facilities in advance of However, Commission staff received changes,1817 and Rule 301(b)(2) under the storm. Regulation ATS requires each ATS that notifications indicating that certain Commenters also provided is subject to Rule 301, regardless of SROs experienced an average of 17 information regarding current practices systems compliance-related issues in surrounding business continuity and activity level, to file an amendment on 2013. The Commission believes that its disaster recovery. One commenter noted Form ATS at least 20 days prior to staff received notification of a larger that the major equity and options implementing a material change to the 1818 exchanges and numerous ATSs already operation of the ATS. 1801 See, e.g., 15 U.S.C. 78s(g) (requiring each SRO to comply with the Exchange Act, the rules and 1805 1811 See Tellefsen Letter at 7. regulations thereunder, and its own rules). See id. 1806 1812 See id. 1802 See, e.g., 15 U.S.C. 78k–1(b)(6); 15 U.S.C. See, e.g., CBOE Regulatory Circular RG14– 1813 78k–1(c)(1); and FINRA Rule 3130. Moreover, ATSs 001 (Back-Up Data Center Test on January 25, See id. at 8. are registered broker-dealers and may be subject to 2014). 1814 See id. See also CME Letter at 12. Commission sanctions if they fail to comply with 1807 See supra note 504 and accompanying text. 1815 See ARP II Release, supra note 1, at 22491. relevant federal securities laws and rules and 1808 See, e.g., CBOE Regulatory Circular RG13– 1816 See supra note 21 and accompanying text. regulations thereunder. 110 (Connectivity to the CBOE Back-Up Data The 2001 Staff ARP Interpretive Letter provided 1803 See Proposing Release, supra note 13, at Center). See also Proposing Release, supra note 13, guidance on what Commission staff considers 18087, n. 36. As part of the Commission’s oversight at n. 641. significant systems changes to include. of SROs, OCIE reviews systems compliance issues 1809 For example, SIFMA organizes industry-wide 1817 17 CFR 242.301(b)(6)(ii)(G). reported to Commission staff. business continuity tests. See Industry Testing, 1818 17 CFR 242.301(b)(2)(ii) (requiring an 1804 See supra Section II.B (describing recent http://www.sifma.org/services/bcp/industry-testing/ amendment to Form ATS not solely for material events involving systems-related issues, which have . systems changes, but also for any material change been made public). 1810 See, e.g., Angel Letter at 9–10. to the operation of an ATS).

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4. Potential for Market Solutions with systems issues, SCI events pose systems issues.1828 In addition, although The current competitive landscape in significant negative externalities on the SCI entities may suffer an economic and various markets for services related to market—i.e., systems issues have reputational burden if a systems issue Regulation SCI affect current incentives ramifications on the securities markets becomes apparent to the trading to prevent the occurrence of SCI events beyond the impact on the entity community or the public, the Commission believes that SCI entities in these markets.1819 The Commission responsible for the systems issues—and, are not sufficiently incentivized to outlined and examined this competitive as discussed above, significant improve the robustness of these systems landscape and potential for market technology issues continue to occur in to prevent systems issues, as described solutions to reduce SCI events and their the absence of regulation. in more detail below.1829 Further, SCI shortcomings in the SCI Proposal.1820 In Some commenters broadly addressed entities may fail to internalize the risk particular, the Commission evaluated the potential for market solutions of catastrophic failure associated with current limitations to competition and evaluated in the SCI Proposal. systems issues. potential market solutions in the According to one commenter, SCI As noted above, systems issues have markets for trading services, listing entities (e.g., ATSs) are highly ramifications on the securities markets services, regulatory services, clearance motivated to provide uninterrupted beyond the impact on the entity and settlement services, and market order matching services for economic responsible for or experiencing the data. reasons.1823 On the other hand, another systems issues (an ‘‘economic The discussion below responds to commenter noted that, as indicated by externality’’). That is, a systems issue comments received regarding the the 2008 financial crisis and the not only affects the entity responsible Commission’s discussion of the technology incidents over the past few for the issue, but also directly affects potential for market solutions in the years, market participants do not have other entities that use that entity. Often, markets for trading services and market the right economic incentives to protect when an SCI entity experiences a data. The Commission did not receive themselves.1824 Another commenter systems issue, all market participants specific comments regarding its analysis stated that, in the past, ‘‘disruptive or that use that entity incur costs. For of the markets for listing services, deviant behavior in the markets was example, if market data systems fail, it regulatory services, and clearance and disciplined not just by regulators but affects anyone requiring such market settlement services. Therefore, the also by trading crowds,’’ but anonymity data to make informed decisions. Also, Commission believes that its analysis of and fully automated price/time when a matching engine fails, securities these markets in the SCI Proposal matching made it impossible for the cannot be traded via that functionality. continues to apply. Specifically, the trading crowd to attribute and sanction As discussed in greater detail below, the Commission believes that, while the disruptive behavior.1825 This failure of a trading system not only market for listing services provides commenter also noted that market forces the venue to forgo revenue, but some discipline, it has limitations incentives can drive the industry in the also can diminish trading in financial related to a disconnect between trading opposite direction (i.e., short-term instruments during the disruption. location and listing market (i.e., while a market incentives can drive the industry Additionally, the failure of a trading company can be listed on a certain to minimize risk controls).1826 system can impose costs on market exchange, trading does not necessarily According to this commenter, the only participants that have optimized their occur on that exchange), to switching practical source of discipline left is strategy so that trading costs are costs if an issuer wishes to change its government regulation.1827 minimized. If the strategy of these listing exchange, and to market power The Commission believes that all SCI market participants assumes that all deriving from the ‘‘prestige’’ of a listing entities have some incentives to trading venues are fully operational, exchange.1821 Further, the Commission maintain robust systems in order to then the failure of a trading system believes that the market for regulatory maximize long-term revenue. However, could impose additional transaction and surveillance services is as evidenced by the various systems costs. The Commission believes that, in concentrated in a few competitors and issues that have occurred prior to and part because the costs of such that the market for clearance and since publication of the SCI Proposal, externalities are not fully borne by SCI settlement services is currently economic motivations alone have not entities in the form of lost business, characterized by specialization and been sufficient to significantly reduce market forces alone are insufficient to limited competition.1822 significantly reduce SCI events. The Commission has considered the 1823 See ITG Letter at 4 (stating also that sponsors Market for Trading Services views of commenters and the of ATSs have a ‘‘compelling business incentive to Commission’s analysis of markets not avoid systems issues’’). See also Angel Letter at 5– In the proposing release, the addressed by commenters, and 6 (commenting that firms have sufficient motivation Commission identified many continues to believe that market forces to take every precaution against catastrophic competitors in the market for trading alone are insufficient to significantly failures, although the interaction between firms services, including equities exchanges, may result in a catastrophic event). options exchanges, ATSs, OTC market reduce SCI events in the markets that it 1824 See Lauer Letter at 3–4. makers, and broker-dealers.1830 evaluated and that a regulatory solution 1825 See Leuchtkafer Letter at 1–2. is needed. In particular, the Commission 1826 See id. at 6. This commenter stated that it is Competitors for listed-equity (NMS) continues to believe that SCI entities do far cheaper for firms to implement new trading not fully internalize the costs associated strategies ‘‘in a matter of minutes’’ than it is for 1828 See supra Section II.B (discussing recent them to rigorously test a new strategy before events involving systems-related issues). deployment, and that it is more profitable for firms 1829 As noted above, the Commission 1819 This section evaluates competition as it to skimp on risk controls because controls take acknowledges that the nature of technology and the currently exists. The Commission analyzes the time. See id. Further, this commenter noted that the level of sophistication and automation of current economic effects of Regulation SCI, including exchanges know, or should know, who market systems prevent any measure, regulatory or potential effects on competition, in Section VI.C. ‘‘misbehaves,’’ but they are tangled in mixed otherwise, from completely eliminating all systems 1820 See Proposing Release, supra note 13, at incentives of their own, dependent on firms for the disruptions, intrusions, or other systems issues. See 18159–61. next quarter’s profits and, at the same time, supra Section III. 1821 See id. at 18160. expected to moderate the firms’ behavior. See id. 1830 See Proposing Release, supra note 13, at 1822 See id. at 18160–61. 1827 See id. at 6–7. 18159.

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trading services include 11 national environment in which exchanges impose significant externalities on the securities exchanges, none having an operate.1837 Similarly, another market with little competitive recourse. overall market share of 20 percent,1831 commenter stated that, apart from any For example, even though there may be 44 ATSs, which account for 18% of regulatory standards, no organization multiple trading venues for the majority dollar volume, and several hundred has a greater stake in assuring the of securities, trading service providers OTC market makers and broker-dealers, effective operation of its systems than may have limited means to transact in which account for 15.8% of dollar the owners and operators of the entities particular securities (e.g., certain index volume.1832 In the SCI Proposal, the that participate in the market options exclusively traded on one Commission recognized that all structure.1838 Moreover, one commenter options exchange) and thus, if systems providers of trading services compete stated that ATSs already have incentives issues persist at certain venues, brokers, and have incentives to avoid systems to avoid any systems disruptions for investors, and other entities will not be disruptions, systems compliance issues, competitive reasons and also perform able to trade the security until the venue and systems intrusions because, for numerous tests and employ best that lists the security recovers. In this example, brokers and other entities will practices.1839 particular case, not only does the venue be inclined to route orders away from Again, the Commission acknowledges lose revenue from forgone volume, but trading venues that have frequent that all providers of trading services market participants also incur costs systems problems. However, the compete and have some incentives to because they are not able to trade the Commission noted several limitations avoid systems issues. However, the security. As a result, the Commission on competition, including market Commission continues to believe that believes that competition alone in the participants misjudging the quality of there are limits to the extent to which market for trading services is not trading services because of incomplete competition mitigates systems problems sufficient to reduce SCI events at information regarding SCI events and associated with trading services because entities providing these services. the limited number of competitors (in providers of trading services compete on As mentioned by one commenter,1842 some cases only one competitor) that a variety of measures—for example, competitive forces among trading may offer trading services in a particular providing the best prices, deep quotes, venues may also lead to product.1833 and fast executions—not just the quality ‘‘underinvestment and cutting corners.’’ With respect to the market for trading of their systems. As a result, an issue For example, the incentive to migrate services, one commenter stated that the with trading systems might not software from testing to the production current competitive market for trading significantly harm the SCI entity that environment to improve trading services services provides sufficient experienced the issue. Additionally, (and thereby the entity’s profitability) redundancies that make a disruption at competition in the market for trading may promote an environment where any particular service provider services may also not sufficiently software that has not been adequately minor.1834 Another commenter noted mitigate the occurrence and effects of tested is launched into production, thus that exchanges compete vigorously with SCI events because market participants increasing the potential for systems one another and against broker-dealer may lack information about SCI events. issues to develop. execution platforms and cannot afford The Commission believes that it is Market for Market Data to develop a reputation for technology important for affected SCI entity problems.1835 This commenter also members or participants and, in some One commenter stated that Regulation noted that the incidence of self-help cases, all members or participants of an SCI, as applied to market data, is declarations 1836 has been reduced, SCI entity, to know about SCI events at unnecessary and will have ‘‘zero which reflects technology a particular service provider.1840 benefits’’ because the revenue from the enhancements by exchanges that are a Moreover, even in markets where sale of market data is an important 1843 direct result of the competitive significant competition exists—such as revenue source for an SRO. the market for trading NMS securities, Therefore, according to this commenter, 1831 See supra note 106 and accompanying text. which has many competitors including SROs already have the right incentives 1832 Calculated by Commission staff using market exchanges and ATSs—entities that to successfully collect, process, and volume statistics reported by BATS and data from 1844 experience significant outages may disseminate market data. Form ATS–R for the second quarter of 2014. See As noted above, the Commission has, temporarily lose market share, but may supra notes 106 and 150. In 2012, 255 OTC market on numerous occasions, emphasized the makers and broker-dealers accounted for 17% of quickly regain the lost market share.1841 importance of market data, including volume. See DERA staff white papers, ‘‘Alternative The Commission believes that this Trading Systems: Description of ATS Trading in the consolidated data feed.1845 The further suggests that competition alone National Market System Stocks’’ by Laura Tuttle Commission believes that consolidated (http://www.sec.gov/marketstructure/research/ will not significantly reduce systems market data is an important part of the alternative-trading-systems-march-2014.pdf) and issues. investment and trading process as it ‘‘OTC Trading: Description of Non-ATS OTC In addition, some entities that face Trading in National Market System Stocks’’ by helps market participants to make well- little competition in one security may Laura Tuttle (http://www.sec.gov/marketstructure/ informed investment and trading _ _ _ research/otc trading march 2014.pdf). decisions, and also helps investors to 1833 For example, a number of listed options and 1837 See BATS Letter at 2–3. NMS stocks trade on only one venue. 1838 See BIDS Letter at 2. monitor the quality of execution of 1834 See KCG Letter at 6–8. 1839 See ITG Letter at 4. orders by their brokers. In addition, 1835 See BATS Letter at 2. 1840 See supra Section VI.B.1 (discussing current 1836 Rule 611(b) under Regulation NMS provides practices of SCI entities regarding dissemination of 1842 See Lauer Letter at 4 (stating that ‘‘[e]very a number of exceptions from the general information on systems-related issues). firm in every industry is constantly balancing the requirement to prevent trade-throughs of protected 1841 For example, on November 12, 2012, the cost of safety with scarcity of resources . . . [and quotations. In particular, Rule 611(b)(1) provides NYSE experienced a failure in a matching engine t]he Commission’s job in this regard is to compel the ‘‘self-help’’ exception, which applies when the that forced it to stop trading 216 stocks. See NYSE these firms to act in their own long-term interests, ‘‘transaction that constituted the trade-through was Market Status Alert, http://markets.nyx.com/nyse/ and the interests of the public at-large, rather than effected when the trading center displaying the market-status/view/11558. The NYSE lost market any short-term interests that may be better served protected quotation that was traded through was share on the day of the outage but regained its by underinvestment and cutting corners’’). experiencing a failure, material delay, or market share the next day. See generally http:// 1843 See Angel Letter at 18–19. malfunction of its systems or equipment.’’ See 17 www.batstrading.com/market_summary/ 1844 See id. CFR 242.611(b)(1). (compiling data on market share). 1845 See supra note 249 and accompanying text.

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exchanges rely on accurate consolidated expected to evolve and adapt to changes result in a number of benefits, including market data for many of their real-time in technology and market those summarized below.1848 functions. Even though demand is great, developments. For example, in some The Commission believes that a total of only two SIPs collect, process, cases, quantification depends heavily on adopting Regulation SCI will result in and distribute consolidated market data factors outside of the control of the fewer market disruptions due to systems in NMS securities, and only a single SIP Commission, particularly because issues, which could lead to fewer collects, processes, and distributes Regulation SCI provides flexibility to an interruptions in the price discovery consolidated market data for any given SCI entity to tailor its policies and process 1849 and liquidity flows and, security. Further, other providers of procedures to the nature of its business, thus, may result in fewer periods with market data in markets other than NMS technology, and the relative criticality of pricing inefficiencies. Specifically, the securities (e.g., municipal securities) each of its SCI systems. Additionally, in Commission believes that Regulation may also be the sole providers of their some cases, the Commission is unable to SCI would improve systems up-time for data. Therefore, the Commission quantify the benefits and costs SCI entities and also would promote believes that the market data associated with Regulation SCI because more robust systems that directly consolidators are not subject to the Commission lacks the information support execution facilities, order significant competitive market forces. necessary to provide a reasonable matching, and the dissemination of Further, because the demand for market estimate. For example, the Commission market data. Systems issues that directly 1846 data from the SIPs is inelastic, there does not have sufficient information inhibit execution facilities, order is little incentive to improve reliability upon which to base an estimate of all matching, and dissemination of market as few alternatives exist. Thus, the costs associated with the various data could cause slow executions and Commission believes that competition specific systems changes that may be result in delaying the incorporation of alone is not sufficient to reduce SCI required as the result of Regulation SCI. information into prices, and thus could events for market data consolidators. Accordingly, much of the discussion of harm price efficiency and price Because an SCI event in connection economic effects is qualitative in nature discovery. System issues could also with market data can significantly but, again, where possible, the result in unfilled orders, depriving disrupt markets, the Commission traders of an execution. The believes that regulation is needed and, Commission has provided quantified information. Commission believes that Regulation as discussed below, will provide SCI would reduce the frequency, significant benefits.1847 a. Benefits severity, and duration of such effects C. Consideration of Costs and Benefits resulting from systems issues. Moreover, The Commission believes that the decreasing the number of trading and the Effect on Efficiency, adoption of, and compliance by SCI Competition, and Capital Formation interruptions could improve price entities with Regulation SCI, will discovery and liquidity because 1. Broad Economic Considerations further the goals of the national market interruptions in trading interfere with The Commission has considered the system as a result of each SCI entity the process in which relevant economic effects of Regulation SCI as a establishing, maintaining, and enforcing information gets incorporated into whole as well as the specific effect of written policies and procedures security prices and, thus, temporarily each rule. This section provides an reasonably designed to ensure that its disrupt liquidity flows and lower the overview of the broad economic SCI systems and, for purposes of quality of the price discovery process. considerations relevant to Regulation security standards, indirect SCI systems, Further, because interruptions in SCI and the economic effects, including have levels of capacity, integrity, liquidity flows and the price discovery the costs, benefits, and effects on resiliency, availability, and security, process in one security can affect efficiency, competition, and capital adequate to maintain the SCI entity’s securities trading in other markets, formation that are attributable to operational capability and promote the reducing trading interruptions could Regulation SCI as a whole. Additional maintenance of fair and orderly markets. have broad effects. For example, an economic effects, including benefits and In this respect, Regulation SCI will interruption in the market for securities costs, related to specific requirements in promote the capacity, integrity, that underlie derivative securities (e.g., Regulation SCI and reasonable resiliency, availability, and security of index options and futures) would harm alternatives are discussed in Section the automated systems of entities the price discovery process for those VI.C.2 below. important to the functioning of the U.S. products and potentially restrict The Commission has attempted, securities markets, as well as reinforce liquidity flows between the stock where possible, to quantify the benefits the requirement that such systems market and the derivative markets. and costs anticipated to flow from operate in compliance with the The Commission also believes that Regulation SCI. The Commission notes, Exchange Act and rules and regulations Regulation SCI has the potential to however, that many of the costs and thereunder, thus strengthening the reduce widespread SCI events. Given benefits of Regulation SCI are difficult infrastructure of the U.S. securities to quantify with any degree of certainty, markets and improving their resilience 1848 As noted above, in the SCI Proposal, the especially as the current practices of when technological issues arise. Commission encouraged commenters to identify, discuss, analyze, and supply relevant data, market participants vary and are Regulation SCI also establishes an information, or statistics regarding benefits. The updated and formalized regulatory Commission notes that it is unable to quantify the 1846 Demand is inelastic when demand does not framework, thereby helping to ensure benefits associated with Regulation SCI as a whole diminish as price increases. more effective Commission oversight of because quantitative data regarding each of the 1847 For example, as discussed above, on August such systems. Although the Commission benefits is not readily available to the Commission, 22, 2013, Nasdaq halted trading in all Nasdaq-listed and commenters did not provide sufficient securities for more than three hours after the acknowledges that Regulation SCI likely quantitative data to allow the Commission to do so. Nasdaq SIP, the single source of consolidated will not eliminate all systems issues, the 1849 The price discovery process involves market data for Nasdaq-listed securities, became Commission believes that Regulation trading—buyers and sellers arriving at a transaction unable to process quotes from exchanges for SCI will change and strengthen the price for a specific asset at a given time. Thus, dissemination to the public. See supra note 32 and generally, any trading interruptions would interfere accompanying text. practices of SCI entities, and should with the price discovery process.

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the speed and interconnected nature of that Regulation SCI would result in documentation and mandatory reporting the U.S. securities markets, a seemingly misallocation of Commission and dissemination of SCI events, and minor systems problem at a single entity resources.1850 This commenter stated reports that include material systems can quickly create losses and liability that it is likely that Regulation SCI changes. SCI entities will also incur for market participants, and spread would not reduce in a material manner costs in complying with the SCI review rapidly across the national market the occurrence of systems issues at SCI requirement, as well as in implementing system, potentially creating widespread entities, and Commission staff resources the policies and procedures related to damage and harm to market would be better devoted to working systems capacity, integrity, resiliency, participants, including investors. By with the industry to develop best availability, security, and compliance. reducing systems issues, Regulation SCI practices (not legal requirements) for all Moreover, SCI entities will incur costs also has the potential to decrease the regulated entities in the areas of systems related to recordkeeping. Additional risk of these catastrophic events. capacity, security, and integrity.1851 costs will also result from member/ In addition, other benefits may derive Similarly, one commenter noted that participant participation in the testing from the additional information unless the Commission and Congress of SCI entity business continuity and provided to the Commission and to devote sufficient resources to hiring disaster recovery plans. Also, market members or participants of an SCI entity enough skilled technical staff, participants (including institutional and resulting from Regulation SCI. In Regulation SCI will devolve into a retail investors) in the securities markets particular, the information provided to paperwork exercise with little added may face increased transaction costs the Commission should enhance the benefit to the markets.1852 Another from SCI entities, to the extent that Commission’s review and oversight of commenter stated that there is increased compliance costs are passed U.S. securities market infrastructure and insufficient evidence regarding the on to market participants. foster cooperation between the resources and capacity of Commission Many, but not all, of the quantifiable Commission and SCI entities in staff to assess and analyze the data costs of Regulation SCI involve a responding to SCI events. Also, as noted required to be provided under collection of information, and these in Section IV.B.3.c, the Commission 1853 Regulation SCI. This commenter costs and burdens are discussed in the believes that the aggregated data that urged the Commission to consider its Paperwork Reduction Act section of this will result from the reporting of SCI resources as the Commission release.1855 When the PRA burdens are events will enhance its ability to accommodates new initiatives.1854 comprehensively analyze the nature and monetized, the estimated paperwork As described throughout this release, related compliance burdens for SCI types of various SCI events and identify the Commission believes that more effectively areas of persistent or entities as a result of Regulation SCI Regulation SCI will have significant total approximately $117 million recurring problems across the systems of benefits and that a regulatory solution is all SCI entities. Moreover, as discussed initially and approximately $100 necessary because market forces alone million annually.1856 The Commission in Section IV.A.3, the Commission are insufficient to significantly reduce notification requirements for SCI events notes that the monetized PRA burdens SCI events in the relevant markets. The have increased from those contained in will help to focus the Commission’s and Commission has significant experience SCI entities’ resources on the more the SCI Proposal. Although many of the with the ARP Inspection Program, and adopted rules are more targeted and significant SCI events, as the thus has developed expertise in this Commission has determined to impose fewer requirements on SCI area that it will apply to implementing entities than the proposed rules, the distinguish the timing of its receipt of and monitoring compliance with information regarding SCI events based monetized PRA burdens have changed Regulation SCI. In light of this in part due to modifications made to the on their impact, with SCI events experience, the Commission believes estimated to have a greater impact being PRA estimates as a result of that it can devote sufficient resources to recommendations from commenters, subject to ‘‘immediate’’ Commission carry out its obligations associated with notification, and SCI events having no revisions to the rule text, and the Regulation SCI so that the benefits of revised estimate of the number of SCI or a de minimis impact being subject to Regulation SCI can be realized. recordkeeping obligations, and for de events, which resulted from minimis systems disruptions and de b. Costs incorporating the Commission’s review minimis systems intrusions, a quarterly Some of the costs associated with of the number of systems compliance- summary notification. Moreover, the Regulation SCI are compliance costs. related issues and ARP incidents increased dissemination of information Compliance costs include, for example, reported to Commission staff in 2013. about SCI events to SCI entity members In addition, the Commission has or participants could reduce search 1850 See ITG Letter at 6–7. This commenter noted quantified non-paperwork related costs costs for market participants when they that Commission staff resources used to oversee for SCI entities that total between are gathering information to make a Regulation SCI compliance would dwarf those used approximately $14 million 1857 and $106 decision with respect to the use of an for the ARP Inspection Program and that 1858 Commission staff would have to analyze and act million in initial costs and between entity’s services. As discussed more upon notifications from SCI entities, including thoroughly below, by lowering search systems change notifications. See id. This 1855 See supra Section V. The Commission costs, the information dissemination commenter also noted that substantial examination provides below quantified estimates of other costs requirement could provide SCI entities resources from the Commission and FINRA would imposed by Regulation SCI beyond the PRA be assigned to Regulation SCI oversight. See id. burdens, to the extent the Commission can quantify additional competitive incentives to Similarly, another commenter noted that proposed such costs. ensure and maintain robust policies and Regulation SCI would result in a dramatic increase 1856 The monetized PRA cost reflects the procedures to promote systems capacity, in the number of Commission notifications and paperwork cost estimated for all of Regulation SCI, integrity, resiliency, availability, would require substantial resources for Commission as discussed in Section V. security and compliance. staff to process them in a responsible fashion. See 1857 See infra note 1943 (estimating cost for Omgeo Letter at 8, n. 14. complying with the policies and procedures Some commenters addressed how the 1851 See ITG Letter at 7. required by Rules 1001(a) and (b)). availability of Commission resources 1852 See Angel Letter at 2. 1858 See infra note 1944 (estimating cost for may affect the benefits and costs of 1853 See SunGard Letter at 2. complying with the policies and procedures Regulation SCI. One commenter argued 1854 See id. at 5. required by Rules 1001(a) and (b)).

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$9 million 1859 and $70 million 1860 in to one commenter, Regulation SCI as certain major SCI events to all members annual ongoing costs. In addition to the proposed is ‘‘too universal in its or participants of an SCI entity can costs to SCI entities, the Commission application, too ambitious in its scope promote competitive incentives to also estimates the total connectivity and too costly in its implementation to prevent systems issues. The costs to members or participants of SCI achieve the hoped for reduction in risk Commission also believes that the entities associated with the testing of to the markets without simultaneously reduction in systems issues resulting business continuity and disaster diminishing other important SEC from Regulation SCI could result in recovery plans to be $18 million accomplishments, such as increased fewer interruptions in the price annually.1861 Thus, the Commission competition, improved innovation, discovery process and liquidity flows estimates total quantified costs for SCI increased consumer choice, lower and thus result in fewer periods with entities and members or participants of barriers to entry into the industry and pricing inefficiencies. Furthermore, SCI entities to be between reduced transaction costs to the Regulation SCI could improve system approximately $149 million 1862 and customer.’’ 1867 Another commenter uptime for SCI entities, and therefore $241 million 1863 in initial costs and noted that proposed Regulation SCI reduce latency as market participants between $127 million 1864 and $188 would impose an unreasonably will not be forced to reroute orders or million 1865 in annual ongoing costs. burdensome technology and controls change execution strategies associated Several commenters provided broad standard on automated systems of SCI with situations in which an SCI entity comments regarding the costs of entities, which could lead to allocative is not operational. proposed Regulation SCI.1866 According inefficiencies in the marketplace and Moreover, the Commission notes that therefore have a stifling effect on it has revised the proposed rules after 1859 See infra note 1945 (estimating cost for innovation in the U.S. equity considering the comments received. The complying with the policies and procedures markets.1868 Another commenter stated Commission believes that many of the required by Rule 1001(a) and (b)). revisions to the proposed rules would 1860 See infra note 1946 (estimating cost for that the ultimate result of proposed complying with the policies and procedures Regulation SCI will be to limit or reduce burdens on SCI entities and required by Rule 1001(a) and (b)). suppress the execution choice of buy- significantly address commenters’ 1861 See infra note 2065. side investors, meaning investors will concerns regarding potential negative 1862 $149 million = $117 million (PRA cost) + $14 have less ability to effectively manage effects on allocative inefficiency and million (other costs for SCI entities) + $18 million innovation. For example, because the (connectivity costs for members or participants of their trading strategies and diminished SCI entities). opportunities to seek better execution, Commission is adopting a quarterly 1863 $241 million = $117 million (PRA cost) + lower transaction costs, and achieve reporting requirement for material $106 million (other costs for SCI entities) + $18 price improvement and investment systems changes instead of the proposed million (connectivity costs for members or performance.1869 30-day advance notification participants of SCI entities). As discussed throughout this release, requirement, adopted Regulation SCI 1864 $127 million = $100 million (PRA cost) + $9 million (other costs for SCI entities) + $18 million the Commission believes that would impose lower burdens on SCI (connectivity costs for members or participants of Regulation SCI will change and entities compared to the proposal and SCI entities). strengthen the practices of SCI entities, allow SCI entities more flexibility when 1865 $188 million = $100 million (PRA cost) + $70 and should result in a number of they implement material systems million (other costs for SCI entities) + $18 million 1871 (connectivity costs for members or participants of benefits. Further, the Commission changes. believes that these benefits should result SCI entities). c. Effects on Efficiency, Competition, 1866 One commenter provided ‘‘conservative and without diminishing the Commission’s and Capital Formation preliminary’’ estimates for the cost of compliance accomplishments in other areas, stifling with Regulation SCI. See FINRA Letter at 42–43. innovation, or suppressing the Along with the effects on efficiency, This commenter estimated that its one-time cost to comply with Regulation SCI would be between execution choice of investors. In competition, and capital formation approximately $1.1 million and $1.3 million, and particular, although costs associated discussed below with regard to specific its ongoing annual costs would be between with Regulation SCI could adversely provisions of Regulation SCI, the approximately $4.5 million and $5.5 million, if impact competition and increase Commission believes that Regulation Regulation SCI is adopted as proposed (e.g., if SCI systems is defined to apply to non-market barriers to entry, the Commission SCI as a whole could affect efficiency, regulatory and surveillance systems, and believes that the adverse effect on competition, and capital formation in development and testing environments). See id. at competition and heightened barriers for several ways. 42. As discussed above, the definition of SCI By increasing the robustness of SCI systems does not include non-market regulation SCI entities that provide venues for and non-market surveillance systems, or trading, including ATSs and exchanges, systems and indirect SCI systems of SCI development and testing systems. Therefore, the would be mitigated and therefore the entities, Regulation SCI may improve Commission believes these estimates are too high. Commission does not expect that efficiency—in particular, price This commenter estimated that, under a narrower efficiency—and the improvement in Regulation SCI (e.g., if non-market systems and investor choice on trading venues 1870 development and testing environments are would be significantly limited. The pricing efficiency could promote capital excluded from the definition of SCI systems), its Commission also believes that any such formation. In particular, as discussed in one-time compliance costs would be between effects would be warranted in light of VI.C.1, disruptions to SCI systems and approximately $675,000 and $825,000 and its the resulting trading interruptions can annual costs would be between approximately $2.2 the expected benefits of Regulation SCI. million and $2.6 million. See id. This commenter Additionally, as discussed below, the degrade pricing efficiency, price also stated that, monetizing its hour estimates for dissemination of information regarding discovery, and liquidity. Regulation SCI annual SCI reviews, its compliance costs would may reduce the frequency, severity, and increase by between approximately $600,000 and cost ranges for SCI entities. See supra notes 1862– duration of market disruptions (e.g., $900,000, and higher if more systems than currently 1865 and accompanying text. in scope under ARP would be subject to annual SCI trading interruptions) that may 1867 reviews. See id. at 42. The Commission notes that, See BIDS Letter at 2–3. otherwise prevent market participants other than the costs for SCI reviews, these estimates 1868 See ITG Letter at 2. from impounding information into do not distinguish paperwork costs from non- 1869 See UBS Letter at 7–8. security prices through market activity paperwork costs. If the commenter’s estimates are 1870 See infra Section VI.C.1.c (addressing intended to include all costs for compliance with potential effects on efficiency, competition, and (e.g., order submission) and, thus, Regulation SCI, these estimates are close to or capital formation, including effects on other SCI within the Commission’s estimated total quantified entities). 1871 See supra Section IV.B.4.b.i.

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improve price efficiency in the markets. with certain provisions of Regulation trade for at least three months (i.e., less Such disruptions also impose liquidity SCI a competitive advantage.1874 than four of the preceding six months) costs and harm the price discovery In addition to competition among SCI and conduct such trading at any level process. The quality of the price entities, the compliance costs imposed without being subject to Regulation SCI. discovery process has important by Regulation SCI could have an effect The Commission also notes that ATSs implications for efficiency and capital on competition between SCI entities and meeting the volume thresholds in the formation, as prices that accurately non-SCI entities in the markets for definition of ‘‘SCI ATS’’ for the first convey information about fundamental trading services. Specifically, in part time will also be provided six months value improve the efficiency with which because non-SCI entities do not have to from the time that the ATS first meets capital is allocated across projects and incur the compliance costs associated the applicable thresholds to comply firms. with Regulation SCI, these entities may with the requirements of Regulation The Commission also believes that have a competitive advantage in the SCI.1877 This compliance period should Regulation SCI could affect competition markets for trading services over SCI also provide such ATSs with time to in several ways. The Commission entities that they compete with. The plan on how they would meet the believes that the existing competition adverse competitive effects, however, requirements of Regulation SCI, and among the markets has not sufficiently are likely to be minor when considering could also potentially allow SCI ATSs to mitigated the occurrence of SCI only ATSs because an SCI ATS is likely become more equipped to bear the cost events.1872 Regulation SCI requires SCI to be larger and have more of an of Regulation SCI once compliance is entities to disseminate information established customer base than other required, and thus not significantly regarding certain SCI events to affected ATSs. The Commission recognizes that discourage new ATSs from entering the members or participants or to all broker-dealers also compete with SCI market and growing. For newly members or participants of an SCI entities in the market for trading registered exchanges, the Commission entity. As discussed more thoroughly in services and that some broker-dealers believes the costs associated with Section VI.C.2.b.iv below, the are larger than some ATSs and Regulation SCI would not represent a Commission believes that requiring the exchanges. However, broker-dealers significant increased barrier to entry, as dissemination of information regarding cannot offer the same services as ATSs the costs would represent a small certain SCI events could further or exchanges without becoming ATSs or portion of total costs associated with incentivize SCI entities to maintain exchanges. creating and registering an exchange. more robust SCI systems and indirect The costs imposed by Regulation SCI The compliance costs associated with SCI systems and would enhance could also affect barriers to entry for participating in business continuity and competition among SCI entities with new ATSs and exchanges and, thus, disaster recovery plan testing may affect respect to the maintenance of robust SCI could adversely affect competition.1875 competition among members or systems and indirect SCI systems. Specifically, the Commission participants of SCI entities and also Additionally, the Commission acknowledges that Regulation SCI will could raise barriers to entry for new believes that Regulation SCI may have increase the costs for those that meet the members or participants. In particular, an impact on competition among SCI definition of SCI entity. This will Regulation SCI imposes compliance entities, in part because the compliance increase the expected costs of market costs on certain members or participants costs of Regulation SCI will be different entrants who expect to eventually be of SCI entities that are designated to among SCI entities. Specifically, some SCI entities. If an increase in these costs participate in business continuity and disaster recovery plans testing. Because SCI entities already satisfy some of the reduces the number of potential new some members or participants may requirements of Regulation SCI because entrants, the potential competition from incur compliance costs associated with those provisions codify certain aspects new entrants will be lower. Rule 1004 and others may not, it could of the ARP Policy Statements. The As noted above, however, the negatively impact the ability for some to Commission believes that these current Commission believes that the compete and could raise barriers to ARP participants will incur direct heightened barriers to entry for ATSs entry. As discussed more thoroughly in compliance costs that are incremental would be mitigated to some degree Section VI.C.2.b.vii below, the relative to the current cost of because the compliance period would Commission expects the compliance participating in the ARP Inspection provide a new ATS entrant the costs associated with the business Program and current practices outside of opportunity to initiate and develop its continuity and disaster recovery plans the scope of ARP. But Regulation SCI business before the ATS would need to testing requirements in Rule 1004 to be also applies to some entities that comply with Regulation SCI.1876 In limited for larger members or currently do not participate in the ARP particular, the Commission believes that participants who already maintain Inspection Program such as the MSRB few new ATSs would likely initially connections to backup facilities, and most SCI ATSs. These SCI entities meet the threshold to be covered under including for testing purposes, than for may incur higher initial compliance Regulation SCI and a new ATS could smaller members or participants. costs, compared to current ARP Furthermore, the Commission believes participants, in modifying their current 1874 However, given the voluntary nature of the that new members or participants are practices to comply with Regulation current ARP Inspection Program, the extent of current compliance with the requirements of less likely to be designated immediately SCI.1873 To the extent that SCI entities adopted Regulation SCI by entities subject to the to participate in business continuity and with different initial compliance costs ARP Inspection Program varies. disaster recovery plan testing than 1875 While Regulation SCI could also increase compete, Regulation SCI could alter the existing significant members or competitive relationship and give SCI start-up costs for SIPs and registered clearing agencies, SIPs provide exclusive services and participants because new members may entities that are currently in compliance registered clearing agencies are currently not initially satisfy the SCI entity’s characterized by specialization and limited designation standards as they establish 1872 See supra Section VI.B.4. competition. Clearing and settlement services 1873 The Commission notes that the SCI entities exhibit high barriers to entry and economies of their businesses. Thus, the Commission incurring the lower initial compliance costs scale. See Clearing Agency Standards Release, previously incurred such costs to participate in the supra note 76, at 66263 and 66265. 1877 See supra Section IV.F (discussing effective ARP Inspection Program. 1876 See supra note 152. date and compliance dates for Regulation SCI).

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believes the adverse effect on quantify the economic effects of the definition of SCI ATS does not justify competition may be mitigated to some reduction because the degree to which what they believed to be the significant extent as the most likely members or adherence to the requirements of compliance costs imposed by participants to be designated for testing Regulation SCI will reduce the impact of Regulation SCI.1885 are those comprising the largest market SCI events is unknown. The Commission believes that certain share as ranked by volume by the SCI As discussed throughout the ATSs should be required to comply entity, and that these firms will have economic analysis, the Commission also with rules regarding systems capacity, more limited compliance costs.1878 expects that SCI entities will incur costs integrity, resiliency, availability, for complying with the requirements of security, and compliance. ATSs now 2. Analysis of Final Rules Regulation SCI and that these costs collectively represent a significant a. Definitions—Rule 1000 could affect the competitiveness of source of liquidity for NMS stocks.1886 In general, the definitions in Rule entities incurring such costs. For Given this level of activity on ATSs, 1000 either clarify a provision or example, the section summarizing the coupled with the increasingly inter- circumscribe the scope of a provision in effects of Regulation SCI on efficiency, connected and complex nature of the Regulation SCI. Therefore, many of the competition, and capital formation, markets and heavy reliance on costs and benefits associated with the Section VI.C.1.c, discusses several ways automated systems, the Commission impacts of the definitions are that Regulation SCI might affect the recognizes that a systems issue even at incorporated in the discussion of the competitiveness of SCI entities, one ATS could result in a market-wide substantive requirements of Regulation including the competitiveness of SCI impact. Further, some ATSs execute a SCI. This section contains a discussion entities versus non-SCI entities, the larger portion of consolidated volume of the economic effects of the scope of relative initial competitiveness of SCI than smaller exchanges. In this respect, Regulation SCI resulting from the entities needing to make more changes an outage at one or more of these ATSs, definitions adopted by the Commission. to comply with Regulation SCI, and which serve as markets to bring buyers barriers to entry for SCI entities. and sellers together in the national i. SCI Entities As discussed in detail in Section market system, could disrupt the entire The Commission estimates that the IV.A.1, many commenters addressed the market and could pose even greater definition of SCI entity in Rule 1000 scope of the definition of SCI entity. risks to the market as a whole than currently covers 44 entities. This Many of these comments related to the certain smaller exchanges. Accordingly, includes 30 current participants in the inclusion of certain ATSs in the the Commission believes that the ARP Inspection Program (i.e., 18 definition.1879 Commenters presented exclusion of all ATSs from the registered national securities exchanges, mixed views on the inclusion of ATSs, definition of SCI entity would seven registered clearing agencies, with some commenters believing that all significantly reduce the benefits of FINRA, two plan processors, one ATS ATSs should be covered by Regulation Regulation SCI discussed in Section trading NMS stocks, and one exempt SCI,1880 and other commenters arguing VI.C.1. On the other hand, the clearing agency). The definition of SCI that no ATSs should be covered by Commission believes that including all entity also includes one ATS that Regulation SCI.1881 The commenters ATSs in the definition of SCI entity currently exceeds the relevant threshold who supported including all ATSs in would heighten barriers to entry and in Rule 301(b)(6)(i) of Regulation ATS the scope of the definition of SCI entity restrict competition in the markets for and is subject to the systems safeguard argued that any ATS can impact the trading services and, thus, could stifle requirements of Regulation ATS. In market and one of these commenters innovations. As discussed in Section addition to these entities, the definition also stated that any participant on any IV.A.1.b, the Commission believes that of SCI entity includes the MSRB and an ATS can have disproportionate impact the adopted thresholds for SCI ATSs estimated 12 additional SCI ATSs. on the market.1882 One of the main result in the inclusion of ATSs that can Generally, by including certain points of commenters that suggested no play a significant role in the securities entities that do not currently participate ATSs should be covered was that ATSs markets and, given their heavy reliance in the ARP Inspection Program or meet are redundant of exchanges and other on automated systems, have the the current threshold for the systems ATSs and that, in case an ATS fails, potential to impact investors, the overall safeguard requirements of Regulation other ATSs or exchanges can service market, and the trading of individual ATS in the definition of SCI entity, the investors and absorb trading securities should an SCI event occur. Commission believes that Regulation volume.1883 Additionally, some With respect to comments calling for SCI will not only enhance systems commenters suggested applying higher higher or lower volume thresholds, the resiliency at such entities, but also thresholds in the definition of SCI ATS Commission believes that higher reduce the potential for incidents at such that fewer ATSs would be covered thresholds would increase the risk of these entities to have broader, under Regulation SCI.1884 Many of these significant market disruptions due to disruptive effects across the securities commenters who advocated for SCI events relative to the adopted markets more generally on other SCI applying higher thresholds in the thresholds and lower thresholds would entities, and attendant costs to definition of SCI ATS stated that the serve to increase barriers to entry. In investors. Although the Commission inclusion of smaller ATSs in the setting the levels in the thresholds for believes that the requirements of SCI ATS, the Commission has Regulation SCI will reduce the impact of 1879 See supra Section IV.A.1.b. considered the trade-offs between SCI events, the Commission is unable to 1880 See, e.g., NYSE Letter at 8–10; and Lauer barriers to entry and the risk of Letter at 4. significant market disruptions. 1881 1878 The Commission also notes that SCI entities See, e.g., BIDS Letter at 3; ITG Letter at 2– In adopting the thresholds in the have an incentive to limit the imposition of the cost 4; and OTC Markets Letter at 9. definition of SCI ATS, the Commission 1882 See, e.g., NYSE Letter at 8–10; and Lauer and burden associated with testing to the minimum also considered alternative thresholds, necessary to comply with Rule 1004, and that, given Letter at 4. the option, most SCI entities would, in the exercise 1883 See, e.g., BIDS Letter at 7–8; and ITG Letter of reasonable discretion, prefer to designate fewer at 3. 1885 See, e.g., ITG Letter at 9–10. members or participants to participate in testing, 1884 See, e.g., Direct Edge Letter at 2; ITG Letter 1886 See supra note 148 and accompanying text. than to designate more. See supra Section IV.B.6.b. at 10. See also text accompanying supra note 1832.

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including the threshold used in needs. If an ATS outage interferes with proposed approach would be minimal Regulation ATS. The adopted the supply of certain services that as fixed-income securities trading is thresholds in the definition of SCI ATS investors demand, it would impose generally significantly less automated differ from the thresholds that subject costs on investors. For example, market than trading in equities.1896 Further, as an ATS to the systems safeguard participants may program their routing commenters pointed out, the cost of the requirements under Rule 301(b)(6) of algorithms assuming that all market requirements of Regulation SCI could be Regulation ATS in several ways.1887 centers are operational. If one of those significant for fixed-income ATSs First, for ATSs that trade NMS stocks or venues is not available, rerouting order relative to their size, scope of non-NMS stocks, the adopted thresholds flow may increase costs to the market operations, and more limited potential are based on dollar trading volume participant seeking execution as time for systems risk. Therefore, lowering the instead of share trading volume. The required for executing orders may current threshold applicable to fixed- Commission believes that the increase, order fill rates may decrease, income ATSs in Regulation ATS and application of dollar trading volume and slippage 1889 may also increase, subjecting such ATSs to the thresholds better reflects the potential which would further increase requirements of Regulation SCI could economic impact of a systems issue at transaction costs.1890 have potentially discouraged the growth a significant ATS as it more accurately The Commission also received of automation that could benefit measures the value of trading activity comments regarding the inclusion of investors in these markets. However, as compared to a threshold based on share fixed-income ATSs. One commenter the Commission monitors the evolution trading volume.1888 Second, the adopted suggested the use of par value traded of automation in this market, the volume thresholds for NMS stocks and rather than volume.1891 Further, in Commission may reconsider the benefits non-NMS stocks are lower than the noting that fixed-income ATSs should and costs of extending the requirements volume thresholds in Rule 301(b)(6) of not be subject to Regulation SCI, this of Regulation SCI to fixed-income ATSs Regulation ATS. As discussed in commenter noted that retail fixed- in the future. IV.A.1.b, securities trading has evolved income ATSs operate on a vastly The adopted definition of SCI SRO significantly since the adoption of different scale than institutional equity includes all national securities Regulation ATS; today, trading activity markets.1892 According to this exchanges regardless of their volume in stocks is more dispersed among a commenter, the costs of compliance for share. The Commission received one larger number of trading venues. a retail fixed-income ATS would be comment letter stating that the rule Because trading activity in stocks is now several orders of magnitude higher than should also include volume thresholds dispersed among a larger number of for an exchange in the equity market, for exchanges.1897 The Commission is trading venues and markets today are so and would overwhelm revenues for not persuaded that applying a volume inter-connected and complex, the retail fixed-income ATSs.1893 threshold is appropriate for SCI SROs Commission believes that the The Commission, after considering that are exchanges, but instead believes application of lower volume thresholds the views of commenters, has that Regulation SCI should cover all would more effectively capture multiple determined to exclude ATSs that trade exchanges. In particular, the sources of potential systems issues that only municipal securities or corporate Commission recognizes that all could significantly disrupt the market debt securities from the definition of exchanges play an important role in the 1894 for a single security or for the market as SCI ATS at this time. Accordingly, securities markets. As discussed above a whole. Third, with respect to ATSs such fixed-income ATSs will not be in Section IV.A.1.a, all stock exchanges that trade NMS stocks, the Commission subject to the requirements of are subject to a variety of specific public is adopting the two-fold dollar volume Regulation SCI. Rather, fixed-income obligations under the Exchange Act, thresholds in the first prong—a single ATSs will continue to be subject to the including the requirements of NMS stock threshold and an all NMS existing requirements in Rule 301(b)(6) Regulation NMS which, among other stocks threshold. The Commission of Regulation ATS regarding systems things, designates the best bid or offer believes that such thresholds would capacity, integrity and security if they of such exchanges to be protected appropriately account for the meet the twenty percent threshold for quotations. Accordingly, every exchange significance of an ATS in both overall municipal securities or corporate debt may have a protected quotation that can 1895 trading of NMS stocks and for a single securities provided by that rule. obligate market participants to send NMS stock. Because no such ATS is subject to orders to that exchange if such exchange With regard to commenters that stated Regulation SCI at this time, it is possible is displaying the best bid or offer. no ATSs should be covered because that the municipal security and Among other reasons, given that market ATSs are redundant of exchanges and corporate debt markets may be affected participants may be required to send other ATS, the Commission by SCI events that otherwise may have orders to any one of the exchanges at acknowledges that, to some extent, been prevented with more robust any given time if such exchange is certain services provided by any trading systems that would result from displaying the best bid or offer, the venue, including exchanges and ATSs, Regulation SCI. However, the Commission believes that it is important are redundant in the sense that these Commission believes that this loss in that the safeguards of Regulation SCI facilities execute and process trades. potential benefit relative to the apply equally to all exchanges However, the Commission notes that irrespective of trading volume. As 1889 Slippage refers to the difference between the each ATS provides different services in expected price of a trade and the actual trade price 1896 terms of, among other things, order due to the passage of time. The Commission notes that the corporate debt and municipal securities markets are primarily types, matching rules, and the speed of 1890 See supra Section VI.B.4 for a discussion of voice markets with little automation. See also supra why market incentives do not seem to reduce these execution to meet investors’ specific note 185 (discussing the view of commenters that costs. the inclusion of fixed-income ATSs and/or the 1891 1887 See also supra Section IV.A.1.b. See TMC Letter at 1–3. adoption of the proposed thresholds would impose 1892 1888 See text accompanying supra note 161; see See id. at 2. unduly high costs on these entities given their size, also Proposing Release, supra note 13, at 18094 1893 See id. scope of operations, lack of automation, low speed, (stating that the use of dollar thresholds may better 1894 See supra Section IV.A.1.b. and resulting low potential to pose risk to systems). reflect the economic impact of trading activity). 1895 See 17 CFR 242.301(b)(6). 1897 See supra note 81 and accompanying text.

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market participants may be required to to the operations of the U.S. securities The ARP Policy Statements and the ARP send orders to the exchange displaying markets based on the entity’s functional Inspection Program address systems that the best prices, systems issues at such role in the market (e.g., a primary listing directly support trading, clearance and exchange could force market market, the sole venue of the security, settlement, order routing, and market participants to re-route their orders and, a monopoly or utility type role with no data. The definition of ‘‘SCI systems’’ thus, could increase execution time and redundancy). The Commission has would include these systems, as well as slippage, imposing additional considered these factors in developing those that directly support market transaction costs to investors. the definition of SCI entity and believes regulation and market surveillance, With respect to options exchanges, that the adopted definition, in part, systems that serve an essential function the Commission additionally believes captures the intent of the commenters’ for investor protection and market that it would be inappropriate to suggestions in that it includes entities in integrity. exclude them from the definition of SCI the definition that play a significant role The inclusion of market regulation SRO because technology risks are in the securities markets. In particular, and market surveillance systems under equally applicable to such exchanges, as as discussed in Section IV.A.1.a in Regulation SCI could reduce systems evidenced by recent technology detail, the Commission included all compliance issues that result from incidents affecting the options exchanges in the definition of SCI SRO disruptions in systems that support markets.1898 While there are many because exchanges play a significant market regulation and market options that trade on multiple venues, role in the functioning of securities surveillance. The Commission believes systems issues resulting in trading markets. With respect to the comments that including market regulation and disruptions at an options exchange that suggested including only those market surveillance systems under the could lower the quality of pricing entities that are essential to continuous definition of SCI systems should help efficiency and disrupt the price market-wide operation, the Commission ensure the robustness of the systems discovery process for singly-listed believes that the specific criteria used by SCI entities to monitor options (e.g., certain index options only suggested by commenters, in effect, compliance with relevant laws, rules, trade on one options exchange). As could lead to the exclusion of and their own rules, and detect any such, systems issues at options significant ATSs. As discussed above, violations of such laws or rules by exchanges can pose significant risks to the Commission continues to believe members or participants. The reduction the markets, and the Commission that significant ATSs that trade NMS in market regulation and market believes that the inclusion of options and non-NMS stocks should be surveillance systems issues could help exchanges within the scope of included in Regulation SCI. ATSs ensure investor protection and preserve Regulation SCI is necessary to achieve collectively represent a significant market integrity. the goals of Regulation SCI. source of liquidity for stocks. The Commission also believes that the The definition of SCI entity also Furthermore, as today’s markets are inclusion of market data systems in the includes the MSRB. The Commission increasingly inter-connected and definition of SCI systems will benefit believes that the inclusion of the MSRB complex with heavy reliance on the market. Currently, SIAC, Nasdaq, 1901 as an SCI entity will provide several automated systems, the Commission and the MSRB process, collect, and significant benefits. In particular, the recognizes that a systems issue at an disseminate market data on equities, MSRB collects and consolidates ATS could result in a market-wide options, and municipal securities to municipal securities data and makes it impact. Consequently, the Commission investors. While SIAC and Nasdaq are available to market participants. The believes that re-defining SCI entities part of the ARP Inspection Program, the Commission believes that any event that according to commenters’ ‘‘risk-based’’ MSRB is not. The Commission believes could affect the market data collected approach could exclude certain entities that consolidated market data is an important part of the investing and and consolidated by the MSRB could that the Commission believes have the trading process as it helps market significantly disrupt the municipal bond potential to pose significant risks to the participants to make well-informed market. Also, the municipal securities securities markets should an SCI event investment and trading decisions, and data collected by the MSRB is provided occur, and thus limit the potential also helps investors to monitor the to FINRA and made available to the benefits from Regulation SCI, which are quality of execution of orders by their Commission and the bank regulators, discussed throughout this economic brokers. Thus, any SCI events that affect and serves as a key resource for analysis. monitoring the municipal bond market. market data processed, collected, and Therefore, the inclusion of the MSRB ii. SCI Systems disseminated by the MSRB could reduce will help ensure the robustness of the Regulation SCI expands on current MSRB’s systems and reduce the trade comparisons prior to settlement, including the practice, and applies to a broader range associated communication networks. See ARP I likelihood of systems issues that could of systems than the current ARP Release, supra note 1, at 48706, n. 21. harm investors in the municipal bond Inspection Program. In particular, the 1901 As discussed above, in 2008, the Commission market. ARP Policy Statements are focused on amended Rule 15c2–12 to designate the MSRB as As discussed above in Section IV.A.1, specific types of automated systems.1900 the single centralized disclosure repository for continuing municipal securities disclosure. In 2009, several commenters advocated the the MSRB established EMMA, which serves as the adoption of a ‘‘risk-based’’ approach in 1900 See supra Section II.A and Proposing Release, official repository of municipal securities disclosure the definition of SCI entity based on the supra note 13, at Section I.A (discussing in more and provides the public with free access to relevant criticality of the functions detail the ARP Policy Statements and the ARP municipal securities data, and is the central Inspection Program). According to the ARP I 1899 database for information about municipal securities performed. In effect, these Release, the term ‘‘automated systems’’ or offerings, issuers, and obligors. Additionally, the commenters suggested that the ‘‘automated trading systems’’ means computer MSRB’s RTRS, with limited exceptions, requires Commission apply provisions of systems for listed and OTC equities, as well as municipal bond dealers to submit transaction data Regulation SCI based on the entity’s risk options, that electronically route orders to to the MSRB within 15 minutes of trade execution, applicable market makers and systems that and such near real-time post-trade transaction data electronically route and execute orders, including can be accessed through the MSRB’s EMMA Web 1898 See supra note 84. the data networks that feed the systems. These site. See supra note 77. The MSRB is an SCI entity 1899 See supra notes 53–57 and accompanying terms also encompass systems that disseminate by virtue of being an SRO, rather than a plan text. transaction and quotation information and conduct processor.

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pricing efficiency and, consequently, maintenance of fair and orderly ‘‘single points of failure’’ that could could significantly disrupt the markets.1902 cause wide-scale disruptions across the municipal bond market. Further, with To the extent that proprietary market securities markets. As explained in respect to NMS securities, the data systems and consolidated market Section VI.C.1, this could reduce the Commission understands that many data systems share common likelihood and duration of systems trading algorithms make trading infrastructure, the compliance costs issues, thereby helping to avoid pricing decisions based primarily on market associated with proprietary market data inefficiencies and reduce interruptions data and rely on that data being current systems could be incremental to those in liquidity flow, which may occur and accurate. costs associated with consolidated during times when systems disruptions In addition, as noted in Section market data systems. In addition, to the can make systems unavailable or extent the ARP Policy Statements guide IV.A.2.b, market data as used in the unreliable. definition of ‘‘SCI systems’’ does not ARP participants with respect to their refer exclusively to consolidated market proprietary market data systems, the The Commission also notes that, by data, but also includes proprietary initial compliance costs associated with distinguishing critical SCI systems from market data generated by SCI entities as proprietary market data systems will be other SCI systems, and because an SCI well. The Commission notes that lower for these participants with respect entity may tailor its policies and proprietary market data is widely used to the relevant proprietary market data procedures based on the relative and relied upon by a broad array of systems. criticality of a given system to the SCI market participants, including As adopted, a subset of SCI systems entity and to the securities markets institutional investors, to make trading are defined as critical SCI systems. generally, an SCI entity may subject its decisions. Therefore, if a proprietary Critical SCI systems are defined as SCI critical SCI systems to higher standards market data feed became unavailable or systems of, or operated by or on behalf than other SCI systems. In addition, otherwise unreliable, it could interfere of, an SCI entity that directly support critical SCI systems are subject to a goal with market participants making trading functionality relating to clearance and of two-hour recovery following a wide- decisions and impose additional settlement systems of clearing agencies; scale disruption, and a requirement for transaction costs on market participants. openings, reopenings, and closings on information dissemination to all The Commission has limited the primary listing exchange; trading members or participants of an SCI entity information on the extent to which the halts; initial public offerings; the in the case of an SCI event impacting provision of consolidated market data; ARP Policy Statements guide ARP 1903 critical SCI systems (unless the SCI participants’ practices with respect to and exclusively listed securities. In event qualifies as a de minimis SCI addition, critical SCI systems include their proprietary market data systems event). As result, the designation of systems that provide functionality to the because this information is not reported critical SCI systems may result in securities markets for which the to the Commission. To the extent that additional costs as compared to the availability of alternatives is the ARP Policy Statements guide ARP significantly limited or nonexistent, and proposal. However, by distinguishing participants with respect to certain of without which there would be a critical systems, Regulation SCI is their proprietary market data systems, material impact on fair and orderly consistent with a risk-based approach the potential benefits from including markets.1904 Critical SCI systems that targets areas that would generate proprietary market data systems in include systems that represent potential the most benefits. Regulation SCI could be incremental ‘‘single points of failure’’ in the Regulation SCI defines ‘‘indirect SCI given current practice. The Commission securities markets—if they were to systems’’ 1905 to mean any systems of, or also notes that entities have competitive experience systems issues, the operated by or on behalf of, an SCI incentives to limit the number of Commission believes they would be the systems issues with their proprietary entity that, if breached, would be most likely to have a widespread and market data systems, as those SCI reasonably likely to pose a security significant impact on the U.S. securities 1906 entities with minimum latency and the threat to SCI systems. As discussed markets. Critical SCI systems are subject most robust proprietary market data above in Section IV.A.2.d, the adopted to certain heightened resilience and systems may attract more trading definition excludes systems that are information dissemination requirements volume. While proprietary market data effectively physically or logically under Regulation SCI. In addition, systems have experienced systems separated from SCI systems because the because an SCI entity may tailor its issues, because these issues are not Commission believes that the benefit of policies and procedures based on the reported to the Commission, the including systems that can effectively be relative criticality of a given system to Commission has limited information on ‘‘walled off’’ may be limited, as ‘‘walled the SCI entity and to the securities the frequency and severity of such off’’ systems are less likely to serve as markets generally, an SCI entity may systems issues and, in addition, does potential vulnerable entry points to SCI subject its critical SCI systems to higher not have information about how systems in the event of a security standards than other SCI systems. proprietary market data systems issues By adopting a defined term ‘‘critical affect the demand to subscribe to a 1905 As discussed in Section IV.A.2.d, ‘‘SCI SCI systems’’ (which is not defined for particular proprietary market data feed. security systems’’ have been renamed ‘‘indirect SCI purposes of the ARP Inspection Program systems’’ and its definition has been revised in Although the Commission is unable to or Regulation ATS), along with the response to commenters who expressed concern estimate the benefits and costs of heightened requirements associated about the breadth of the proposed definition. subjecting proprietary market data Because the definition of indirect SCI systems has with critical SCI systems, the systems to Regulation SCI, the been refined from the proposal, the compliance Commission expects fewer disruptions costs associated with indirect SCI systems Commission believes that if a in critical SCI systems, and therefore (discussed below) would be lower relative to the proprietary market data feed became fewer SCI events involving potential compliance costs associated with the proposed unavailable or otherwise unreliable, it rules. could have a significant impact on the 1906 As proposed, ‘‘SCI security systems’’ means 1902 See supra Section IV.A.2.b. any systems that share network resources with SCI trading of the securities to which it 1903 See Rule 1000. systems that, if breached, would be reasonably pertains, and could interfere with the 1904 See id. likely to pose a security threat to SCI systems.

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breach.1907 Regulation SCI will entities that are current participants in and testing systems in the definition of expressly impose new requirements on the ARP Inspection Program, the SCI system, stating that issues in systems that fall within the definition of difference in initial compliance costs development and testing systems would ‘‘indirect SCI systems’’ (which is not could be limited because, as currently have little or no impact on the defined for purposes of the ARP constituted, relative to the systems of operations of SCI entities.1909 The Inspection Program or Regulation ATS). SCI SROs, the systems of SCI ATSs Commission agrees that issues with These new requirements for indirect SCI generally would not fall within the development and testing systems systems should help ensure the category of critical SCI systems, and generally have less of an impact on the robustness and resiliency of SCI systems thus such SCI ATSs would not be SCI entity’s operations than production by reducing the occurrence of security- subject to the more stringent systems that directly support trading, related issues at SCI systems. Moreover, requirements that would be applicable clearance and settlements, order the application of Regulation SCI to to the critical SCI systems of other SCI routing, market data, market regulation, indirect SCI systems could encourage entities. Further, as discussed in Section and market surveillance. In response to SCI entities to isolate certain non-SCI VI.C.1, the Commission believes that comment letters, the adopted definition systems from SCI systems (thereby Regulation SCI could have an impact on of SCI systems is limited to systems that removing these non-SCI systems from competition among SCI entities in part directly support trading, clearance and the scope of indirect SCI systems), because the initial compliance costs settlement, order routing, market data, which would decrease the risk that non- associated with SCI systems and market regulation, and market SCI systems provide vulnerable points indirect SCI systems will vary across surveillance, and does not include of entry into SCI systems and cause SCI entities. development and testing systems. security-related issues at SCI systems. In the SCI Proposal, the Commission Consequently, the requirements of The reduction in security-related SCI defined SCI systems more broadly than Regulation SCI that are triggered by the systems issues could lead to fewer it has in the adopted rule. Specifically, definition of SCI systems do not apply interruptions in the price discovery the proposed definition of SCI systems to development and testing systems. process and liquidity flows and thus would have included all regulation and However, the Commission recognizes result in fewer periods with pricing surveillance systems, as well as that there would be benefits from inefficiencies as discussed in Section development and testing systems. As maintaining robust development and VI.C.1. discussed above in Section IV.A.2.b, testing systems because these systems Regulation SCI specifies the after considering, among other things, are important in ensuring the reliability obligations SCI entities would have with the views of commenters that the and resiliency of systems of SCI entities. respect to SCI systems and indirect SCI definition of SCI systems was overbroad As discussed in Section IV.A.2.b, in systems. As mentioned above, the and, thus, could cover nearly all order to have policies and procedures definition of SCI systems includes more systems of an SCI entity, the reasonably designed to ensure capacity, systems than the ARP Inspection Commission refined the definition of integrity, resiliency, availability, and Program traditionally covered, and SCI systems.1908 Specifically, the scope security for SCI systems (and indirect ‘‘indirect SCI systems’’ is not defined for of adopted Regulation SCI does not SCI systems, as applicable) in purposes of the ARP Inspection Program cover member regulation or member accordance with adopted Rule 1001(a), or Regulation ATS. Because Regulation surveillance systems such as those, for an SCI entity will be required to have SCI applies to SCI systems and indirect example, relating to member policies and procedures that include a SCI systems, SCI entities will incur registration, capital requirements, or program to review and keep current compliance costs, discussed in detail dispute resolution, because issues systems development and testing further below in Section VI.C.2, which relating to such systems are unlikely to methodology for such systems.1910 include, among other things, costs have the same level of impact on the A few commenters advocated that SCI associated with policies and procedures maintenance of fair and orderly markets entities should be permitted to conduct related to such systems. Furthermore, as or an SCI entity’s operational capability their own risk-based assessment in mentioned above, the definition of SCI as those systems identified in the determining the scope of SCI systems includes systems that directly definition of SCI systems. Consequently, systems.1911 As discussed in Section support trading, clearance and the Commission does not believe that IV.A.2.b, rather than limiting the settlement, order routing, and market the exclusion of member regulation and definition of SCI systems to systems that data, which are covered by the ARP member surveillance systems will pose a greater risk to the markets in the Inspection Program. Accordingly, the significantly reduce the benefits of event of a systems issue or that are of Commission believes that initial Regulations SCI discussed in Section paramount importance to the compliance costs associated with SCI VI.C.1. Furthermore, the Commission functioning of the U.S. securities systems will be higher for SCI entities believes that the exclusion of member market, the Commission is subjecting that are not currently participating in regulation and member surveillance those systems that meet the definition of the ARP Inspection Program (e.g., some systems from the adopted definition of ‘‘critical SCI systems’’ to certain SCI ATSs) as compared to ARP SCI systems will substantially reduce heightened requirements under Inspection Program participants that the costs of compliance with Regulation have established practices consistent SCI relative to the proposal because it 1909 See supra note 234 and accompanying text. with the ARP Policy Statements. reduces the potential number of SCI 1910 Further, as discussed above, the definition of SCI review and the corresponding requirement for Although the Commission believes that events that would be subject to the an annual SCI review require an assessment of some SCI ATSs will generally incur Commission notification requirements internal control design and effectiveness, which higher initial compliance costs compared to the proposal. includes development processes. In addition, if associated with the requirements of As discussed above in Section development and testing systems are not IV.A.2.b, many commenters also appropriately walled off from production systems, Rule 1001 compared to other SCI such systems could be captured under the opposed the inclusion of development definition of indirect SCI systems and be subject to 1907 Some SCI entities currently employ a wide the requirements of Regulation SCI. variety of means to separate their systems, 1908 See supra Section IV.A.2.b (discussing the 1911 See DTCC Letter at 3–5; Omgeo Letter at including logical and physical separation. definition of SCI systems). 5–6; and OCC Letter at 3–4.

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Regulation SCI. The Commission more efficiently performed by vendors, SROs outsource some systems, the continues to believe that any systems and the cost of insourcing will be Commission lacks sufficient information issues involving systems that directly passed along to members and market regarding the specific contractual support one of the six functions participants and may degrade relationships between SCI entities and (trading, clearance and settlement, order competition.1915 third-party service providers. routing, market data, market regulation, As discussed above, the Commission Furthermore, if—due to limited or market surveillance) listed in the believes that, among other reasons, options on employable third-parties—an definition of SCI systems could also allowing systems operated on behalf of SCI entity decides to insource systems cause significant market disruptions an SCI entity by a third-party to be that could be more cost-effectively and, thus, including such systems and excluded from the requirements of provided by third parties with relevant imposing heightened requirements on a Regulation SCI would reduce the expertise, the quality of such systems subset of such systems—critical SCI effectiveness of the regulation in may be adversely affected, while the systems—should help realize the promoting the national market system cost to the SCI entity may be increased. benefits of Regulation SCI discussed in by ensuring the capacity, integrity, As such, Regulation SCI could impose Section VI.C.1.a. resiliency, availability, and security of higher costs on SCI entities that are As discussed above in Section those systems important to the currently more dependent on third- IV.A.2.b, the definition of SCI systems functioning of the U.S. securities party systems for their operations than includes any system that is operated by markets.1916 The Commission SCI entities that primarily employ their a third-party on behalf of an SCI entity acknowledges that ensuring compliance own systems and therefore could and directly supports one of the six key of systems operated by a third-party potentially have adverse effects on functions (trading, clearance and with Regulation SCI may be more costly competition among SCI entities. In settlement, order routing, market data, than ensuring compliance of internal addition, the requirements of Regulation market regulation, or market systems with Regulation SCI because of SCI could force some third-party surveillance) listed in the definition of search costs associated with employing vendors out of the market for SCI SCI systems. The Commission adequate third-party systems or services systems or indirect SCI systems. In this understands that many SCI entities and and the additional communication respect, Regulation SCI could negatively many SROs, in particular, rely heavily needed with the third-party service impact such vendors and reduce the on outsourcing to help test, operate, and provider. The Commission ability for some third-party vendors to run various systems in their daily acknowledges that higher compliance compete in the market for SCI systems operations and that they outsource costs associated with managing third- and indirect SCI systems, with attendant networks, data center operations, and party systems could be passed on to costs to SCI entities. However, many of the products and systems that market participants. Regulation SCI, over time, could result support their trading and/or clearing Moreover, the Commission recognizes in quality improvements for systems or systems. The Commission also notes that the inclusion of systems operated services provided by such third-party that its staff already discusses with ARP by a third-party on behalf of an SCI vendors as vendors that primarily entities their use of certain third-party entity in the scope of SCI systems may provide services to SCI entities may systems as necessary under the ARP in certain cases make it more difficult compete in part on the quality of their Inspection Program. Because of this for an SCI entity to utilize third parties systems in light of the requirements of reliance on outsourcing to third party because the SCI entity is required to Regulation SCI. ensure that SCI systems and indirect SCI systems, the Commission believes that iii. SCI Events including any system that directly systems operated on its behalf by a third party are operated in compliance with Rule 1000 defines SCI events to supports one of the six functions listed include systems disruptions, systems in the definition of SCI system, Regulation SCI. In particular, the SCI entity might not be able to ensure that compliance issues, and systems regardless of whether it is operated by intrusions. Further, for purposes of the the SCI entity directly or by a third systems operated by certain third parties are in compliance with Regulation SCI information dissemination requirement party, is important in reducing systems under Rule 1002(c), the Commission issues and, thus, promoting pricing and therefore might not be able to utilize such third-party service defines the new term, major SCI event, efficiency and price discovery process. to mean an SCI event that has had, or Several commenters stated that the providers. Limitations on the choice of third-party systems could lower the the SCI entity reasonably estimates definition of SCI systems should not would have, any impact on a critical SCI include systems operated on behalf of quality of employable third-party 1912 systems because the employable third- system, or a significant impact on the an SCI entity by a third-party. These SCI entity’s operations or on market commenters expressed concerns about party systems may not be best suited for the SCI entity or be the best available of participants. As discussed further potential difficulties with meeting the below, Regulation SCI requires SCI requirements of Regulation SCI with its type. At this time, however, it is 1913 difficult to estimate the extent to which entities to take appropriate corrective regard to third-party systems. actions in response to SCI events (Rule Another commenter questioned whether inclusion of systems operated by third parties on behalf of an SCI entity in the 1002(a)), notify the Commission of SCI the Commission considered the costs events (Rule 1002(b)), and disseminate and benefits of including third-party definition of SCI systems will alter 1914 outsourcing arrangements in a manner information regarding certain major SCI systems within the definition. This events to all members or participants of commenter also noted that the inclusion that would result in reducing an SCI entity’s ability to maintain its an SCI entity and certain other SCI of third-party systems may force SCI events to affected members or entities to insource functions that are operational capability and promote the maintenance of fair and orderly markets. participants (Rule 1002(c)). Prior to the adoption of Regulation 1912 See, e.g., Omgeo Letter at 5–6; and BATS While the Commission understands that Letter at 4. SCI, ‘‘systems disruption’’ was not 1913 See, e.g., Omgeo Letter at 5–6; and BATS 1915 See id. at 5. defined by Commission rule. Rather, in Letter at 4. 1916 See supra Section IV.A.2.b (discussing the the 2001 Staff ARP Interpretive Letter, 1914 See BATS Letter at 4–5. definition of ‘‘SCI systems’’). Commission staff provided guidance on

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examples of significant systems outages whether a system is halted or degraded As noted above, however, the that should be reported to Commission in a manner that is outside of its normal Commission does not receive staff.1917 The Commission understands operation. The proposed definition had comprehensive data regarding such that ARP participants currently exercise the potential to incorporate certain issues. By adopting a definition of a level of discretion in determining types of minor events that should more systems compliance issue, the what systems issues constitute appropriately fall outside the purview of Commission is specifying the criteria for significant systems outages. the regulation. Similarly, the SCI entities to use to identify systems As adopted, ‘‘systems disruption’’ is prescriptive approach of the proposed compliance issues that would be subject defined to mean an event in an SCI definition also had the potential to to Regulation SCI. entity’s SCI systems that disrupts, or exclude certain types of events that By defining SCI events to include significantly degrades, the normal were significant enough to warrant systems compliance issues, the operation of an SCI system. The inclusion, but may otherwise have gone Commission believes Regulation SCI Commission believes the revised unreported because they were not one of should further assist the Commission in definition sets forth a standard that SCI the seven enumerated types of systems its oversight of SCI entities and in the entities can apply in a wide variety of malfunctions. protection of investors. Specifically, the circumstances to determine in their Currently, ‘‘systems intrusion’’ is not Commission believes that inclusion of discretion whether a systems issue defined by Commission rule or systems compliance issues in the should be appropriately categorized as a Commission staff guidance. The definition of SCI event and the resulting systems disruption. The adopted Commission believes that regulated applicability of the Commission definition of systems disruption entities exercise a level of discretion in reporting, information dissemination, potentially covers types of events that determining what systems intrusions to and recordkeeping requirements are were not articulated as part of report to Commission staff. By adopting important to help ensure that SCI Commission staff guidance regarding a definition of systems intrusion, the systems are operated by SCI entities in significant systems outages, and at the Commission is specifying the criteria for compliance with the Exchange Act, same time potentially excludes types of SCI entities to use to identify systems rules thereunder, and their own rules systems events that were articulated as intrusions that would be subject to and governing documents.1919 In part of such guidance. The Commission, Regulation SCI. The definition of addition, the Commission believes that, however, believes that the adopted systems intrusion covers successful as part of its oversight of the securities definition of systems disruptions would unauthorized entry to SCI systems and markets, it should learn of a non-de more appropriately capture material or indirect SCI systems. Unauthorized minimis systems compliance issue significant systems issues than the 2001 access, destruction, and manipulation of immediately upon an SCI entity having Staff ARP Interpretive Letter. SCI systems and indirect SCI systems a reasonable basis to conclude that such Accordingly, the inclusion of systems could adversely affect the markets and a systems compliance issue has disruptions in the definition of SCI market participants because intruders occurred so that the Commission may event, along with the requirements of could force systems to operate in consider whether there has been any taking timely corrective actions, unintended ways that could create resulting harm to investors or market Commission notification, information significant disruptions in securities participants. The Commission also dissemination, and recordkeeping on markets. Therefore, the inclusion of acknowledges that SCI entities could these systems issues, should help systems intrusions in the definition of incur some costs to determine whether effectively reduce the severity and SCI events can help reduce the risk of a systems compliance issue has duration of events that harm pricing such adverse effects. The Commission occurred. efficiency, price discovery, and liquidity believes that the inclusion of systems The Commission notes that it has and help Commission oversight of the intrusion in the definition of SCI event refined the definition of systems securities markets. The Commission should help ensure consistent compliance issue as compared to the also acknowledges that SCI entities will compliance with the requirements of proposal by replacing the phrase incur some costs to determine whether taking timely corrective actions, ‘‘federal securities laws’’ with ‘‘the a systems disruption has occurred. The Commission notification, information Act.’’ 1920 Accordingly, the number of Commission notes that these costs dissemination, and recordkeeping and, systems compliance issues subject to should be lower compared to the thus, should help realize the benefits of Regulation SCI could be no greater and proposed definition, in part, because the those requirements discussed in possibly lower than if the Commission adopted definition of systems sections below. The Commission also adopted the definition of systems disruption sets forth a standard that acknowledges that SCI entities will compliance issue as proposed and there permits SCI entities to more effectively incur some costs to determine whether could be a corresponding reduction in identify such systems issues. a systems intrusion has occurred. benefits, compared to the proposal, as a As discussed in Section IV.A.3.a, after Currently, ‘‘systems compliance result of adopting a targeted considering the views of commenters issue’’ is also not defined by definition.1921 that the proposed definition of systems Commission rule or Commission staff Regulation SCI also defines ‘‘major disruption was too prescriptive, guidance and the Commission believes SCI event.’’ The addition of the insufficiently flexible, and should be that regulated entities exercise a level of definition of major SCI event allows the limited to material systems disruptions, discretion in determining what systems requirement for dissemination of the Commission has taken a different compliance-related issues to report to approach. Instead of the proposed Commission staff. While the ARP Policy OCIE reviews systems compliance issues reported seven-prong prescriptive definition Statements do not address systems to Commission staff. representing the effects caused by a compliance issues, some SCI entities 1919 See supra Section IV.A.3.b. disruption of an SCI entity’s systems, 1920 See id. notify the Commission of certain 1921 1918 For example, the adopted definition of the adopted definition focuses on systems compliance-related issues. systems compliance issue makes explicit that the requirements of Regulation SCI do not apply to any 1917 See 2001 Staff ARP Interpretive Letter, supra 1918 See supra note 1803 and accompanying text. obligations that an SCI entity has under the note 21. As part of the Commission’s oversight of SROs, Securities Act of 1933.

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information to all members or costs associated with the inclusion of section discusses the economic effects participants of an SCI entity to be major SCI events as a definition. of requiring these policies and consistent with a tiered, risk-based As an alternative to the adopted procedures, both individually and as a approach. As discussed in Section definitions of SCI event, several whole. VI.C.2.b.iv below and in Section VI.C.1 commenters suggested that the The Commission believes the policies above, dissemination of information definition of SCI event include a and procedures requirements as a whole regarding SCI events to all members or materiality threshold such that certain should reduce the risk and incidences of participants of an SCI entity can result Regulation SCI requirements would SCI events because they are in benefits and affect competitive apply only to events that exceed the requirements under Commission rules incentives to prevent systems issues. threshold, as determined by the SCI rather than voluntary guidelines, and The Commission acknowledges, entity.1923 The Commission is not require SCI entities to establish, however, that the benefits of persuaded that incorporating a maintain, and enforce written policies information dissemination to all materiality threshold into the definition and procedures related to capacity, members or participants of an SCI entity of SCI event would appropriately integrity, resiliency, availability, would not be realized if SCI entities capture SCI events. Some systems security, compliance, responsible SCI were required to disseminate too many issues, which may initially seem personnel, and escalation. Also, policies events, creating confusion about which insignificant to an SCI entity, may later and procedures requirements as a whole events are meaningful, or if SCI entities prove to be the source of significant should reduce the risk and incidences of were required to disseminate too few systems issues at the SCI entity. SCI events by imposing requirements on events. The definition of major SCI Furthermore, there could be incidences entities that are not currently events provides a targeted approach to in which systems issues cause minor participating in the ARP Inspection determining which events are disruptions for one particular SCI entity Program, and by covering areas not appropriately disseminated to all but result in significant disruptions for currently within the scope of the ARP members or participants of an SCI another SCI entity or market participant. Inspection Program, such as policies entity. The Commission also Under the use of the suggested and procedures regarding systems 1924 acknowledges that, as discussed in materiality threshold, such systems compliance. The policies and Section VI.C.2.b.iv below, SCI entities issues could be overlooked and timely procedures requirements in Regulation would incur compliance costs corrective action may not be taken. SCI should help ensure faster recoveries associated with developing a process for from systems disruptions, systems determining major SCI events and de b. Requirements for SCI Entities—Rules compliance issues, and systems minimis SCI events. 1001–1004 intrusions. As discussed in Section SCI entities will incur compliance i. Policies and Procedures—Rules VI.C.1, reducing the risk, incidence, and costs with regard to the requirements of 1001(a), (b), and (c) duration of SCI events could reduce Regulation SCI. As noted above, the interruptions in the price discovery definition of SCI event includes systems Rules 1001(a), (b), and (c) set forth process and liquidity flows and thus disruptions and systems intrusions, requirements relating to the written result in reduced periods with pricing terms that are not defined under the policies and procedures that SCI entities inefficiencies. ARP Inspection Program, but which are are required to establish, maintain, and The Commission also recognizes that contemplated by the ARP Inspection enforce. Rule 1001(a) requires an SCI the policies and procedures Program’s attention to systems failures, entity to establish, maintain, and requirements of Regulation SCI will disruptions, and other systems enforce written policies and procedures impose certain costs. In general, the problems, including systems reasonably designed to ensure that its Commission believes that some SCI vulnerability.1922 To this extent, the SCI systems and, for purposes of entities that participate in the ARP initial compliance costs associated with security standards, indirect SCI systems, Inspection Program already comply SCI events may be higher for SCI have levels of capacity, integrity, with some of the requirements of Rule entities that are not currently resiliency, availability, and security, 1001 and thus would incur lower initial participating in the ARP Inspection adequate to maintain the SCI entity’s costs to comply with the requirements Program than for those currently operational capability and promote the of Rule 1001 than SCI entities that do participating in the ARP Inspection maintenance of fair and orderly markets. not participate in the ARP Inspection Program. Similarly, the initial Rule 1001(b) requires an SCI entity to Program. Additionally, some SCI compliance costs associated with SCI establish, maintain, and enforce written entities that currently participate in the events will be higher for SCI entities policies and procedures reasonably ARP Inspection Program are large and that do not currently self-report systems designed to ensure that its SCI systems have complex systems and, therefore, compliance-related issues to the operate in a manner that complies with will incur more costs to comply with Commission than those that do. As the Exchange Act and the rules Rule 1001 than others. Furthermore, SCI discussed in Section VI.C.1, the regulations thereunder and the entity’s entities that do not currently participate Commission believes that Regulation rules and governing documents, as in the ARP Inspection Program will also SCI will have an impact on competition applicable. Rule 1001(c) requires an SCI face costs to comply with Rule 1001 if among SCI entities because the initial entity to establish, maintain, and they do not already have policies and compliance costs stemming from the enforce reasonably designed written procedures similar to those required by definition of SCI events will be different policies and procedures that include the among SCI entities. However, all SCI criteria for identifying responsible SCI 1924 With respect to NASD and FINRA rules personnel, the designation and identified by commenters, although they have some entities, regardless of current broad relation to certain aspects of the policies and participation in the ARP Inspection documentation of responsible SCI procedures provisions under Regulation SCI, the Program or self-reporting of systems personnel, and escalation procedures to Commission is not persuaded that these rules, even compliance-related issues, could incur quickly inform responsible SCI when taken together, are an appropriate substitute for the comprehensive approach in Regulation SCI personnel of potential SCI events. This with respect to technology systems and system 1922 See supra Section II.A (discussing the ARP issues. See NASD Rule 3010(b)(1) and FINRA Rule Inspection Program). 1923 See supra note 334 and accompanying text. 3130. See also supra note 115.

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Rule 1001. These costs are discussed commenter believed that such cost another commenter noted that the further below. would not be less than half of such $3 Commission’s estimates do not million plus at least three times the adequately account for the opportunity Quantifiable Costs Paperwork Reduction Act estimate.1933 costs of delays in systems In the SCI Proposal, based on This commenter further noted that the innovation.1937 This commenter stated discussion with industry participants, approach taken by the Commission in that the Commission did not address the the Commission estimated that, to the proposal with regard to federal significant costs of complying with the comply with all requirements securities law liabilities and the safe requirements concerning the capacity, underlying the policies and procedures harbors likely will result in increased integrity, resiliency, availability, and required by proposed Rules 1000(b)(1) insurance costs for SCI entities and security of systems.1938 and (2) other than paperwork burdens, higher salaries for employees.1934 After considering the views of these on average, each SCI entity would incur Another commenter noted that, commenters and in light of the changes an initial cost of between approximately without further clarification, the broad to the proposed rules, the Commission 1925 $400,000 and $3 million. Based on scope of the policies and procedures now estimates that, to comply with all this estimated range in costs, the requirement under Regulation SCI could requirements underlying the policies Commission estimated that in the be burdensome, in terms of the cost of and procedures required by Rules aggregate SCI entities would incur a developing and implementing new (or 1001(a) and (b),1939 other than total initial cost of between enhancing existing) policies and paperwork burdens, on average, each 1926 approximately $17.6 million and procedures, and in terms of complying SCI entity will incur an initial cost of 1927 $132 million to comply with and documenting compliance under between approximately $320,000 and proposed Rules 1000(b)(1) and (2). In such policies and procedures.1935 $2.4 million and an ongoing annual cost addition, the Commission estimated According to this commenter, these of between approximately $213,600 and that, to comply with the policies and requirements could significantly $1.6 million.1940 The Commission notes procedures required by proposed Rules increase technology project costs (e.g., that it has reduced the cost for 1000(b)(1) and (2), on average, each SCI for testing, monitoring, and compliance complying with the policies and entity would incur an ongoing annual staff) and would significantly prolong procedures required by Rules 1001(a) cost of between approximately the systems development lifecycle and and (b) in a variety of ways, including 1928 1929 $267,000 and $2 million. Based time to market.1936 With respect to the by, for example: Refining the definition on this estimated range, the Commission Commission’s cost estimate for of SCI systems; more explicitly allowing estimated that in the aggregate SCI proposed Rules 1000(b)(1) and (2), SCI entities to tailor policies and entities would incur a total annual procedures consistent with a risk-based ongoing cost of between approximately 1933 See id. at 31. According to this commenter, approach; having separate staff guidance $11.7 million 1930 and $88 million.1931 if as a result of the restrictive listing of industry on current SCI industry standards rather One commenter noted that the standards in Table A, it determines that it should than Commission guidance through Commission did not provide sufficient adhere to one of the listed standards rather than the proposed Table A, with staff guidance standards to which it currently adheres, its cost of discussion of the basis for the cost compliance with proposed Rule 1000(b)(1) would characterized as listing examples of estimates for complying with the be considerably increased and its total cost for publications describing processes, policies and procedures required by compliance with proposed Rules 1000(b)(1) and (2) guidelines, frameworks, and/or proposed Rules 1000(b)(1) and (2).1932 would likely be at or near $3 million plus four standards for an SCI entity to consider times the estimated burden under the Paperwork However, this commenter was Reduction Act analysis. See id. As noted above in looking to in developing reasonable cautiously confident that its initial cost Section IV.B.1.b.iii, the Commission believes that policies and procedures, rather than for full implementation of proposed staff guidance should be characterized as listing strictly as listing examples of Rules 1000(b)(1) and (2) would not examples of publications describing processes, guidelines, frameworks, and/or standards for an SCI 1937 See ITG Letter at 7. This commenter also exceed $3 million plus four times the entity to consider looking to in developing estimated burden under the Paperwork noted that the estimates do not adequately account reasonable policies and procedures, rather than for the monitoring and notification costs that would Reduction Act analysis, although the strictly as listing examples of ‘‘standards.’’ As such, be engendered by the proposal. See id. nothing that the staff may include in its guidance 1938 See id. precludes an SCI entity from adhering to standards 1925 See Proposing Release, supra note 13, at 1939 such as ISO 27000, COBIT, or others referenced by These include, for example, establishing 18171. As explained in the SCI proposal, the current and future capacity planning estimates, commenters to the extent they result in policies and Commission preliminarily estimated a range of cost capacity stress testing, reviewing and keeping procedures that comply with the requirements of for complying with the policies and procedures current systems development and testing Rule 1001(a). required by proposed Rules 1000(b)(1) and (2) methodology, regular reviews and testing to detect 1934 because some SCI entities are already in compliance See id. The commenter did not provide an vulnerabilities, testing of all SCI systems and with some of these requirements and thus would estimate of the anticipated increased insurance changes to SCI systems prior to implementation, likely need to incur less costs to comply with the costs for SCI entities and higher salaries for implementing a system of internal controls, rules. For example, the Commission believed that employees. The Commission acknowledges that SCI implementing a plan for assessments of the many SCI SROs (e.g., certain national securities entities may incur increased insurance and functionality of SCI systems, implementing a plan exchanges and registered clearing agencies) already personnel costs because of the potential additional of coordination and communication between have or have begun implementation of business liability associated with Regulation SCI, although regulatory and other personnel of the SCI entity, continuity and disaster recovery plans that include the Commission is unable to estimate these costs including by responsible SCI personnel, designed to maintaining backup and recovery capabilities given it lacks specific information regarding current detect and prevent systems compliance issues, and sufficiently resilient and geographically diverse to personnel and insurance costs and the amount of hiring additional staff. ensure next business day resumption of trading and any potential increases associated with changes in 1940 The Commission estimates an average range two-hour resumption of clearance and settlement liability. The Commission also notes that many of cost for complying with the policies and services following a wide-scale disruption. See id. entities that fall within the definition of SCI entity procedures required by Rules 1001(a) and (b) at 18171, n. 633. could already be subject to liability for systems because some SCI entities are already in compliance issues and thus may already largely be incurring 1926 See id. at 18171, n. 634. with some of these requirements. The Commission these insurance and personnel costs. 1927 See id. at 18171, n. 635. recognizes that, for SCI entities that do not 1935 See FINRA Letter at 32. The estimated burden 1928 currently comply with the policies and procedures See id. at 18172, n. 637. associated with the development and maintenance 1929 required by Rules 1001(a) and (b), their cost of See id. at 18172, n. 638. of policies and procedures is discussed in the compliance may, depending on their nature, size, 1930 See id. Paperwork Reduction Act section above. See supra technology, business model, and other aspects of 1931 See id. at 18172, n. 640. Section V.D.1.a. their business, be at the upper end of the estimated 1932 See MSRB Letter at 30. 1936 See FINRA Letter at 32. average cost range.

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‘‘standards;’’ and focusing compliance Commission is estimating a range of written policies and procedures on the Exchange Act rather than federal compliance costs above. reasonably designed to ensure that its securities laws generally. The Commission estimates that, in the SCI systems and, for purposes of At the same time, the Commission aggregate, SCI entities will incur a total security standards, indirect SCI systems, acknowledges that other aspects of the initial cost of between approximately have levels of capacity, integrity, compliance costs could potentially be $14 million 1943 and $106 million 1944 to resiliency, availability, and security, higher for the adopted rules than the comply with the policies and adequate to maintain the SCI entity’s proposed rules. For example, the procedures required by Rules 1001(a) operational capability and promote the requirement for a goal of two-hour and (b). In addition, the Commission maintenance of fair and orderly markets. resumption for all critical SCI systems estimates that, in the aggregate, SCI Rule 1001(a)(2)(i)–(iv) provides that an (rather than only clearance and entities will incur total annual ongoing SCI entity’s policies and procedures settlement systems) could increase cost of between approximately $9 under Rule 1001(a) must include, at a compliance costs for SCI entities with million 1945 and $70 million.1946 These minimum: (i) The establishment of critical SCI systems as compared to the cost estimates are intended to cover the reasonable current and future proposal. However, as discussed above, cost of complying with all substantive technological infrastructure capacity the Commission has specified that the requirements under Rules 1001(a) and planning estimates; (ii) periodic stated recovery timeframes in (b) other than paperwork related capacity stress tests of systems to Regulation SCI are goals, rather than burdens. determine their ability to process inflexible requirements.1941 In addition, The Commission acknowledges that, transactions in an accurate, timely, and for some SCI entities that would have for SCI entities, the requirements of efficient manner; (iii) a program to chosen to not use the proposed SCI Rules 1001(a) and (b) could increase review and keep current systems entity safe harbor, the Commission’s technology project costs, prolong the development and testing methodology adoption of non-exhaustive, general systems development lifecycle and time of such systems; and (iv) regular reviews minimum elements for systems to market, and result in opportunity and testing, as applicable, of systems, compliance policies and procedures in costs because of potential delays in including backup systems, to identify Rule 1001(b)(2) could increase systems innovation.1947 On the other vulnerabilities pertaining to internal compliance costs as compared to the hand, as discussed throughout this and external threats, physical hazards, proposal. Based on the foregoing, the release, the Commission believes that and natural or manmade disasters.1949 Commission believes that it is entities that are important to the Rules 1001(a)(1) and (2)(i)–(iv) codify reasonable to revise the estimate to functioning of the U.S. securities and expand certain provisions of the reflect the more targeted scope and markets should be required to have ARP Policy Statements. They also increased flexibility of the adopted policies and procedures reasonably expand on the requirements under Rule regulation, as compared to the proposal, designed to ensure systems capacity, 301(b)(6) of Regulation ATS for ATSs in combination with potential increased integrity, resiliency, availability, that trade NMS stocks and non-NMS costs associated with compliance with security, and compliance. Further, as stocks. In particular, under the ARP Rules 1001(a)(2)(v) and 1001(b)(2), and discussed above in Sections IV.B.1 and Policy Statements and through the ARP new costs associated with compliance IV.B.2, the Commission has focused the Inspection Program, ARP participants, with Rule 1001(a)(2)(vii).1942 Therefore, scope of Rules 1001(a) and (b) as among other things, are expected to the Commission believes that on compared to the SCI Proposal. establish current and future capacity balance overall, the costs will be Moreover, in tandem with the adoption estimates; conduct capacity stress tests; reduced, and in its best judgment, each of a definition of critical SCI systems, and conduct annual reviews that cover SCI entity is likely to incur an initial the Commission is making more clear significant elements of the operations of cost of between approximately $320,000 that Rule 1001(a) permits SCI entities to the automation process, including the and $2.4 million and an ongoing annual tailor policies and procedures consistent capacity planning and testing process, cost of between approximately $213,600 with a risk-based approach. With contingency planning, systems and $1.6 million for complying with the respect to Rule 1001(b), the Commission development methodology, and policies and procedures required by is adopting non-exhaustive, general vulnerability assessments. Further, Rule Rules 1001(a) and (b). However, the minimum elements that an SCI entity 301(b)(6) requires certain ATSs, with Commission acknowledges that its cost must include in its systems compliance respect to those systems that support estimates reflect a high degree of policies and procedures.1948 order entry, order routing, order uncertainty. As noted above, the Benefits and Qualitative Costs execution, transaction reporting, and compliance costs of Rule 1001 may trade comparison, to establish certain depend on the complexity of SCI Capacity, Integrity, Resiliency, capacity estimates, conduct periodic entities’ systems (e.g., the compliance Availability, and Security capacity stress tests of critical systems, costs will be higher for SCI entities with Rule 1001(a)(1) requires that each SCI develop and implement reasonable more complex systems). The initial entity establish, maintain, and enforce procedures to review and keep current compliance costs associated with Rule systems development and testing 1001 may also vary across SCI entities 1943 $320,000 × 44 SCI entities = $14.1 million. methodology, review the vulnerability depending on the degree of current 1944 $2.4 million × 44 SCI entities = $105.6 of their systems and data center practices’ compliance with the million. computer operations to specified 1945 $213,600 × 44 SCI entities = $9.4 million. threats, establish adequate contingency requirements of Rule 1001. Because it is 1946 × $1.6 million 44 SCI entities = $70.4 million. and disaster recovery plans, conduct an difficult to gauge the precise degree of 1947 See supra note 1936 and accompanying text current compliance for each SCI entity (discussing a commenter’s view regarding the independent review of their systems in estimating potential costs with potential economic effects of the policies and controls annually for ensuring that Rule respect to Rule 1001 at this time, the procedures requirements). 301(b)(6)(ii)(A)–(E) are met and conduct 1948 See supra note 1935 and accompanying text a review by senior management of a (discussing a commenter’s views that, without 1941 See supra note 504 and accompanying text. clarification, the policies and procedures report of the independent review, and 1942 Rule 1001s(a)(2)(v), 1001(a)(2)(vii), and requirement under Regulation SCI could be 1001(b)(2) are discussed further below. burdensome). 1949 See Rule 1001(a)(2) and supra Section IV.B.1.

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promptly notify the Commission of (iv), compared to SCI entities that are The Commission generally agrees certain systems outages and systems current participants of the ARP with commenters that setting forth changes.1950 Inspection Program. The paperwork policies and procedures with regard to As mentioned above, Rules 1001(a)(1) burdens are discussed in Section V, and systems development could yield and (2)(i)–(iv) codify certain aspects of other costs are included as part of the benefits to market participants and SCI the ARP Policy Statements. For SCI quantified costs estimated above related entities, including a potential reduction entities that are current participants in to all requirements associated with in losses due to SCI events. Rule the ARP Inspection Program, codifying Rules 1001(a) and (b) other than 1001(a)(2)(iii) requires SCI entities to these aspects into requirements to paperwork burdens.1953 establish a program to review and keep establish policies and procedures A few commenters discussed in detail current systems development and should help ensure more robust systems how setting forth policies and testing methodology for SCI systems that help realize the benefits of procedures with regard to systems and, for purposes of security standards, Regulation SCI discussed in Section development could yield benefits, such indirect SCI systems. The Commission VI.C.1.1951 as efficient pricing of securities, to believes that development and testing In addition to the effects of the markets. One commenter noted that systems are important in ensuring the codification of aspects of the ARP preventing defects from entering in reliability and resiliency of SCI systems. Inspection Program, the Commission software construction is the most cost More reliable and resilient systems believes that the rules would further effective approach to quality should help reduce the occurrences of reduce the risk and incidences of assurance.1954 This commenter stated SCI events and improve systems uptime systems issues affecting the markets by that it is ten times cheaper to find a for SCI entities, and thus possibly result imposing requirements on entities that defect in development than it is during in a reduction in losses due to SCI are not currently participating in the systems testing, and it is one hundred events. Furthermore, the Commission ARP Inspection Program, and by times cheaper to fix a defect in recognizes that the use of inadequately covering systems and events not development than in production (and tested software in production could currently within the scope of the ARP this is not accounting for the impact on result in substantial losses to market Inspection Program. For example, Rules business).1955 In addition, this participants if it does not function as 1001(a)(2)(i)–(iv) will help maintain commenter noted that software of higher intended. For instance, if software robust systems at SCI entities that quality is cheaper to maintain and easier malfunctions, it may not route orders as currently do not have the policies and to enhance, and that testing schedules intended and also could result in procedures in place required by the for low quality, large software projects mispricing of securities. Additionally, if rule. In particular, the Commission are two to three times longer and more a system’s capacity thresholds are believes that, taken together, Rules than twice as costly as testing for high improperly estimated, it may become 1001(a)(2)(i)–(iv) will benefit the quality projects.1956 According to congested, resulting in higher indirect securities markets by leading to the information submitted by this transaction costs due to lower execution establishment, maintenance, and commenter of large, mission critical quality (e.g., decrease in order fill rates). enforcement of policies and procedures systems across several industries, The Commission believes that costs that will reduce the risks and incidences improving overall structural quality by associated with Rule 1001(a)(2)(iii) are of systems disruptions and systems 10 percent reduces ‘‘ticket volume’’ by appropriate in light of the reduction in intrusions. As noted above in Section over 30 percent.1957 This commenter losses due to SCI events and other VI.C.1, a reduction in the risk and believed that this would be an benefits discussed throughout this incidences of systems issues could inadvertent benefit of controlling Economic Analysis. reduce interruptions in the price integrity at the structural level that may discovery process and liquidity flows. Business Continuity and Disaster even compensate for the cost of other Because current ARP participants will Recovery Plans aspects of Regulation SCI.1958 Another change their current practices to comply Rule 1001(a)(2)(v) requires SCI commenter noted that the cost of a with Rules 1001(a)(2)(i)–(iv), the entities’ policies and procedures to set serious operational problem can rise to Commission recognizes that these forth business continuity and disaster eight digits, and in extreme cases nine entities will incur compliance costs that recovery plans that include maintaining digits.1959 are incremental relative to the current This commenter noted that backup and recovery capabilities compliance costs of the ARP Inspection these costs are often shared with market sufficiently resilient and geographically Program.1952 Furthermore, SCI entities participants beyond the owners of the 1960 diverse and that are reasonably designed that are not currently participating in disrupted systems. This commenter to achieve next business day resumption the ARP Inspection Program may incur believed that the proposed Rule of trading and two-hour resumption of higher initial compliance costs to meet 1000(b)(1) requirements are reasonable critical SCI systems following a wide- the requirements of Rules 1001(a)(2)(i)– and their cost can be balanced against scale disruption.1962 Therefore, as the losses associated with the 1961 1950 See 17 CFR 242.301(b)(6)(ii). operational risks they address. assurance. However, empirical evidence from 1951 Likewise, the relocation and modification of software industry improvement programs certain requirements in Rule 301(b)(6) of Regulation 1953 See supra note 1940 and accompanying text. demonstrates that the additional time added into ATS applicable to significant-volume ATSs that 1954 See CAST Letter at 10. quality assurance is more than compensated for by trade NMS stocks and non-NMS stocks will help 1955 See id. a reduction in rework to produce [return on ensure that SCI ATSs create and maintain policies 1956 See id. (quoting Capers Jones and Olivier investments] of 5:1 or greater’’). and procedures to support robust systems. See Bonsignour, The Economics of Software Quality 1962 FINRA Rule 4370 generally requires that a supra note 2 and accompanying text (noting that (2012)). FINRA member maintain a written continuity plan Regulation SCI, in addition to codifying the ARP 1957 See id. at 10–11. identifying procedures relating to an emergency or Policy Statements, also supersedes and replaces 1958 significant business disruption, which is akin to aspects of those policy statements codified in Rule See id. at 11. adopted Rule 1001(a)(2)(v) requiring policies and 1959 301(b)(6) under the Exchange Act for significant- See CISQ Letter at 2. procedures for business continuity and disaster volume ATSs that trade NMS stocks and non-NMS 1960 See id. at 2. recovery plans. However, the FINRA rule does not stocks). 1961 See id. at 2. See also CISQ2 Letter at 6 include the requirement that the business 1952 See supra Section VI.B (discussing current (stating, ‘‘[t]he cost of recent outages in SCI systems continuity and disaster recovery plans be practices of SCI entities). easily justifies the additional effort in quality reasonably designed to achieve next business day

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adopted, Rule 1001(a)(2)(v) puts an capacity of their systems, such as its members or participants to use an emphasis on trading and critical SCI queuing and/or throttling. Therefore, the SCI entity’s backup facility in the same systems with respect to resumption Commission is not persuaded that way they use the primary facility (i.e., following a wide-scale disruption. As excess capacity is a reasonable does not require members or discussed above, the definition of alternative to backup systems because participants to co-locate their systems at critical SCI systems is intended to systems may reach their capacity backup sites to replicate the speed and capture those systems that are critical to periodically. Also, as noted above, in efficiency of the primary site), the the operation of the securities markets, the case of a wide-scale disruption, requirement for geographically diverse including systems that are potential multiple SCI entities may be affected by backup systems does not mean that the single points of failure in the securities the same incident at the same time. backup systems are required to be markets. The Commission understands Given that U.S. securities market identical (e.g., same speed and that some SCI entities already have, to infrastructure is concentrated in efficiency) to the primary facility. an extent, policies and procedures that relatively few areas, maintaining backup Nevertheless, the Commission believes are required by Rule 1001(a)(2)(v), while and recovery capabilities that are it is critical that SCI entities and their others would need to make more geographically diverse could facilitate designated members or participants be significant changes to their current resumption in trading and critical SCI able to operate with the SCI entities’ practices.1963 systems following wide-scale market backup systems in the event of a wide- Rule 1001(a), among other things, is disruptions. scale disruption. In addition, the expected to help ensure prompt The Commission also received Commission notes that Rule 1001(a) resumption of all critical SCI systems, comments regarding the costs of does not specify any particular which in turn is expected to help maintaining geographically diverse minimum distance or geographic minimize interruptions in trading and backup facilities under proposed Rule location that would be necessary to liquidity after a wide-scale disruption. 1000(b)(1). One commenter stated that achieve geographic diversity, although In addition, in the case of a wide-scale the Commission did not appropriately the Commission believes that backup disruption, multiple SCI entities may be consider the costs and benefits of sites should not rely on the same affected by the same incident at the maintaining geographically diverse data infrastructure components, such as for same time. Given that U.S. securities centers to meet the next-day readiness transportation, telecommunications, market infrastructure is concentrated in requirement.1965 This commenter water supply, and electric power. relatively few areas, such as New York believed that the cost of establishing Further, Regulation SCI does not require City, New Jersey, and Chicago, and maintaining geographically diverse an SCI entity to have a geographically maintaining backup and recovery data centers alone will dwarf the diverse backup facility so distant from capabilities that are geographically estimated overall compliance cost of the primary facility that the SCI entity 1966 diverse could facilitate resumption in $400,000 to $3 million. This may not rely primarily on the same trading and critical SCI systems commenter estimated that the labor pool to staff both facilities if it following wide-scale market incremental all-in, five-year cost to it to believed it to be appropriate. disruptions. As discussed in detail in relocate its backup site would be $17 With respect to commenters who 1967 Section VI.C.1, the Commission expects million. This commenter noted that expressed concern regarding the the reduction in the occurrence of the geographically diverse backup potential cost for maintaining trading interruptions and the duration center requirement could also result in geographically diverse backup and of trading interruptions would promote costs on members and users of the SCI recovery capabilities, the Commission 1968 pricing efficiency, price discovery, and entity. Another commenter noted cannot estimate with confidence the liquidity flows in markets. that it maintains robust redundant and precise costs for the creation of a new, One commenter noted that the backup systems that exceed regulatory geographically diverse backup facility, Commission’s cost-benefit analysis in requirements and provide adequate given the wide range of message traffic the SCI Proposal did not take into capacity, security, and resiliency for its that various exchanges, ATSs, and other consideration the already existing trading operations; however, the entities receive and the reasonable industry excess capacity as backup.1964 manpower and financial capital flexibility in the design of the backup With respect to this commenter, the required to maintain and staff a facility. Given that Rule 1001(a)(2)(v) Commission understands, based on staff geographically diverse backup site does not require an SCI entity to require expertise, that systems are sized to would easily push its annual and its members or participants to use an adequately handle message traffic with recurring compliance cost beyond the SCI entity’s backup facility in the same higher estimates provided by the way they use the primary facility, excess capacity under normal 1969 conditions and in those situations that Commission. however, the Commission believes that The Commission notes that the moderately exceed the norm. The the upper bound of building a new potential cost for maintaining Commission also understands, however, backup facility is equal to the cost of geographically diverse backup and that exchanges periodically receive building a new primary facility. Given recovery capabilities is likely less than escalated levels of message traffic due to the Commission’s response to those estimated by commenters given commenters’ concerns regarding the unanticipated events and must make the scope of the adopted rule. real-time adjustments to manage the requirement to maintain geographically Specifically, because Rule 1001(a)(2)(v) diverse backup and recovery does not require an SCI entity to require resumption of trading and two-hour resumption of capabilities, and the degree of flexibility critical SCI systems following a wide-scale within Regulation SCI to determine the disruption, nor does it require the functional and 1965 See ISE Letter at 12. See also FIF Letter at 3. precise nature and location of its backup performance testing and coordination of industry or 1966 See ISE Letter at 12. site,1970 the Commission believes that 1967 sector-testing of such plans. See supra note 115. See id. the commenter’s estimate of $17 million 1963 See infra note 1973 and accompanying text 1968 See id. The cost to members or participants (discussing the estimated range of cost per SCI of SCI entities in connection with business over five years (or $3.4 million per entity to comply with the policies and procedures continuity and disaster recovery plan testing is required by Rules 1001(a) and (b)). discussed in Section VI.C.2.b.vii below. 1970 See supra notes 541–544 and accompanying 1964 See Angel Letter at 14. 1969 See ITG Letter at 7–8. text.

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year),1971 is high. Based on the critical financial markets,1974 and the Market Data Commission’s best judgment, including 2003 BCP Policy Statement discusses Rule 1001(a)(2)(vi) provides that an taking into account Commission staff the resumption of certain trading SCI entity’s policies and procedures experience with SCI entities that have markets following a wide-scale must include standards that result in invested in geographically diverse disruption.1975 As noted in Section systems being designed, developed, backup facilities in recent years, the VI.B.1, the Commission believes that tested, maintained, operated, and Commission believes that the average SCI entities currently use an array of surveilled in a manner that facilitates cost is more likely to be approximately measures to restore systems when the successful collection, processing, $1.5 million annually for an SCI entity disruptions occur. However, the two- and dissemination of market data.1977 (that does not already have hour resumption goal for all critical SCI Unlike the other provisions of Rule geographically diverse backup systems differs from the goals set forth 1001(a)(2) discussed above, Rule facilities). Nevertheless, even were the in the Interagency White Paper insofar 1001(a)(2)(vi) is not addressed in costs to be at the upper amount as the goal for Regulation SCI applies to Regulation ATS or the ARP Policy suggested by the commenter, the critical SCI systems generally.1976 To Statements. Commission believes the costs are this extent, Rule 1001(a)(2)(v) would The Commission believes that Rule appropriate given that individual SCI impose additional costs for SCI entities 1001(a)(2)(vi) should help ensure that entity resilience is fundamental to that currently have practices that are timely and accurate market data is achieving the goal of improving U.S. consistent with the Interagency White available to all market participants. securities market infrastructure Paper for clearance and settlement Given that market participants rely on 1972 resilience. systems but not all critical SCI systems. consolidated market data in a variety of The Commission recognizes that SCI The next business day resumption goal ways, including making markets, entities may encounter significantly for certain trading markets set forth in formulating trading algorithms, and different costs in complying with the the 2003 BCP Policy Statement is placing orders, the Commission believes geographic diversity requirement consistent with the resumption goal for that this is an important benefit of Regulation SCI, although the underlying Rule 1001(a)(2)(v). As noted trading in Rule 1001(a)(2)(v). For some Commission recognizes that SCI entities in Section VI.B.2, nearly all national SCI entities that do not have policies currently already take measures to securities exchanges already have and procedures with respect to critical backup facilities that do not rely on the facilitate the successful collection, SCI systems consistent with the processing, and dissemination of market same infrastructure components as Interagency White Paper and the 2003 those used by their primary facility. For data. As discussed in Section VI.C.1, the BCP Policy Statement, the Commission Commission believes that the further those national securities exchanges that believes that the initial compliance do not have such backup facilities, the improvements in timeliness and costs associated with establishing cost to build such backup facilities will accuracy of market data would help policies and procedures with respect to result in higher initial compliance costs further ensure pricing efficiencies and next day resumption in trading and two- than for national securities exchanges uninterrupted liquidity flows in hour resumption in all critical SCI that do. For other SCI entities (e.g., some markets. As Rule 1001(a)(2)(vi) will be systems would be larger than those that SCI ATSs), the compliance costs to meet a new requirement for SCI entities, it the geographic diversity requirement do. The costs associated with designing will impose incremental compliance would depend on the nature, size, and modifying policies and procedures costs on SCI entities in setting aside technology, business model, and other with respect to systems resumption additional resources to satisfy the aspects of their business.1973 Because requirements are included in the costs requirements of the rule. These costs are SCI entities may encounter significantly related to paperwork burdens in Section included as part of the quantified costs different costs in complying with the V. Furthermore, as discussed in Section estimated above related to all geographic diversity requirement, the VI.C.1, the Commission believes that the requirements underlying Rules 1001(a) Commission believes that the initial systems resumption requirements of and (b) other than paperwork 1978 compliance costs could have impact on Rule 1001(a)(2)(v) will have an impact burdens. competition among SCI entities. on competition among SCI entities in Monitoring part because the associated initial The requirement to have policies and Rule 1001(a)(2)(vii) provides that an procedure to meet a goal of next day compliance costs will be different among SCI entities. SCI entity’s policies and procedures resumption in trading and two-hour must include monitoring of systems to resumption in critical SCI systems will identify potential SCI events. Rule impose compliance costs for SCI 1974 According to the Interagency White Paper, core clearing and settlement organizations should 1001(a)(2)(vii) imposes a new entities. The Interagency White Paper develop the capacity to recover and resume clearing requirement that is not addressed in sets forth sound practices for core and settlement activities within the business day on Regulation ATS or the ARP Policy clearing and settlement organizations which the disruption occurs with the overall goal Statements. and firms that play significant roles in of achieving recovery and resumption within two hours after an event. See Interagency White Paper, The Commission believes that SCI supra note 504, at 17812. entities, particularly those that 1971 See supra note 1967 and accompanying text. 1975 The 2003 BCP Policy Statement states that participate in the ARP Inspection 1972 See supra notes 499–544 and accompanying each SRO market and ECN should have a business Program, already monitor their systems text. continuity plan that anticipates the resumption of in order to identify potential systems 1973 The Commission notes that its average trading, in the securities traded by that market, no estimated range of initial cost of approximately later than the next business day following a wide- issues. Nevertheless, by defining ‘‘SCI $320,000 to $2.4 million per SCI entity to comply scale disruption. See 2003 BCP Policy Statement, event’’ and requiring policies and with Rules 1001(a) and (b), other than paperwork supra note 504, at 56658. procedures for monitoring systems to burdens, includes the cost to build and maintain a 1976 See supra Section IV.A.2.c (discussing the identify potential SCI events, the geographically diverse backup facility. The definition of critical SCI systems) and supra Section Commission believes that Rule Commission estimates that the costs for SCI entities IV.B.1 (discussing the Commission’s rationale for that do not currently have a geographically diverse applying the two hour recovery goal to critical SCI backup facility would be at the higher end of this systems generally instead of clearance and 1977 See Rule 1001(a)(2) and supra Section IV.B.1. range. settlement services specifically). 1978 See supra note 1940 and accompanying text.

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1001(a)(2)(vii) should further help technology standards, will help SCI procedures required by Rule 1001(a). ensure that SCI entities identify entities to implement and comply with The costs associated with modifying potential SCI events, which could allow Regulation SCI.1980 and designing policies and procedures them to prevent some SCI events from Some commenters expressed concern are included in the costs related to occurring or to take timely appropriate that SCI entities would closely adhere to paperwork burdens in Section V. corrective action after the occurrence of the publications listed in Table A rather Systems Compliance SCI events. As discussed above, the than take advantage of the flexibility Commission believes the reduction in built into the proposed rule out of Rule 1001(b)(1) requires each SCI the occurrence of SCI events or the concern that, if they did not, they would entity to establish, maintain, and reduction in the duration of SCI events expose themselves to potential enforce written policies and procedures that disrupt markets would reduce regulatory action for failure to comply reasonably designed to ensure that its pricing inefficiencies and promote price with Regulation SCI.1981 As discussed SCI systems operate in a manner that discovery and liquidity. Although the above in Section IV.B.1, Rule 1001(a) complies with the Exchange Act and the Commission believes that SCI entities allows for flexibility in choosing rules and regulations thereunder, and already monitor their systems in order standards or guidelines when an SCI the entity’s rules and governing to identify potential systems issues, the entity is designing policies and documents, as applicable. Rule Commission believes that SCI entities procedures required by that rule. 1001(b)(2)(i)–(iv) provides that an SCI will have to allocate additional Moreover, the staff guidance lists entity’s policies and procedures under resources to comply with the examples of publications describing Rule 1001(b)(1) must include, at a requirements of Rule 1001(a)(2)(vii), processes, guidelines, frameworks, or minimum: (i) Testing of all SCI systems including potentially hiring additional standards for an SCI entity to consider and any changes to SCI systems prior to staff, and thus will incur costs. These looking to in developing reasonable implementation; (ii) a system of internal costs are included as part of the policies and procedures under Rule controls over changes to SCI systems; quantified costs estimated above related 1001(a). As noted in Section IV.B.1, the (iii) a plan for assessments of the to all requirements underlying Rules Commission understands that many SCI functionality of SCI systems designed to 1001(a) and (b) other than paperwork entities are already following other detect systems compliance issues, burdens. technology standards, such as ISO including by responsible SCI personnel 27000 and COBIT. The staff guidance and by personnel familiar with Current SCI Industry Standards would not preclude SCI entities from applicable provisions of the Act and the Rule 1001(a)(4) deems an SCI entity’s adhering to standards such as ISO rules and regulations thereunder and policies and procedures under Rule 27000, COBIT, or others, to the extent the SCI entity’s rules and governing 1001(a) to be reasonably designed if they result in policies and procedures documents; and (iv) a plan of they are consistent with current SCI that comply with the requirements of coordination and communication industry standards.1979 However, Rule Rule 1001(a).1982 Because there is no between regulatory and other personnel 1001(a)(4) specifically states that requirement for SCI entities to follow of the SCI entity, including by compliance with current SCI industry the publications listed as staff guidance, responsible SCI personnel, regarding standards is not the exclusive means to there is no separate compliance cost SCI systems design, changes, testing, comply with the requirements of Rule associated with the staff guidance in and controls designed to detect and 1001(a). Therefore, as adopted, Rule addition to the cost of complying with prevent systems compliance issues. The 1001(a)(4) provides flexibility to allow Rule 1001(a). As discussed throughout Commission recognizes that SCI entities each SCI entity to determine how to best this section, the Commission recognizes currently take varying measures to meet the requirements in Rule 1001(a), that, in general, there will be costs ensure that their systems operate in a taking into account, for example, its associated with designing policies and manner that complies with relevant nature, size, technology, business procedures required by Rule 1001(a). laws and rules. These practices at SCI model, and other aspects of its business. Such costs to SCI entities that already entities may include escalating a Thus, Rule 1001(a)(4) allows SCI set forth their policies and procedures compliance issue upon discovery, entities to choose the technology based on industry standards, or that including legal and compliance standards that best fit with their follow the publications listed in the staff personnel in the review of systems business, promoting efficiency. guidance or comparable publications as changes, and periodically reviewing Furthermore, as discussed in Section a guide, would be minimal. On the other rulebooks. IV.B.1, staff guidance lists examples of hand, other SCI entities that decide to The Commission believes that Rule publications describing processes, modify their policies and procedures 1001(b) should help to ensure that SCI guidelines, frameworks, or standards for and those that do not have such policies entities operate their SCI systems in an SCI entity to consider looking to in and procedures in place may incur compliance with the Exchange Act and developing reasonable policies and greater costs in designing policies and relevant rules and should help to reduce procedures under Rule 1001(a). The the occurrence of systems compliance reference to the publications which the 1980 See supra Section IV.B.1.b (discussing the issues. For example, the tests under role of staff guidance on current SCI industry staff may include, and which the Rule 1001(b)(2)(i) should help SCI standards). entities to identify potential compliance Commission believes should be general 1981 See, e.g., MSRB Letter at 11; Angel Letter at issues before new systems or systems and flexible enough to be compatible 8; BATS Letter at 6; and NYSE Letter at 20–21. with many widely-recognized 1982 Likewise, the staff guidance would not changes are implemented; the internal preclude an SCI entity from adopting a derivative controls under Rule 1001(b)(2)(ii) of multiple standards, and/or customizing one or should help to ensure that SCI entities 1979 Current SCI industry standards are required more standards for the particular system at issue. to be comprised of information technology practices In assessing whether an SCI entity’s use of such an remain vigilant against compliance that are widely available to information technology approach in designing its policies and policies and issues when changing their systems and professionals in the financial sector and issued by procedures would be ‘‘deemed’’ to be reasonably resolve potential compliance issues an authoritative body that is a U.S. governmental designed, the Commission’s inquiry would be into before the changes are implemented; entity or agency, association of U.S. governmental whether its policies and procedures were consistent entities or agencies, or widely recognized with standards meeting the criteria in adopted Rule and the systems assessment plans under organization. See Rule 1001(a)(4). 1001(a)(4). Rule 1001(b)(2)(iii) and the coordination

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and communication plans under Rule the type proposed by the commenter Periodic Review 1001(b)(2)(iv) should help technology, would reduce incentives for SCI entities Rules 1001(a)(3), (b)(3), and (c)(2) regulatory, and other relevant personnel to take the proactive actions required to require each SCI entity to periodically (including responsible SCI personnel) of ensure the compliance of their SCI review the effectiveness of the policies SCI entities to work together to prevent systems and, thus, could undermine the and procedures required under Rules compliance issues, and to promptly benefits of Regulation SCI discussed in 1001(a), (b), and (c), respectively, and to identify and address compliance issues Section IV.C.1. take prompt action to remedy if they occur. To the extent that Responsible SCI Personnel deficiencies in such policies and compliance with Rule 1001(b) reduces procedures. Regulation ATS and the the occurrence of systems compliance Rule 1001(c) requires an SCI entity to ARP Policy Statements do not explicitly issues, Rule 1001(b) should help ensure establish, maintain, and enforce address the periodic review of policies investor protection. Because SCI entities reasonably designed written policies and procedures and remediation of will need to allocate their resources and procedures that include the criteria deficient policies and procedures. towards establishing, maintaining, and for identifying responsible SCI The Commission believes that enforcing policies and procedures with requiring periodic review of the policies regard to systems compliance, Rule personnel, the designation and documentation of responsible SCI and procedures and remedial actions to 1001(b) will impose compliance costs address any deficiencies in the policies on SCI entities. These costs are included personnel, and escalation procedures to quickly inform responsible SCI and procedures will help to ensure that as part of the quantified costs estimated SCI entities maintain robust policies above related to all requirements personnel of potential SCI events. Rule 1001(c) imposes a requirement that is and procedures and update them when underlying Rules 1001(a) and (b) other necessary so that the benefits of Rules than paperwork burdens.1983 not addressed in Regulation ATS or the ARP Policy Statements. 1001(a), (b), and (c) should continue to One commenter suggested that the be realized. As such, the Commission Commission follow the Federal Aviation The Commission believes that believes that Rules 1001(a)(3), (b)(3), Administration’s and NASA’s approach, requiring policies and procedures to and (c)(2) will help realize the benefits where, according to this commenter, identify and designate responsible SCI of Regulation SCI, and would facilitate individuals are encouraged to report personnel and to establish escalation price discovery and liquidity flow, as safety issues and penalties are waived procedures to quickly inform 1984 discussed in Section VI.C.1. These where there is self-reporting. As responsible SCI personnel of potential requirements, however, will impose discussed above in Section IV.B.2.b, the SCI events should help to effectively costs on SCI entities because they will Commission is not persuaded that it alert responsible SCI personnel of have to use resources to review the would be appropriate to provide a safe potential SCI events, in order for such policies and procedures required by harbor for all problems that are self- personnel to determine whether an SCI Rules 1001(a), (b), and (c) beyond the reported by SCI entities and individuals event has occurred so that any resources currently expended for this because the Commission is not appropriate actions can be taken in purpose or will have to take more persuaded that the suggested self-report accordance with the requirements of prompt remedial action to remedy any safe harbor will effectively further the Regulation SCI without unnecessary identified deficiencies. The Commission intent of Regulation SCI.1985 The extent delay. As such, Rule 1001(c) should expects that these costs generally will to which regulators’ reporting rules offer help reduce the duration of SCI events arise following an SCI entity’s periodic safe harbor protection is determined by as SCI entities should become aware of review of the effectiveness of its policies particular circumstances and regulatory potential SCI events and take and procedures and as a result of SCI objectives. For purposes of Regulation appropriate corrective actions more events. The Commission believes that SCI, a blanket safe harbor provision of quickly. The reduction in the duration the costs associated with the review and of SCI events would benefit markets as update requirements are attributed to 1983 See supra note 1940 and accompanying text. However, the costs associated with establishing and it would promote pricing efficiency and paperwork burdens, which are maintaining policies and procedures are included price discovery as discussed in Section discussed in Section V.D.1.a above.1988 in the costs related to paperwork burdens in Section VI.C.1. However, the Commission recognizes V. that, if an SCI entity takes prompt or 1984 See Angel Letter at 3–4. This commenter also The Commission believes that the stated that, in the SCI Proposal, the Commission did costs associated with Rule 1001(c) are unplanned remedial action following not analyze how other government regulatory attributed to paperwork burdens, which the discovery of deficiencies in its agencies in the U.S. and elsewhere address policies and procedures, this may result technology risks (e.g., in the aviation, nuclear are discussed in Section V.D.1.a 1986 power, electricity, telecommunications, medical, above. The Commission does not in indirect costs (i.e., opportunity costs) and banking sectors). See Angel Letter at 3 and 15. believe that Rule 1001(c) will impose to SCI entities because they may need to The Commission notes that, in considering the significant other costs on SCI entities delay or shift their resources away from adoption of Regulation SCI, it has considered some profitable projects and reallocate their of the current practices in other industries, such as because these entities already identify those discussed by panelists at the Technology and designate responsible SCI personnel resources towards taking prompt or Roundtable (e.g., aviation, nuclear power). See and have escalation procedures.1987 unplanned remedial actions required by supra note 15 and Transcript of the Technology the rules. However, it is difficult to Roundtable, at 42–45. 1986 assess such indirect costs imposed on 1985 The Commission notes that, in addition to When monetized, the paperwork burden dealing with a different problem in different would result in approximately $1.7 million initially SCI entities because the Commission industries, the ‘‘waiving of penalties’’ cited by the and $611,000 annually for all SCI entities in the lacks information necessary to provide a commenter has limitations (e.g., the ASRS system aggregate. reasonable estimate. For example, the 1987 cited by the comment suspends safe harbor As noted above, several commenters Commission does not have protection for repeat violators and does not offer emphasized the importance of escalation safe harbor for certain types of violations). Safe procedures at SCI entities, pursuant to which harbor protection for self-reporters may be technology staff or junior employees could assess a 1988 As noted in Section V.D.1.a above, the appropriate in some circumstances. However, the systems problem and escalate the issue up the chain paperwork burden related to the review of the Commission believes that in the specific context of of command to management as well as legal and/ policies and procedures is included in the Regulation SCI, such safe harbor protections would or compliance personnel. See supra note 740 and estimated annual ongoing burden of Rules 1001(a), not further the intent of the regulation. accompanying text. (b), and (c).

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comprehensive and detailed undertake corrective action sooner and/ corrective obligations are triggered. If a information on the value of the potential or to increase investments in newer and corrective action were to be applied forgone projects of SCI entities. more updated systems earlier than they without such analysis or investigation, might have otherwise. The Commission then the impact of an SCI event could ii. Corrective Action—Rule 1002(a) thus believes that Rule 1002(a) could persist, exacerbating or prolonging its Rule 1002(a) requires an SCI entity to impose modestly higher costs for SCI negative effects on markets and market begin to take appropriate corrective entities in responding to SCI events participants. The Commission notes that action upon any responsible SCI relative to their current practice.1990 Rule 1002(a) does not use the term personnel having a reasonable basis to But, given the wide variety of current ‘‘immediate.’’ Rather, Rule 1002(a) conclude that an SCI event has practices, the Commission is unable to requires that corrective action be taken occurred. Rule 1002(a) also requires estimate the incremental costs ‘‘as soon as reasonably practicable’’ corrective action to include, at a associated with the required changes. once the triggering standard has been minimum, mitigating potential harm to Furthermore, if Regulation SCI reduces met. The Commission believes that, investors and market integrity resulting the frequency and severity of SCI events because the facts and circumstances of from the SCI event and devoting in the future, the cost of corrective each specific SCI event will be different, adequate resources to remedy the SCI action could similarly decline over time. this standard would help ensure that an event as soon as reasonably practicable. However, the Commission cannot SCI entity takes necessary corrective Thus, it would not be appropriate for an estimate these costs because the degree action soon after an SCI event, but not SCI entity to unnecessarily delay the to which Regulation SCI will reduce the without sufficient time to first consider start of corrective action once its frequency and severity of SCI events is what is the appropriate action to remedy responsible SCI personnel have a unknown. The Commission also the SCI event in a particular situation reasonable basis to conclude that an SCI believes that, if an SCI entity takes and how such corrective action should event has occurred, and the SCI entity corrective action sooner than they might be implemented.1992 would be required to focus on have without the requirements of iii. Commission Notification—Rule mitigating potential harm to investors Regulation SCI, this may impose 1002(b) and market integrity resulting from the indirect costs (i.e., opportunity costs) to SCI event and devoting adequate SCI entities because they may have to As discussed above in Section resources to remedy the SCI event as delay or reallocate their resources away IV.B.3.c, Rule 1002(b) requires SCI soon as reasonably practicable. The from profitable projects and direct their entities to provide notifications to the Commission believes that SCI entities resources toward taking corrective Commission regarding SCI events. already have a variety of procedures in action required by the rule. However, Specifically, upon any responsible SCI place to take corrective actions when the Commission acknowledges that it is personnel having a reasonable basis to system issues occur. However, Rule difficult to assess such indirect costs conclude that an SCI event has 1002(a) will likely require modifications imposed on SCI entities. For instance, occurred, an SCI entity is required to to those existing practices in part the Commission does not have notify the Commission of the SCI event because the rule specifies the timing comprehensive and detailed immediately. Within 24 hours of any and enumerates certain goals for information on the value of the potential responsible SCI personnel having a corrective action.1989 foregone projects of SCI entities. reasonable basis to conclude that an SCI The Commission believes that the Consequently, the Commission is, at event has occurred, an SCI entity is corrective action requirement will this time, unable to estimate the costs of required to submit a more detailed reduce the length of systems Rule 1002(a) of Regulation SCI because written notification, on a good faith, disruptions, systems compliance issues, the Commission lacks information best efforts basis, pertaining to the SCI and systems intrusions, and thus, as necessary to provide a reasonable cost event. Until such time as the SCI event noted in Section VI.C.1, reduce the estimate. is resolved and the SCI entity’s negative effects of those interruptions Several commenters stated that the investigation of the SCI event is closed, on the SCI entity and market requirements of proposed Rule the SCI entity is required to provide participants. Additionally, to the extent 1000(b)(3) put too great an emphasis on updates regularly, or at such frequency that corrective action could involve immediate corrective action at the as requested by a representative of the wide-scale systems upgrades, some SCI expense of thoroughly analyzing the SCI Commission. The SCI entity is also entities may potentially seek to event and its cause, considering required to submit a detailed final accelerate capital expenditures, for potential remedies, and/or acting in written notification after the SCI event example, by updating their systems with accordance with internal policies and is resolved and the SCI entity’s newer technology earlier than they procedures before committing to a plan investigation of the event is closed (and might have otherwise to comply with to take corrective action.1991 Partly in an additional interim written Regulation SCI. As such, Rule 1002(a) response to this concern, the notification, if the SCI event is not could further help ensure that SCI Commission has modified the rule as resolved or the investigation is not entities invest sufficient resources as adopted from the proposal. The closed within a specified period of soon as reasonably practicable to Commission agrees that an SCI entity time). Finally, SCI entities are required address systems issues. should be given appropriate time to to notify the Commission of information The Commission recognizes that Rule perform an initial analysis and regarding de minimis systems 1002(a) may require SCI entities to preliminary investigation into a disruptions and de minimis systems potential systems issue before the intrusions on a quarterly basis. 1989 For example, although the Commission The Commission believes that most, if believes that market participants already take corrective actions when system issues occur, 1990 See also MSRB Letter at 32 (commenting that not all, major systems incidents are currently, when taking corrective action, market under most circumstances, any increased cost due participants may not always focus on mitigating to proposed Rule 1000(b)(3) would be modest since 1992 See also supra Section IV.B.3.a (discussing in potential harm to investors and market integrity or corrective action normally would already be taken). more detail the triggering standard for corrective devoting adequate resources to remedy the issues as 1991 See SIFMA Letter at 3; OCC Letter at 14; Joint action, Commission notification, and information soon as reasonably practicable, as SCI entities are SROs Letter at 11; LiquidPoint Letter at 4; DTCC dissemination) and Section IV.B.3.b (discussing the required to do under Rule 1002(a). Letter at 10; and Direct Edge Letter at 7. corrective action requirement).

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reported by ARP entities to the compliance issues, and systems the Commission has estimated the total Commission and that many ‘‘de intrusions, and providing discussions of annual hourly burden to comply with minimis’’ systems issues are these definitions in this release, the Rules 1002(b)(1)–(4) to be 125,180 hours documented internally by SCI entities as Commission acknowledges that some for all SCI entities (monetized to be part of their incident management SCI entities could be overly cautious in approximately $40 million), or 2,845 systems. For those entities that do not seeking to be in compliance with hours per SCI entity.1999 This estimate participate in the ARP Inspection Regulation SCI and therefore over-report is greater than that estimated in the SCI Program, the Commission also believes systems issues to the Commission. Proposal (which estimate was 58,080 that some internal documentation of Furthermore, the Commission notes that hours for all SCI entities, or 1,320 hour systems incidents exists. In addition, some SCI entities currently notify the per SCI entity to comply with proposed the Commission notes that some SCI Commission of systems related issues Rules 1000(b)(4)(i)–(iii)). As more fully entities currently notify the Commission under the ARP Inspection Program or as explained in the PRA, the Commission of certain systems compliance issues. part of their current business practice, has increased its estimate to comply Rule 1002(b) will apply to more but the Commission believes that SCI with the Commission notification entities (e.g., some SCI ATSs), more entities will have to allocate additional provisions in Rules 1002(b)(1)–(4), systems (e.g., market regulation and resources to meet the Commission notwithstanding the more targeted market surveillance systems, additional notification requirement. Although the scope of the adopted rule, as compared market data systems), and more types of estimated cost to comply with the to the proposed rule. These increased systems issues (e.g., systems compliance adopted notification provisions is estimates are in response to comment issues) than the ARP Policy Statements, greater than the estimate in the SCI that the estimates in the SCI Proposal and also require more detailed reporting Proposal, the Commission is not were too low, particularly with respect to the Commission.1993 The Commission persuaded that the adopted rule, with to the time necessary for an SCI entity believes that Rule 1002(b) will enhance its more targeted scope, will require SCI to prepare, review, and submit the the effectiveness of Commission entities to have a ‘‘shadow staff’’ on required notifications.2000 In addition, oversight of the operation of SCI hand solely for reporting SCI events. As for Rule 1002(b)(5), which requires entities. For example, one commenter discussed in Section IV.B.3.c, the recordkeeping of all de minimis SCI suggested that SCI events notification Commission believes that concerns with events and quarterly reporting of de results in greater transparency for the respect to resource demands regarding minimis systems disruptions and de Commission, with multiple benefits, the Commission notification minimis systems intrusions, the including ensuring that the Commission requirements have been substantially Commission has estimated a total of has a view into problems at particular mitigated by the numerous changes 7,040 hours for all SCI entities SCI entities for regulatory purposes as from the proposal, such as the adoption (monetized to be approximately $2 well as perspective on the effect of a of a quarterly reporting framework for million), or 160 hours per SCI entity, for single problem to the market at- de minimis systems disruptions and de Commission notification. The number of 1994 large. Further, the Commission minimis systems intrusions; the SCI events (de minimis and otherwise), believes that providing written adoption of an exception from the and the burdens to comply with notifications to the Commission could Commission notification requirements notification requirements will likely help prevent systems failures from being for de minimis systems compliance vary among individual SCI entities, dismissed as momentary issues, because issues; the revised definitions of SCI based on the nature of their business, notification would help focus the SCI systems, indirect SCI systems, systems technology, and the relative criticality of entity’s attention on the issue and disruption, and systems compliance each of their SCI systems. encourage allocation of SCI entity issue; and the reduction in the In addition, the Commission believes resources to resolve the issue as soon as obligations SCI entities have with that most, if not all, SCI entities already reasonably practicable. respect to reporting requirements. In have some internal procedures for As noted in Section IV.B.3.c, the addition, the Commission is not determining the severity of a systems Commission received comment letters persuaded that the burden of the issue. Nevertheless, to the extent that an that discuss the resource and efficiency Commission notification requirement SCI entity must determine whether an demands of the Commission notification will significantly reduce SCI entities’ SCI event is a de minimis SCI event, requirement.1995 Some commenters Rule 1002(b) may impose one-time expressed concern that SCI entities may ability to adequately respond to SCI implementation costs on SCI entities feel compelled to characterize and events. It is the Commission’s associated with developing a process for report a greater number of systems experience that the staff engaging in anomalies as disruptions to comply corrective action to resolve an SCI event ensuring that they are able to quickly with Regulation SCI,1996 and that the is generally distinct from the staff that and correctly make such proposal would result in SCI entities has been charged with notifying the determinations, as well as ongoing costs having ‘‘shadow staff’’ on hand solely Commission of systems issues. in reviewing the adopted process. The The compliance costs associated with for reporting SCI events so as to not initial and ongoing burden associated divert staff away from working to Rule 1002(b) are attributed to the with identifying certain systems and SCI resolve SCI events.1997 While the paperwork burden of Commission events is discussed in Section 2001 Commission is adopting the definitions notifications of SCI events, including V.D.3.b. of systems disruptions, systems recordkeeping and submission of quarterly reports with respect to de 1999 See supra Section V.D.2.a (discussing the 1998 Commission’s estimate of the hours required to 1993 See supra Section IV.B.3.c (discussing in minimis SCI events, as applicable. As discussed in the PRA, with respect comply with Rule 1002(b)). detail the requirements of Rule 1002(b)). 2000 See id. 1994 See Lauer Letter at 8. to SCI events that are not de minimis, 2001 When monetized, the paperwork burden 1995 See, e.g., UBS Letter at 3; Omgeo Letter at 16; would result in approximately $1.1 million initially MSRB Letter at 19; OCC Letter at 14; SunGard Letter 1998 When monetized, the paperwork burden and $413,000 annually for all ARP entities in the at 5; Joint SROs Letter at 7; and NYSE Letter at 22. would result in approximately $42 million, in aggregate, and approximately $885,000 initially and 1996 See Joint SROs Letter at 9–10. addition to approximately $2 million in outsourcing $292,000 annually for all non-ARP entities in the 1997 See FINRA Letter at 19. cost, annually for all SCI entities in the aggregate. aggregate. These estimates include the

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Proposed Rule 1000(b)(4) did not that the submission of updates may be Regulation SCI will increase the amount distinguish de minimis SCI events from provided either orally or in written of information about SCI events other SCI events in terms of the timing form.2002 This revision should reduce available to the Commission and SCI or type of Commission notifications. costs as compared to proposed Rule entities’ members and participants, and The Commission believes that the 1000(b)(4) by providing flexibility to SCI that the greater availability of this adopted quarterly Commission reporting entities and because oral notifications information has some potential to requirement for de minimis systems will likely result in a lower burden than increase litigation risks for SCI entities, disruptions and de minimis systems written notifications. including the risk of private civil intrusions, and the exception from the The Commission has also modified litigation. Commenters did not provide Commission reporting requirement for the 24-hour written notification estimates of potential litigation costs de minimis systems compliance issues, requirement in adopted Rule 1002(b) to and Commission staff were unable to will reduce costs related to Commission make clear that the written notification find readily-available public reporting (as compared to the costs of provided within 24 hours be submitted information from which to estimate complying with the proposed on a good faith, best effort basis. specific costs of possible litigation Commission notification requirements) Compared to the proposed rule, the associated with the increased for SCI entities, and could facilitate Commission believes the adopted rules information available about SCI events, more efficient allocation of SCI entities’ will help provide certainty to SCI but based on staff experience, resources toward more significant entities that they will not be depending on the complexity, scope, systems issues because de minimis SCI accountable for unintentional and length of the litigation, the costs to events would be subject to a inaccuracies or omissions contained in defend an individual case could be recordkeeping requirement and de these submissions. The ‘‘best efforts’’ quite significant. The Commission minimis systems disruptions and de standard will also help to ensure that notes, however, that it is not clear that minimis systems intrusions would be SCI entities will make a diligent and the incremental increase in costs due to subject to a quarterly reporting timely attempt to provide all the Regulation SCI will be significant in the requirement, rather than a requirement information required by the written aggregate. Regulation SCI does not alter to report such events to the Commission notification requirement, thus the elements of any available private more immediately. As de minimis SCI permitting the Commission to cause of action, and the elements of events are defined to have no or a de effectively monitor SCI events. such actions are likely to limit the minimis impact on the SCI entity’s As discussed in Section IV.B.3.c, with potential for recovery. Moreover, to the operations or on market participants, respect to submitting final written extent members and participants suffer the Commission believes that the notifications, proposed Rule damages when SCI events occur, SCI recordkeeping requirement and 1000(b)(4)(ii) would have required the entities are already subject to litigation quarterly reporting requirement, as submission of the information required risk. applicable, will allow both the SCI to be included in the final written As an alternative to the adopted rule, entity and its personnel, as well as the notification within a shorter time frame. some commenters suggested that non- Commission and its staff, to focus more By requiring that the final written material systems intrusions not be of their attention and resources on notification be submitted after reported to the Commission at all, and other, more significant SCI events. resolution of an SCI event, the only be recorded by the SCI entity to Moreover, the quarterly Commission Commission believes that the adopted reduce the instances in which notice of notification requirement for de minimis rule will encourage SCI entities to systems intrusions would be systems disruptions and de minimis allocate their resources efficiently in required.2004 The Commission systems intrusions will help SCI entities resolving the SCI event. continues to believe that reporting and the Commission to gather One commenter expressed concern intrusions in SCI systems and indirect information on the nature, types, and that, without a safe harbor and a SCI systems will help the Commission frequency of de minimis SCI events and, guarantee of immunity, the disclosures and its staff to detect patterns or thus, help identify potential weaknesses to the Commission required under understand trends over time and the in systems across SCI entities and Regulation SCI would provide a nature of systems intrusions that may be Commission’s ability to monitor market roadmap for litigation against non-SRO occurring at multiple SCI entities and, events. The Commission believes that entities.2003 As discussed in Section thus, help ensure effective Commission the quarterly reporting requirement for IV.B.2.b, the occurrence of a systems oversight. As discussed in Section de minimis systems disruptions and de compliance issue does not necessarily IV.B.3.c in detail, to reduce the burden minimis systems intrusions balances the mean that the SCI entity will be subject associated with the Commission interest of SCI entities in having a to an enforcement action. Rather, the notification requirement, the limited reporting burden for de minimis Commission will exercise its discretion Commission established separate systems disruptions and de minimis to initiate an enforcement action if the reporting requirements (e.g., quarterly systems intrusions with the Commission determines that action is reporting) for de minimis systems Commission’s interest in oversight of warranted, based on the particular facts disruptions and de minimis systems the information technology programs of and circumstances of an individual intrusions and provided an exception SCI entities. situation. Moreover, the Commission from the Commission reporting Furthermore, proposed Rule recognizes that compliance with requirement for de minimis systems 1000(b)(4)(iii) would have required an compliance issues. SCI entity to submit written updates 2002 See supra Section IV.B.3.c. iv. Information Dissemination—Rule pertaining to an SCI event until the SCI 2003 See OTC Markets Letter at 15–16 (stating that event is resolved. The Commission has ‘‘entities that do not have SRO immunity, such as 1002(c) revised the update requirement from the ATSs, may be subject to liability based on Rule 1002(c) requires an SCI entity to information reported under Reg. SCI’s Rule proposal in adopted Rule 1002(b)(3) so 1000(b)(4)(iv) . . . [w]ithout a safe harbor and a disseminate information regarding guarantee of immunity, this kind of disclosure identification of critical SCI systems, major SCI provides a roadmap for litigation against non-SRO 2004 See Omgeo Letter at 12; and DTCC Letter at events, and de minimis SCI events. SCI entities’’). See also FIF Letter at 5. 8.

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certain major SCI events to all of its disclosed. Furthermore, increased subject to the adopted information members or participants and certain awareness of SCI events through dissemination requirements are other SCI events to affected members or information disseminated to members or different from those that would have participants. Specifically, promptly after participants should provide SCI entities been subject to the proposed any responsible SCI personnel having a additional incentives to maintain robust requirements, the Commission reasonable basis to conclude that an SCI systems and minimize the occurrence of continues to recognize that the event has occurred, an SCI entity is SCI events. More robust SCI systems determination imposes costs. required to disseminate certain and the reduction in the occurrence of Specifically, identifying major SCI information regarding the SCI event. SCI events could reduce interruptions in events may impose one-time When certain additional information price discovery process and liquidity implementation costs on SCI entities becomes known, the SCI entity is flows as discussed above in Section associated with developing a process for required to promptly disseminate such VI.C.1. ensuring that they are able to quickly information. Until the SCI event is One commenter provided information and correctly make such resolved, the SCI entity is required to about the benefits of the proposed determinations, as well as periodic costs provide regular updates on the required information dissemination in reviewing the adopted process. These information.2005 As adopted, the requirements. Specifically, according to costs are discussed in more detail in information dissemination requirement this commenter, one of the major Section V.D.3.b.2011 does not apply to SCI events to the benefits of Regulation SCI could be One commenter expressed concern extent they relate to market regulation better sharing of information about 2007 that SCI entities may over-report issues or market surveillance systems and de technology problems. According to out of an abundance of caution if SCI minimis SCI events. Rule 1002(c) this commenter, sharing information entities are not given clear guidelines as imposes new requirements that are not about hardware failures, systems to what and to whom they are required currently part of the ARP Inspection intrusions, and software glitches will to provide information.2012 This Program. However, some entities alert others in the industry about such commenter believed that a flood of currently provide their members or problems and help reduce system-wide notifications, taken out of context, may participants and, in some cases, market costs of diagnosing problems, as well as create investor impression based on the participants or the public more result in improved responses to 2008 quantity, not the quality, of the generally, with notices of systems technology problems. This notifications disseminated, that certain issues. commenter also believed that the counterparties pose serious risks to the As discussed in Section IV.B.3.d, a information will serve as warnings to market, when that is not the case.2013 major SCI event is defined to mean an other SCI entities to stay vigilant to For the reasons discussed in Section SCI event that has any impact on a 2009 prevent similar problems. The IV.B.3.d, the Commission believes that critical SCI system or a significant Commission believes that benefits information about SCI events (other impact on the SCI entity’s operations or identified by the commenter could be on market participants. The than major SCI events and de minimis benefits of Rule 1002(c). SCI events) should be disseminated to Commission believes that, in the context As discussed above, while some affected members or participants, and of a major SCI event, where the impact entities currently provide their members information about major SCI events of the SCI event is most likely to be felt or participants and, in some cases, (other than those that qualify as de by many market participants, the goal of market participants or the public more minimis SCI events) should be aiding market participants in evaluating generally, with notices of certain disseminated to all members or the impact of the event would be systems issues (e.g., system outages), participants of an SCI entity. At the efficiently served by dissemination of Rule 1002(c) imposes new requirements same time, as compared to proposed information to all members or that are not currently part of the ARP Rule 1000(b)(5), the Commission is participants of the SCI entity.2006 Inspection Program. As such, the limiting the requirement for information The Commission believes that Rule requirements of Rule 1002(c) will dissemination to all members or 1002(c) will help market participants— impose costs—which are attributed to participants of an SCI entity to major specifically the members or participants paperwork burdens—on SCI entities SCI events; limiting other information of SCI entities estimated to be affected with respect to preparing, drafting, dissemination to members or by an SCI event and any additional reviewing, and making the information participants affected by the SCI event; members or participants subsequently available to members or participants. and excluding de minimis SCI events estimated to be affected by an SCI event These costs are discussed in more detail and SCI events related to market and, in some cases, all members or in Section V.D.2.b.2010 participants of an SCI entity—to better In the SCI Proposal, the Commission regulation or market surveillance evaluate the operations of SCI entities recognized that SCI entities incur costs systems from the information by requiring certain information to be to determine whether an event needs to dissemination requirement. These be disseminated. While the SCI events changes would limit the compliance 2005 Rule 1002(c)(2) provides an exception to the cost for Rule 1002(c), and are responsive

information dissemination requirement for systems 2007 to the commenter’s concern that SCI intrusions when an SCI entity determines that See Angel Letter at 5. 2008 entities may over-disclose systems dissemination of information would likely See id. compromise the security of the SCI entity’s systems, 2009 See id. However, this commenter also issues. or an investigation of the systems intrusion, and disagreed with the Commission that SCI entities As an alternative to the adopted rule, documents the reasons for such determination. may be reluctant to admit publicly to their glitches. one commenter suggested broadening 2006 At the same time, the Commission recognizes See id. at 14. According to this commenter, market that some SCI events that meet the definition of participants interact repeatedly with each other on the proposed rule to require an SCI ‘‘major SCI event’’ could also qualify as de minimis a real-time basis and are acutely aware of glitches entity to disseminate information on SCI SCI events. Like other de minimis SCI events, they when they occur. See id. events to the public, and not just to its are excepted from the information dissemination 2010 When monetized, the paperwork burden requirement. In particular, because major SCI would result in approximately $26 million, in events are a subset of SCI events, the exception addition to approximately $1.6 million in 2011 See also supra note 2001. under Rule 1002(c)(4)(ii) applies to major SCI outsourcing cost, annually for all SCI entities in the 2012 See Fidelity Letter at 5. events that meet the requirements of that rule. aggregate. 2013 See id.

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members or participants.2014 This 301(b)(2)(ii) and Rule 301(b)(6)(ii)(G) of will result in incremental costs that may commenter believed that public Regulation ATS, as applicable. Rule in some cases delay or discourage dissemination of the facts of an SCI 1003(a) changes some of the current innovation.2019 Another commenter event would help enhance investor practices and sets forth more detailed similarly expressed concern about the confidence by preventing speculation requirements for these notifications. For compliance burden and the resulting and misinformation, and would provide example, Rule 1003(a) covers material impact on competition and innovation important learning opportunities for the changes on a broader set of systems than associated with the 30-day advance industry and other SCI entities.2015 The the ARP Inspection Program or Commission notification requirement Commission acknowledges that there Regulation ATS. Rule 1003(a) also for material systems changes.2020 In can be additional benefits from requires an SCI entity to submit addition, one commenter noted that the disseminating major SCI events to the quarterly reports on Form SCI regarding Commission underestimated the cost of public as noted by the commenter. material systems changes, but does not lost business opportunities and the Under the adopted rule, an SCI entity is require separate notification for each inability to swiftly deploy corrective required to disseminate information on material systems change. Further, Rule solutions that would result from the 30- major SCI events (other than those that 1003(a) requires an SCI entity to day advance systems change qualify as de minimis SCI events) to all promptly notify the Commission (by notification requirements.2021 This of its members and participants. The submitting Form SCI) of a material error commenter noted that most ATS Commission believes that these market in or material omission from a operators with advanced systems participants are the most likely to act on previously submitted report. To the purposefully implement frequent agile this information and, thus, induce extent that Rule 1003(a) requires SCI modifications instead of major episodic additional competitive incentives for entities to notify the Commission of changes in order to continuously SCI entities to avoid systems issues. As material systems changes for more types improve their systems and minimize the such, the Commission believes that it of systems and to the extent that it impact of the changes.2022 This can achieve the purposes of the rule requires notification at a higher commenter expressed concern that a without requiring public dissemination, frequency than current practice built-in 30-day delay in implementing and also believes any additional gain in (quarterly reports vs. annual reports), changes would encourage the benefits from public dissemination the Commission believes that Rule deployment of larger, riskier changes would be minimal. 1003(a) should enhance the more infrequently, thereby creating v. Material Systems Changes—Rule Commission’s oversight of the operation longer periods of time during which a 1003(a) of SCI entities. systems issue and/or erroneous The compliance costs of Rule 1003(a) configuration would continue without Rule 1003(a)(1) requires an SCI entity primarily entail costs associated with correction.2023 This commenter also to provide quarterly reports to the preparing and submitting Form SCI in stated that the 30-day advance Commission, describing completed, accordance with the instructions notification process has the potential to ongoing, and planned material systems thereto. The initial and ongoing cost delay the deployment of corrective changes to its SCI systems and the estimates associated with preparing and solutions that are necessary to ensure security of indirect SCI systems, during submitting Form SCI with regard to the provision of uninterrupted and the prior, current, and subsequent material systems changes under Rules efficient order matching services at the calendar quarters. Rule 1003(a)(1) also 1003(a)(1) and (2) are discussed in detail best available prices.2024 requires an SCI entity to establish in Section V.D.2.c.2016 The Commission As noted above, as adopted, reasonable written criteria for does not expect Rule 1003(a) will Regulation SCI does not include the identifying a change to its SCI systems impose significant costs on SCI entities proposed 30-day advance Commission and the security of its indirect SCI other than those discussed in Section notification requirement for material systems as material. Rule 1003(a)(2) V.D.2.c. systems changes. Rather, Rule 1003(a)(1) requires an SCI entity to promptly According to one commenter, ‘‘[t]he requires quarterly reports of material submit a supplemental report to notify larger market participants [that will be systems changes. Elimination of the the Commission of a material error in or subject to Regulation SCI] are generally proposed 30-day advance Commission material omission from a previously experienced and circumspect with notification requirement addresses the submitted report. regards to significant infrastructure concern of some commenters that the Entities that participate in the ARP changes, such as data center migrations rule would impede agile development Inspection Program currently provide and major platform upgrades.’’ 2017 This methodology and favor the waterfall some material systems change commenter expected that, for these development methodology, or delay the notifications to the Commission and the larger entities, integrating Regulation implementation of systems changes or Commission believes that all SCI SCI compliance into their existing innovations, particularly for smaller SCI entities have some internal processes for programs can occur without crippling entities. The quarterly reports will also documenting systems changes as a disruption or exorbitant cost, and provide the Commission and its staff matter of prudent business practice. For expected that insight from the with a more efficient framework to example, consistent with the ARP implementation of Regulation SCI review material systems changes, Policy Statements, certain entities would contribute to overall stability and provide annual reports on significant resiliency of the markets over time.2018 2019 See id.. systems changes and notify the 2020 However, this commenter expressed See BATS Letter at 15. See also, e.g., supra Commission on an as-needed basis notes 999–1000 (discussing the views of concern that compliance with the regarding certain significant systems commenters that the proposed 30-day advance Commission notification requirement changes. In addition, ATSs are required notification requirement would stifle innovation and interfere with an SCI entity’s natural planning notify the Commission of certain 2016 When monetized, the paperwork burden and development process). systems changes pursuant to Rule would result in approximately $6.8 million 2021 See ITG Letter at 8. annually for all SCI entities in the aggregate. 2022 See id. 2014 See MFA Letter at 7. 2017 See SunGard Letter at 3. 2023 See id. 2015 See id. 2018 See id. 2024 See id.

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because including all relevant material turn, improve systems and reduce the prevent a particular entity or personnel systems changes in a single report will number of SCI events. As discussed in from meeting the objectivity standard allow the Commission to more easily Section VI.C.1, the reduction in required for an SCI review. In addition, and clearly understand an SCI entity’s occurrence of SCI events could reduce during the Technology Roundtable in framework for systems changes, interruptions in the price discovery which participants discussed third party including how certain material systems process and liquidity flows. review, some panelists suggested that changes are related.2025 The initial and ongoing paperwork the use of an external third party is burden associated with conducting an unnecessary because, for example, the vi. SCI Review—Rule 1003(b) SCI review, submitting a report of the training for a third party as well as the Rule 1003(b) requires an SCI entity to SCI review to senior management of the costs involved with third party conduct an SCI review of its compliance SCI entity for review, and submitting a evaluations would be large with little with Regulation SCI not less than once report of the SCI review and any additional benefit.2028 The Commission each year,2026 and submit a report of the response by senior management to the agrees that SCI entities would likely SCI review to senior management of the Commission and to the board of need to provide significant guidance to SCI entity for review no more than 30 directors of the SCI entity or the third-party reviewers on the specific calendar days after completion of such equivalent of such board is discussed in features of the entity’s systems. The SCI review. Rule 1003(b) also requires Section V.D.2.d.2027 SCI entities will Commission recognizes that a third- an SCI entity to submit a report of the also incur costs in addition to the party review requirement could impose SCI review to the Commission and to paperwork burden to comply with the additional costs on SCI entities, and the board of directors of the SCI entity SCI review requirement. Although the believes that it is appropriate at this or the equivalent of such board, together Commission understands that most SCI time to allow SCI entities to decide with any response by senior entities currently undertake annual whether to incur such costs instead of management, within 60 calendar days systems reviews, Rule 1003(b) sets forth mandating third-party review. after its submission to senior specific requirements related to the SCI management of the SCI entity. review. In particular, an SCI review is vii. Business Continuity and Disaster Systems reviews have been part of the required to include a risk assessment Recovery Plan Testing—Rule 1004 ARP Inspection Program, and through with respect to SCI systems and indirect Rule 1004(b) requires the testing of an this program, the Commission SCI systems of an SCI entity, an SCI entity’s business continuity and understands that many SCI entities assessment of internal control design disaster recovery plans at least once currently undertake annual systems and effectiveness of SCI systems and every 12 months. Rules 1004(a) and (b) reviews and that senior management indirect SCI systems, and penetration require participation in such testing by and/or the board of directors or a testing reviews. Moreover, Rule 1003(b) those members or participants that an committee thereof reviews reports of specifies that the SCI review is to SCI entity reasonably determines are, such reviews. However, the Commission determine the SCI entity’s compliance taken as a whole, the minimum number believes that the scope of the systems with Regulation SCI. Rule 1003(b) also necessary for the maintenance of fair reviews, and the level of senior requires a report of the SCI review and and orderly markets in the event of the management and/or board involvement any senior management response to be activation of its business continuity and in such reviews, varies among ARP submitted to the board of directors of disaster recovery plans. Rule 1004(c) entities. The Commission expects that the SCI entity or the equivalent of such requires an SCI entity to coordinate the SCI review requirement would board and thus SCI entities may incur such testing on an industry- or sector- produce greater consistency in the an additional cost as a result of wide basis with other SCI entities. approach that SCI entities take in additional time the board allocates to The requirements under Rule 1004 are systems reviews, which would help evaluate the review. The Commission not a part of the ARP Inspection improve the efficiency of the cannot estimate costs other than Program. As discussed above in Section Commission’s oversight (e.g., paperwork burdens because the VI.B.2, the securities industry generally inspection) of SCI entities’ systems. In Commission does not have the has a voluntary system for testing addition, the Commission believes that information necessary to provide a business continuity and disaster the SCI review requirement would reasonable estimate. In particular, the recovery plans and market participants, result in SCI entities having an Commission lacks information on how including exchanges, members of improved awareness of the relative SCI entities will structure their reviews. exchanges, clearing agencies, clearing strengths and weaknesses of their As discussed above in Section IV.B.5, members, and ATSs, already coordinate systems independent of the assessment the Commission is not adopting a certain business continuity and disaster of Commission staff, which should, in requirement that SCI reviews be recovery plan testing to some extent. For conducted by an independent third example, some SCI entities already 2025 As discussed above, Commission staff will party because the Commission believes require some of their members or not use material systems change reports to require that the goals of Regulation SCI can be participants to connect to their backup any approval of planned systems changes in achieved through reviews by either systems. Further, although participation advance of their implementation pursuant to any internal objective personnel or external provision of Regulation SCI, or to delay is not always mandatory, some SCI implementation of material systems changes objective personnel. The Commission entities already provide their members pursuant to any provision of Regulation SCI. See acknowledges that, in some cases, there or participants with the opportunity to supra Section IV.B.4.b. could be potential benefits from test the SCI entity’s business continuity 2026 However, penetration test reviews of the requiring third party reviews. However, network, firewalls, and production systems are and disaster recovery plans. However, required to be conducted not less than once every as noted in Section IV.B.5, third parties because not all SCI entities require three years. See Rule 1003(b)(i). Assessments of SCI can also have conflicts of interest that member or participant participation in systems directly supporting market regulation or business continuity and disaster market surveillance are required to be conducted at 2027 When monetized, the paperwork burden recovery plans testing, the Commission a frequency based upon the risk assessment would result in approximately $9.7 million, in conducted as part of the SCI review, but also not addition to approximately $2.2 million in less than once every three years. See Rule outsourcing cost, annually for all SCI entities in the 2028 See Transcript of the Technology Roundtable, 1003(b)(1)(ii). aggregate. at 86–91.

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understands that not all market Commission believes that measuring or sector-wide basis. The requirement of participants participate in such testing. potential benefits in terms of transaction member or participant designation in Moreover, the Commission understands costs (commission revenue) does not business continuity and disaster that, to the extent such participation fully account for other benefits, such as recovery plan testing under Rule 1004 occurs, it may in many cases be limited uninterrupted liquidity flows and price imposes additional costs as an SCI in nature (e.g., testing for connectivity to discovery.2032 Furthermore, the would have to allocate resources backup systems).2029 Commission believes that the estimated towards initially establishing and later The Commission believes that, for SCI commission loss noted by the updating standards for the designation entities, voluntary testing is insufficient, commenter likely overstates the actual of its members and participants for and that business continuity and losses in commissions because some of testing. Furthermore, the requirement to disaster recovery planning for market the ‘‘lost’’ trading may have only been coordinate industry- or sector-wide centers and certain members or delayed until the markets re-opened testing will impose additional participants must be an integral after Superstorm Sandy. Accordingly, administrative costs because an SCI component of business continuity and the Commission is not persuaded that entity would be required to notify its disaster recovery preparedness. The the estimate provided by the commenter members or participants and also Commission further believes that the represents the quantified benefit organize, schedule, and manage the requirements under Rule 1004 should associated with this component of coordinated testing.2033 help ensure that the securities markets Regulation SCI. The Commission is Some commenters stated that the will have improved backup unable to estimate the benefit of this scope of the proposed testing infrastructure and fewer market-wide component of Regulation SCI because requirement would impose costs on SCI shutdowns. As discussed in detail in the Commission does not have entities that the Commission did not Section VI.C.1, fewer market-wide quantified information on the extent account for, including the cost to shutdowns should help facilitate that a reduction in SCI events will help reconfigure their systems to engage in continuous liquidity flows in markets, facilitate liquidity flows in markets, functional and performance testing, the reduce pricing errors, and thus improve reduce pricing errors, and thus improve cost of establishing effective the quality of the price discovery the quality of the price discovery coordinated test scripts for the testing, process. process. Furthermore, the Commission and time necessary to conduct the With respect to these benefits, one is unable to quantify the impact of required testing.2034 Another commenter suggested measuring ‘‘delayed’’ trading because it lacks the commenter stated that testing will be benefits of reducing outages and information necessary to provide a costly to ATSs and their subscribers, technical issues by looking at, for reasonable estimate. In particular, data and that the aggregate cost for all would example, loss of trading commissions on the trading activity lost as opposed be higher than the $66 million estimated due to outages.2030 This commenter to ‘‘delayed’’ due to the two-day market in the SCI Proposal.2035 This commenter estimated that the potential loss of closure would be extremely difficult to noted that the cost includes the time, equity commissions by broker-dealers piece together in a meaningful way. resources, and professional staff that over the two-day market closure from would be devoted to the testing process, Superstorm Sandy may have been Costs to SCI Entities and the resulting lost business approximately $374 million.2031 The The mandatory testing of SCI entity opportunities associated with the ability business continuity and disaster to focus on revenue generating 2029 See Proposing Release, supra note 13, at recovery plans, including backup 2036 18164. systems, as required under Rule 1004, projects. In addition, this 2030 See Angel Letter at 15–16. The Commission will result in additional costs to SCI commenter stated that, while also notes that this commenter and others expressed entities. The Commission notes that connectivity between an ATS and its the view that enhanced BC/DR testing would have subscribers may already be established, substantial benefits. See, e.g., id. at 9–10 (stating some SCI entities already offer that the ‘‘ability of SROs to require their members availability for their members or additional configurations and build out to participate in testing is an important step forward participants to test business continuity of systems may be required to create a in making sure that testing is as realistic as possible and disaster recovery plans. testing environment that simulates live . . . [and] is one of the most valuable parts of market conditions.2037 Regulation SCI and will do the most to ensure Furthermore, as mentioned above, improved market network reliability’’); and UBS market participants, including SCI Another commenter stated that there Letter at 5 (stating that the ‘‘critical task of BCP entities, already coordinate certain are dozens of man-days of pre-test testing should not be undertaken in isolated silos planning, preparation, pre-testing by individual firms. Individual BCP testing that business continuity plan testing to an does not involve realistic scenarios with connected extent. However, Rule 1004 mandates testing, testing, and post-mortem participants may mask gaps and/or be insufficient participation in testing for some entities reviews for SCI entities associated with 2038 from a systems integrity standpoint’’ and that the that do not currently participate, the industry test initiatives. benefits of a ‘‘new and more comprehensive BCP According to this commenter, there are testing paradigm’’ would be ‘‘broad and requires more rigorous testing than considerable’’). currently required, and requires greater anywhere from tens to hundreds of 2031 This commenter based this estimate on coordination than SCI entities and business and technology staff engaged FINRA member equity commissions in 2010 market participants currently engage in. obtained from SIFMA. See Angel Letter at 16. In 2033 Administrative costs associated with addition, this commenter referred to the losses and In particular, Rule 1004 requires SCI entities to designate their members or coordinating testing are included as part of the PRA legal and administrative costs associated with the burden of Rule 1004. See supra Section V.D.1.b. As Facebook IPO, as well as the losses associated with participants to participate in business discussed in Section V.D.1.b, the Commission the May 6, 2010 incident. See id. at 15–16. This continuity and disaster recovery plan continues to believe that plan processors will commenter also more generally stated that the testing and to coordinate such testing outsource the work related to compliance with Rule benefits of reducing outages and major technical 1004. issues are pretty straightforward—catastrophic with other SCI entities on an industry- 2034 See supra Section IV.B.6.b (discussing failures in exchange systems are extremely costly, comments on proposed Rule 1000(b)(9)). both in terms of direct losses to participants and in 2032 As noted by this commenter, the $374 million 2035 See ITG Letter at 15–16. reduced investor confidence in the markets. See id. loss does not include lost trading profits to 2036 at 15. According to this commenter, even a modest investors, or loss of utility from being able to hedge See id. reduction in the overall risk of a meltdown is quite risk, monetize holdings, or otherwise trade. See id. 2037 See id. cost effective to the economy as a whole. See id. at 16. 2038 See Tellefsen Letter at 11.

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in this initiative.2039 This commenter those estimated by commenters because entity designated members and estimated the following staff levels of changes made to the proposed rule. participants. In the SCI Proposal, based required to support testing: Exchanges— For example, although Rule 1004 would on discussions with market participants, 175–200+ man-days; member firms— require testing of BC/DR plans that is the Commission estimated that the cost 80–85 man-days; and ATSs—12–25 more rigorous than some types of testing of business continuity and disaster man-days.2040 Based on the urged by some commenters, the adopted recovery plan testing would range from commenter’s upper estimates measured rule includes a more targeted member immaterial administrative costs (for SCI in man-days, the Commission estimated and participant designation provision entity members and participants that monetary values by allocating hours than the proposed rule. As discussed currently maintain connections to SCI among the traders, technologists, above in Section IV.B.6.b, compared to entity backup systems) to a range of programmers/system administrators, proposed Rule 1000(b)(9), the $24,000 to $60,000 per year per member exchange personnel, and analysts Commission believes that the adoption or participant in connection with each necessary for implementation of disaster of a more targeted designation SCI entity.2043 As noted in the SCI recovery testing. This estimation yields requirement is likely to result in a Proposal and also above, the implied annual average total cost smaller number of SCI entity members Commission understood that most of the estimates of $500,000 and $60,000 for or participants being designated to larger members or participants of SCI exchanges and ATSs, respectively.2041 participate in business continuity and entities already maintain connectivity For the reasons discussed below, the disaster recovery plans testing and thus with the backup systems of SCI entities Commission believes that this should result in lower costs for SCI and, thus, the additional connectivity commenter’s cost estimate does not entities to coordinate testing.2042 costs imposed by proposed Rule accurately reflect the costs to SCI The Commission is unable to provide 1000(b)(9) to these larger members or entities. a quantified estimate of the specific participants may be minimal.2044 The Commission recognizes that the costs for SCI entities associated with the However, among smaller members or factors described by commenters will mandatory testing of SCI entity business participants of SCI entities, the number contribute to costs for SCI entities continuity and disaster recovery plans, of members or participants who associated with business continuity and including backup systems. Although maintain such connectivity is lower.2045 disaster recovery plans testing. For several commenters provided general Therefore, costs at the higher end of the example, as discussed in Section estimates as to the costs of compliance estimated range would accrue for IV.B.6.b, the Commission acknowledges with Rule 1004, these commenters did members or participants who would that systems reconfiguration for not provide their assumptions or a need to invest in additional functional and performance testing and description of the quantified costs infrastructure and to maintain establishing an effective coordinated associated with each potential source of connectivity with an SCI entity’s backup test script could be a complex process costs. Given the lack of information systems in order to participate in and result in costs. At the same time, the provided by commenters and that these testing. Commission believes that systems costs could vary significantly based on Furthermore, in the SCI Proposal, the reconfiguration and the establishment of the specific systems of each SCI entity, Commission acknowledged that it is an effective coordinated test script is an the Commission is unable to determine difficult to provide an estimate for the important first step in establishing whether the costs provided by total aggregate cost to SCI entity robust and effective business continuity commenters are representative. members or participants under and disaster continuity plans testing. Additionally, the Commission notes that proposed Rule 1000(b)(9).2046 Because The Commission also notes that costs of commenters appeared to focus on costs each SCI entity had discretion in Rule 1004 are likely to be lower than as if assuming there is no testing today. determining its standards for Because SCI entities currently engage in designating members or participants for 2039 See id. some coordinated BC/DR testing, the the testing required by proposed Rule 2040 See id. Commission believes that the average 1000(b)(9)(i), the Commission did not 2041 The allocations are based on Commission incremental cost to SCI entities, in have enough information to estimate the staff experience that exchanges would divide their addition to the burden estimated in the number of members or participants at personnel as 85% technologists, 5% exchange rule PRA, would be lower than these enforcement personnel, and 10% business analysts, each SCI entity that would be and ATSs are assumed to divide their personnel as commenters’ cost estimates. The designated as required to participate in 90% technologists and 10% business analysts based Commission also believes that costs testing and to determine whether such on staff experience. The hourly rates are from would be significantly lower in the year designated members or participants are SIFMA’s Management & Professional Earnings in following the initial year of testing. the Securities Industry 2012, modified by those that already maintain connections Commission staff to account for an 1800-hour work- Because the Commission does not have to SCI entity backup systems. With year and multiplied by 5.35 to account for bonuses, detailed information regarding the limited information, the Commission firm size, employee benefits and overhead. The current level of BC/DR testing and × provided a total aggregate annual cost calculation for ATSs was as follows: 25 days (10% coordination of such testing by each SCI time required by analysts × $245/hour + 90% time estimate in the SCI Proposal of required by technologists × $282/hour) = $55,660 entity, and the cost associated with such approximately $66 million for per ATS. For each exchange: 200 days × (85% time testing and coordination, however, the designated members and participants to required by technologists × $282/hour + 10% time Commission cannot at this time provide required by analysts × $245/hour + 5% time participate in business continuity and a quantified estimate of the cost for SCI 2047 required by supervisors × $446/hour) = $458,400 disaster recovery plans testing. per exchange. The Commission has rounded up entities to comply with Rule 1004. Several commenters stated that the because the breakdown between analysts, Commission underestimated the cost of supervisors, and technologists may vary between Costs to SCI Entity Members and ATSs and Exchanges. Participants 2043 See Proposing Release, supra note 13, at In the absence of a specific estimate provided by The Commission believes that Rule 18172. the commenter for plan processors or clearing 2044 agencies, the estimate for exchanges is assumed to 1004 will also impose costs on SCI See id. at 18172 and n. 642. apply to these types of SCI entities. Estimates for 2045 See id. at 18172. members and participants are discussed separately 2042 See supra Section IV.B.6.b (discussing the 2046 See id. below. designation requirement in adopted Rule 1004). 2047 See id. at 18172 and n.643.

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business continuity and disaster suggested that the standard for discussed below, the Commission recovery plan testing under proposed designating members should be those believes that this commenter’s cost Rule 1000(b)(9). One commenter noted members ‘‘critical to the operation of the estimate does not accurately reflect the that the Commission failed to take into SCI entity.’’ 2056 costs to members or participants. account those SCI entities that engage in Another commenter estimated that The Commission acknowledges that systems-specific testing upon the costs to a market making firm to members or participants will incur costs implementation or initial connection by support fully redundant exchange and as a result of Rule 1004. However, the a market participant, but do not engage ATS backup facilities would be Commission believes that the members in business continuity and disaster approximately $7 million to $10 million or participants likely to be designated to recovery testing with the participation in initial capital, with annual costs of participate in such testing are those that of market participants.2048 One between $5 million and $9 million.2057 conduct a high level of activity with the commenter noted that the average cost According to this commenter, this cost SCI entity, or that play an important role for a broker-dealer to maintain fully is not justified by the benefits because for the SCI entity (such as market redundant systems at all relevant backup facilities would not be used in makers), and who are more likely to exchange backup facilities would be the event of an outage at the primary have already established connections to approximately $3 million annually, site,2058 and would lead firms to the SCI entity’s backup site. The according to one of its informal reconsider their ability to make markets Commission believes that many of these surveys.2049 Further, this cost would not on as many trading platforms and members or participants already have include the initial capital costs related potentially reduce price established connectivity with the SCI to the infrastructure or the labor/ competition.2059 entity’s backup site and already monitor employment necessary for the The same commenter who provided and maintain such connectivity, and maintenance and monitoring of backup an estimate of burdens for SCI entities thus the additional connectivity costs connection and facilities.2050 expressed the view that there are also imposed by Rule 1004 would be modest Other commenters stated that the dozens of man-days of pre-test planning, to these members or participants. Commission underestimated other preparation, pre-testing testing, testing, For members or participants that aspects of the cost of business and post-mortem reviews for members currently do not have connectivity, the continuity and disaster recovery plan and participants that would be Commission recognizes the testing under proposed Rule 1000(b)(9). associated with industry test requirements of Rule 1004 will impose One commenter believed that the initiatives.2060 Based on the costs on members or participants in requirement for members to connect to commenter’s upper estimates for establishing, maintaining, and an SCI entity’s backup site could pose member firms, measured in man-days, monitoring backup connection and significant economic burden and the Commission assigned monetary facilities. The Commission believes that 2051 provide little benefit to the market. values using appropriate hours a few commenters who stated that the This commenter believed that the cost allocation among the traders, Commission underestimated these costs of such connections would be well over technologists, programmers/system may have based their cost estimates for the $10,000 per connection that the proposed Rule 1000(b)(9) on the 2052 administrators, exchange personnel, and Commission estimated. According to analysts necessary for implementation assumption that member connections to this commenter, establishing and of disaster recovery testing. This SCI entities’ backup systems need to be 2062 maintaining a connection with procedure yields an annual average total the same as those at the primary site. comparable trading capability and cost estimate of about $200,000 for each However, as discussed above in Section latency could cost a broker-dealer that member firm.2061 For the reasons IV.B.6, Rule 1004 does not require SCI co-locates at an SCI entity’s data center entity members or participants to between $15,000 and $20,000 monthly 2056 See id. According to this commenter, under maintain the same level of connectivity simply for the necessary communication the suggested standard, its focus would be on its with the backup sites of an SCI entity as lines.2053 In addition, this commenter seven Primary Market Makers who provide they do with the primary sites. In the noted that such members would need continuous liquidity, and these members would event of a wide-scale disruption in the additional hardware (estimated to be up provide a baseline of liquidity for trading. See id. However, this commenter believed that, in order to securities markets, the Commission to $500,000) to establish an appropriate satisfy the standard to provide ‘‘fair and orderly acknowledges that an SCI entity and its presence at the backup site to ensure trading,’’ it may need to require some or all of its members or participants may not be able that they could trade in an efficient 145 Electronic Access Members who access to provide the same level of liquidity as manner with low latency.2054 This liquidity. See id. 2057 See KCG Letter at 4, 12. This commenter on a normal trading day. In addition, the commenter believed that compliance stated that the cost of supporting a backup facility Commission recognizes that the concept with the Rule 1000(b)(9) requirements of an SCI entity would be reduced, if the backup of ‘‘fair and orderly markets’’ does not could cause broker-dealers to reduce the facility of an SCI entity were at the primary site of require that trading on a day when number of SCI entities through which another SCI entity where the market maker traded. business continuity and disaster they trade.2055 This commenter See id. at 12. 2058 See id. at 4. recovery plans are in effect reflect the 2059 See id. at 12. same level of liquidity, depth, volatility, 2048 See MSRB Letter at 38. 2060 See also supra note 2038 and accompanying and other characteristics of trading on a 2049 See FIA PTG Letter at 3. See also BIDS Letter text (discussing this commenter’s cost estimate for at 8 (commenting that testing and backup normal trading day. SCI entities). The Commission, however, is unable connections are expensive, and the expense of the 2061 connections could outweigh the value or the The allocations are based on the staff to provide a quantified estimate of the utilization of the value that certain venues provide). experience that member firms divide their personnel as 45% traders, 45% technologists, and 2050 See FIA PTG Letter at 3. This commenter 10% business analysts. The hourly rates are from + 45% time required by technologists × $282/hour noted that the costs vary widely among members SIFMA’s Management & Professional Earnings in + 45% time required by traders × $312/hour) = and exchanges but are not insubstantial. See id. the Securities Industry 2012, modified by $198,424 per member firm. 2051 See ISE Letter at 9. Commission staff to account for an 1800-hour work- 2062 See supra notes 2049, 2050, 2052–2054, and 2052 See id. year and multiplied by 5.35 to account for bonuses, 2057 and accompanying text (discussing 2053 See id. firm size, employee benefits and overhead. The commenters’ estimates of the cost to maintain fully 2054 See id. calculation for member firms was as follows: 85 redundant systems at relevant SCI entity backup 2055 See id. days × (10% time required by analysts × $245/hour facilities).

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specific costs for SCI entity members or event of a wide-scale disruption, and reasonable discretion to identify those participants associated with the believes that the costs that would be members or participants that, taken as a mandatory testing required by Rule incurred by essential market whole, are the ‘‘minimum necessary’’ 1004. Although several commenters participants are appropriate in light of for the maintenance of fair and orderly provided general estimates as to the the benefits discussed above.2064 markets in the event of the activation of costs of compliance with Rule 1004, Although the Commission generally such plans is likely to result in a smaller these commenters did not provide their believes that the aggregate cost to SCI number of SCI entity members or assumptions or a description of the entity members or participants under participants being designated for quantified costs associated with each Rule 1004 will be lower than the cost participation in testing as compared to potential source of costs. Given the lack estimated for proposed Rule 1000(b)(9), the SCI Proposal, thus reducing total of information provided by commenters the Commission continues to believe it costs to all members or participants and that these costs could vary is difficult to provide an estimate for the combined. Because the Commission significantly based on the specific aggregate cost to SCI entity members or believes that SCI entities have an systems of each SCI entity and member participants because under Rule 1004, incentive to limit the imposition of the or participant, the Commission is each SCI entity has reasonable cost and burden associated with testing unable to determine whether the costs discretion in designating its members or to the minimum necessary to comply provided by commenters are participants for the required testing, with the rule, it also believes that, given representative. Additionally, the and, as noted above, the Commission the option, most SCI entities would, in Commission notes that some does not possess necessary information the exercise of reasonable discretion, commenters appeared to focus on costs to estimate the number of designated prefer to designate fewer members or as if assuming there is no testing today. members or participants and to participants to participate in testing, Because some members and participants determine whether such designated than to designate more. On balance, the of SCI entities currently participate in members or participants are those that Commission believes that the adopted SCI entities’ BC/DR testing, these already have established and rule will incentivize SCI entities to members and participants would not maintained connectivity to the SCI designate those members and incur the full costs estimated by the entity’s backup systems. Accordingly, participants that are in fact the commenters. Thus the Commission the Commission cannot at this time minimum necessary for the believes that the average incremental provide a quantified estimate of the total maintenance of fair and orderly markets cost to members or participants would aggregate cost to SCI entity members or in the event of the activation of their 2065 be lower than these commenter’s participants under Rule 1004. BC/DR plans, and that this should estimates because the estimates do not Moreover, as noted above in Section reduce the number of designations to account for current practices. The IV.B.6.b, the Commission believes that which any particular member or adoption of a designation requirement Commission also believes that costs will participant would be subject, compared that requires SCI entities to exercise be highly variable among member firms, to the SCI Proposal. and will be significantly lower in the 2064 It remains possible, as some year following the initial year of testing. Further, in response to comment that the added benefit of requiring fully redundant backup commenters noted, that firms that are Because the Commission does not have systems is almost impossible to measure while the members of multiple SCI entities will be detailed information regarding the cost of implementation is significant, the the subject of multiple designations, and current level of engagement by members Commission acknowledges that testing of a BC/DR plan does not guarantee flawless execution of that that multiple designations could require or participants in BC/DR testing and the plan, but still believes testing is warranted because certain firms to maintain connections to associated costs, or the details of the a tested plan is likely to be more reliable and backup sites and participate in testing of BC/DR testing that SCI entities will effective than an inadequately tested plan. the BC/DR plans of multiple SCI 2065 The Commission believes that it can implement pursuant to Rule 1004, the entities. As discussed in Section Commission cannot at this time provide reasonably estimate connectivity costs but not all costs associated with BC/DR testing. With respect IV.B.6.b, the Commission believes this a precise quantified estimate of the cost to connectivity, the Commission now estimates that possibility, though real, may be for SCI entities’ designated members or Rule 1004 will impose a total aggregate annual cost mitigated by the fact that designations of approximately $18 million for designated participants to comply with Rule are likely to be made to firms that are 2063 members and participants. This estimate assumes 1004. The Commission also notes that each of the 44 SCI entities will designate already connected to one or more SCI that it is critical that SCI entities and between 10 and 20 percent of its members or entity backup facilities, because they are their designated members or participants to participate in the necessary testing. more likely to be significant members or participants be able to operate with the This 10–20 percent estimate is based on staff experience and takes into consideration comment participants of the applicable SCI SCI entities’ backup systems in the that typically 20 percent of an SCI entity’s members entities; and that, because some SCI might provide 80 percent of the order flow or entity backup facilities are located in 2063 Although the Commission cannot at this time liquidity (see Tellefsen Letter at 9), and balances it precisely estimate the total cost of compliance with against another commenter’s view that if the close proximity to each other, multiple Rule 1004, the Commission believes that $10,000 on standard for designation was to identify those firms connections to such backup facilities average per SCI entity is a reasonable estimate ‘‘critical to the operation of the SCI entity’’ (which may be less costly than if SCI entity solely for the incremental cost of connectivity is more targeted than the adopted standard), this backup facilities were not so located. associated with the requirements of Rule 1004. As commenter would designate approximately five noted above, the Commission continues to believe percent of its members to participate in testing (see The Commission recognizes that there that it is reasonable to estimate that the members ISE Letter at 9). The Commission understands that would be greater costs to a firm being or participants of SCI entities that are most likely many SCI entities have between 200 and 400 designated by multiple SCI entities to to be designated as required to participate in testing members or participants, although some have more participate in the testing of their are those that conduct a high level of activity with and some have fewer. Therefore, the Commission business continuity and disaster the SCI entity, or that play an important role for the estimates that on average, each SCI entity will SCI entity (such as market makers), and that such designate approximately 40 members or recovery plans, but believes that these members or participants are likely to already participants in such testing. Based on these greater costs are warranted for such maintain connectivity with an SCI entity’s backup assumptions, the Commission estimates the total firms, as they represent significant systems. Therefore, the Commission is not aggregate cost for connectivity to all designated participants in each of the SCI entities persuaded that its estimate of the average members or participants of all SCI entities to be connectivity cost for each member or participant of approximately $17.6 million (44 SCI entities × 40 for which they are designated, and their an SCI entity should be modified from $10,000. members or participants × $10,000 = $17.6 million). participation in the testing of each such

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SCI entity’s business continuity and member or participant designation will help ensure adequate levels of disaster recovery plans is necessary to requirement of Rule 1004 could raise liquidity and pricing efficiency to evaluate whether such plans are reliable barriers to entry. Also, as discussed facilitate trading and maintain fair and and effective. The Commission above, the compliance costs of the rule orderly markets without imposing recognizes that a firm that is designated will likely be higher for smaller excessive costs on SCI entities and to participate in testing with multiple members or participants of SCI entities market participants by requiring them to SCI entities may assess the costs and compared to larger members or maintain the same connectivity with the burdens of participating in every test to participants of SCI entities. However, backup systems as with the primary be too great, and make business the Commission believes the adverse sites. decisions to withdraw its membership effect on competition may be mitigated or participation from one or more such to some extent as the most likely Alternatives SCI entities so as to avoid the costs and members or participants to be Several commenters suggested burdens of such testing. The designated for testing are larger alternatives to the proposed BC/DR Commission believes such a scenario is members or participants who already testing requirements.2071 Two unlikely because such firm is likely to maintain connectivity with an SCI commenters suggested that few ATSs be a larger firm with a significant level entity’s backup systems. Further, the are critical enough to warrant inclusion of participation in such SCI entity and adverse effect on competition could be in the BC/DR testing requirement.2072 is likely to already have connections to partially mitigated to the extent that One commenter suggested that only SCI backup facilities of the SCI entity. larger firms, which are members of entities that provide market functions The Commission believes that the cost multiple SCI entities, could incur on which other market participants associated with Rule 1004 is unlikely to additional compliance costs as these depend be subject to the requirements induce the designated members or larger member firms could be subject to for separate backup and recovery participants to reduce the number of SCI multiple designations for business capabilities.2073 Furthermore, one entities through which they trade and continuity and disaster recovery plan commenter urged that BC/DR testing adversely affect price competitiveness testing. coordination only be required among in markets.2066 As noted above, the One commenter noted that mere providers of singular services in the Commission also recognizes that costs network connectivity to an exchange or market (i.e., exchange that lists to some SCI entity members or ATS would be insufficient for a market securities, exclusive processors under participants associated with Rule 1004 maker to provide meaningful liquidity NMS plans, and clearing and settlement could be significant, and also highly on an SCI entity.2068 This commenter agencies).2074 variable depending on the business noted that, if the Commission does not The Commission is not persuaded continuity and disaster recovery plans intend for SCI entities to be able to trade that SCI ATSs should be excluded from being tested. Based on industry sources, in the same way from a backup facility the requirements of BC/DR testing the Commission understands that most as it trades from the primary site, then plans. In today’s market, as discussed in of the larger members or participants of market makers could maintain a more Section IV.A.1.b, ATSs collectively SCI entities already maintain limited remote connectivity to the represent a significant source of connectivity with the backup systems of backup site and incur less cost, although liquidity for stock trading. Although the SCI entities. However, the Commission this commenter believed that such an concept of ‘‘fair and orderly markets’’ understands that there is a lower approach would not facilitate the when BC/DR plans are in effect does not incidence of smaller members or posting of competitive quotes.2069 This require the same level of liquidity, participants maintaining connectivity commenter believed that this alternative depth, volatility, and other with the backup sites of SCI entities.2067 approach would result in unusually characteristics of trading on a normal As such, the Commission believes that wide markets, and would not result in trading day, the Commission believes 2070 the compliance costs associated with any benefits. that excluding significant ATSs from Rule 1004 would be higher for those As discussed in Section IV.B.6, Rule BC/DR testing could harm liquidity, members or participants that are 1001(a) does not require that backup depth, and volatility when BC/DR plans designated for testing by SCI entities facilities of SCI entities fully duplicate are in effect and, thus, could who would need to invest in additional the features of primary facilities. Further significantly reduce the benefits of Rule infrastructure to maintain connectivity as discussed in Section IV.B.6, SCI 1004. Furthermore, with respect to the with an SCI entity’s backup systems to entity members or participants are not commenter that urged the Commission participate in testing, which the required by Regulation SCI to maintain only to include providers of singular Commission believes is more likely to the same level of connectivity with the services in BC/DR testing coordination, be the case for smaller members or backup sites of an SCI entity as they do as mentioned in Section IV.A.1.b, participants designated for testing. with the primary sites. In the event of because trading in the U.S. securities The Commission acknowledges that a wide-scale disruption in the securities markets today is dispersed among the compliance costs associated with markets, the Commission acknowledges exchanges, ATSs, and other trading Rule 1004 could raise barriers to entry that SCI entities and their members or venues, and often involves trading and affect competition among members participants may not be able to provide strategies that require access to multiple or participants of SCI entities. the same level of liquidity as on a trading venues, including ATSs, Specifically, to the extent that members normal trading day. However, the simultaneously, including all SCI or participants could be subject to Commission expects that, on a day entities, the Commission believes that designation in business continuity and when business continuity and disaster requiring SCI entities to coordinate disaster recovery plan testing and could recovery plans are in effect due to a testing would result in testing under incur additional compliance costs, the wide-scale disruption in the securities markets, the requirements of Rule 1004 2071 See SIFMA Letter at 17; BIDS Letter at 8; and 2066 See supra notes 2055 and 2059 and ITG Letter at 15. accompanying text. 2068 See KCG Letter at 12. 2072 See BIDS Letter at 8; and ITG Letter at 15. 2067 See Proposing Release, supra note 13, at 2069 See id. at 13. 2073 See KCG Letter at 8. 18172, n. 642. 2070 See id. at 13. 2074 See Direct Edge Letter at 9.

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more realistic market conditions and Commission to evaluate SCI entities’ Commission staff can identify conduct help ensure that securities markets have compliance with Regulation SCI. inconsistent with Regulation SCI at improved backup infrastructure, fewer With respect to SCI SROs in earlier stages in the inspection and market shutdowns, and fair and orderly particular, the Commission notes that examination process. Furthermore, as markets in the event of the activation of they are subject to the recordkeeping discussed in Section IV.C.1.a, although BC/DR plans. requirements of Rule 17a–1 under the many SCI events may be resolved in a Exchange Act, and the breadth of Rule short time frame, there may be other SCI Furthermore, one commenter stated 17a–1 is such that it would require SCI events that may not be discovered for an that coordinated BC/DR testing is a good SROs to make, keep, and preserve extended period of time after their aspirational goal, but expressed concern records relating to their compliance occurrences, or may take significant that too much is outside of the control with Regulation SCI. Therefore, Rule periods of time to fully resolve. In such of an individual SCI entity, and 1005(a) requires each SCI SRO to make, cases, having an SCI entity’s records therefore the rule should, at most, keep, and preserve all documents available for a longer period of time or require SCI entities to attempt to relating to its compliance with even after it has ceased to do business coordinate such testing.2075 With Regulation SCI as prescribed in Rule or be registered under the Exchange Act respect to the comment suggesting that 17a–1 under the Exchange Act.2078 would be beneficial. Preserved BC/DR testing coordination should be Rule 1005(b) requires each SCI entity information should provide the an aspirational goal rather than a that is not an SCI SRO to make, keep, Commission with an additional source requirement, the Commission believes and preserve at least one copy of all to help determine the causes and that voluntary BC/DR testing is documents relating to its compliance consequences of one or more SCI events insufficient and will not further the goal with Regulation SCI. Each such SCI and better understand how such events of Regulation SCI as evidenced by entity is required to keep all such may have impacted trade execution, Superstorm Sandy discussed in Section documents for a period of not less than price discovery, liquidity, and investor IV.B.6. As discussed above, the five years, the first two years in a place participation. Consequently, the Commission acknowledges that there that is readily accessible to the Commission believes that the could be potential difficulties, including Commission or its representatives for requirements of Rules 1005 and 1007 communicating with other SCI entities, inspection and examination. Each such would help ensure compliance with in coordinating BC/DR testing on an SCI entity is also required to promptly Regulation SCI and help realize the industry- or sector-wide basis. furnish copies of such documents to potential benefits (e.g., better pricing Commission representatives upon efficiency, price discovery, and liquidity c. Recordkeeping and Electronic request. Rule 1005(c) requires each such flows) of the regulation. Filing—Rules 1005–1007 SCI entity, upon or immediately prior to As noted above, the breadth of Rule 17a–1 under the Exchange Act is such Entities that participate in the ARP ceasing to do business or ceasing to be registered under the Exchange Act, to that it would require SCI SROs to make, Inspection Program currently keep take all necessary action to ensure that keep, and preserve records relating to records related to the ARP Inspection the records required to be made, kept, their compliance with Regulation SCI. Program. However, the recordkeeping and preserved by Rule 1005 shall be Therefore, for SCI SROs, the requirements of Rules 1005–1007 would accessible to the Commission and its incremental compliance costs associated apply to more entities, systems, and representatives in the manner required with Rules 1005 and 1007 will be types of systems issues than the ARP by Rule 1005 and for the remainder of modest.2079 On the other hand, for SCI Inspection Program. In addition, SCI the period required by Rule 1005. entities that are not SCI SROs, the entities are already subject to certain According to Rule 1007, if the records recordkeeping requirements of Rules Commission recordkeeping required to be filed or kept by an SCI 1005 and 1007 will impose additional requirements.2076 However, records entity under Regulation SCI are costs, including one-time cost to set up relating to Regulation SCI may not be prepared or maintained by a service or modify an existing recordkeeping specifically addressed in the bureau or other recordkeeping service system to comply with Rules 1005 and recordkeeping requirements of certain on behalf of the SCI entity, the SCI 1007. The initial and ongoing rules.2077 The Commission believes that entity is required to ensure that such compliance costs associated with the the recordkeeping requirements records are available for review by the recordkeeping requirements are specifically related to Regulation SCI Commission and its representatives by attributed to paperwork burdens, which would enhance the ability of the submitting a written undertaking, in a are discussed in Section V.D.4 form acceptable to the Commission, by above.2080 2075 See CME Letter at 13. such service bureau or other Rule 1006 requires SCI entities to 2076 See, e.g., 17 CFR 240.17a–1, applicable to SCI recordkeeping service to that effect. electronically file all written SROs; 17 CFR 240.17a–3 and 17a–4, applicable to For SCI entities other than SCI SROs, information to the Commission on Form broker-dealers; and 17 CFR 242.301–303, applicable SCI (except for notifications submitted to ATSs. Rule 1005 specifically addresses It has been the experience of the Commission that recordkeeping requirements with pursuant to Rules 1002(b)(1) and (b)(3)). SCI entities presently subject to the ARP Inspection respect to records relating to Regulation Program (nearly all of whom are SCI SROs that are SCI compliance. The Commission 2079 As noted above, it has been the experience of also subject to the recordkeeping requirements of believes that Rules 1005 and 1007 the Commission that SCI entities presently subject Rule 17a–1(a)) do generally keep and preserve the to the ARP Inspection Program generally keep and types of records that would be subject to the would allow Commission staff to preserve the types of records that would be subject requirements of Rule 1005. Nevertheless, the perform efficient inspections and to the requirements of Rule 1005. Nearly all of these Commission continues to believe that Regulation examinations of SCI entities for their ARP participants are SCI SROs that are also subject SCI’s codification of these preservation practices compliance with Regulation SCI, and to the recordkeeping requirements of Rule 17a–1. will support an accurate, timely, and efficient 2080 When monetized, the paperwork burden inspection and examination process and help would increase the likelihood that associated with all recordkeeping requirements ensure that all types of SCI entities keep and would result in approximately $857,000 initially for preserve such records. 2078 See supra Section IV.C.1.a (discussing all non-SRO SCI entities in the aggregate, and 2077 See Proposing Release, supra note 13, at recordkeeping requirements for SROs under Rule $27,000 annually for all non-SRO SCI entities in the 18128. 17a–1). aggregate.

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Rule 1006 should provide a uniform accounted for in the paperwork under the Exchange Act, or, if not manner in which the Commission burden.2085 required to file such statements, had would receive—and SCI entities would As an alternative to the adopted total capital of less than $500,000 on the provide—written notifications, reviews, electronic submission requirement, the last business day of the preceding fiscal descriptions, analyses, or reports Commission considered requiring data year (or in the time that it has been in required by Regulation SCI.2081 Rule to be submitted in a tagged data format business, if shorter), and that is not 1006 should add efficiency for SCI such as XBRL. Requiring reports to be affiliated with any person (other than a entities in drafting and submitting the filed in a tagged data format such as natural person) that is not a small required reports, and for the XBRL would likely permit faster and business or small organization.2089 With Commission in reviewing, analyzing, more efficient analysis of information regard to clearing agencies, small entity and responding to the information disclosed in reports but would also means a clearing agency that compared, provided.2082 All costs associated with likely impose additional compliance cleared, and settled less than $500 Form SCI are attributed to paperwork costs associated with tagging million in securities transactions during burdens discussed in Section V. information in the narrative responses. the preceding fiscal year (or in the time Rather than requiring the use of XBRL that it has been in business, if shorter), Every SCI entity will be required to formatting for Form SCI, the had less than $200 million of funds and have the ability to electronically submit Commission notes that certain fields in securities in its custody or control at all Form SCI through the EFFS system, and Sections I–III of Form SCI will require times during the preceding fiscal year every person designated to sign Form information provided by SCI entities to (or in the time that it has been in SCI will be required to have an be in a format that will allow the business, if shorter), and is not affiliated electronic signature and a digital ID. Commission to gather information in a with any person (other than a natural Each SCI entity will also be required to structured manner (e.g., the submission person) that is not a small business or submit documents attached as exhibits type and SCI event type in Section I). By small organization.2090 With regard to through the EFFS system in a text- collecting information on Form SCI in a exchanges, small entity means an searchable format, subject to a limited way that allows the Commission to exchange that has been exempt from the 2083 exception. The Commission believes gather key information in a structured reporting requirements of Rule 601 that requiring documents to be manner, the Commission believes it will under Regulation NMS, and is not submitted in a text-searchable format, be able to more efficiently review and affiliated with any person (other than a subject to a limited exception, is process filings made on Form SCI. natural person) that is not a small necessary to allow Commission staff to Moreover, gathering certain information business or small organization.2091 With efficiently review and analyze in Sections I–III of Form SCI in a regard to securities information information provided by SCI entities. structured format should not result in processors, small entity means a Additionally, the Commission believes an additional cost to SCI entities. securities information processor that that this requirement will not impose an had gross revenue of less than $10 additional burden on SCI entities, as SCI VII. Regulatory Flexibility Act million during the preceding fiscal year entities likely already prepare Certification (or in the time it has been in business, documents in an electronic format that The Regulatory Flexibility Act if shorter), provided service to fewer is text searchable or can readily be (‘‘RFA’’) 2086 requires Federal agencies, than 100 interrogation devices or converted into a format that is text in promulgating rules, to consider the moving tickers at all times during the searchable. The Commission also impact of those rules on small entities. preceding fiscal year (or in the time it believes that many SCI entities currently The Commission certified in the SCI has been in business, if shorter), and is have the ability to access the EFFS Proposal, pursuant to Section 605(b) of not affiliated with any person (that is system and electronically submit Form the Regulatory Flexibility Act of 1980 not a natural person) that is not a small SCI such that the requirement to submit (‘‘RFA’’),2087 that proposed Regulation business or small organization.2092 Form SCI electronically will not impose SCI would not, if adopted, have a Under the standards adopted by the significant new implementation or significant impact on a substantial Small Business Administration ongoing costs.2084 The Commission also number of small entities. The (‘‘SBA’’), entities engaged in financial believes that some of the persons who Commission received no comments on investments and related activities are will be designated to sign Form SCI this certification. considered small entities if they have $35.5 million or less in average annual already have digital IDs and the ability A. SCI Entities to provide an electronic signature. To receipts.2093 the extent that some persons do not Paragraph (a) of Rule 0–10 provides Based on the Commission’s existing have digital IDs, the additional cost to that for purposes of the RFA, a small information about the entities that will obtain and maintain digital IDs is entity when used with reference to a be subject to Regulation SCI, the ‘‘person’’ other than an investment Commission believes that SCI entities that are self-regulatory organizations 2081 See Proposing Release, supra note 13, at company means a person that, on the 18129–30. last day of its most recent fiscal year, 2082 See id. at 18130. had total assets of $5 million or less.2088 2089 See 17 CFR 240.0–10(c). 2083 As noted in Section IV.C.2, the General With regard to broker-dealers, small 2090 See 17 CFR 240.0–10(d). Instructions to Form SCI, Item A. specify that entity means a broker or dealer that had 2091 See 17 CFR 240.0–10(e). 2092 documents filed through the EFFS system must be total capital of less than $500,000 on the See 17 CFR 240.0–10(g). in a text-searchable format without the use of 2093 See SBA’s Table of Small Business Size optical character recognition, with a limited date in the prior fiscal year as of which Standards, Subsector 523 and 13 CFR 121.201. Such exception to allow for a portion of a Form SCI its audited financial statements were entities include firms engaged in investment submission (e.g., an image or diagram) that cannot prepared pursuant to Rule 17a–5(d) banking and securities dealing, securities brokerage, be made available in a text-searchable format to be commodity contracts dealing, commodity contracts submitted in a non-text-searchable format. brokerage, securities and commodity exchanges, 2085 2084 The initial and ongoing costs associated with See supra Section V.D.2.e. miscellaneous intermediation, portfolio various electronic submissions of Form SCI are 2086 5 U.S.C. 601 et seq. management, investment advice, trust, fiduciary discussed in the Paperwork Reduction Act section 2087 5 U.S.C. 605(b). and custody activities, and miscellaneous financial above. See supra Section V. 2088 See 17 CFR 240.0–10(a). investment activities.

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(national securities exchanges, national PART 240—GENERAL RULES AND ■ 6. Add §§ 242.1000 through 242.1007 securities associations, registered REGULATIONS, SECURITIES to read as follows: clearing agencies, and the MSRB) or EXCHANGE ACT OF 1934 Sec. exempt clearing agencies subject to ARP Regulation SCI—Systems Compliance and ■ would not fall within the Commission’s 1. The authority citation for part 240 Integrity continues to read in part as follows: definition of small entity as described 242.1000 Definitions. above. With regard to plan processors, Authority: 15 U.S.C. 77c, 77d, 77g, 77j, 242.1001 Obligations related to policies and which are defined under Rule 600(b)(55) 77s, 77z–2, 77z–3, 77eee, 77ggg, 77nnn, procedures of SCI entities. of Regulation NMS to mean a self- 77sss, 77ttt, 78c, 78c–3, 78c–5, 78d, 78e, 78f, 242.1002 Obligations related to SCI events. regulatory organization or securities 78g, 78i, 78j, 78j–1, 78k, 78k–1, 78l, 78m, 242.1003 Obligations related to systems 78n, 78n–1, 78o, 78o–4, 78o–10, 78p, 78q, changes; SCI review. information processor acting as an 78q–1, 78s, 78u–5, 78w, 78x, 78ll, 78mm, 242.1004 SCI entity business continuity and exclusive processor in connection with 80a–20, 80a–23, 80a–29, 80a–37, 80b–3, 80b– disaster recovery plans testing the development, implementation and/ 4, 80b–11, 7201 et seq., and 8302; 7 U.S.C. requirements for members or or operation of any facility 2(c)(2)(E); 12 U.S.C. 5221(e)(3); 18 U.S.C. participants. contemplated by an effective NMS 1350, unless otherwise noted. 242.1005 Recordkeeping requirements plan,2094 the Commission’s definition of * * * * * related to compliance with Regulation small entity as it relates to self- ■ SCI. 2. Amend § 240.24b–2 by: 242.1006 Electronic filing and submission. ■ regulatory organizations and securities a. After the words PRELIMINARY 242.1007 Requirements for service bureaus. information processors would apply. NOTE: Adding the words ‘‘Except as The Commission does not believe that otherwise provided in this rule,’’ and § 242.1000 Definitions. any plan processor would be a small revising the word ‘‘Confidential’’ to read For purposes of Regulation SCI entity as defined above. With regard to ‘‘confidential’’. (§§ 242.1000 through 242.1007), the SCI ATSs, because they are registered as ■ b. Adding at the beginning of following definitions shall apply: broker-dealers, the Commission’s paragraph (b) introductory text the Critical SCI systems means any SCI definition of small entity as it relates to words ‘‘Except as otherwise provided in systems of, or operated by or on behalf broker-dealers would apply. The paragraph (g) of this section,’’ and of, an SCI entity that: Commission does not believe that any of revising the word ‘‘The’’ to read ‘‘the’’. (1) Directly support functionality ■ the SCI ATSs would be a small entity as c. Adding paragraph (g). relating to: defined above. The addition reads as follows: (i) Clearance and settlement systems of clearing agencies; B. Certification § 240.24b–2. Nondisclosure of information filed with the Commission and with any (ii) Openings, reopenings, and closings on the primary listing market; For the foregoing reasons, the exchange. (iii) Trading halts; Commission again certifies that * * * * * (iv) Initial public offerings; Regulation SCI will not have a (g) An SCI entity (as defined in (v) The provision of consolidated significant economic impact on a § 242.1000 of this chapter) shall not market data; or substantial number of small entities. omit the confidential portion from the material filed in electronic format on (vi) Exclusively-listed securities; or VIII. Statutory Authority and Text of Form SCI pursuant to Regulation SCI, (2) Provide functionality to the Amendments § 242.1000 et. seq., and, in lieu of the securities markets for which the procedures described in paragraph (b) of availability of alternatives is Pursuant to the Exchange Act, 15 this section, may request confidential significantly limited or nonexistent and U.S.C. 78a et seq., and particularly, treatment of all information provided on without which there would be a Sections 2, 3, 5, 6, 11A, 15, 15A, 17, Form SCI by completing Section IV of material impact on fair and orderly 17A, 23(a), and 24 thereof, 15 U.S.C. Form SCI. markets. 78b, 78c, 78e, 78f, 78k–1, 78o, 78o–3, Electronic signature has the meaning 78q, 78q–1, 78x, and 78w(a), the PART 242—REGULATIONS M, SHO, set forth in § 240.19b–4(j) of this Commission adopts Regulation SCI ATS, AC, NMS AND SCI AND chapter. under the Exchange Act and Form SCI CUSTOMER MARGIN REQUIREMENTS Exempt clearing agency subject to under the Exchange Act, and amends FOR SECURITY FUTURES ARP means an entity that has received Regulation ATS and Rule 24b–2 under from the Commission an exemption ■ the Exchange Act. 3. The authority citation for part 242 from registration as a clearing agency continues to read as follows: under Section 17A of the Act, and List of Subjects in 17 CFR Parts 240, Authority: 15 U.S.C. 77g, 77q(a), 77s(a), whose exemption contains conditions 242, and 249 78b, 78c, 78g(c)(2), 78i(a), 78j, 78k–1(c), 78l, that relate to the Commission’s 78m, 78n, 78o(b), 78o(c), 78o(g), 78q(a), Automation Review Policies (ARP), or Brokers; Confidential business 78q(b), 78q(h), 78w(a), 78dd–1, 78mm, any Commission regulation that information; Reporting and 80a23, 80a–29, and 80a–37. supersedes or replaces such policies. recordkeeping requirements; and * * * * * Indirect SCI systems means any Securities. ■ 4. The heading of part 242 is revised systems of, or operated by or on behalf In accordance with the foregoing, to read as set forth above. of, an SCI entity that, if breached, would be reasonably likely to pose a security Title 17, Chapter II of the Code of § 242.301 [Amended] Federal Regulations is amended as threat to SCI systems. follows: ■ 5. Amend § 242.301 by removing Major SCI event means an SCI event paragraphs (b)(6)(i)(A) and (B) and that has had, or the SCI entity redesignating paragraphs (b)(6)(i)(C) and reasonably estimates would have: (D) as paragraphs (b)(6)(i)(A) and (B), (1) Any impact on a critical SCI 2094 See 17 CFR 242.600(b)(55). respectively. system; or

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(2) A significant impact on the SCI association, or registered clearing (iii) A program to review and keep entity’s operations or on market agency, or the Municipal Securities current systems development and participants. Rulemaking Board; provided however, testing methodology for such systems; Plan processor has the meaning set that for purposes of this section, the (iv) Regular reviews and testing, as forth in § 242.600(b)(55). term SCI self-regulatory organization applicable, of such systems, including Responsible SCI personnel means, for shall not include an exchange that is backup systems, to identify a particular SCI system or indirect SCI notice registered with the Commission vulnerabilities pertaining to internal system impacted by an SCI event, such pursuant to 15 U.S.C. 78f(g) or a limited and external threats, physical hazards, senior manager(s) of the SCI entity purpose national securities association and natural or manmade disasters; having responsibility for such system, registered with the Commission (v) Business continuity and disaster and their designee(s). pursuant to 15 U.S.C. 78o–3(k). recovery plans that include maintaining SCI alternative trading system or SCI SCI systems means all computer, backup and recovery capabilities ATS means an alternative trading network, electronic, technical, sufficiently resilient and geographically system, as defined in § 242.300(a), automated, or similar systems of, or diverse and that are reasonably designed which during at least four of the operated by or on behalf of, an SCI to achieve next business day resumption preceding six calendar months: entity that, with respect to securities, of trading and two-hour resumption of (1) Had with respect to NMS stocks: directly support trading, clearance and critical SCI systems following a wide- (i) Five percent (5%) or more in any settlement, order routing, market data, scale disruption; single NMS stock, and one-quarter market regulation, or market (vi) Standards that result in such percent (0.25%) or more in all NMS surveillance. systems being designed, developed, stocks, of the average daily dollar Senior management means, for tested, maintained, operated, and volume reported by applicable purposes of Rule 1003(b), an SCI entity’s surveilled in a manner that facilitates transaction reporting plans; or Chief Executive Officer, Chief the successful collection, processing, (ii) One percent (1%) or more in all Technology Officer, Chief Information and dissemination of market data; and NMS stocks of the average daily dollar Officer, General Counsel, and Chief (vii) Monitoring of such systems to volume reported by applicable Compliance Officer, or the equivalent of identify potential SCI events. (3) Each SCI entity shall periodically transaction reporting plans; or such employees or officers of an SCI (2) Had with respect to equity review the effectiveness of the policies entity. securities that are not NMS stocks and and procedures required by this Systems compliance issue means an for which transactions are reported to a paragraph (a), and take prompt action to event at an SCI entity that has caused self-regulatory organization, five percent remedy deficiencies in such policies any SCI system of such entity to operate (5%) or more of the average daily dollar and procedures. in a manner that does not comply with volume as calculated by the self- (4) For purposes of this paragraph (a), the Act and the rules and regulations regulatory organization to which such such policies and procedures shall be thereunder or the entity’s rules or transactions are reported; deemed to be reasonably designed if (3) Provided, however, that such SCI governing documents, as applicable. they are consistent with current SCI ATS shall not be required to comply Systems disruption means an event in industry standards, which shall be with the requirements of Regulation SCI an SCI entity’s SCI systems that comprised of information technology until six months after satisfying any of disrupts, or significantly degrades, the practices that are widely available to paragraphs (a) or (b) of this section, as normal operation of an SCI system. information technology professionals in applicable, for the first time. Systems intrusion means any the financial sector and issued by an SCI entity means an SCI self- unauthorized entry into the SCI systems authoritative body that is a U.S. regulatory organization, SCI alternative or indirect SCI systems of an SCI entity. governmental entity or agency, trading system, plan processor, or § 242.1001 Obligations related to policies association of U.S. governmental exempt clearing agency subject to ARP. and procedures of SCI entities. entities or agencies, or widely SCI event means an event at an SCI recognized organization. Compliance (a) Capacity, integrity, resiliency, entity that constitutes: with such current SCI industry availability, and security. (1) Each SCI (1) A systems disruption; standards, however, shall not be the entity shall establish, maintain, and (2) A systems compliance issue; or exclusive means to comply with the enforce written policies and procedures (3) A systems intrusion. requirements of this paragraph (a). SCI review means a review, following reasonably designed to ensure that its (b) Systems compliance. (1) Each SCI established procedures and standards, SCI systems and, for purposes of entity shall establish, maintain, and that is performed by objective personnel security standards, indirect SCI systems, enforce written policies and procedures having appropriate experience to have levels of capacity, integrity, reasonably designed to ensure that its conduct reviews of SCI systems and resiliency, availability, and security, SCI systems operate in a manner that indirect SCI systems, and which review adequate to maintain the SCI entity’s complies with the Act and the rules and contains: operational capability and promote the regulations thereunder and the entity’s (1) A risk assessment with respect to maintenance of fair and orderly markets. rules and governing documents, as such systems of an SCI entity; and (2) Policies and procedures required applicable. (2) An assessment of internal control by paragraph (a)(1) of this section shall (2) Policies and procedures required design and effectiveness of its SCI include, at a minimum: by paragraph (b)(1) of this section shall systems and indirect SCI systems to (i) The establishment of reasonable include, at a minimum: include logical and physical security current and future technological (i) Testing of all SCI systems and any controls, development processes, and infrastructure capacity planning changes to SCI systems prior to information technology governance, estimates; implementation; consistent with industry standards. (ii) Periodic capacity stress tests of (ii) A system of internal controls over SCI self-regulatory organization or SCI such systems to determine their ability changes to SCI systems; SRO means any national securities to process transactions in an accurate, (iii) A plan for assessments of the exchange, registered securities timely, and efficient manner; functionality of SCI systems designed to

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detect systems compliance issues, adequate resources to remedy the SCI required in paragraph (b)(4)(ii) of this including by responsible SCI personnel event as soon as reasonably practicable. section, to the extent known at the time. and by personnel familiar with (b) Commission notification and (2) Within five business days after the applicable provisions of the Act and the recordkeeping of SCI events. Each SCI resolution of such SCI event and closure rules and regulations thereunder and entity shall: of the investigation regarding such SCI the SCI entity’s rules and governing (1) Upon any responsible SCI event, submit a final written notification documents; and personnel having a reasonable basis to pertaining to such SCI event to the (iv) A plan of coordination and conclude that an SCI event has Commission containing the information communication between regulatory and occurred, notify the Commission of such required in paragraph (b)(4)(ii) of this other personnel of the SCI entity, SCI event immediately; section. including by responsible SCI personnel, (2) Within 24 hours of any responsible (ii) Written notifications required by regarding SCI systems design, changes, SCI personnel having a reasonable basis paragraph (b)(4)(i) of this section shall testing, and controls designed to detect to conclude that the SCI event has include: and prevent systems compliance issues. occurred, submit a written notification (A) A detailed description of: The SCI pertaining to such SCI event to the (3) Each SCI entity shall periodically entity’s assessment of the types and Commission, which shall be made on a review the effectiveness of the policies number of market participants affected good faith, best efforts basis and and procedures required by this by the SCI event; the SCI entity’s include: assessment of the impact of the SCI paragraph (b), and take prompt action to (i) A description of the SCI event, remedy deficiencies in such policies event on the market; the steps the SCI including the system(s) affected; and entity has taken, is taking, or plans to and procedures. (ii) To the extent available as of the (4) Safe harbor from liability for take, with respect to the SCI event; the time of the notification: The SCI entity’s time the SCI event was resolved; the SCI individuals. Personnel of an SCI entity current assessment of the types and shall be deemed not to have aided, entity’s rule(s) and/or governing number of market participants document(s), as applicable, that relate to abetted, counseled, commanded, potentially affected by the SCI event; the caused, induced, or procured the the SCI event; and any other pertinent potential impact of the SCI event on the information known by the SCI entity violation by an SCI entity of this market; a description of the steps the paragraph (b) if the person: about the SCI event; SCI entity has taken, is taking, or plans (B) A copy of any information (i) Has reasonably discharged the to take, with respect to the SCI event; disseminated pursuant to paragraph (c) duties and obligations incumbent upon the time the SCI event was resolved or of this section by the SCI entity to date such person by the SCI entity’s policies timeframe within which the SCI event is regarding the SCI event to any of its and procedures; and expected to be resolved; and any other members or participants; and (ii) Was without reasonable cause to pertinent information known by the SCI (C) An analysis of parties that may believe that the policies and procedures entity about the SCI event; have experienced a loss, whether relating to an SCI system for which such (3) Until such time as the SCI event monetary or otherwise, due to the SCI person was responsible, or had is resolved and the SCI entity’s event, the number of such parties, and supervisory responsibility, were not investigation of the SCI event is closed, an estimate of the aggregate amount of established, maintained, or enforced in provide updates pertaining to such SCI such loss. accordance with this paragraph (b) in event to the Commission on a regular (5) The requirements of paragraphs any material respect. basis, or at such frequency as reasonably (b)(1) through (4) of this section shall (c) Responsible SCI personnel. (1) requested by a representative of the not apply to any SCI event that has had, Each SCI entity shall establish, Commission, to correct any materially or the SCI entity reasonably estimates maintain, and enforce reasonably incorrect information previously would have, no or a de minimis impact designed written policies and provided, or when new material on the SCI entity’s operations or on procedures that include the criteria for information is discovered, including but market participants. For such events, identifying responsible SCI personnel, not limited to, any of the information each SCI entity shall: the designation and documentation of listed in paragraph (b)(2)(ii) of this (i) Make, keep, and preserve records responsible SCI personnel, and section; relating to all such SCI events; and escalation procedures to quickly inform (4)(i)(A) If an SCI event is resolved (ii) Submit to the Commission a responsible SCI personnel of potential and the SCI entity’s investigation of the report, within 30 calendar days after the SCI events. SCI event is closed within 30 calendar end of each calendar quarter, containing (2) Each SCI entity shall periodically days of the occurrence of the SCI event, a summary description of such systems review the effectiveness of the policies then within five business days after the disruptions and systems intrusions, and procedures required by paragraph resolution of the SCI event and closure including the SCI systems and, for (c)(1) of this section, and take prompt of the investigation regarding the SCI systems intrusions, indirect SCI action to remedy deficiencies in such event, submit a final written notification systems, affected by such systems policies and procedures. pertaining to such SCI event to the disruptions and systems intrusions Commission containing the information during the applicable calendar quarter. § 242.1002 Obligations related to SCI required in paragraph (b)(4)(ii) of this (c) Dissemination of SCI events. (1) events. section. Each SCI entity shall: (a) Corrective action. Upon any (B)(1) If an SCI event is not resolved (i) Promptly after any responsible SCI responsible SCI personnel having a or the SCI entity’s investigation of the personnel has a reasonable basis to reasonable basis to conclude that an SCI SCI event is not closed within 30 conclude that an SCI event that is a event has occurred, each SCI entity shall calendar days of the occurrence of the systems disruption or systems begin to take appropriate corrective SCI event, then submit an interim compliance issue has occurred, action which shall include, at a written notification pertaining to such disseminate the following information minimum, mitigating potential harm to SCI event to the Commission within 30 about such SCI event: investors and market integrity resulting calendar days after the occurrence of the (A) The system(s) affected by the SCI from the SCI event and devoting SCI event containing the information event; and

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(B) A summary description of the SCI § 242.1003 Obligations related to systems maintenance of fair and orderly markets event; and changes; SCI review. in the event of the activation of such (ii) When known, promptly further (a) Systems changes. Each SCI entity plans; disseminate the following information shall: (b) Designate members or participants about such SCI event: (1) Within 30 calendar days after the pursuant to the standards established in (A) A detailed description of the SCI end of each calendar quarter, submit to paragraph (a) of this section and require event; the Commission a report describing participation by such designated (B) The SCI entity’s current completed, ongoing, and planned members or participants in scheduled assessment of the types and number of material changes to its SCI systems and functional and performance testing of market participants potentially affected the security of indirect SCI systems, the operation of such plans, in the by the SCI event; and during the prior, current, and manner and frequency specified by the (C) A description of the progress of its subsequent calendar quarters, including SCI entity, provided that such frequency corrective action for the SCI event and the dates or expected dates of shall not be less than once every 12 when the SCI event has been or is commencement and completion. An SCI months; and expected to be resolved; and entity shall establish reasonable written (c) Coordinate the testing of such (iii) Until resolved, provide regular criteria for identifying a change to its plans on an industry- or sector-wide updates of any information required to SCI systems and the security of indirect basis with other SCI entities. be disseminated under paragraphs SCI systems as material and report such (c)(1)(i) and (ii) of this section. changes in accordance with such § 242.1005 Recordkeeping requirements related to compliance with Regulation SCI. (2) Each SCI entity shall, promptly criteria. after any responsible SCI personnel has (2) Promptly submit a supplemental (a) An SCI SRO shall make, keep, and a reasonable basis to conclude that a SCI report notifying the Commission of a preserve all documents relating to its event that is a systems intrusion has material error in or material omission compliance with Regulation SCI as occurred, disseminate a summary from a report previously submitted prescribed in § 240.17a–1 of this description of the systems intrusion, under this paragraph (a). chapter. including a description of the corrective (b) SCI review. Each SCI entity shall: (b) An SCI entity that is not an SCI action taken by the SCI entity and when (1) Conduct an SCI review of the SCI SRO shall: the systems intrusion has been or is entity’s compliance with Regulation SCI (1) Make, keep, and preserve at least expected to be resolved, unless the SCI not less than once each calendar year; one copy of all documents, including entity determines that dissemination of provided, however, that: correspondence, memoranda, papers, such information would likely (i) Penetration test reviews of the books, notices, accounts, and other such compromise the security of the SCI network, firewalls, and production records, relating to its compliance with entity’s SCI systems or indirect SCI systems shall be conducted at a Regulation SCI, including, but not systems, or an investigation of the frequency of not less than once every limited to, records relating to any systems intrusion, and documents the three years; and changes to its SCI systems and indirect reasons for such determination. (ii) Assessments of SCI systems SCI systems; (3) The information required to be directly supporting market regulation or (2) Keep all such documents for a disseminated under paragraphs (c)(1) market surveillance shall be conducted period of not less than five years, the and (2) of this section promptly after at a frequency based upon the risk first two years in a place that is readily any responsible SCI personnel has a assessment conducted as part of the SCI accessible to the Commission or its reasonable basis to conclude that an SCI review, but in no case less than once representatives for inspection and event has occurred, shall be promptly every three years; and examination; and disseminated by the SCI entity to those (2) Submit a report of the SCI review (3) Upon request of any representative members or participants of the SCI required by paragraph (b)(1) of this of the Commission, promptly furnish to entity that any responsible SCI section to senior management of the SCI the possession of such representative personnel has reasonably estimated may entity for review no more than 30 copies of any documents required to be have been affected by the SCI event, and calendar days after completion of such kept and preserved by it pursuant to promptly disseminated to any SCI review; and paragraphs (b)(1) and (2) of this section. additional members or participants that (3) Submit to the Commission, and to (c) Upon or immediately prior to any responsible SCI personnel the board of directors of the SCI entity ceasing to do business or ceasing to be subsequently reasonably estimates may or the equivalent of such board, a report registered under the Securities have been affected by the SCI event; of the SCI review required by paragraph Exchange Act of 1934, an SCI entity provided, however, that for major SCI (b)(1) of this section, together with any shall take all necessary action to ensure events, the information required to be response by senior management, within that the records required to be made, disseminated under paragraphs (c)(1) 60 calendar days after its submission to kept, and preserved by this section shall and (2) of this section shall be promptly senior management of the SCI entity. be accessible to the Commission and its disseminated by the SCI entity to all of representatives in the manner required its members or participants. § 242.1004 SCI entity business continuity by this section and for the remainder of (4) The requirements of paragraphs and disaster recovery plans testing the period required by this section. (c)(1) through (3) of this section shall requirements for members or participants. not apply to: With respect to an SCI entity’s § 242.1006 Electronic filing and (i) SCI events to the extent they relate business continuity and disaster submission. to market regulation or market recovery plans, including its backup (a) Except with respect to surveillance systems; or systems, each SCI entity shall: notifications to the Commission made (ii) Any SCI event that has had, or the (a) Establish standards for the pursuant to § 242.1002(b)(1) or updates SCI entity reasonably estimates would designation of those members or to the Commission made pursuant to have, no or a de minimis impact on the participants that the SCI entity paragraph § 242.1002(b)(3), any SCI entity’s operations or on market reasonably determines are, taken as a notification, review, description, participants. whole, the minimum necessary for the analysis, or report to the Commission

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required to be submitted under available for review by the Commission Commission and its representatives Regulation SCI shall be filed and its representatives by submitting a access to such records. electronically on Form SCI (§ 249.1900 written undertaking, in a form of this chapter), include all information acceptable to the Commission, by such PART 249—FORMS, SECURITIES as prescribed in Form SCI and the service bureau or other recordkeeping EXCHANGE ACT OF 1934 instructions thereto, and contain an service, signed by a duly authorized ■ electronic signature; and person at such service bureau or other 7. The general authority citation for part 249 continues to read in part as (b) The signatory to an electronically recordkeeping service. Such a written follows: filed Form SCI shall manually sign a undertaking shall include an agreement signature page or document, in the by the service bureau to permit the Authority: 15 U.S.C. 78a et seq. and 7201; manner prescribed by Form SCI, Commission and its representatives to and 18 U.S.C. 1350 unless otherwise noted. authenticating, acknowledging, or examine such records at any time or * * * * * otherwise adopting his or her signature from time to time during business ■ 8. Add subpart T, consisting of that appears in typed form within the hours, and to promptly furnish to the § 249.1900 to read as follows: electronic filing. Such document shall Commission and its representatives be executed before or at the time Form true, correct, and current electronic files Subpart T—Form SCI, for filing notices SCI is electronically filed and shall be in a form acceptable to the Commission and reports as required by Regulation retained by the SCI entity in accordance or its representatives or hard copies of SCI. with § 242.1005. any or all or any part of such records, § 249.1900. Form SCI, for filing notices and upon request, periodically, or reports as required by Regulation SCI. § 242.1007 Requirements for service continuously and, in any case, within Form SCI shall be used to file notices bureaus. the same time periods as would apply and reports as required by Regulation If records required to be filed or kept to the SCI entity for such records. The SCI (§§ 242.1000 through 242.1007). by an SCI entity under Regulation SCI preparation or maintenance of records are prepared or maintained by a service by a service bureau or other Note: The text of Form SCI does not, and bureau or other recordkeeping service recordkeeping service shall not relieve the amendments will not, appear in the Code on behalf of the SCI entity, the SCI an SCI entity from its obligation to of Federal Regulations. entity shall ensure that the records are prepare, maintain, and provide the BILLING CODE P

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OMBNumber: Eicplratlon Date: Securities and Exchange Commission Estimated Average burden Washington, DC 20549 hours per response-"., ... _ Form SCI

Page1of ___ File No. SCI-{name}-YYYY-### SCI Notification and Reporting by: {SCI entity name} Pursuant to Rules 1002 and 1003 of Regulation SCI under the Securities Exchange Act of 1934 D Initial D Withdrawal

SECTION I: Rule 1002- Commission Notification of SCI Event

A. Submission Type (select one only) 0 Rule 1002(b)(1) Initial Notification of SCI event 0 Rule 1002(b)(2) Notification of SCI event 0 Rule 1002(b)(3) Update of SCI event: #### 0 Rule 1002(b)( 4) Final Report of SCI Event 0 Rule 1002(b)( 4) Interim Status Report of SCI event If filing a Rule 1002(b)(1) or Rule 1002(b)(3) submission, please provide a brief description:

B. SCI Event Type(s) (select all that apply) 0 Systems compliance issue 0 Systems disruption 0 Systems intrusion

C. General Information Required for (b)(2) filings.

1) Has the Commission previously been notified of the SCI event pursuant to 1002(b)(1)? yesjno 2) Date/time SCI event occurred: mmjddjyyyy hh:mm amjpm 3) Duration of SCI event: hh:mm, or days 4) Please provide the date and time when a responsible SCI personnel had reasonable basis to conclude the SCI event occurred: mmjddjyyyy hh:mmamjpm 5) Has the SCI event been resolved? yes/no a) If yes, provide date and time of resolution: mmjddjyyyy hh:mmamjpm 6) Is the investigation of the SCI event closed? yesjno

a) If yes, provide date of closure: mm/ddjyyyy

7) Estimated number of market participants potentially affected by the SCI event: #### 8) Is the SCI event a major SCI event (as defined in Rule 1000)? yes/no

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D. Information about impacted systems:

Name(s) of system(s):

Type(s) of system(s) impacted by the SCI event (check all that apply): 0 Trading 0 Clearance and settlement 0 Order routing 0 Market data 0 Market regulation 0 Market surveillance 0 Indirect SCI systems (please describe):

Are any critical SCI systems impacted by the SCI event (check all that apply)? Yes/No 1) Systems that directly support functionality relating to: 0 Clearance and settlement systems of clearing agencies 0 Openings, reopenings, and closings on the primary listing market 0 Trading halts 0 Initial public offerings 0 The provision of consolidated market data 0 Exclusively-listed securities

2) 0 Systems that provide functionality to the securities markets for which the availability of alternatives is significantly limited or nonexistent and without which there would be a material impact on fair and orderly markets (please describe):

SECTION II: Periodic Reporting (select one only) A. Quarterly Reports: For the quarter ended: mm/dd/yyyy 0 Rule 1002(b)(5)(ii): Quarterly report of systems disruptions and systems intrusions with no or a de minimis impact. 0 Rule 1003(a)(1): Quarterly report of material systems changes

0 Rule 1003(a)(2): Supplemental report of material systems changes

B. SCI Review Reports 0 Rule 1003(b)(3): Report of SCI review, together with any response by senior management Date of completion of SCI review: mmjddjyyyy Date of submission of SCI review to senior management: mmjddjyyyy

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Exhibit 1: Rule 1002(b)(2) Within 24 hours of any responsible SCI personnel having a reasonable basis to conclude that the SCI event has Notification of SCI Event. occurred, the SCI entity shall submit a written notification pertaining to such SCI event to the Commission, Add/Remove/View which shall be made on a good faith, best efforts basis and include: (a) a description of the SCI event, including the system(s) affected; and (b) to the extent available as of the time of the notification: The SCI entity’s current assessment of the types and number of market participants potentially affected by the SCI event; the potential impact of the SCI event on the market; a description of the steps the SCI entity has taken, is taking, or plans to take, with re- spect to the SCI event; the time the SCI event was resolved or timeframe within which the SCI event is ex- pected to be resolved; and any other pertinent information known by the SCI entity about the SCI event. Exhibit 2: Rule 1002(b)(4) When submitting a final report pursuant to either Rule 1002(b)(4)(i)(A) or Rule 1002(b)(4)(i)(B)(2), the SCI entity Final or Interim Report of shall include: SCI Event. (a) a detailed description of: The SCI entity’s assessment of the types and number of market participants af- Add/Remove/View fected by the SCI event; the SCI entity’s assessment of the impact of the SCI event on the market; the steps the SCI entity has taken, is taking, or plans to take, with respect to the SCI event; the time the SCI event was resolved; the SCI entity’s rule(s) and/or governing document(s), as applicable, that relate to the SCI event; and any other pertinent information known by the SCI entity about the SCI event; (b) a copy of any information disseminated pursuant to Rule 1002(c) by the SCI entity to date regarding the SCI event to any of its members or participants; and (c) an analysis of parties that may have experienced a loss, whether monetary or otherwise, due to the SCI event, the number of such parties, and an estimate of the aggregate amount of such loss. When submitting an interim report pursuant to Rule 1002(b)(4)(i)(B)(1), the SCI entity shall include such informa- tion to the extent known at the time. Exhibit 3: Rule 1002(b)(5)(ii) The SCI entity shall submit a report, within 30 calendar days after the end of each calendar quarter, containing a Quarterly Report of De summary description of systems disruptions and systems intrusions that have had, or the SCI entity reasonably Minimis SCI Events. estimates would have, no or a de minimis impact on the SCI entity’s operations or on market participants, in- Add/Remove/View cluding the SCI systems and, for systems intrusions, indirect SCI systems, affected by such SCI events during the applicable calendar quarter.

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Exhibit 4: Rule 1003 (a) When submitting a report pursuant to Rule 1003(a)(1), the SCI entity shall provide a report, within 30 calendar Quarterly Report of Sys- days after the end of each calendar quarter, describing completed, ongoing, and planned material changes to tems Changes. its SCI systems and the security of indirect SCI systems, during the prior, current, and subsequent calendar Add/Remove/View quarters, including the dates or expected dates of commencement and completion. An SCI entity shall establish reasonable written criteria for identifying a change to its SCI systems and the security of indirect SCI systems as material and report such changes in accordance with such criteria. When submitting a report pursuant to Rule 1003(a)(2), the SCI entity shall provide a supplemental report of a ma- terial error in or material omission from a report previously submitted under Rule 1003(a)(1). Exhibit 5: Rule 1003(b)(3) The SCI entity shall provide a report of the SCI review, together with any response by senior management, within Report of SCI review. 60 calendar days after its submission to senior management of the SCI entity. Add/Remove/View Exhibit 6: Optional Attach- This exhibit may be used in order to attach other documents that the SCI entity may wish to submit as part of a ments. Rule 1002(b)(1) initial notification submission or Rule 1002(b)(3) update submission. Add/Remove/View

General Instructions for Form SCI Commission pursuant to Rules 1002 and Required Submissions for SCI Events 1003. In addition, Form SCI permits SCI A. Use of the Form For 1002(b)(2) submissions, an SCI entities to submit to the Commission Except with respect to notifications to entity must notify the Commission two additional types of submissions using Form SCI by selecting the the Commission made pursuant to Rule pursuant to Rules 1002(b)(1) and 1002(b)(1) or updates to the Commission appropriate box in Section I and filling 1002(b)(3); however, SCI entities are not out all information required by the form, made pursuant to Rule 1002(b)(3), any required to use Form SCI for these two notification, review, description, including Exhibit 1. 1002(b)(2) types of submissions to the submissions must be submitted within analysis, or report required to be Commission. In filling out Form SCI, an submitted pursuant to Regulation SCI 24 hours of any responsible SCI SCI entity shall select the type of filing personnel having a reasonable basis to under the Securities Exchange Act of and provide all information required by 1934 (‘‘Act’’) shall be filed in an conclude that an SCI event has Regulation SCI specific to that type of occurred. electronic format through an electronic filing. form filing system (‘‘EFFS’’), a secure For 1002(b)(4) submissions, if an SCI The first two types of required Web site operated by the Securities and event is resolved and the SCI entity’s submissions relate to Commission Exchange Commission (‘‘Commission’’). investigation of the SCI event is closed notification of certain SCI events: Documents attached as exhibits filed within 30 calendar days of the through the EFFS system must be in a (1) ‘‘Rule 1002(b)(2) Notification of occurrence of the SCI event, an SCI text-searchable format without the use SCI Event’’ submissions for notifications entity must file a final report under Rule of optical character recognition. If, regarding systems disruptions, systems 1002(b)(4)(i)(A) within five business however, a portion of a Form SCI compliance issues, or systems days after the resolution of the SCI event submission (e.g., an image or diagram) intrusions (collectively, ‘‘SCI events’’), and closure of the investigation cannot be made available in a text- other than any systems disruption or regarding the SCI event. However, if an searchable format, such portion may be systems intrusion that has had, or the SCI event is not resolved or the SCI submitted in a non-text searchable SCI entity reasonably estimates would entity’s investigation of the SCI event is format. have, no or a de minimis impact on the not closed within 30 calendar days of SCI entity’s operations or on market the occurrence of the SCI event, an SCI B. Need for Careful Preparation of the participants; and entity must file an interim status report Completed Form, Including Exhibits (2) ‘‘Rule 1002(b)(4) Final or Interim under Rule 1002(b)(4)(i)(B)(1) within 30 This form, including the exhibits, is Report of SCI Event’’ submissions, of calendar days after the occurrence of the intended to elicit information necessary which there are two kinds (a final report SCI event. For SCI events in which an for Commission staff to work with SCI under Rule 1002(b)(4)(i)(A) or Rule interim status report is required to be self-regulatory organizations, SCI 1002(b)(4)(i)(B)(2); or an interim status filed, an SCI entity must file a final alternative trading systems, plan report under Rule 1002(b)(4)(i)(B)(1)). report under Rule 1002(b)(4)(i)(B)(2) processors, and exempt clearing The other four types of required within five business days after the agencies subject to ARP (collectively, submissions are periodic reports, and resolution of the SCI event and closure ‘‘SCI entities’’) to ensure the capacity, include: of the investigation regarding the SCI integrity, resiliency, availability, (1) ‘‘Rule 1002(b)(5)(ii)’’ submissions event. For 1002(b)(4) submissions, an security, and compliance of their for quarterly reports of systems SCI entity must notify the Commission automated systems. An SCI entity must disruptions and systems intrusions using Form SCI by selecting the provide all the information required by which have had, or the SCI entity appropriate box in Section I and filling the form, including the exhibits, and reasonably estimates would have, no or out all information required by the form, must present the information in a clear a de minimis impact on the SCI entity’s including Exhibit 2. and comprehensible manner. A filing operations or on market participants Required Submissions for Periodic that is incomplete or similarly deficient (‘‘de minimis SCI events’’); Reporting may be returned to the SCI entity. Any (2) ‘‘Rule 1003(a)(1)’’ submissions for filing so returned shall for all purposes For 1002(b)(5)(ii) submissions, an SCI quarterly reports of material systems be deemed not to have been filed with entity must submit quarterly reports of changes; the Commission. See also Rule 0–3 systems disruptions and systems under the Act (17 CFR 240.0–3). (3) ‘‘Rule 1003(a)(2)’’ submissions for intrusions which have had, or the SCI supplemental reports of material entity reasonably estimates would have, C. When To Use the Form systems changes; and no or a de minimis impact on the SCI Form SCI is comprised of six types of (4) ‘‘Rule 1003(b)(3)’’ submissions for entity’s operations or on market required submissions to the reports of SCI reviews. participants. The SCI entity must select

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the appropriate box in Section II and fill submit an update pursuant to Rule control number. The Commission out all information required by the form, 1002(b)(3), it must select the appropriate estimates that the average burden to including Exhibit 3. box in Section I and provide a short respond to Form SCI will be between For 1003(a)(1) submissions, an SCI description of the SCI event. Documents one and 125 hours, depending upon the entity must submit its quarterly report may also be attached as Exhibit 6 if the purpose for which the form is being of material systems changes to the SCI entity chooses to do so. filed. Any member of the public may Commission using Form SCI. The SCI direct to the Commission any comments entity must select the appropriate box in D. Documents Comprising the concerning the accuracy of this burden Section II and fill out all information Completed Form estimate and any suggestions for required by the form, including Exhibit The completed form filed with the reducing this burden. 4. Commission shall consist of Form SCI, Except with respect to notifications to Filings made pursuant to Rule responses to all applicable items, and the Commission made pursuant to Rule 1002(b)(5)(ii) and Rule 1003(a)(1) must any exhibits required in connection 1002(b)(1) or updates to the Commission be submitted to the Commission within with the filing. Each filing shall be made pursuant to Rule 1002(b)(3), it is 30 calendar days after the end of each marked on Form SCI with the initials of mandatory that an SCI entity file all calendar quarter (i.e., March 31st, June the SCI entity, the four-digit year, and notifications, reviews, descriptions, 30th, September 30th and December the number of the filing for the year analyses, and reports required by 31st) of each year. (e.g., SCI Name-YYYY–XXX). Regulation SCI using Form SCI. The For 1003(a)(2) submissions, an SCI Commission will keep the information entity must submit a supplemental E. Contact Information; Signature; and collected pursuant to Form SCI report notifying the Commission of a Filing of the Completed Form confidential to the extent permitted by material error in or material omission Each time an SCI entity submits a law. Subject to the provisions of the from a report previously submitted filing to the Commission on Form SCI, Freedom of Information Act, 5 U.S.C. under Rule 1003(a). The SCI entity must the SCI entity must provide the contact 522 (‘‘FOIA’’), and the Commission’s select the appropriate box in Section II information required by Section III of rules thereunder (17 CFR and fill out all information required by Form SCI. Space for additional contact 200.80(b)(4)(iii)), the Commission does the form, including Exhibit 4. information, if appropriate, is also not generally publish or make available For 1003(b)(3) submissions, an SCI provided. information contained in any reports, entity must submit its report of its SCI All notifications and reports required summaries, analyses, letters, or review, together with any response by to be submitted through Form SCI shall memoranda arising out of, in senior management, to the Commission be filed through the EFFS. In order to anticipation of, or in connection with an using Form SCI. A 1003(b)(3) file Form SCI through the EFFS, SCI examination or inspection of the books submission is required within 60 entities must request access to the and records of any person or any other calendar days after the report of the SCI Commission’s External Application investigation. review has been submitted to senior Server by completing a request for an H. Exhibits management of the SCI entity. The SCI external account user ID and password. entity must select the appropriate box in Initial requests will be received by List of exhibits to be filed, as Section II and fill out all information contacting (202) 551–5777. An email applicable: required by the form, including Exhibit will be sent to the requestor that will Exhibit 1: Rule 1002(b)(2)— 5. provide a link to a secure Web site Notification of SCI Event. Within 24 hours of any responsible SCI personnel Optional Submissions where basic profile information will be requested. A duly authorized individual having a reasonable basis to conclude An SCI entity may, but is not required of the SCI entity shall electronically sign that the SCI event has occurred, the SCI to, use Form SCI to submit a notification the completed Form SCI as indicated in entity shall submit a written notification pursuant to Rule 1002(b)(1). If the SCI Section IV of the form. In addition, a pertaining to such SCI event to the entity uses Form SCI to submit a duly authorized individual of the SCI Commission, which shall be made on a notification pursuant to Rule 1002(b)(1), entity shall manually sign one copy of good faith, best efforts basis and it must select the appropriate box in the completed Form SCI, and the include: (a) A description of the SCI Section I and provide a short manually signed signature page shall be event, including the system(s) affected; description of the SCI event. Documents preserved pursuant to the requirements and (b) to the extent available as of the may also be attached as Exhibit 6 if the of Rule 1005. time of the notification: the SCI entity’s SCI entity chooses to do so. An SCI current assessment of the types and entity may, but is not required to, use F. Withdrawals of Commission number of market participants Form SCI to submit an update pursuant Notifications and Periodic Reports potentially affected by the SCI event; the to Rule 1002(b)(3). Rule 1002(b)(3) If an SCI entity determines to potential impact of the SCI event on the requires an SCI entity to, until such time withdraw a Form SCI, it must complete market; a description of the steps the as the SCI event is resolved and the SCI Page 1 of the Form SCI and indicate by SCI entity has taken, is taking, or plans entity’s investigation of the SCI event is selecting the appropriate check box to to take, with respect to the SCI event; closed, provide updates pertaining to withdraw the submission. the time the SCI event was resolved or such SCI event to the Commission on a timeframe within which the SCI event is regular basis, or at such frequency as G. Paperwork Reduction Act Disclosure expected to be resolved; and any other reasonably requested by a representative This collection of information will be pertinent information known by the SCI of the Commission, to correct any reviewed by the Office of Management entity about the SCI event. materially incorrect information and Budget in accordance with the Exhibit 2: Rule 1002(b)(4)—Final or previously provided, or when new clearance requirements of 44 U.S.C. Interim Report of SCI Event. When material information is discovered, 3507. An agency may not conduct or submitting a final report pursuant to including but not limited to, any of the sponsor, and a person is not required to either Rule 1002(b)(4)(i)(A) or Rule information listed in Rule 1002(b)(2)(ii). respond to, a collection of information 1002(b)(4)(i)(B)(2), the SCI entity shall If the SCI entity uses Form SCI to unless it displays a currently valid include: (a) A detailed description of:

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The SCI entity’s assessment of the types provided as part of a notification made and (2) an assessment of internal control and number of market participants pursuant to Rule 1002(b). design and effectiveness of its SCI affected by the SCI event; the SCI Exhibit 5: Rule 1003(b)(3)—Report of systems and indirect SCI systems to entity’s assessment of the impact of the SCI Review. The SCI entity shall provide include logical and physical security SCI event on the market; the steps the a report of the SCI review, together with controls, development processes, and SCI entity has taken, is taking, or plans any response by senior management, information technology governance, to take, with respect to the SCI event; within 60 calendar days after its consistent with industry standards. the time the SCI event was resolved; the submission to senior management of the SCI systems means all computer, SCI entity’s rule(s) and/or governing SCI entity. network, electronic, technical, document(s), as applicable, that relate to Exhibit 6: Optional Attachments. This automated, or similar systems of, or the SCI event; and any other pertinent exhibit may be used in order to attach operated by or on behalf of, an SCI information known by the SCI entity other documents that the SCI entity may entity that, with respect to securities, about the SCI event; (b) a copy of any wish to submit as part of a Rule directly support trading, clearance and information disseminated pursuant to 1002(b)(1) initial notification settlement, order routing, market data, Rule 1002(c) by the SCI entity to date submission or Rule 1002(b)(3) update market regulation, or market regarding the SCI event to any of its submission. surveillance. members or participants; and (c) an Systems Compliance Issue means an I. Explanation of Terms analysis of parties that may have event at an SCI entity that has caused experienced a loss, whether monetary or Critical SCI systems means any SCI any SCI system of such entity to operate otherwise, due to the SCI event, the systems of, or operated by or on behalf in a manner that does not comply with number of such parties, and an estimate of, an SCI entity that: (1) directly the Act and the rules and regulations of the aggregate amount of such loss. support functionality relating to: (i) thereunder or the entity’s rules or When submitting an interim report clearance and settlement systems of governing documents, as applicable. pursuant to Rule 1002(b)(4)(i)(B)(1), the clearing agencies; (ii) openings, Systems Disruption means an event in SCI entity shall include such reopenings, and closings on the primary an SCI entity’s SCI systems that information to the extent known at the listing market; (iii) trading halts; (iv) disrupts, or significantly degrades, the time. initial public offerings; (v) the provision normal operation of an SCI system. Exhibit 3: Rule 1002(b)(5)(ii)— of consolidated market data; or (vi) Systems Intrusion means any Quarterly Report of De Minimis SCI exclusively-listed securities; or (2) unauthorized entry into the SCI systems Events. The SCI entity shall submit a provide functionality to the securities or indirect SCI systems of an SCI entity. report, within 30 calendar days after the markets for which the availability of By the Commission. end of each calendar quarter, containing alternatives is significantly limited or Dated: November 19, 2014. a summary description of systems nonexistent and without which there Brent J. Fields, disruptions and systems intrusions that would be a material impact on fair and have had, or the SCI entity reasonably orderly markets. Secretary. estimates would have, no or a de Indirect SCI systems means any Exhibit A minimis impact on the SCI entity’s systems of, or operated by or on behalf Key to Comment Letters Cited in Regulation operations or on market participants, of, an SCI entity that, if breached, would SCI Adopting Release (File No. S7–01–13) including the SCI systems and, for be reasonably likely to pose a security Letter from Charles V. Rossi, President, The systems intrusions, indirect SCI threat to SCI systems. Securities Transfer Association, Inc. to systems, affected by such SCI events Major SCI event means an SCI event Elizabeth Murphy, Secretary, Commission, during the applicable calendar quarter. that has had, or the SCI entity dated April 3, 2013 (‘‘STA Letter’’) Exhibit 4: Rule 1003(a)—Quarterly reasonably estimates would have: (1) Letter from John J. Rapa, President/Chief Report of Systems Changes. When Any impact on a critical SCI system; or Executive Officer, Tellefsen and Company, submitting a report pursuant to Rule (2) a significant impact on the SCI L.L.C., Northborough, Massachusetts to 1003(a)(1), the SCI entity shall provide entity’s operations or on market Elizabeth Murphy, Commission, dated a report, within 30 calendar days after April 19, 2013 (‘‘Tellefsen Letter’’) participants. Letter from Cynthia Fuller, Executive the end of each calendar quarter, Responsible SCI personnel means, for Director, on behalf of Accredited Standards describing completed, ongoing, and a particular SCI system or indirect SCI Committee X9, Inc. Financial Industry planned material changes to its SCI system impacted by an SCI event, such Standards to the Commission, dated May systems and the security of indirect SCI senior manager(s) of the SCI entity 23, 2013 (‘‘X9 Letter’’) systems, during the prior, current, and having responsibility for such system, Letter from Scott Cooper, Vice President, subsequent calendar quarters, including and their designee(s). Government Relations and Public Policy, the dates or expected dates of SCI entity means an SCI self- American National Standards Institute to commencement and completion. An SCI regulatory organization, SCI alternative the Commission, dated May 23, 2013 (‘‘ANSI Letter’’) entity shall establish reasonable written trading system, plan processor, or Letter from James J. Angel, Ph.D., CFA, criteria for identifying a change to its exempt clearing agency subject to ARP. Visiting Associate Professor, The Wharton SCI systems and the security of indirect SCI event means an event at an SCI School, University of Pennsylvania to the SCI systems as material and report such entity that constitutes: (1) A systems Commission, dated June 3, 2013 (‘‘Angel changes in accordance with such disruption; (2) a systems compliance Letter’’) criteria. When submitting a report issue; or (3) a systems intrusion. Letter from Raymond M. Tierney III, pursuant to Rule 1003(a)(2), the SCI SCI review means a review, following President and Chief Executive Officer, entity shall provide a supplemental established procedures and standards, Bloomberg Tradebook LLC to Elizabeth report of a material error in or material that is performed by objective personnel Murphy, Secretary, Commission, dated having appropriate experience to June 19, 2013 (‘‘Tradebook Letter’’) omission from a report previously Letter from Jay M. Goldstone, Chairman, submitted under Rule 1003(a); provided, conduct reviews of SCI systems and Municipal Securities Rulemaking Board, however, that a supplemental report is indirect SCI systems, and which review Alexandria, Virginia to Elizabeth Murphy, not required if information regarding a contains: (1) A risk assessment with Secretary, Commission, dated June 28, material systems change is or will be respect to such systems of an SCI entity; 2013 (‘‘MSRB Letter’’)

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Letter from Thomas V. D’Ambrosio, Elizabeth Murphy, Secretary, Commission, Murphy, Secretary, Commission, dated Chairman, Committee on Futures and dated July 8, 2013 (‘‘CISQ Letter’’) July 17, 2013 (‘‘MFA Letter’’) Derivatives, New York City Bar Association Letter from Howard Meyerson, General Letter from Anthony J. Saliba, Chief to Elizabeth Murphy, Secretary, Counsel, Liquidnet, Inc., New York, New Executive Officer, LiquidPoint, LLC to Commission, dated July 1, 2013 (‘‘NYC Bar York to the Commission, dated July 8, 2013 Elizabeth Murphy, Secretary, Commission, Letter’’) (‘‘Liquidnet Letter’’) dated July 22, 2013 (‘‘LiquidPoint Letter’’) Letter from Richard M. Whiting, Executive Letter from David T. Bellaire, Esq., Executive Letter from Elizabeth K. King, Global Head of Director and General Counsel, The Vice President and General Counsel, Regulatory Affairs, KCG Holdings, Inc., Financial Services Roundtable to Elizabeth Financial Services Institute, Washington, Jersey City, New Jersey to Elizabeth Murphy, Secretary, Commission, dated District of Columbia to Elizabeth Murphy, Murphy, Secretary, Commission, dated July 5, 2013 (‘‘FSR Letter’’) Secretary, Commission, dated July 8, 2013 July 25, 2013 (‘‘KCG Letter’’) Letter from Rob Flatley, Chief Executive (‘‘FSI Letter’’) Letter from Roger Anerella, Managing Officer and President, CoreOne Letter from Scott C. Goebel, General Counsel, Director, Global Head of Securities Technologies to Elizabeth Murphy, Fidelity Management and Research Co., Execution Services, UBS Investment Bank Secretary, Commission, dated July 8, 2013 Boston, Massachusetts to Elizabeth to Elizabeth Murphy, Secretary, (‘‘CoreOne Letter’’) Murphy, Secretary, Commission, dated Commission, dated July 26, 2013 (‘‘UBS Letter from Manisha Kimmel, Executive July 8, 2013 (‘‘Fidelity Letter’’) Letter’’) Director, Financial Information Forum to Letter from Joseph Adamczyk, Executive Letter from Eric Swanson, SVP, General Elizabeth Murphy, Secretary, Commission, Director, Associate General Counsel, CME Counsel and Secretary, BATS Global dated July 8, 2013 (‘‘FIF Letter’’) Group Inc. to Elizabeth Murphy, Secretary, Markets, Inc., et al. to Elizabeth Murphy, Letter from Larry E. Thompson, Managing Commission, dated July 8, 2013 (‘‘CME Secretary, Commission, dated July 30, 2013 Director and General Counsel, The Letter’’) (‘‘Joint SROs Letter’’) Depository Trust Clearing Corporation to Letter from Norman M. Reed, Omgeo LLC, Letter from Thomas S. Vales, Chief Executive Elizabeth Murphy, Secretary, Commission, New York, New York to Elizabeth Murphy, Officer, TMC Bonds LLC to Elizabeth dated July 8, 2013 (‘‘DTCC Letter’’) Secretary, Commission, dated July 8, 2013 Murphy, Secretary, Commission, dated Letter from Raymond Tamayo, Chief (‘‘Omgeo Letter’’) August 6, 2013 (‘‘TMC Bonds Letter’’) Information Officer, Options Clearing Letter from David Lauer, Market Structure Corporation to Elizabeth Murphy, Letter from James J. Angel, Ph.D., CFA, and Technology Architecture Consultant, Secretary, Commission, dated July 8, 2013 Visiting Associate Professor, The Wharton Step Ahead Technologies, LLC to Elizabeth (‘‘OCC Letter’’) School, University of Pennsylvania to the Murphy, Secretary, Commission, dated Letter from Timothy J. Mahoney, CEO, BIDS Commission, dated September 3, 2013 Trading, L.P., New York, New York to July 8, 2013 (‘‘Lauer Letter’’) (‘‘Angel2 Letter’’) Elizabeth Murphy, Secretary, Commission, Letter from Theodore R. Lazo, Managing Letter from Benjamin R. Londergan, Chief dated July 8, 2013 (‘‘BIDS Letter’’) Director and Associate General Counsel, Executive Officer, Group One Trading L.P. Letter from Michael Simon, Secretary, SIFMA to Elizabeth Murphy, Secretary, to Elizabeth Murphy, Secretary, International Securities Exchange, LLC to Commission, dated July 8, 2013 (‘‘SIFMA Commission, dated September 3, 2013 Elizabeth Murphy, Secretary, Commission, Letter’’) (‘‘Group One Letter’’) dated July 8, 2013 (‘‘ISE Letter’’) Letter from Jeffrey Wallis, Managing Partner, Letter from Ari Gabinet, Executive Vice Letter from Courtney D. McGuinn, SunGard Consulting Services, New York, President and General Counsel, OFI Global Operations Director, FIX Protocol Ltd., New York to Elizabeth Murphy, Secretary, Asset Management to Elizabeth Murphy, New York, New York to Elizabeth Murphy, Commission, dated July 8, 2013 (‘‘SunGard Secretary, Commission, dated September 9, Secretary, Commission, dated July 8, 2013 Letter’’) 2013 (‘‘Oppenheimer Letter’’) (‘‘FIX Letter’’) Letter from Janet McGinness, EVP & Letter from Daniel Zinn, General Counsel, Letter from R.T. Leuchtkafer to Elizabeth Corporate Secretary, NYSE Euronext to OTC Markets Group Inc. to Elizabeth Murphy, Secretary, Commission, dated Elizabeth Murphy, Secretary, Commission, Murphy, Secretary, Commission, dated July 8, 2013 (‘‘Leuchtkafer Letter ’’) dated July 9, 2013 (‘‘NYSE Letter’’) September 12, 2013 (‘‘OTC Markets Letter from Dennis M. Kelleher, President & Letter from Eric J. Swanson, Secretary, BATS Letter’’) CEO; Stephen W. Hall, Securities Global Markets to Elizabeth Murphy, Letter from Dr. Bill Curtis, Director, Specialist; Katelynn O. Bradley, Attorney; Secretary, Commission, dated July 10, 2013 Consortium for IT Software Quality to and David Frenk, Director of Research; (‘‘BATS Letter’’) Elizabeth Murphy, Secretary, Commission, Better Markets, Inc. to Elizabeth Murphy, Letter from Mary Ann Burns, Futures dated September 17, 2013 (‘‘CISQ2 Letter’’) Secretary, Commission, dated July 8, 2013 Industry Association Principal Traders Letter from William O’Brien, Chief Executive (‘‘Better Markets Letter’’) Group, Washington, District of Columbia to Officer, Direct Edge Holdings to Elizabeth Letter from Lev Lesokhin, Executive Vice Elizabeth Murphy, Secretary, Commission, M. Murphy, Secretary, Commission, dated President, Strategy and Markets, CAST, dated July 11, 2013 (‘‘FIA PTG Letter’’) September 25, 2013 (‘‘Direct Edge Letter’’) Inc., New York, New York to the Letter from James P. Selway, III, P. Mats Letter from Richie Prager, Managing Director, Commission, dated July 8, 2013 (‘‘CAST Goebels and Sudhanshu Arya, ITG Inc. to Head of Trading & Liquidity Strategies, Letter’’) Elizabeth Murphy, Secretary, Commission, Hubert De Jesus, Managing Director, Co- Letter from Robert J. McCarthy, Director of dated July 11, 2013 (‘‘ITG Letter’’) Head of Market Structure & Electronic Regulatory Policy, Wells Fargo Advisors to Letter from Karrie McMillan, General Trading, Supurna Vedbrat, Managing Elizabeth Murphy, Secretary, Commission, Counsel, Investment Company Institute to Director, Co-Head of Market Structure & dated July 8, 2013 (‘‘Wells Fargo Letter’’) Elizabeth Murphy, Secretary, Commission, Electronic Trading, and Joanne Medero, Letter from Marcia E. Asquith, Senior Vice dated July 12, 2013 (‘‘ICI Letter’’) Managing Director, Government Relations President and Corporate Secretary, FINRA Letter from Stuart J. Kaswell, Executive Vice & Public Policy, BlackRock, Inc. to Mary Jo to Elizabeth Murphy, Secretary, President & Managing Director, Managed White, Chair, Commission, dated Commission, dated July 8, 2013 (‘‘FINRA Funds Association, and Jirı´ Kro´l, Deputy September 12, 2014 (‘‘BlackRock Letter’’). Letter’’) CEO, Head of Government and Regulatory Letter from Dr. Bill Curtis, Director, Affairs, Alternative Investment [FR Doc. 2014–27767 Filed 12–4–14; 8:45 am] Consortium for IT Software Quality to Management Association to Elizabeth BILLING CODE P

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Part III

Department of the Interior

Fish and Wildlife Service 50 CFR Part 17 Endangered and Threatened Wildlife and Plants; Review of Native Species That Are Candidates for Listing as Endangered or Threatened; Annual Notice of Findings on Resubmitted Petitions; Annual Description of Progress on Listing Actions; Proposed Rule

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DEPARTMENT OF THE INTERIOR period October 1, 2013, through to the notice of review. We also request September 30, 2014. information on additional species to Fish and Wildlife Service We request additional status consider including as candidates as we information that may be available for prepare future updates of this notice. 50 CFR Part 17 the 146 candidate species identified in this CNOR. Candidate Notice of Review [Docket No. FWS–HQ–ES–2014–0032; FF09E21000 FXES11190900000 145] DATES: We will accept information on Background any of the species in this Candidate The Endangered Species Act of 1973, Endangered and Threatened Wildlife Notice of Review at any time. as amended (16 U.S.C. 1531 et seq.) and Plants; Review of Native Species ADDRESSES: This notice is available on (ESA), requires that we identify species That Are Candidates for Listing as the Internet at http:// of wildlife and plants that are Endangered or Threatened; Annual www.regulations.gov and http:// endangered or threatened based on the Notice of Findings on Resubmitted www.fws.gov/endangered/what-we-do/ best available scientific and commercial Petitions; Annual Description of cnor.html. Species assessment forms information. As defined in section 3 of Progress on Listing Actions with information and references on a the ESA, an endangered species is any particular candidate species’ range, AGENCY: Fish and Wildlife Service, species that is in danger of extinction status, habitat needs, and listing priority Interior. throughout all or a significant portion of assignment are available for review at its range, and a threatened species is ACTION: Notice of review. the appropriate Regional Office listed any species that is likely to become an SUPPLEMENTARY INFORMATION SUMMARY: In this Candidate Notice of below in or endangered species within the Review (CNOR), we, the U.S. Fish and at the Branch of Communications and foreseeable future throughout all or a Wildlife Service (Service), present an Candidate Conservation, Falls Church, significant portion of its range. Through FOR FURTHER updated list of plant and animal species VA (see address under the Federal rulemaking process, we add INFORMATION CONTACT), or on our Web native to the United States that we _ species that meet these definitions to regard as candidates for or have site (http://ecos.fws.gov/tess public/ the List of Endangered and Threatened proposed for addition to the Lists of pub/candidateSpecies.jsp). Please Wildlife at 50 CFR 17.11 or the List of Endangered and Threatened Wildlife submit any new information, materials, Endangered and Threatened Plants at 50 comments, or questions of a general and Plants under the Endangered CFR 17.12. As part of this program, we nature on this notice to the Falls Species Act of 1973, as amended. maintain a list of species that we regard Church, VA, address listed under FOR Identification of candidate species can as candidates for listing. A candidate FURTHER INFORMATION CONTACT. Please assist environmental planning efforts by species is one for which we have on file submit any new information, materials, providing advance notice of potential sufficient information on biological comments, or questions pertaining to a listings, allowing landowners and vulnerability and threats to support a particular species to the address of the resource managers to alleviate threats proposal for listing as endangered or Endangered Species Coordinator in the and thereby possibly remove the need to threatened, but for which preparation appropriate Regional Office listed in list species as endangered or threatened. and publication of a proposal is SUPPLEMENTARY INFORMATION. Species- precluded by higher priority listing Even if we subsequently list a candidate specific information and materials we actions. We may identify a species as a species, the early notice provided here receive will be available for public candidate for listing after we have could result in more options for species inspection by appointment, during conducted an evaluation of its status on management and recovery by prompting normal business hours, at the our own initiative, or resulting from a candidate conservation measures to appropriate Regional Office listed below petition we have received. If we have alleviate threats to the species. under Request for Information in The CNOR summarizes the status and made a positive finding on a petition to SUPPLEMENTARY INFORMATION. General list a species, but we have found that threats that we evaluated in order to information we receive will be available listing is warranted but precluded by determine that species qualify as at the Branch of Communications and other higher priority listing actions, we candidates, to assign a listing priority Candidate Conservation, Falls Church, number (LPN) to each species, and to will add the species to our list of VA (see address under FOR FURTHER determine whether a species should be candidates. INFORMATION CONTACT). removed from candidate status. We maintain this list of candidates for FOR FURTHER INFORMATION CONTACT: Additional material that we relied on is a variety of reasons: (1) To notify the available in the Species Assessment and Chief, Branch of Communications and public that these species are facing Listing Priority Assignment Forms Candidate Conservation, U.S. Fish and threats to their survival; (2) to provide (species assessment forms) for each Wildlife Service Headquarters, MS: ES, advance knowledge of potential listings candidate species. 5275 Leesburg Pike, Falls Church, VA that could affect decisions of Overall, this CNOR recognizes 23 new 22041–3803 (telephone 703–358–2171). environmental planners and developers; candidates, changes the LPN for one Persons who use a telecommunications (3) to provide information that may candidate, and removes one species device for the deaf may call the Federal stimulate and guide conservation efforts from candidate status. Combined with Information Relay Service at 800–877– that will remove or reduce threats to other decisions for individual species 8339. these species and possibly make listing that were published separately from this SUPPLEMENTARY INFORMATION: We unnecessary; (4) to request input from CNOR in the past year, the current request additional status information interested parties to help us identify number of species that are candidates that may be available for any of the those candidate species that may not for listing is 146. candidate species identified in this require protection under the ESA as This document also includes our CNOR. We will consider this well as additional species that may findings on resubmitted petitions and information to monitor changes in the require the ESA’s protections; and (5) to describes our progress in revising the status or LPN of candidate species and request necessary information for setting Lists of Endangered and Threatened to manage candidates as we prepare priorities for preparing listing proposals. Wildlife and Plants (Lists) during the listing documents and future revisions We strongly encourage collaborative

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conservation efforts for candidate and time scale for extinction. We future throughout all or a significant species, and offer technical and therefore consider information such as: portion of its range. financial assistance to facilitate such (1) The number of populations or extent For more information on the process efforts. For additional information of range of the species affected by the and standards used in assigning LPNs, regarding such assistance, please threat(s), or both; (2) the biological a copy of the 1983 guidance is available contact the appropriate Regional Office significance of the affected on our Web site at: http://www.fws.gov/ listed under Request for Information or population(s), taking into consideration endangered/esa-library/pdf/48fr43098- visit our Web site, http://www.fws.gov/ the life-history characteristics of the 43105.pdf. Information on the LPN endangered/what-we-do/cca.html. species and its current abundance and assigned to a particular species is summarized in this CNOR and the Previous Notices of Review distribution; (3) whether the threats affect the species in only a portion of its species assessment for each candidate We have been publishing candidate range, and, if so, the likelihood of contains the LPN chart and a rationale notices of review (CNOR) since 1975. persistence of the species in the for the determination of the magnitude The most recent CNOR (prior to this unaffected portions; (4) the severity of and immediacy of threat(s) and CNOR) was published on November 22, the effects and the rapidity with which assignment of the LPN. 2013 (78 FR 70104). CNORs published they have caused or are likely to cause This revised notice supersedes all since 1994 are available on our Web mortality to individuals and previous animal, plant, and combined site, http://www.fws.gov/endangered/ accompanying declines in population candidate notices of review for native what-we-do/cnor.html. For copies of levels; (5) whether the effects are likely species and supersedes previous 12- CNORs published prior to 1994, please to be permanent; and (6) the extent to month warranted-but-precluded petition contact the Branch of Communications which any ongoing conservation efforts findings for those candidate species that and Candidate Conservation (see FOR reduce the severity of the threat. were petitioned for listing. FURTHER INFORMATION CONTACT section As used in our priority-ranking Summary of This CNOR above). system, immediacy of threat is On September 21, 1983, we published Since publication of the previous guidance for assigning an LPN for each categorized as either ‘‘imminent’’ or CNOR on November 22, 2013 (78 FR candidate species (48 FR 43098). Using ‘‘nonimminent,’’ and is based on when 70104), we reviewed the available this guidance, we assign each candidate the threats will begin. If a threat is information on candidate species to an LPN of 1 to 12, depending on the currently occurring or likely to occur in ensure that a proposed listing is magnitude of threats, immediacy of the very near future, we classify the justified for each species, and threats, and taxonomic status; the lower threat as imminent. Determining the reevaluated the relative LPN assigned to the LPN, the higher the listing priority immediacy of threats helps ensure that each species. We also evaluated the (that is, a species with an LPN of 1 species facing actual, identifiable threats need to emergency list any of these would have the highest listing priority). are given priority for listing proposals species, particularly species with higher Section 4(h)(3) of the ESA (16 U.S.C. over those for which threats are only priorities (i.e., species with LPNs of 1, 1533(h)(3)) requires the Secretary to potential or species that are intrinsically 2, or 3). This review and reevaluation establish guidelines for such a priority- vulnerable to certain types of threats but ensures that we focus conservation ranking guidance system. As explained are not known to be presently facing efforts on those species at greatest risk. below, in using this system, we first such threats. In addition to reviewing candidate categorize based on the magnitude of Our priority ranking system has three species since publication of the last the threat(s), then by the immediacy of categories for taxonomic status: Species CNOR, we have worked on findings in the threat(s), and finally by taxonomic that are the sole members of a genus; response to petitions to list species, and status. full species (in genera that have more on proposed and final determinations Under this priority-ranking system, than one species); and subspecies and for rules to list species under the ESA. magnitude of threat can be either ‘‘high’’ distinct population segments of Some of these findings and or ‘‘moderate to low.’’ This criterion vertebrate species (DPS). determinations have been completed helps ensure that the species facing the The result of the ranking system is and published in the Federal Register, greatest threats to their continued that we assign each candidate a listing while work on others is still under way existence receive the highest listing priority number of 1 to 12. For example, (see Preclusion and Expeditious priority. It is important to recognize that if the threats are of high magnitude, Progress, below, for details). all candidate species face threats to their with immediacy classified as imminent, Based on our review of the best continued existence, so the magnitude the listable entity is assigned an LPN of available scientific and commercial of threats is in relative terms. For all 1, 2, or 3 based on its taxonomic status information, with this CNOR, we are candidate species, the threats are of (i.e., a species that is the only member identifying 23 new candidates, we sufficiently high magnitude to put them of its genus would be assigned to the change the LPN for one candidate, and in danger of extinction, or make them LPN 1 category, a full species to LPN 2, determine that a listing proposal is not likely to become in danger of extinction and a subspecies or DPS would be warranted for one species and thus in the foreseeable future. But for species assigned to LPN 3). In summary, the remove it from candidate status (see with higher magnitude threats, the LPN ranking system provides a basis for Candidate Removals, below). Combined threats have a greater likelihood of making decisions about the relative with the other decisions published bringing about extinction or are priority for preparing a proposed rule to separately from this CNOR, a total of expected to bring about extinction on a list a given species. No matter which 146 species (67 plant and 79 animal shorter timescale (once the threats are LPN we assign to a species, each species species) are now candidates awaiting imminent) than for species with lower included in this notice as a candidate is preparation of rules proposing their magnitude threats. Because we do not one for which we have sufficient listing. These 146 species, along with routinely quantify how likely or how information to prepare a proposed rule the 36 species currently proposed for soon extinction would be expected to for listing because it is in danger of listing (including 1 species proposed for occur absent listing, we must evaluate extinction or likely to become listing due to similarity in appearance), factors that contribute to the likelihood endangered within the foreseeable are included in Table 1.

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Table 2 lists the changes from the small population size. Habitat quality regulations. In addition, small previous CNOR, and includes 49 species has degraded with the loss of closed population size (each species has fewer identified in the previous CNOR as forest space and the spread of nonnative than 100 individuals) is a serious and either proposed for listing or classified invasive weeds. Nest predation by rats ongoing threat to each of these species as candidates that are no longer in those (Rattus spp.) and feral cats (Felis catus) because (1) they may experience categories. This includes 33 species for is an important threat to many island reduced reproductive vigor due to which we published a final listing rule, birds, including the ma’oma’o, and may ineffective pollination or inbreeding 11 candidate species for which we impede population growth. Small depression; (2) they may experience published a separate not-warranted populations are more susceptible to reduced levels of genetic variability, finding and removed from candidate inbreeding depression (reduced leading to diminished capacity to adapt status, 3 species for which we published reproductive vigor) and extirpation from and respond to environmental changes, a withdrawal of a proposed rule, 1 stochastic events (e.g., inclement thereby lessening the probability of species for which we published a weather, population demographics, and long-term persistence; and (3) a single separate notice of removal from altered predation patterns). Based on catastrophic event may result in candidate status, and the 1 species in our evaluation that these ongoing extirpation of remaining populations this notice that we have determined threats pose an imminent risk of a high and extinction of the species. Climate does not meet the definition of an magnitude, we assign a LPN of 2 for this change may pose a threat to the endangered or threatened species and species. ecosystems that support these species, therefore does not warrant listing. We thus exacerbating the effects of the Flowering Plants have removed this species from aforementioned threats. There are candidate status in this CNOR. Eighteen Hawaiian flowering plants varying degrees of conservation efforts (Cyanea kauaulaensis, Cyperus ongoing for these species; however, at a New Candidates neokunthianus, Cyrtandra hematos, minimum, all of these species are listed We have identified 23 new candidate Exocarpos menziesii, Kadua on the Hawaii Plant Extinction species through this notice discussed haupuensis, Labordia lorenciana, Prevention Program (PEPP) species list. below. Lepidium orbiculare, Phyllostegia Species on the PEPP list are prioritized brevidens, Phyllostegia helleri, Birds for monitoring, surveys, collection and Phyllostegia stachyoides, Portulaca storing of seeds, propagation, and Ma’oma’o (Gymnomyza samoensis)— villosa, Pritchardia bakeri, Sanicula outplanting. The threats to each of these The ma’oma’o is a large, dusky olive- sandwicensis, Santalum involutum, species are imminent and of high green honeyeater that is known for Schiedea diffusa ssp. diffusa, Sicyos magnitude, leading to a relatively high making a variety of loud distinctive lanceoloideus, Stenogyne kaalae ssp. likelihood of extinction. Therefore, we calls. The genus Gymnomyza consists of sherffii, Wikstromoemia assign a LPN of 2 for the above plants three honeyeaters restricted to a few skottsbergiana)—Each of these 18 that are full species and an LPN of 3 for islands in the southwestern Pacific. The species is endemic to one or more those that are subspecies or varieties. ma’oma’o is endemic to Upolu and islands in the State of Hawaii ((Cyanea Savaii, Independent Samoa (Samoa), kauaulaensis (Maui), Cyperus Ferns and Allies and Tutuila Island, American Samoa. neokunthianus (Maui), Cyrtandra Four Hawaiian ferns (Asplenium The ma’oma’o is now believed to be hematos (Molokai), Exocarpos menziesii diellaciniatum, Deparia kaalaana, extirpated from Tutuila Island, (Hawaii Island; extirpated from Lanai), Dryopteris glabra var. pusilla, Hypolepis American Samoa. It is currently only Kadua haupuensis (Kauai), Labordia hawaiiensis var. mauiensis)—Each of found in small populations on the lorenciana (Kauai), Lepidium orbiculare these four species is endemic to one or islands of Savaii and Upolu in Samoa. (Kauai), Phyllostegia brevidens (Maui; more islands in the State of Hawaii The ma’oma’o is primarily restricted to extirpated from Hawaii Island), (Asplenium diellaciniatum (Kauai), mature, well-developed, moist, mossy Phyllostegia helleri (Kauai), Phyllostegia Deparia kaalaana (Maui; extirpated forests at upper elevations. Monitoring stachyoides (Maui, Molokai, and Hawaii from Kauai and Hawaii Island), over the last decade has provided Island), Portulaca villosa (Maui and Dryopteris glabra var. pusilla (Kauai), evidence of a decline in the relative Nihoa), Pritchardia bakeri (Oahu), Hypolepis hawaiiensis var. mauiensis abundance of the species. In 2007, the Sanicula sandwicensis (Maui and (Maui)); and each is negatively affected total population was estimated to be Hawaii Island), Santalum involutum by nonnative animals and plants. approximately 500 individuals. (Kauai), Schiedea diffusa ssp. diffusa Introduced, nonnative animals damage Little mature forest remains in Samoa, (Maui), Sicyos lanceoloideus (Kauai and and destroy plants and seeds, modify and the loss of forested habitat due to Oahu), Stenogyne kaalae ssp. sherffii habitat, create habitat more conducive logging, agricultural clearing, and (Oahu), and Wikstromoemia to nonnative plant introductions, and catastrophic storms is the primary threat skottsbergiana (Kauai)), and each is spread nonnative plant seeds. to the ma’oma’o. Two storms in the negatively affected by nonnative Nonnative plants displace and 1990s, Cyclones Ofa (1990) and Val animals and plants. outcompete native species. Introduced (1991), destroyed much of the forested Introduced, nonnative animals nonnative plants and animals are habitat in Samoa, reducing forest damage and destroy plants and seeds, serious and ongoing threats to these canopy cover by 73 percent. In 2012, modify habitat, create habitat more species rangewide, and these threats are Cyclone Evan caused additional severe conducive to nonnative plant increased by the continued inadequacy forest damage. Loss of mature forest is introductions, and spread nonnative of existing protective regulations. In likely to affect the ma’oma’o by plant seeds. Nonnative plants displace addition, small population size (each reducing breeding and foraging habitat, and outcompete native species. species has fewer than 100 individuals) increasing forest fragmentation, and Introduced, nonnative plants and is a serious and ongoing threat to each increasing the abundance and diversity animals are serious and ongoing threats of these species because (1) they may of invasive species. Other threats to the to these species rangewide, and these experience reduced reproductive vigor species include habitat degradation, threats are increased by the continued due to ineffective pollination or predation by nonnative species, and inadequacy of existing protective inbreeding depression; (2) they may

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experience reduced levels of genetic through 2012. From 2002 through 2012, a review of the best available scientific variability, leading to diminished however, the long-term population and commercial data, we conclude that capacity to adapt and respond to decline has leveled off and currently, listing this species under the environmental changes, thereby there is no discernable trend. The Endangered Species Act is not lessening the probability of long-term Christmas Bird Count data also warranted because this species is not persistence; and (3) a single catastrophic indicates that the population decline likely to become an endangered species event may result in extirpation of has stopped and the population trend within the foreseeable future throughout remaining populations and extinction of has no direction, either increasing or all or a significant portion of its range. the species. Climate change may pose a decreasing between 2003 and 2012. Therefore, we no longer consider it to be threat to the ecosystems that support In the Service’s 12-month finding a candidate species for listing. We will these species, thus exacerbating the published on September 15, 2010, we continue to monitor the status of this effects of the aforementioned threats. identified oil and gas development and species and to accept additional There are varying degrees of associated infrastructure as having a information and comments concerning conservation efforts ongoing for these strong negative influence on the species this finding. We will reconsider our species; however, at a minimum, all of based upon the available information at determination in the event that new these species are listed on the Hawaii that time. New information suggests that information indicates that the threats to Plant Extinction Prevention Program Sprague’s pipit avoidance response of the species are of a considerably greater (PEPP) species list. Species on the PEPP these features is highly variable across magnitude or imminence than identified list are prioritized for monitoring, the range and thus the species’ response through assessments of information surveys, collection and storing of seeds, to oil and gas development and roads contained in our files, as summarized propagation, and outplanting. The does not indicate that these are a threat. here. threats to each of these species are Landscape modelling to predict Flowering Plants imminent and of high magnitude, Sprague’s pipit habitat use on the leading to a relatively high likelihood of breeding range indicates the population Astragalus cusickii var. packardiae extinction. Therefore, we assign a LPN is concentrated in north-central (Packard’s milkvetch)—The following of 2 for Asplenium diellaciniatum and Montana, Alberta, and Saskatchewan, summary is based on information Deparia kaalaana and an LPN of 3 for Canada. Analysis of the likelihood of contained in our files. Packard’s Dryopteris glabra var. pusilla and prairie conversion in the area where milkvetch is narrowly endemic to a Hypolepis hawaiiensis var. mauiensis. most pipits occur suggests that the risk specific group of light-colored of widespread conversion is low, with sedimentary outcrops in southwestern Listing Priority Changes in Candidates the most likely risk scenario of future Idaho. The total range of the species We reviewed the LPN for all conversion to cropland predicting a covers approximately 26 square candidate species and are changing the relatively low proportion (10–15 kilometers (km2) (10 square miles (mi2)) number for the following species percent) of the breeding population in Payette County. Suboccurrences of discussed below. affected. Packard’s milkvetch, which are On the wintering range, conversion of typically represented by individual Birds prairie to cropland appears to be occupied outcrops, are found at Sprague’s pipit (Anthus spragueii)— accelerating. The species is widely elevations ranging from 793 to 915 The Sprague’s pipit is a small grassland distributed and mobile during winter, meters (m) (2,600 to 3,000 feet (ft)). bird characterized by its high breeding but grassland conversion is ongoing and Occupied outcrops tend to be found on flight display and otherwise very apparently widespread. At this time, we steep, south- to west-facing slopes, and secretive behavior. Sprague’s pipits are believe that the species’ trends can be are relatively sparsely vegetated. strongly associated with native prairie explained by the habitat changes that Packard’s milkvetch became a (land that has never been plowed), have occurred on the breeding range; candidate species in 2010, based on the especially on the breeding grounds. Its however, we will be more closely identified primary threat of habitat current breeding range includes assessing the changes to the wintering degradation due to off highway vehicles portions of Montana, North Dakota, range and whether those changes (OHVs). In response, on December 13, South Dakota, and Canada. The threaten the Sprague’s pipit. 2013, the Bureau of Land Management wintering range includes south-central The threats to the Sprague’s pipit (BLM) made a decision that and southeast Arizona, southern New described above are moderate to low in permanently closed 5,620 acres within Mexico, Texas, southern Oklahoma, magnitude. Because of the relatively and near Packard’s milkvetch habitat to southern Arkansas, northwest large population remaining and the OHV use, covering 68 percent of the Mississippi, southern Louisiana, and stable-to-uncertain (i.e. not showing a species’ occurrences. Monitoring data northern Mexico; the vast majority of clear decline) trends shown by surveys collected since the closure was the U.S. winter sightings have been in on both the breeding and wintering implemented in 2011 indicates that the Texas. During migration, the species has grounds, the potential decline is OHV closure has been effective at been sighted in areas outside of the nonimminent. In addition, the threat eliminating the primary threat to the direct flight path between its breeding from conversion of habitat on the species throughout a large majority of and wintering sites, including Michigan, breeding grounds is now nonimment. the species’ range. western Ontario, Ohio, Massachusetts, Therefore, we are revising the LPN from Other natural and anthropogenic and Gulf and Atlantic States from 8 to an 11. activities identified at the time it was Mississippi east and north to South designated a candidate included an Carolina. Sprague’s pipits also have Candidate Removals altered wildfire regime due to invasive been sighted in California during fall As summarized below, we have nonnative plant species and livestock migration. evaluated the threats to the following use. There was little data at the time to The primary stressor to the species is species and considered factors that, suggest whether these potential threats habitat conversion on the breeding individually and in combination, were significant, but out of an grounds. The Breeding Bird Survey currently or potentially could pose a abundance of caution, the Idaho Fish shows a long-term decline from 1966 risk to the species and its habitats. After and Wildlife Office (IFWO) considered

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these activities along with the OHV identified as candidates on its own Therefore, all candidate species monitoring data from 2008–2010 when initiative), it serves as the initial identified through our own initiative making the 2010 decision. However, by petition finding; (2) for candidate already have received the equivalent of 2013, a 5-year monitoring dataset (2008– species for which the Service has made substantial 90-day and warranted-but- 2013) suggested a stable population and a warranted-but-precluded petition precluded 12-month findings. no association between cover of finding, it serves as a ‘‘resubmitted’’ Nevertheless, we review the status of nonnative plant species and wildfire petition finding that the ESA requires the newly petitioned candidate species and the abundance of Packard’s the Service to make each year; and (3) and through this CNOR publish specific milkvetch. it documents the Service’s compliance section 4(b)(3) findings (i.e., substantial In 2010, the population of Packard’s with the statutory requirement to 90-day and warranted-but-precluded 12- milkvetch was estimated at monitor the status of species for which month findings) in response to the approximately 5,000 plants located listing is warranted but precluded, and petitions to list these candidate species. within 26 suboccurrences with to ascertain if they need emergency We publish these findings as part of the abundance ranges from 3 to listing. first CNOR following receipt of the approximately 500 plants per First, the CNOR serves as an initial petition. We have identified the suboccurrence. Surveys in 2012 petition finding in some instances. candidate species for which we received documented several additional Under section 4(b)(3)(A), when we petitions by the code ‘‘C*’’ in the occupied outcrops collectively totaling receive a listing petition, we must category column on the left side of approximately 2,000 individuals, which determine within 90 days, to the Table 1 below. revised the range-wide population maximum extent practicable, whether Second, the CNOR serves as a estimate to 6,500 plants occurring the petition presents substantial ‘‘resubmitted’’ petition finding. Section within 28 suboccurrences. The 5-year information indicating that listing may 4(b)(3)(C)(i) of the ESA requires that monitoring dataset (2008–2013) has be warranted (a ‘‘90-day finding’’). If we when we make a warranted-but- suggested a stable population overall. make a positive 90-day finding, we must precluded finding on a petition, we treat Therefore, based on (1) the reduction promptly commence a status review of the petition as one that is resubmitted of the species’ primary threat (i.e., OHV the species under section 4(b)(3)(A); we on the date of the finding. Thus, we use), (2) the increase in number of must then make and publish one of must make a 12-month petition finding known suboccurrences and resulting three possible findings within 12 in compliance with section 4(b)(3)(B) of increase in the overall population, and months of the receipt of the petition (a the ESA at least once a year, until we (3) the species’ overall stable population ‘‘12-month finding’’): publish a proposal to list the species or status over a 5-year monitoring period, (1) The petitioned action is not make a final not-warranted finding. We we find that listing of Packard’s warranted; make these annual findings for milkvetch as threatened or endangered (2) The petitioned action is warranted petitioned candidate species through throughout all or a significant portion of (in which case we are required to the CNOR. These annual findings its range is no longer warranted; the promptly publish a proposed regulation supercede any findings from previous species no longer meets the definition of to implement the petitioned action; CNORs and the initial 12-month a candidate species, and we are once we publish a proposed rule for a warranted-but-precluded finding, removing it from candidate status. species, sections 4(b)(5) and 4(b)(6) of although all previous findings are part In addition to the factors that led us the ESA govern further procedures, of the administrative record for the new to conclude that Packard’s milkvetch no regardless of whether we issued the finding, and we may rely upon them or longer warrants candidate status, the proposal in response to a petition); or incorporate them by reference in the BLM and IFWO signed a 20-year (3) The petitioned action is warranted, new finding as appropriate. Candidate Conservation Agreement but (a) the immediate proposal of a Third, through undertaking the (CCA) on December 20, 2013, which regulation and final promulgation of a analysis required to complete the further supports the BLM’s OHV closure regulation implementing the petitioned CNOR, the Service determines if any decision and commits to continued action is precluded by pending candidate species needs emergency enforcement and monitoring of the OHV proposals to determine whether any listing. Section 4(b)(3)(C)(iii) of the ESA closure. The CCA also outlines the species is endangered or threatened, and requires us to ‘‘implement a system to BLM’s plans for long-term monitoring (b) expeditious progress is being made monitor effectively the status of all and future proactive conservation to add qualified species to the Lists. We species’’ for which we have made a measures to address new potential refer to this third option as a warranted-but-precluded 12-month threats that may arise. ‘‘warranted-but-precluded finding.’’ finding, and to ‘‘make prompt use of the We define ‘‘candidate species’’ to [emergency listing] authority [under Petition Findings mean those species for which the section 4(b)(7)] to prevent a significant The ESA provides two mechanisms Service has on file sufficient risk to the well being of any such for considering species for listing. One information on biological vulnerability species.’’ The CNOR plays a crucial role method allows the Secretary, on the and threat(s) to support issuance of a in the monitoring system that we have Secretary’s own initiative, to identify proposed rule to list, but for which implemented for all candidate species species for listing under the standards of issuance of the proposed rule is by providing notice that we are actively section 4(a)(1). We implement this precluded (61 FR 64481; December 5, seeking information regarding the status authority through the candidate 1996). The standard for making a of those species. We review all new program, discussed above. The second species a candidate through our own information on candidate species as it method for listing a species provides a initiative is identical to the standard for becomes available, prepare an annual mechanism for the public to petition us making a warranted-but-precluded 12- species assessment form that reflects to add a species to the Lists. The CNOR month petition finding on a petition to monitoring results and other new serves several purposes as part of the list, and we add all petitioned species information, and identify any species petition process: (1) In some instances for which we have made a warranted- for which emergency listing may be (in particular, for petitions to list but-precluded 12-month finding to the appropriate. If we determine that species that the Service has already candidate list. emergency listing is appropriate for any

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candidate, we will make prompt use of assessments and our administrative Preclusion the emergency listing authority under record for each species. A listing proposal is precluded if the section 4(b)(7). For example, on August Our review included updating the Service does not have sufficient status of, and threats to, petitioned 10, 2011, we emergency listed the resources available to complete the candidate or listed species for which we Miami blue butterfly (76 FR 49542). We proposal, because there are competing published findings, under section have been reviewing and will continue demands for those resources, and the 4(b)(3)(B) of the ESA, in the previous to review, at least annually, the status of relative priority of those competing CNOR. We have incorporated new every candidate, whether or not we have demands is higher. Thus, in any given information we gathered since the prior received a petition to list it. Thus, the fiscal year (FY), multiple factors dictate finding and, as a result of this review, CNOR and accompanying species whether it will be possible to undertake we are making continued warranted- assessment forms constitute the work on a listing proposal regulation or but-precluded 12-month findings on the Service’s system for monitoring and whether promulgation of such a making annual findings on the status of petitions for these species. The immediate publication of proposal is precluded by higher priority petitioned species under sections listing actions—(1) The amount of 4(b)(3)(C)(i) and 4(b)(3)(C)(iii) of the proposed rules to list these species was precluded by our work on higher resources available for completing the ESA. listing function, (2) the estimated cost of A number of court decisions have priority listing actions, listed below, during the period from October 1, 2013, completing the proposed listing, and (3) elaborated on the nature and specificity the Service’s workload and of information that we must consider in through September 30, 2014. Below we describe the actions that continue to prioritization of the proposed listing in making and describing the petition relation to other actions. findings in the CNOR. The CNOR that preclude the immediate proposal and final promulgation of a regulation published on November 9, 2009 (74 FR Available Resources implementing each of the petitioned 57804), describes these court decisions actions for which we have made a The resources available for listing in further detail. As with previous warranted-but-precluded finding, and actions are determined through the CNORs, we continue to incorporate we describe the expeditious progress we annual Congressional appropriations information of the nature and specificity are making to add qualified species to, process. In FY 1998 and for each fiscal required by the courts. For example, we and remove species from, the Lists. We year since then, Congress has placed a include a description of the reasons why will continue to monitor the status of all statutory cap on funds that may be the listing of every petitioned candidate candidate species, including petitioned expended for the Listing Program. This species is both warranted and precluded species, as new information becomes spending cap was designed to prevent at this time. We make our available to determine if a change in the listing function from depleting determinations of preclusion on a status is warranted, including the need funds needed for other functions under nationwide basis to ensure that the to emergency-list a species under the ESA (for example, recovery species most in need of listing will be section 4(b)(7) of the ESA. functions, such as removing species addressed first and also because we In addition to identifying petitioned from the Lists), or for other Service allocate our listing budget on a candidate species in Table 1 below, we programs (see House Report 105–163, nationwide basis (see below). Regional also present brief summaries of why 105th Congress, 1st Session, July 1, priorities can also be discerned from each of these candidates warrants 1997). The funds within the spending Table 1, below, which includes the lead listing. More complete information, cap are available to support work region and the LPN for each species. including references, is found in the involving the following listing actions: Our preclusion determinations are species assessment forms. You may Proposed and final listing rules; 90-day further based upon our budget for listing obtain a copy of these forms from the and 12-month findings on petitions to activities for unlisted species only, and Regional Office having the lead for the add species to the Lists or to change the we explain the priority system and why species, or from the Fish and Wildlife status of a species from threatened to the work we have accomplished does Service’s Internet Web site: http:// endangered; annual ‘‘resubmitted’’ preclude action on listing candidate ecos.fws.gov/tess_public/pub/ petition findings on prior warranted- species. candidateSpecies.jsp. As described but-precluded petition findings as In preparing this CNOR, we reviewed above, under section 4 of the ESA, we required under section 4(b)(3)(C)(i) of the current status of, and threats to, the identify and propose species for listing the ESA; critical habitat petition 112 candidates for which we have based on the factors identified in section findings; proposed and final rules received a petition to list and the 5 4(a)(1), and section 4 also provides a designating critical habitat; and listed species for which we have mechanism for the public to petition us litigation-related, administrative, and received a petition to reclassify from to add species to the Lists of program-management functions threatened to endangered, where we Endangered or Threatened Wildlife and (including preparing and allocating found the petitioned action to be Plants under the ESA. budgets, responding to Congressional warranted but precluded. We find that and public inquiries, and conducting the immediate issuance of a proposed Preclusion and Expeditious Progress public outreach regarding listing and rule and timely promulgation of a final To make a finding that a particular critical habitat). rule for each of these species, except for action is warranted but precluded, the We cannot spend more for the Listing the Selkirk ecosystem population and Service must make two determinations: Program than the amount of funds the Cabinet-Yaak ecosystem population (1) That the immediate proposal and within the spending cap without of Grizzly bear (see Petitions To timely promulgation of a final violating the Anti-Deficiency Act (see 31 Reclassify Species Already Listed), has regulation is precluded by pending U.S.C. 1341(a)(1)(A)). In addition, since been, for the preceding months, and listing proposals and (2) that FY 2002, the Service’s budget has continues to be, precluded by higher expeditious progress is being made to included a critical habitat subcap to priority listing actions. Additional add qualified species to either of the ensure that some funds are available for information that is the basis for this lists and to remove species from the completing Listing Program actions finding is found in the species lists. 16 U.S.C. 1533(b)(3)(B)(iii). other than critical habitat designations

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(‘‘The critical habitat designation For FY 2014, on January 17, 2014, result of the petitions to list hundreds subcap will ensure that some funding is Congress passed a Consolidated of species, we currently have over 450 available to address other listing Appropriations Act, 2014 (Pub. L. 113– 12-month petition findings yet to be activities’’ (House Report No. 107–103, 76), which provided funding through initiated and completed. 107th Congress, 1st Session. June 19, September 30, 2014. In particular, it An additional way in which we 2001)). In FY 2002 and each year until included an overall spending cap of prioritize work in the section 4 program FY 2006, the Service had to use $20,515,000 for the listing program. Of is application of the listing priority virtually the entire critical habitat that, no more than $1,504,000 could be guidelines (48 FR 43098; September 21, subcap to address court-mandated used for listing actions for foreign 1983). Under those guidelines, we designations of critical habitat, and species, and no more than $1,501,000 assign each candidate an LPN of 1 to 12, consequently none of the critical habitat could be used to make 90-day or 12- depending on the magnitude of threats subcap funds were available for other month findings on petitions. The (high or moderate to low), immediacy of listing activities. In some FYs since Service thus had $ 12,905,000 available threats (imminent or nonimminent), and 2006, we have been able to use some of to work on proposed and final listing taxonomic status of the species (in order the critical habitat subcap funds to fund determinations for domestic species. In of priority: Monotypic genus (a species proposed listing determinations for addition, if the Service had funding that is the sole member of a genus), high-priority candidate species. In other available within the critical habitat, species, or part of a species (subspecies FYs, while we were unable to use any foreign species, or petition subcaps after or distinct population segment)). The of the critical habitat subcap funds to those workloads had been completed, it lower the listing priority number, the fund proposed listing determinations, could use those funds to work on listing higher the listing priority (that is, a we did use some of this money to fund actions other than critical habitat species with an LPN of 1 would have the critical habitat portion of some designations or foreign species. the highest listing priority). A species proposed listing determinations so that Costs of Listing Actions. The work with a higher LPN would generally be the proposed listing determination and involved in preparing various listing precluded from listing by species with proposed critical habitat designation documents can be extensive, and may lower LPNs, unless work on a proposed could be combined into one rule, include, but is not limited to: Gathering rule for the species with the higher LPN thereby being more efficient in our and assessing the best scientific and can be combined with work on a work. In FY 2014, based on the Service’s commercial data available and proposed rule for other high-priority workload, we were able to use some of conducting analyses used as the basis species. In addition to prioritizing the critical habitat subcap funds to fund for our decisions; writing and species with our 1983 guidance, because proposed listing determinations. publishing documents; and obtaining, of the large number of high-priority reviewing, and evaluating public species we have had in the recent past, For FY 2012 Congress also put in comments and peer review comments we had further ranked the candidate place two additional subcaps within the on proposed rules and incorporating species with an LPN of 2 by using the listing cap: One for listing actions for relevant information into final rules. following extinction-risk type criteria: foreign species and one for petition The number of listing actions that we International Union for the findings. As with the critical habitat can undertake in a given year also is Conservation of Nature and Natural subcap, if the Service does not need to influenced by the complexity of those Resources (IUCN) Red list status/rank, use all of the funds within the subcap, listing actions; that is, more complex Heritage rank (provided by we are able to use the remaining funds actions generally are more costly. The NatureServe), Heritage threat rank for completing proposed or final listing median cost for preparing and (provided by NatureServe), and species determinations. In FY 2014, based on publishing a 90-day finding is $39,276; currently with fewer than 50 the Service’s workload, we were able to for a 12-month finding, $100,690; for a individuals, or 4 or fewer populations. use some of the funds within the foreign proposed rule with critical habitat, Those species with the highest IUCN species subcap and the petitions subcap $345,000; and for a final listing rule rank (critically endangered), the highest to fund proposed listing determinations. with critical habitat, $305,000. Heritage rank (G1), the highest Heritage We make our determinations of Prioritizing Listing Actions. The threat rank (substantial, imminent preclusion on a nationwide basis to Service’s Listing Program workload is threats), and currently with fewer than ensure that the species most in need of broadly composed of four types of 50 individuals, or fewer than 4 listing will be addressed first, and also actions, which the Service prioritizes as populations, originally comprised a because we allocate our listing budget follows: (1) Compliance with court group of approximately 40 candidate on a nationwide basis. Through the orders and court-approved settlement species (‘‘Top 40’’). These 40 candidate listing cap, the three subcaps, and the agreements requiring that petition species had the highest priority to amount of funds needed to complete findings or listing or critical habitat receive funding to work on a proposed court-mandated actions within those determinations be completed by a listing determination and we used this subcaps, Congress and the courts have specific date; (2) essential litigation- to formulate our work plan for FYs 2010 in effect determined the amount of related, administrative, and listing and 2011 that was included in the MDL money available for other listing program-management functions; (3) Settlement Agreement (see below), as activities nationwide. Therefore, the section 4 (of the Act) listing and critical well as for work on proposed and final funds in the listing cap—other than habitat actions with absolute statutory listing rules for the remaining candidate those within the subcaps needed to deadlines; and (4) section 4 listing species with LPNs of 2 and 3. comply with court orders or court- actions that do not have absolute Finally, proposed rules for approved settlement agreements statutory deadlines. In the last few reclassification of threatened species to requiring critical habitat actions for years, the Service received many new endangered species are lower priority, already-listed species, listing actions for petitions and a single petition to list 404 because as listed species, they are foreign species, and petition findings— species, significantly increasing the already afforded the protections of the set the framework within which we number of actions within the second Act and implementing regulations. make our determinations of preclusion category of our workload—actions that However, for efficiency reasons, we may and expeditious progress. have absolute statutory deadlines. As a choose to work on a proposed rule to

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reclassify a species to endangered if we from the proposal). Paragraph 10 of that progress is being made to add and can combine this with work that is settlement agreement sets forth the remove qualified species to and from subject to a court order or court- Service’s conclusion that ‘‘fulfilling the the Lists. As with our ‘‘precluded’’ approved deadline. commitments set forth in this finding, the evaluation of whether Since before Congress first established Agreement, along with other progress in adding qualified species to the spending cap for the Listing Program commitments required by court orders the Lists has been expeditious is a in 1998, the Listing Program workload or court-approved settlement function of the resources available for has required considerably more agreements already in existence at the listing and the competing demands for resources than the amount of funds signing of this Settlement Agreement those funds. (Although we do not Congress has allowed for the Listing (listed in Exhibit A), will require discuss it in detail here, we are also Program. It is therefore important that substantially all of the resources in the making expeditious progress in we be as efficient as possible in our Listing Program.’’ As part of the same removing species from the list under the listing process. As we implement our lawsuit, the court also approved a Recovery program in light of the listing work plan and work on proposed separate settlement agreement with the resources available for delisting, which rules for the highest priority species in other plaintiff in the case; that is funded by a separate line item in the the next several years, we are preparing settlement agreement requires the budget of the Endangered Species multi-species proposals when Service to complete additional actions Program. During FY 2014, we completed appropriate, and these may include in specific fiscal years—including 12- a delisting rule for one species.) As species with lower priority if they month petition findings for 11 species, discussed below, given the limited overlap geographically or have the same 90-day petition findings for 477 species, resources available for listing, we find threats as one of the highest priority and proposed listing determinations or that we made expeditious progress in species. In addition, we take into not-warranted findings for 39 species. FY 2014 in the Listing Program. consideration the availability of staff These settlement agreements have led We provide below tables cataloguing resources when we determine which to a number of results that affect our the work of the Service’s Listing high-priority species will receive preclusion analysis. First, the Service Program in FY 2014. This work includes funding to minimize the amount of time has been, and will continue to be, all three of the steps necessary for and resources required to complete each limited in the extent to which it can adding species to the Lists: (1) listing action. undertake additional actions within the Identifying species that warrant listing; Listing Program Workload. Each FY Listing Program through FY 2017, (2) undertaking the evaluation of the we determine, based on the amount of beyond what is required by the MDL best available scientific data about those funding Congress has made available Settlement Agreements. Second, species and the threats they face, and within the Listing Program spending because the settlement is court preparing proposed and final listing cap, specifically which actions we will approved, two broad categories of rules; and (3) adding species to the Lists have the resources to work on in that actions now fall within the Service’s by publishing proposed and final listing FY. We then prepare Allocation Tables highest priority (compliance with a rules that include a summary of the data that identify the actions that we are court order): (1) The actions required to on which the rule is based and show the funding for that FY, and how much we be completed in FY 2014 by the MDL relationship of that data to the rule. estimate it will cost to complete each Settlement Agreements; and (2) After taking into consideration the action; these Allocation Tables are part completion, before the end of FY 2016, limited resources available for listing, of our record for this notice and the of proposed listings or not-warranted the competing demands for those funds, listing program. Our Allocation Table findings for most of the candidate and the completed work catalogued in for FY 2012, which incorporated the species identified in this CNOR (in Service’s approach to prioritizing its particular, for those candidate species the tables below, we find that we made workload, was adopted as part of a that were included in the 2010 CNOR). expeditious progress to add qualified settlement agreement in a case before Therefore, each year, one of the species to the Lists in FY 2014. the U.S. District Court for the District of Service’s highest priorities is to make First, we made expeditious progress Columbia (Endangered Species Act steady progress towards completing by in the third and final step: Listing Section 4 Deadline Litigation, No. 10– the end of 2017 proposed and final qualified species. In FY 2014, we 377 (EGS), MDL Docket No. 2165 (‘‘MDL listing determinations for the 2010 resolved the status of 35 species that we Litigation’’), Document 31–1 (D.D.C. candidate species—based on the determined, or had previously May 10, 2011) (‘‘MDL Settlement Service’s LPN prioritization system, determined, qualified for listing. Agreement’’)). The requirements of preparing multi-species actions when Moreover, for 32 species, the resolution paragraphs 1 through 7 of that appropriate, and taking into was to add them to the Lists, most with settlement agreement, combined with consideration the availability of staff concurrent designations of critical the work plan attached to the agreement resources. habitat, and for 3 species we published as Exhibit B, reflected the Service’s Based on these prioritization factors, a withdrawal of the proposed rule. We Allocation Tables for FY 2011 and FY we continue to find that proposals to list also proposed to list an additional 24 2012. In addition, paragraphs 2 through the petitioned candidate species qualified species, most with concurrent 7 of the agreement require the Service included in Table 1 are all precluded by critical habitat proposals. to take numerous other actions through higher priority listing actions including Second, we are making expeditious FY 2017—in particular, complete either those with court-ordered and court- progress in the second step: Working a proposed listing rule or a not- approved settlement agreements and towards adding qualified species to the warranted finding for all 251 species listing actions with absolute statutory Lists. In FY 2014, we worked on designated as ‘‘candidates’’ in the 2010 deadlines. developing proposed listing rules for 34 candidate notice of review (‘‘CNOR’’) species (most of them with concurrent before the end of FY 2016, and complete Expeditious Progress critical habitat proposals). Although we final listing determinations for those As explained above, a determination have not yet completed those actions, species proposed for listing within the that listing is warranted but precluded we are making expeditious progress statutory deadline (usually one year must also demonstrate that expeditious towards doing so.

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Third, we are making expeditious agreement on September 9, 2011. That The Service has completed proposed progress in the first step towards adding agreement required, among other things, listing rules or not-warranted findings qualified species to the Lists: Identifying that for all 251 species that were for 166 of the 2010 candidate species, as additional species that qualify for included as candidates in the 2010 well as final listing rules for 118 of listing. In FY 2014, we completed two CNOR, the Service submit to the those proposed rules, and is therefore is 90-day petition findings for two species. Federal Register proposed listing rules making adequate progress towards Our accomplishments this year or not-warranted findings by the end of meeting all of the requirements of the should also be considered in the broader FY 2016, and for any proposed listing MDL settlement agreement. Both by context of our commitment to reduce rules, the Service complete final listing entering into the settlement agreement the number of candidate species for determinations within the statutory time and by making adequate progress which we have not made final frame. Paragraph 6 of the agreement towards making final listing determinations whether or not to list. provided indicators that the Service is determinations for the 251 species on On May 10, 2011, the Service filed in making adequate progress towards the 2010 candidate, the Service is the MDL Litigation a settlement meeting that requirement: Completing agreement that put in place an proposed listing rules or not-warranted making expeditious progress to add ambitious schedule for completing findings for at least 130 of the species qualified species to the lists. proposed and final listing by the end of FY 2013, at least 160 The Service’s progress in FY 2014 determinations at least through FY species by the end of FY 2014, and at included completing and publishing the 2016; the court approved that settlement least 200 species by the end of FY 2015. following determinations:

FY 2014 COMPLETED LISTING ACTIONS

Publication date Title Actions FR Pages

11/14/2013 ...... 12-Month Finding on a Petition To List the Notice of 12-month petition finding, Not war- 78 FR 68660–68685. Gunnison’s Prairie Dog as an Endangered ranted. or Threatened Species. 11/26/2013 ...... Initiation of Status Review of Arctic Grayling Notice of Status Review ...... 78 FR 70525–70527. in the Upper Missouri River System. 12/19/2013 ...... 12-Month Finding on a Petition To List Cole- Notice of 12-month petition finding, Not war- 78 FR 76795–76807. man’s Coralroot as an Endangered or ranted. Threatened Species. 12/20/2013 ...... Threatened Status for Eriogonum codium Final Rule—Revision ...... 78 FR 76995–77005. (Umtanum Desert Buckwheat) and Physaria douglasii subsp. tuplashensis (White Bluffs Bladderpod) and Designation of Critical Habitat. 2/24/2014 ...... Determination of Threatened Species Status Final Listing Threatened ...... 79 FR 10235–10293. for the Georgetown Salamander and Sa- lado Salamander Throughout Their Ranges. 3/31/2014 ...... 90-Day Finding on a Petition To List the Alex- Notice of 90-day petition finding, Substantial 79 FR 17993–17995. ander Archipelago Wolf as Threatened or Endangered. 4/9/2014 ...... Threatened Species Status for the Olympia Final Listing Threatened, with Special Rule ... 79 FR 19759–19796. Pocket Gopher, Roy Prairie Pocket Go- pher, Tenino Pocket Gopher, and Yelm Pocket Gopher, with Special Rule. 4/10/2014 ...... Determination of Threatened Status for the Final Listing Threatened ...... 79 FR 19973–20071. Lesser Prairie-Chicken. 4/29/2014 ...... Endangered Species Status for Sierra Ne- Final Listing Threatened and Endangered ..... 79 FR 24255–24310. vada Yellow-Legged Frog and Northern Distinct Population Segment of the Moun- tain Yellow-Legged Frog, and Threatened Species Status for Yosemite Toad. 5/6/2014 ...... Determination of Threatened Status for Final Listing Threatened ...... 79 FR 25683–25688. Leavenworthia exigua var. laciniata (Ken- tucky Glade Cress). 6/3/2014 ...... Threatened Species Status for Ivesia webberi Final Listing Threatened ...... 79 FR 31878–31883. 6/10/2014 ...... Determination of Endangered Status for the Final Listing Endangered ...... 79 FR 33119–33137. New Mexico Meadow Jumping Mouse Throughout Its Range. 7/8/2014 ...... Threatened Status for the Northern Mexican Final Listing Threatened ...... 79 FR 38677–38746. Gartersnake and Narrow-Headed Gartersnake. 7/24/2014 ...... Endangered Species Status for the Zuni Final Listing Endangered ...... 79 FR 43131–43161. Bluehead Sucker. 8/1/2014 ...... Endangered Status for Physaria globosa Final Listing Endangered ...... 79 FR 44712–44718. (Short’s bladderpod), Helianthus verticillatus (whorled sunflower), and Leavenworthia crassa (fleshy-fruit gladecress). 8/4/2014 ...... Determination of Endangered Status for the Final Listing Endangered ...... 79 FR 45273–45286. Sharpnose Shiner and Smalleye Shiner.

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FY 2014 COMPLETED LISTING ACTIONS—Continued

Publication date Title Actions FR Pages

8/6/2014 ...... Withdrawal of the Proposed Rules To List Proposed Listing Withdrawal ...... 79 FR 46041–46087. Graham’s Beardtongue (Penstemon grahamii) and White River Beardtongue (Penstemon scariosus var. albifluvis) and Designate Critical Habitat. 8/12/2014 ...... Endangered Status for the Florida Leafwing Final Listing Endangered ...... 79 FR 47222–47244. and Bartram’s Scrub-Hairstreak Butterflies. 8/13/2014 ...... 12-Month Finding on a Petition To List the Notice of 12-month petition finding, Not war- 79 FR 47413–47415. Warton’s Cave Meshweaver as Endan- ranted Candidate removal. gered or Threatened. 8/13/2014 ...... Threatened Status for the Distinct Population Proposed Listing Withdrawal ...... 79 FR 47521–47545. Segment of the North American Wolverine Occurring in the Contiguous United States; Establishment of a Nonessential Experi- mental Population of the North American Wolverine in Colorado, Wyoming, and New Mexico. 8/19/2014 ...... 90-Day Finding on a Petition To List the Is- Notice of 90-day petition finding, Substantial 79 FR 49045–49047. land Marble Butterfly as an Endangered Species. 8/20/2014 ...... Revised 12-Month Finding on a Petition To Notice of 12-month petition finding, Not war- 79 FR 49383–49422. List the Upper Missouri River Distinct Pop- ranted Candidate removal. ulation Segment of Arctic Grayling as an Endangered or Threatened Species. 8/26/2014 ...... 12-Month Finding on the Petition To List Notice of 12-month petition finding, Not war- 79 FR 51041–51066. Least Chub as an Endangered or Threat- ranted Candidate removal. ened Species. 8/26/2014 ...... Endangered Status for Vandenberg Final Listing Endangered ...... 79 FR 50844–50854. Monkeyflower. 8/29/2014 ...... Threatened Status for Oregon Spotted Frog .. Final Listing Threatened ...... 79 FR 51657–51710. 9/4/2014 ...... Endangered Species Status for Brickellia Final Listing Endangered ...... 79 FR 52567–52575. mosieri (Florida Brickell-bush) and Linum carteri var. carteri (Carter’s Small-flowered Flax). 9/9/2014 ...... Endangered Species Status for Agave Final Listing Endangered and Threatened ..... 79 FR 53315–53344. eggersiana and Gonocalyx concolor, and Threatened Species Status for Varronia rupicola. 9/12/2014 ...... Threatened Status for Arabis georgiana Final Listing Threatened ...... 79 FR 54627–54635. (Georgia rockcress). 9/12/2014 ...... Revised Designation of Critical Habitat for the Final Critical Habitat Final Listing—adding 79 FR 54781–54846. Contiguous United States Distinct Popu- New Mexico to DPS boundary. lation Segment of the Canada Lynx and Revised Distinct Population Segment Boundary. 9/18/2014 ...... 12-Month Finding on a Petition To List Notice of 12-month petition finding, Not war- 79 FR 56029–56040. Eriogonum kelloggii (Red Mountain buck- ranted Candidate removal. wheat) and Sedum eastwoodiae (Red Mountain stonecrop) as Endangered or Threatened Species. 9/18/2014 ...... 12-Month Finding on a Petition To List Notice of 12-month petition finding, Not war- 79 FR 56041–56047. Symphyotrichum georgianum (Georgia ranted Candidate removal. aster) as Endangered or Threatened Spe- cies. 9/23/2014 ...... 12-Month Finding on a Petition To List the Notice of 12-month petition finding, Not war- 79 FR 56730–56738. Tucson Shovel-Nosed Snake. ranted Candidate removal. 9/24/2014 ...... 12-Month Finding on a Petition To List Notice of 12-month petition finding, Not war- 79 FR 57032–57041. Eriogonum corymbosum var. nilesii and ranted Candidate removal. Eriogonum diatomaceum. 10/1/2014 ...... 12-Month Finding on a Petition To List Rio Notice of 12-month petition finding, Not war- 79 FR 59140–59150. Grande Cutthroat Trout as an Endangered ranted Candidate removal. or Threatened Species. 10/1/2014 ...... 12-Month Finding on a Petition To List Yel- Notice of 12-month petition finding, Not war- 79 FR 59195–59204. low-Billed Loon (Gavia adamsii) as an En- ranted Candidate removal. dangered or Threatened Species. 10/1/2014 ...... Proposed Endangered Status for 21 Species Proposed Listing Endangered and Threat- 79 FR 59363–59413. and Proposed Threatened Status for 2 ened. Species in Guam and the Commonwealth of the Northern Mariana Islands.

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FY 2014 COMPLETED LISTING ACTIONS—Continued

Publication date Title Actions FR Pages

10/3/2014 ...... Threatened Species Status for the Western Final Listing Threatened ...... 79 FR 59991–60038. Distinct Population Segment of the Yellow- billed Cuckoo. 10/7/2014 ...... Threatened Species Status for Black Proposed Listing Threatened ...... 79 FR 60406–60419. Pinesnake. 10/7/2014 ...... Threatened Species Status for West Coast Proposed Listing Threatened ...... 79 FR 60419–60443. Distinct Population Segment of Fisher. 10/9/2014 ...... Endangered Species Status for Trichomanes Proposed Listing Endangered ...... 79 FR 61135–61161. punctatum ssp. floridanum (Florida Bristle Fern).

Our expeditious progress also 2014. For these species, we have actions are listed below. All the actions included work on listing actions that we completed the first step, and have been in the table are being conducted under funded in previous fiscal years and in working on the second step, necessary a deadline set by a court through a court FY 2014 but did not complete in FY for adding species to the Lists. These order or settlement agreement.

ACTIONS FUNDED IN PREVIOUS FYS AND FY 2014 BUT NOT COMPLETED IN FY 2014

Species Action

Actions Subject to Court Order/Settlement Agreement

Gunnison sage-grouse ...... Final listing. Dakota skipper and Poweshiek skipperling ...... Final listing. Red knot (rufa subspecies) ...... Final listing. Northern long-eared bat ...... Final listing. Greater sage-grouse—Bi-State DPS ...... Final listing. Washington ground squirrel ...... Proposed listing. Xantus’s murrelet ...... Proposed listing. Columbia spotted frog—Great Basin DPS ...... Proposed listing. Sequatchie caddisfly ...... Proposed listing. Four Florida Keys plants (sand flax, Big Pine partridge pea, Blodgett’s silverbush, and wedge spurge) ...... Proposed listing. Four Florida plants (Florida pineland crabgrass, Florida prairie clover, pineland sandmat, and Everglades bully) ...... Proposed listing. White fringeless orchid ...... Proposed listing. Black warrior waterdog ...... Proposed listing. Black mudalia ...... Proposed listing. Elfin-woods warbler ...... Proposed listing. Kentucky arrow darter and Cumberland arrow darter ...... Proposed listing. Six Cave beetles (Nobletts, Baker Station, Fowler’s, Indian Grave Point, inquirer, and Coleman) ...... Proposed listing. Sicyos macrophyllus ...... Proposed listing. Highlands tiger beetle ...... Proposed listing. Sicklefin redhorse ...... Proposed listing. Headwater chub ...... Proposed listing. Roundtail chub DPS ...... Proposed listing. Page springsnail ...... Proposed listing. Sonoran desert tortoise ...... Proposed listing. Texas hornshell ...... Proposed listing. New England cottontail ...... Proposed listing. Eastern massasauga ...... Proposed listing.

We also funded work on resubmitted include an updated assessment form as summaries below regarding publication petitions findings for 112 candidate part of our resubmitted petition findings of these determinations (these species species (species petitioned prior to the for the 34 candidate species for which will remain on the candidate list until last CNOR). In our resubmitted petition we are preparing proposed listing a proposed listing rule is published). We finding for the Columbia Basin determinations. However, for both the also funded a revised 12-month petition population of the greater sage-grouse in Columbia Basin DPS of the greater sage- finding for the petitioned candidate this notice, although we completed a grouse and for the other resubmitted species that we are removing from new analysis of the threats facing the petition findings, in the course of candidate status, which is being species, we did not include new preparing proposed listing published as part of this CNOR (see information, as the significance of the determinations, we continue to monitor Candidate Removals). Because the Columbia Basin DPS of the greater sage- new information about their status so majority of these petitioned species grouse will require further review and that we can make prompt use of our were already candidate species prior to we will update our finding when we authority under section 4(b)(7) in the our receipt of a petition to list them, we resolve the status of the greater sage- case of an emergency posing a had already assessed their status using grouse at a later date (see 75 FR 13910; significant risk to the well-being of any funds from our Candidate Conservation March 23, 2010). We also did not of these candidate species; see Program, so we continue to monitor the

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status of these species through our Findings for Petitioned Candidate location of this DPS, where surveys are Candidate Conservation Program. The Species currently ongoing to ascertain its status. cost of updating the species assessment Below are updated summaries for The factors that led to the decline of this forms and publishing the joint petitioned candidates for which we subspecies and the DPS are poorly publication of the CNOR and published findings under section understood; however, current threats to resubmitted petition findings is shared 4(b)(3)(B). In accordance with section this subspecies and the DPS include between the Listing Program and the 4(b)(3)(C)(i), we treat any petitions for habitat loss, predation by introduced Candidate Conservation Program. which we made warranted-but- species, and its small population size precluded 12-month findings within the and distribution, which make the taxon During FY 2014, we also funded work extremely vulnerable to extinction due past year as having been resubmitted on on resubmitted petition findings for to typhoons and similar natural the date of the warranted-but-precluded uplisting five listed species (three catastrophes. The subspecies may also finding. We are making continued grizzly bear populations, Delta smelt, be susceptible to disturbance in its warranted-but-precluded 12-month and Sclerocactus brevispinus (Pariette roosting caves. The threats are imminent findings on the petitions for these cactus)), for which we had previously and of high magnitude, since they are species (for 12-month findings on received a petition and made a ongoing and severe enough to pose a resubmitted petitions for species that we warranted-but-precluded finding. relatively high likelihood of extinction. determined no longer meet the Therefore, we have retained an LPN of Another way that we have been definition of ‘‘endangered species’’ or expeditious in making progress to add 3 for this DPS of a subspecies. ‘‘threatened species,’’ see summaries Pen˜ asco least chipmunk (Tamias qualified species to the Lists is that we above under Candidate Removals). have endeavored to make our listing minimus atristria)—The following actions as efficient and timely as Mammals summary is based on information contained in our files. Pen˜ asco least possible, given the requirements of the Pacific sheath-tailed bat, American chipmunk is endemic to the White relevant law and regulations and Samoa DPS (Emballonura semicaudata Mountains, Otero and Lincoln Counties, constraints relating to workload and semicaudata)—The following summary personnel. We are continually and the Sacramento Mountains, Otero is based on information contained in ˜ considering ways to streamline County, New Mexico. The Penasco least our files. No new information was chipmunk historically had a broad processes or achieve economies of scale, provided in the petition we received on distribution throughout the Sacramento such as by batching related actions May 11, 2004. This small insectivorous Mountains within ponderosa pine together. Given our limited budget for bat is a member of the Emballonuridae forests. The last verification of implementing section 4 of the ESA, family, an Old World bat family that has persistence of the Sacramento these efforts also contribute towards an extensive distribution, primarily in Mountains population of Pen˜ asco least finding that we are making expeditious the tropics. Emballonura semicaudata chipmunk was in 1966, and the progress to add qualified species to the semicaudata was once common and subspecies appears to be extirpated from Lists. widespread in Polynesia and the Sacramento Mountains. The only Although we have not been able to Micronesia. The species as a whole (E. remaining known distribution of the resolve the listing status of many of the semicaudata) occurred on several of the least chipmunk is restricted to open, candidates, we continue to contribute to Caroline Islands (Palau, Chuuk, and high-elevation talus slopes within a the conservation of these species Pohnpei), Samoa (Independent and subalpine grassland, located in the through several programs in the Service. American), the Mariana Islands (Guam Sierra Blanca area of the White and the Commonwealth of the Northern In particular, the Candidate Mountains in Lincoln and Otero Mariana Islands (CNMI)), Tonga, Fiji, Conservation Program, which is Counties, New Mexico. and Vanuatu. While populations appear separately budgeted, focuses on The Pen˜ asco least chipmunk faces to be healthy in some locations, mainly providing technical expertise for threats from present or threatened in the Caroline Islands, they have developing conservation strategies and destruction, modification, and declined substantially in other areas, curtailment of its habitat from the agreements to guide voluntary on-the- including Independent and American ground conservation work for candidate alteration or loss of mature ponderosa Samoa, the Mariana Islands, Fiji, and pine forests in one of the two and other at-risk species. The main goal possibly Tonga. Scientists recognize historically occupied areas. The of this program is to address the threats four subspecies: E. s. rotensis, endemic documented decline in occupied facing candidate species. Through this to the Mariana Islands (Guam and the localities, in conjunction with the small program, we work with our partners Commonwealth of the Northern Mariana numbers of individuals captured, are (other Federal agencies, State agencies, Islands (CNMI)); E. s. sulcata, occurring linked to widespread habitat alteration. Tribes, local governments, private in Chuuk and Pohnpei; E. s. palauensis, Moreover, the highly fragmented nature landowners, and private conservation found in Palau; and E. s. semicaudata, of its distribution is a significant organizations) to address the threats to occurring in American and Independent contributor to the vulnerability of this candidate species and other species at Samoa, Tonga, Fiji, and Vanuatu. The subspecies and increases the likelihood risk. We are currently working with our candidate assessment form addresses of very small, isolated populations being partners to implement voluntary the DPS of E. s. semicaudata that occurs extirpated. As a result of this conservation agreements for more than in American Samoa. fragmentation, even if suitable habitat 110 species covering 3.6 million ac of Emballonura semicaudata exists (or is restored) in the Sacramento habitat. In some instances, the sustained semicaudata historically occurred in Mountains, the likelihood of natural implementation of strategically American and Independent Samoa, recolonization of historical habitat or designed conservation efforts Tonga, Fiji, and Vanuatu. It is extant in population expansion from the White culminates in making listing Fiji and Tonga, but may be extirpated Mountains is extremely remote. unnecessary for species that are from Vanuatu and Independent Samoa. Considering the high magnitude and candidates for listing or for which There is some concern that it is also immediacy of these threats to the listing has been proposed. extirpated from American Samoa, the subspecies and its habitat, and the

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vulnerability of the White Mountains Threats to southern Idaho ground tree canopy. They are one of the few population, we conclude that the least squirrels include: Habitat degradation; animals that can persist on a diet of chipmunk is in danger of extinction direct killing from shooting, trapping, or conifer needles, which is their principal throughout all of its known range now poisoning; predation; and competition food. Red tree voles are endemic to the or in the foreseeable future. with other ground squirrel species. humid, coniferous forests of western The one known remaining extant Habitat degradation appears to be the Oregon (generally west of the crest of population of Pen˜ asco least chipmunk primary threat. Nonnative annuals such the Cascade Range) and northwestern in the White Mountains is particularly as Bromus tectorum (cheatgrass) and California (north of the Klamath River). susceptible to extinction as a result of Taeniatherum caput-medusae The north Oregon coast DPS of the red small, reduced population sizes and its (medusahead) now dominate much of tree vole comprises that portion of the isolation. Because of the reduced this species’ range and have altered the Oregon Coast Range from the Columbia population size and lack of contiguous fire regime by increasing the frequency River south to the Siuslaw River. Red habitat adjacent to the extant White of wildfire. Nonnative annuals may tree voles demonstrate strong selection Mountains population, even a small provide inconsistent forage quality for for nesting in older conifer forests, impact on the White Mountains could southern Idaho ground squirrels which are now relatively rare across the have a very large impact on the status compared to native vegetation. A DPS; they avoid nesting in younger of the species as a whole. As a result of programmatic Candidate Conservation forests. its restricted range, apparent small Agreement with Assurances (CCAA) has Although data are not available to population size, and fragmented been completed for this species and rigorously assess population trends, historical habitat, the White Mountains contains conservation measures that information from retrospective surveys population is inherently vulnerable to minimize ground disturbing activities, indicates red tree voles have declined in extinction due to effects of small, allow for the investigation of methods to the DPS and are largely absent in areas population sizes (e.g. loss of genetic restore currently degraded habitat, where they were once relatively diversity). These impacts are likely to be provide for additional protection to abundant. Older forests that provide seen in the population at some point in southern Idaho ground squirrels from habitat for red tree voles are limited and the foreseeable future, but do not appear recreational shooting and other direct highly fragmented, while ongoing forest to be affecting this population currently killing on enrolled lands, and allow for practices in much of the DPS maintain as it appears to be stable at this time. the translocation of squirrels to or from the remnant patches of older forest in a Therefore, we conclude that the threats enrolled lands, if necessary. The acreage highly fragmented and isolated to this population are of high enrolled through the CCAA condition. Modeling indicates that only magnitude, but not imminent. encompasses approximately 9 percent of 11 percent of the DPS currently contains Therefore, we assign an LPN of 6 to the the known range of the species. While tree vole habitat, largely restricted to the subspecies. the ongoing conservation efforts have 22 percent of the DPS that is under New England cottontail (Sylvilagus helped to reduce the magnitude of Federal ownership. transitionalis)—We continue to find that threats to a moderate level, habitat Existing regulatory mechanisms on listing this species is warranted but degradation remains the primary threat State and private lands are inadequate precluded as of the date of publication to the species throughout most of its to prevent continued harvest of forest of this notice. However, we are working range. This threat is imminent, due to stands at a scale and extent that would on a proposed listing determination that the ongoing and increasing prevalence be meaningful for conserving red tree we expect to publish prior to making the of nonnative vegetation. Therefore, we voles. Biological characteristics of red next annual resubmitted petition 12- have retained an LPN of 8 for this tree voles, such as small home ranges, month finding. In the course of species. limited dispersal distances, and low preparing the proposed listing rule, we Washington ground squirrel reproductive potential, limit their are continuing to monitor new (Urocitellus washingtoni)—We continue ability to respond to and persist in areas information about this species’ status so to find that listing this species is of extensive habitat loss and alteration. that we can make prompt use of our warranted but precluded as of the date These biological characteristics also authority under section 4(b)(7) in the of publication of this notice. However, make it difficult for the tree voles to case of an emergency posing a we are working on a proposed listing recolonize isolated habitat patches. Due significant risk to the species. rule that we expect to publish prior to to its reduced distribution, the red tree Southern Idaho ground squirrel making the next annual resubmitted vole is now vulnerable to random (Urocitellus endemicus)—The following petition 12-month finding. In the course environmental disturbances that may summary is based on information of preparing the proposed listing remove or further isolate large blocks of contained in our files. No new determination, we are continuing to already limited habitat, and to information was provided in the monitor new information about this extirpation within the DPS from such petition we received on May 11, 2004. species’ status so that we can make factors as lack of genetic variability, The southern Idaho ground squirrel is prompt use of our authority under inbreeding depression, and endemic to four counties in southwest section 4(b)(7) in the case of an demographic stochasticity. Although the Idaho; its total known range is emergency posing a significant risk to entire population is experiencing approximately 292,000 hectares (ha) the species. threats, the impact is less pronounced (722,000 acres (ac)). The population Red tree vole, north Oregon coast DPS on Federal lands, where much of the red declined significantly between 1985 and (Arborimus longicaudus)—The tree vole habitat remains. Hence, the 2001, and approximately 37 percent of following summary is based on magnitude of these threats is moderate the historical known sites were information contained in our files and to low. The threats are imminent occupied in 1999 by a relatively small in our initial warranted-but-precluded because habitat loss and reduced number of individuals. More recently, finding, published in the Federal distribution are currently occurring southern Idaho ground squirrels have Register on October 13, 2011 (76 FR within the DPS. Therefore, we have increased in abundance, and monitoring 63720). Red tree voles are small, mouse- retained an LPN of 9 for this DPS. suggests that the population may now sized rodents that live in conifer forests Pacific walrus (Odobenus rosmarus be stable. and spend almost all of their time in the divergens)—The following information

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is based on information in our files and commercial fishing, and subsistence of the spotless crake’s range, and could our warranted-but-precluded 12-month harvest, but none rise to the level of a result in the isolation of the Marquesas petition finding published on February threat except subsistence harvest. We and Society Islands populations by 10, 2011 (76 FR 7634). The Pacific found that subsistence harvest will rise further limiting the potential for even walrus is an ice-dependent species to the level of a threat if the population rare genetic exchange. Based on the found across the continental shelf declines but harvest levels remain the discreteness and significance of the waters of the northern Bering and same. Because both the loss of sea ice American Samoa population of the Chukchi Seas. Unlike seals, which can habitat and the ongoing practice of spotless crake, we consider this remain in the water for extended subsistence harvest are presently population to be a distinct vertebrate periods, walrus must haul out onto ice occurring, these threats are imminent. population segment. or land periodically. Pacific walrus is a However, these threats are not having Threats to this population have not traditional and important source of food significant population-level effects changed over the past year. The and products to native Alaskans, currently, but are projected to, we population in American Samoa is especially those living on Saint determined that the magnitude of the threatened by small population size, Lawrence Island, and to native threats is moderate, not high. Thus, we limited distribution, predation by Russians. assigned an LPN of 9 to this subspecies. nonnative and native animals, Annually, walrus migrate up to 1,500 continued development of wetland kilometers (km) (932 miles (mi)) Birds habitat, and natural catastrophes such as between winter breeding areas in the Spotless crake, American Samoa DPS hurricanes. The co-occurrence of a sub-Arctic (northern Bering Sea) and (Porzana tabuensis)—The following known predator of ground-nesting birds, summer foraging areas in the Arctic. summary is based on information the Norway rat (Rattus norvegicus), and Historically, the females and calves contained in our files. No new native predators, the Pacific boa remained on pack ice over the information was provided in the (Candoia bibroni) and the Purple continental shelf of the Chukchi Sea petition we received on May 11, 2004. Swamphen (Porphyrio porphyrio), along throughout the summer, using it as a The spotless crake is a small, dark, with the extremely restricted observed platform for resting after making cryptic bird found in wetlands and rank distribution and low numbers, indicates shallow foraging dives for invertebrates scrublands or forests in the Philippines, that the threats to the American Samoa on the sea floor. Sea ice also provides Australia, Fiji, Tonga, Society Islands, DPS of the spotless crake continue to be isolation from disturbance and Marquesas, Independent Samoa, and both imminent and high in magnitude terrestrial predators such as polar bears. American Samoa (Ofu, Tau). The genus because the ongoing threats have a high Since 1979, the extent of summer Arctic Porzana is widespread in the Pacific, likelihood of affecting the ability of the sea ice has declined. The five lowest where it is represented by numerous species to survive in a relatively short records of minimum sea ice extent island-endemic and flightless species time frame. Based on this assessment of occurred from 2007 to 2012. Based on (many of which are extinct as a result existing information about the the best scientific information available, of anthropogenic disturbances), as well imminence and high magnitude of these we anticipate that sea ice will retreat as several more cosmopolitan species, threats, we have retained an LPN of 3 northward off the Chukchi continental including P. tabuensis. No subspecies of for this DPS. shelf for 1 to 5 months every year in the P. tabuensis are recognized. Friendly ground-dove, American foreseeable future. The American Samoa population is Samoa DPS (Gallicolumba stairi)—The When the ice melts beyond the limits the only population of spotless crakes following summary is based on of the continental shelf (and the ability under U.S. jurisdiction. The available information contained in our files. No of the walrus to obtain food), thousands information indicates that distinct new information was provided in the of walrus congregate at coastal haulouts. populations of the spotless crake, a petition we received on May 11, 2004. Although coastal haulouts have species not noted for long-distance The genus Gallicolumba is distributed historically provided a place to rest, the dispersal, are definable. The population throughout the Pacific and Southeast aggregation of so many animals, in of spotless crakes in American Samoa is Asia. The genus is represented in the particular females and calves, at this discrete in relation to the remainder of oceanic Pacific by six species: Three are time of year has increased in the last 5 the species as a whole, which is endemic to Micronesian islands or years. Not only are the number of distributed in widely separated archipelagos, two are endemic to island animals more concentrated at coastal locations. Although the spotless crake groups in French Polynesia, and G. haulouts than on widely dispersed sea (and other rails) have dispersed widely stairi is endemic to Samoa, Tonga, and ice, but also the probability of in the Pacific, flight in island rails has Fiji. Some authors recognize two disturbance from humans and terrestrial atrophied or been completely lost over subspecies of the friendly ground-dove, animals is much higher. Disturbances at evolutionary time, causing populations one, slightly smaller, in the Samoan coastal haulouts can cause stampedes, to become isolated (and vulnerable to archipelago (G. s. stairi), and one in leading to mortalities and injuries. In terrestrial predators such as rats). The Tonga and Fiji (G. s. vitiensis), but addition, there is also concern that the population of this species in American because morphological differences concentration of animals will cause Samoa is therefore distinct based on between the two are minimal, we are local prey depletion, leading to longer geographic and distributional isolation not recognizing separate subspecies at foraging trips, increased energy costs, from spotless crake populations on this time. and potential effects on female other islands in the oceanic Pacific, the In American Samoa, the friendly condition and calf survival. We expect Philippines, and Australia. The ground-dove has been found on the these effects to lead to a population American Samoa population of the islands of Ofu and Olosega (Manua decline. spotless crake links the Central and Group). Threats to this species have not We recognize that Pacific walrus face Eastern Pacific portions of the species’ changed over the past year. Predation by additional stressors from ocean range. The loss of this population would nonnative species and natural warming, ocean acidification, disease, result in an increase of roughly 500 mi catastrophes such as hurricanes are the oil and gas exploration and (805 km) in the distance between the primary threats to the DPS. Of these, development, increased shipping, central and eastern Polynesian portions predation by nonnative species is

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thought to be occurring now and likely Rio Grande Joint Venture, World threaten the species. Pesticide exposure has been occurring for several decades. Birding Center, Rio Grande Valley is not known to affect the red-crowned This predation may be an important Birding Festival, and the Universidad parrot. Conservation efforts include the impediment to population growth. Auto´noma de Tamaulipas. As of April, artificial nest structure projects, as well Predation by introduced species has 2014, there are no changes to the range as habitat creation projects such as one played a significant role in reducing, or distribution of the red-crowned initiated by the Service and the Rio limiting, and extirpating populations of parrot. The red-crowned parrot is non- Grande Joint Venture in the LRGV to island birds, especially ground-nesters migratory, and occurs in fragmented understand and compare how birds are like the friendly ground-dove, in the isolated habitat in the Mexican States of using revegetated tracts of land that Pacific and other locations worldwide. Tamaulipas, Veracruz, San Luis Potosi, were previously affected by flooding. Nonnative predators known or thought Nuevo Leon, and northeast Queretaro. The project is in its initial steps and no to occur in the range of the friendly The species also occurs within the results are yet available. Threats to the ground-dove in American Samoa southern tip of Texas, in the cities of species are imminent because habitat include feral cats (Felis catus), Mission, McAllen, Pharr, and Edinburg destruction and inadequate regulatory Polynesian rats (Rattus exulans), black (Hidalgo County), and in Brownsville, mechanisms are ongoing. In addition, rats (R. rattus), and Norway rats (R. Los Fresnos, San Benito, and Harlingen the threats are high in magnitude, norvegicus). (Cameron County). Feral populations because they affect the species In January 2004 and February of 2005, also exist in southern California, Puerto extensively at a population level; hurricanes virtually destroyed the Rico, Hawaii, and Florida and escaped therefore, we have determined that a habitat of G. stairi in the area on Olosega birds have been reported in central LPN of 2 remains appropriate for the Island where the species had been most Texas. As of 2004, half of the native species. frequently recorded. Although this population is believed to be found in Sprague’s pipit (Anthus spragueii)— species has evolved on islands subject the United States. The species is See above in ‘‘Listing Priority Changes to severe storms, this example illustrates nomadic during the winter (non- in Candidates.’’ the potential for natural disturbance to breeding) season when large flocks Greater sage-grouse (Centrocercus exacerbate the effect of anthropogenic range widely to forage, moving tens of urophasianus)—The following summary disturbance on small populations. kilometers during a single flight in is based on information in our files and Consistent monitoring using a variety of Mexico. In Texas, red-crowned parrots in the petition we received on January methods over the last 5 years yielded are thought to move between urban 30, 2002. Currently, greater sage-grouse few observations and no change in the areas in search of food and other occur in 11 States (Washington, Oregon, relative abundance of this taxon in available resources. There has not been California, Nevada, Idaho, Montana, Wyoming, Colorado, Utah, South American Samoa. The total population systematic annual monitoring of red- Dakota, and North Dakota) and 2 size remains poorly known but is crowned parrot populations in Texas’s Canadian provinces (Alberta and unlikely to number more than a few Lower Rio Grande Valley (LRGV), so no Saskatchewan), occupying hundred pairs. The distribution of the population trend information is approximately 56 percent of their friendly ground-dove is limited to steep, available; instead, numbers of parrots historical range. Greater sage-grouse forested slopes with an open understory are most often reported from more depend on a variety of shrub-steppe and a substrate of fine scree or exposed informal surveys including Christmas habitats throughout their life cycle, and earth; this habitat is not common in Bird Counts and E-bird; surveys with American Samoa. The threats are are obligate users of several species of wide variation in observers’ skill levels. ongoing and therefore imminent, and sagebrush. Counts of nesting pairs have not been the magnitude is moderate because The primary threat to greater sage- documented since McKinney’s 1995 relative abundance has remained grouse is ongoing fragmentation and survey. In Mexico, the level of unchanged for several years. Thus, we loss of shrub-steppe habitats through a monitoring of red-crowned parrots have retained an LPN of 9 for this DPS. variety of mechanisms. Most Xantus’s murrelet (Synthliboramphus within the last two decades is not well importantly, increasing fire cycles and hypoleucus)—We continue to find that known; however, community groups invasive plants (and the interaction listing this species is warranted but did include the species in bird surveys between them) in more westerly parts of precluded as of the date of publication in the Ejido El Sabinito, in Sierras of the range, along with energy of this notice. However, we are working Tamaulipas, in 2012 and 2013, where development and related infrastructure on a proposed listing determination that they reported approximately 2,500 and in more easterly areas, are negatively we expect to publish prior to making the 1,889 individuals, respectively. affecting the species. In addition, direct next annual resubmitted petition 12- Anecdotal reports from Mexico suggest loss of habitat and fragmentation is month finding. In the course of that the species may be increasing in occurring due to agriculture, preparing the proposed listing rule, we numbers in urban areas of Tamaulipas urbanization, and infrastructure such as are continuing to monitor new and Neuvo Leon. roads and power lines built in support information about this species’ status so The primary threats within Mexico of several activities. We also have that we can make prompt use of our and Texas remain habitat destruction determined that currently existing authority under section 4(b)(7) in the and modification from logging, regulatory mechanisms are inadequate case of an emergency posing a deforestation, and conversion of suitable to protect the species from these significant risk to the species. habitat for agricultural and urban ongoing threats. However, many of these Red-crowned parrot (Amazona development purposes. In addition, habitat impacts are being actively viridigenalis)—The following summary existing regulations do not adequately addressed through conservation actions is based on information contained in the address the habitat or capture and trade taken by local working groups, and State notice of 12-month finding (76 FR threats to the species. Thus, the and Federal agencies. Notably, the 62016) as well as communication with inadequacy of existing regulations and Natural Resources Conservation Service the U.S. Fish and Wildlife Service their enforcement continue to threaten has committed significant financial and (Service), Texas Parks and Wildlife the red-crowned parrot. Disease and technical resources to address threats to Department, The Nature Conservancy, predation are not documented to this species on private lands through

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their Sage-grouse Initiative. Also no longer considered a valid subspecies. main Hawaiian Islands when notably, the Bureau of Land In light of our conclusions regarding the Polynesians arrived about 1,500 years Management and U.S. Forest Service are taxonomic invalidity of the western ago, based on storm-petrel bones found in the process of revising 98 Land sage-grouse subspecies, the significance in middens on the island of Hawaii and Management Plans through 6 of the Columbia Basin DPS to the greater in excavation sites on Oahu and Environmental Impact Statements to sage-grouse will require further review. Molokai, Hawaii. Nesting colonies of provide adequate regulatory The Service intends to complete an this species in the Hawaiian Islands mechanisms. These efforts, when fully analysis to determine if this population currently are restricted to remote cliffs implemented, will potentially provide continues to warrant recognition as a on Kauai and Lehua Island and high- important conservation benefits to the DPS in accordance with our Policy elevation lava fields on Hawaii. greater sage-grouse and its habitats. We Regarding the Recognition of Distinct Vocalizations of the species were heard consider the threats to the greater sage- Vertebrate Population Segments (61 FR in Haleakala Crater on Maui as recently grouse to be of moderate magnitude, 4722; February 7, 1996) at the time we as 2006; however, no nesting sites have because the threats are not occurring make a listing decision on the status of been located on the island to date. The with uniform intensity or distribution the greater sage-grouse. Until that time, significant reduction in numbers and across the wide range of the species at the Columbia Basin DPS will remain a range of the band-rumped storm-petrel this time, and substantial habitat still candidate for listing. is due primarily to predation by remains to support the species in many Band-rumped storm-petrel, Hawaii nonnative species introduced by areas. The threats are imminent because DPS (Oceanodroma castro)—The humans, including the domestic cat the species is currently facing them in following summary is based on (Felis catus), small Indian mongoose many portions of its range. Therefore, information contained in our files and (Herpestes auropunctatus), common we assigned the greater sage-grouse an the petition we received on May 8, barn owl (Tyto alba), black rat (Rattus LPN of 8. 1989. No new information was provided rattus), Polynesian rat (R. exulans), and in the second petition received on May Greater sage-grouse, Columbia Basin Norway rat (R. norvegicus). These 11, 2004. The band-rumped storm-petrel DPS (Centrocercus urophasianus)—The nonnative predators occur throughout is a small seabird that is found in the main Hawaiian Islands, with the following summary is based on several areas of the subtropical Pacific exception of the mongoose, which is not information in our files and a petition, and Atlantic Oceans. In the Pacific, established on Kauai. Attraction of dated May 14, 1999, requesting the there are three widely separated fledglings to artificial lights, which listing of the Washington population of breeding populations—one in Japan, disrupt their night-time navigation, the western sage-grouse (C. u. phaios). one in Hawaii, and one in the resulting in collisions with buildings This population was historically found Galapagos. Populations in Japan and the and other objects, and collisions with in northern Oregon and central Galapagos are comparatively large and artificial structures such as Washington. On May 7, 2001, we number in the thousands, while the communication towers and utility lines, concluded that listing the Columbia Hawaiian birds represent a small, are also threats. Erosion of nest sites Basin DPS of the western sage-grouse remnant population of possibly only a caused by the actions of nonnative was warranted, but precluded by higher few hundred pairs. Band-rumped storm- ungulates is a potential threat in some priority listing actions (66 FR 22984). petrels are most commonly found in locations. Efforts are under way in some Following our May 7, 2001, finding, the close proximity to breeding islands. The areas to reduce light pollution and Service received additional petitions three populations in the Pacific are mitigate the threat of collisions, as well requesting listing actions for various separated by long distances across the as to control some of the nonnative other greater sage-grouse populations, ocean where birds are not found. predators in the Hawaiian Islands; including one for the nominal western Extensive at-sea surveys of the Pacific however, the threats are ongoing and are subspecies, dated January 24, 2002, and have revealed a broad gap in therefore imminent. They are of a high three for the entire species, dated June distribution of the band-rumped storm- magnitude, because they can severely 18, 2002, and March 19 and December petrel to the east and west of the affect the survival of this DPS, leading 22, 2003. The Service subsequently Hawaiian Islands, indicating that the to a relatively high likelihood of found that the petition for the western distribution of birds in the central extinction. Therefore, we have retained subspecies did not present substantial Pacific around Hawaii is disjunct from an LPN of 3 for this DPS. information indicating that listing may other nesting areas. The available Elfin-woods warbler (Dendroica be warranted (68 FR 6500; February 7, information indicates that distinct angelae)—We continue to find that 2003), and that listing the greater sage- populations of band-rumped storm- listing this species is warranted but grouse was not warranted (70 FR 2244; petrels are definable and that the precluded as of the date of publication January 12, 2005). The court Hawaiian population is distinct based of this notice. However, we are working subsequently remanded these latter on geographic and distributional on a proposed listing determination that findings to the Service for further isolation from other band-rumped we expect to publish prior to making the consideration. In response, we initiated storm-petrel populations in Japan, the next annual resubmitted petition 12- a new rangewide status review for the Galapagos, and the Atlantic Ocean. Loss month finding. In the course of entire species (73 FR 10218; February of the Hawaiian population would cause preparing the proposed listing rule, we 26, 2008). On March 5, 2010, we found a significant gap in the distribution of are continuing to monitor new that listing of the greater sage-grouse the band-rumped storm-petrel in the information about this species’ status so was warranted but precluded by higher Pacific, and could result in the complete that we can make prompt use of our priority listing actions (75 FR 13909; isolation of the Galapagos and Japan authority under section 4(b)(7) in the March 23, 2010), and it was added to populations without even occasional case of an emergency posing a the list of candidates. We also found genetic exchange. Therefore, the significant risk to the species. that the western subspecies of the population is both discrete and greater sage-grouse, the taxonomic significant, and constitutes a DPS. Reptiles entity we relied on in our DPS analysis The band-rumped storm-petrel Eastern massasauga rattlesnake for the Columbia Basin population, was probably was common on all of the (Sistrurus catenatus)—We continue to

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find that listing this species is plantations, increases in the number open tree canopy, and a diverse, warranted but precluded as of the date and width of roads, and urbanization) abundant herbaceous groundcover. of publication of this notice. However, on private lands in the matrix between The gopher tortoise ranges from we are working on a proposed listing these extant populations has eliminated extreme southern South Carolina south determination that we expect to publish dispersal among remnant populations through peninsular Florida, and west prior to making the next annual and the natural recolonization of vacant through southern Georgia, Florida, resubmitted petition 12-month finding. habitat patches. Because corridors southern Alabama, and Mississippi, into In the course of preparing the proposed linking extant populations are extremely extreme southeastern Louisiana. The listing rule, we are continuing to unlikely to be established, the loss of eastern population of the gopher tortoise monitor new information about this any extant population would be in South Carolina, Florida, Georgia, and species’ status so that we can make permanent without future Alabama (east of the Mobile and prompt use of our authority under reintroduction of captive-bred Tombigbee Rivers) is a candidate section 4(b)(7) in the case of an individuals. species; the gopher tortoise is federally emergency posing a significant risk to All populations require active habitat listed as threatened in the western the species. management, and the lack of adequate portion of its range, which includes Louisiana pine snake (Pituophis amounts of suitable habitat remains a Alabama (west of the Mobile and ruthveni)—The following summary is threat for several populations. The Tombigbee Rivers), Mississippi, and based on information contained in our potential threats to nearly all extant Louisiana. files and the petition we received on Louisiana pine snake populations, The primary threat to the gopher July 20, 2000, and updated through coupled with the likely permanence of tortoise is habitat fragmentation, April 22, 2014. The Louisiana pine these effects and the species’ low destruction, and modification (either snake historically occurred in the fire- fecundity and low population sizes deliberately or from inattention), maintained longleaf pine ecosystem (based on capture rates and occurrence including conversion of longleaf pine within west-central Louisiana and data), lead us to conclude that the forests to incompatible silvicultural or agricultural habitats, urbanization, extreme east-central Texas. Most of the threats have a relatively high likelihood shrub/hardwood encroachment (mainly historical longleaf pine habitat of the of bringing about extinction and from fire exclusion or insufficient fire Louisiana pine snake has been therefore remain high in magnitude. The management), and establishment and destroyed or degraded due to logging, threats are not imminent, because, while spread of invasive species. Other threats fire suppression, roadways, short the extent of Louisiana pine snake include disease, predation (mainly on rotation silviculture, and grazing. Over habitat loss has been great in the past, nests and young tortoises), and time, the extensive loss, degradation, the rate of habitat loss on Federal lands inadequate regulatory mechanisms, and fragmentation of the longleaf pine is declining and habitat conditions ecosystem, coupled with the disruption specifically those needed to protect and within occupied or preferable areas is of natural fire regimes, have resulted in enhance relocated tortoise populations improving due to proactive habitat extant Louisiana pine snake populations in perpetuity. The magnitude of threats management and other threat reduction that are isolated and small. to the eastern range of the gopher The Louisiana pine snake is currently through the CCA. Thus, based on tortoise is considered to be moderate to restricted to six small, isolated naturally nonimminent, high-magnitude threats, low, since populations extend over a occupied areas; four of these areas occur we assign an LPN of 5 to this species. broad geographic area and conservation on Federal lands, and two occur mainly Desert tortoise, Sonoran (Gopherus measures are in place in some areas. on private industrial timberlands. All of morafkai)—We continue to find that However, since the species is currently these remnant individuals may be listing this species is warranted but being affected by a number of threats vulnerable to factors associated with precluded as of the date of publication including destruction and modification low population sizes and demographic of this notice. However, we are working of its habitat, disease, predation, exotics, isolation, such as reduced genetic on a proposed listing determination that and inadequate regulatory mechanisms, heterozygosity. The currently occupied we expect to publish prior to making the the threats are imminent. Thus, we have area in Louisiana and Texas is estimated next annual resubmitted petition 12- assigned a LPN of 8 for this species. to be approximately 58,497 ha (144,549 month finding. In the course of Sonoyta mud turtle (Kinosternon ac). All remnant Louisiana pine snake preparing the proposed listing rule, we sonoriense longifemorale)—The habitats require active management to are continuing to monitor new following summary is based on remain suitable. A Candidate information about this species’ status so information contained in our files. No Conservation Agreement (CCA) was that we can make prompt use of our new information was provided in the completed in 2003 to maintain and authority under section 4(b)(7) in the petition we received on May 11, 2004. enhance occupied and potential habitat case of an emergency posing a The Sonoyta mud turtle occurs in a on public lands, and to protect known significant risk to the species. spring and pond at Quitobaquito Louisiana pine snake populations. This Gopher tortoise, eastern population Springs on Organ Pipe Cactus National proactive habitat management has likely (Gopherus polyphemus) — The Monument in Arizona, and in the Rio slowed or reversed the rate of Louisiana following summary is based on Sonoyta and Quitovac Spring of Sonora, pine snake habitat degradation on many information in our files. The gopher Mexico. Loss and degradation of stream portions of Federal lands. The 2003 tortoise is a large, terrestrial, habitat from water diversion and CCA was updated in 2013. The 2013 herbivorous turtle that reaches a total groundwater pumping, along with its updated CCA directly links the specific length up to 15 inches (in) (38 very limited distribution, are the conservation actions performed by the centimeters (cm)), and typically inhabits primary threats to the Sonoyta mud cooperators to the specific threats the sandhills, pine/scrub oak uplands, turtle. Sonoyta mud turtles are highly affecting the species. However, the and pine flatwoods associated with the aquatic and depend on permanent water historical and ongoing loss or longleaf pine (Pinus palustris) for survival. The area of southwest unavailability of preferable habitat (via ecosystem. A fossorial animal, the Arizona and northern Sonora where the fire suppression, conversion to short gopher tortoise is usually found in areas Sonoyta mud turtle occurs is one of the rotation, dense-canopy, off-site pine with well-drained, deep, sandy soils, an driest regions in the Southwest. While

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currently there is sufficient water for the translocated populations is small and, panhandle into portions of southwest turtles, so the threats are not imminent therefore, these populations are Georgia. Prior to 2014, there was we expect drought and irrigated vulnerable to stochastic events, such as thought to be a 125-km (78-mile (mi)) agriculture in the region to cause surface floods and wildfire. Climate change that separation between the western and water in the Rio Sonoyta and results in reduced spring flow, habitat eastern portions of the striped newt’s Quitobaquito Springs to dwindle further loss, and increased prevalence of range. However, the discovery of five in the foreseeable future and negatively wildfire would adversely affect relict adult striped newts in Taylor County, affect this species. National Park Service leopard frog populations. Florida, represents a significant possible staff continue to implement actions to In 2005, the National Park Service, in range connection. The historical range stabilize the water levels in the pond at cooperation with the Fish and Wildlife of the striped newt was likely similar to Quitobaquito Springs. However, surface Service and other Federal, State, and the current range. However, loss of water use in the Rio Sonoyta, in Sonora local partners, developed a conservation native longleaf habitat, fire suppression, Mexico, will have a significant impact agreement and strategy, which is and the natural patchy distribution of on the survival of this water-dependent intended to improve the status of the upland habitats used by striped newts subspecies. We retained a LPN of 6 for species through prescribed management have resulted in fragmentation of Sonoyta mud turtle due to high- actions and protection. Conservation existing populations. magnitude, nonimminent threats. actions identified in the agreement and Other threats to the species include strategy include captive rearing of Amphibians disease, drought, and inadequate tadpoles for translocation and refugium regulatory mechanisms. Overall, we Columbia spotted frog, Great Basin populations, habitat and natural history conclude that the magnitude of the DPS (Rana luteiventris)—We continue studies, habitat enhancement, threats is moderate because most of the to find that listing this species is population and habitat monitoring, and known striped newt metapopulations warranted but precluded as of the date translocation. New sites within the are on conservation lands which of publication of this notice. However, historical range of the species have been reduces the threat from further habitat we are working on a proposed listing successfully established with captive- fragmentation, and currently no diseases determination that we expect to publish reared frogs. Conservation is proceeding have been found in striped newts. Since prior to making the next annual under the agreement and strategy; the majority of threats are ongoing, they resubmitted petition 12-month finding. however, additional time is needed to are imminent. Therefore, we assigned an In the course of preparing the proposed determine whether or not the agreement LPN of 8 to this species. However, due listing rule, we are continuing to and strategy will be effective in to recent information that suggests the monitor new information about this eliminating or reducing the threats to striped newt is likely extirpated from species’ status so that we can make the point that the relict leopard frog is Apalachicola National Forest, the LPN prompt use of our authority under no longer a candidate for listing. In may warrant changing to a lower section 4(b)(7) in the case of an consideration of these conservation number in the future. emergency posing a significant risk to efforts and the overall threat level to the the species. species, we determined that the Berry Cave salamander (Gyrinophilus Relict leopard frog (Lithobates magnitude of existing threats is gulolineatus)—The following summary onca)—The following summary is based moderate to low. Potential water is based on information in our files. The on information contained in our files. development and other habitat effects, Berry Cave salamander is recorded from Natural relict leopard frog populations presence of introduced predators, Berry Cave in Roane County; from Mud occur in two general areas in Nevada: chytrid fungus, limited distribution, Flats, Aycock Spring, Christian, Meades near the Overton Arm area of Lake Mead small population size, and climate Quarry, Meades River, and Fifth caves and Black Canyon below Lake Mead. change are ongoing, and thus, imminent in Knox County; from Blythe Ferry Cave These two areas include a small fraction threats. Therefore, we continue to assign in Meigs County; and from an unknown of the historical distribution of the a LPN of 8 to this species. cave in Athens, McMinn County, species. Its historical range included Striped newt (Notophthalmus Tennessee. In May of 2012, the species springs, streams, and wetlands within perstriatus)—The following summary is was also discovered in an additional the Virgin River drainage downstream based on information contained in our cave, The Lost Puddle Cave, in Knox from the vicinity of Hurricane, Utah; files. The striped newt is a small County. These cave systems are all along the Muddy River in Nevada; and salamander that inhabits ephemeral located within the Upper Tennessee along the Colorado River in Nevada and ponds surrounded by upland habitats of River and Clinch River drainages. A Arizona, from its confluence with the high pine, scrubby flatwoods, and scrub. total of 113 caves in Middle and East Virgin River downstream to Black Longleaf pine–turkey oak stands with Tennessee were surveyed from the time Canyon below Lake Mead. intact ground cover containing period of April 2004 through June 2007, Factors contributing to the decline of wiregrass are the preferred upland resulting in observations of 63 Berry the species include alteration, loss, and habitat for striped newts, followed by Cave salamanders. These surveys degradation of aquatic habitat due to scrub, then flatwoods. Life-history concluded that Berry Cave salamander water developments and stages of the striped newt are complex, populations are robust at Berry and impoundments, and scouring and and include the use of both aquatic and Mudflats caves where population erosion; changes in plant communities terrestrial habitats throughout their life declines had been previously reported, that result in dense growth and the cycle. Striped newts are opportunistic and documented two new populations prevalence of vegetation; introduced feeders that prey on a variety of items of Berry Cave salamanders at Aycock predators; climate change; and such as frog eggs, worms, snails, fairy Spring and Christian caves. Three Berry stochastic events. The presence of shrimp, spiders, and insects (adult and Cave salamanders were spotted during chytrid fungus in relict leopard frogs at larvae) that are of appropriate size. They the May, 2012, survey in The Lost Lower Blue Point Spring is a concern occur in appropriate habitats from the Puddle, and local cavers also reported and warrants further evaluation of the Atlantic Coastal Plain of southeastern sighting one individual in August 2012. threat of disease to the relict leopard Georgia to the north-central peninsula of Surveys for new populations are frog. The size of natural and Florida and through the Florida planned along the Valley and Ridge

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Province between Knoxville and prior to making the next annual information contained in our files. Little Chattanooga. resubmitted petition 12-month finding. is known about the specific habitat Ongoing threats to this species are in In the course of preparing the proposed requirements or natural history of the the form of lye leaching in the Meades listing rule, we are continuing to Pearl darter. Pearl darters have been Quarry Cave as a result of past quarrying monitor new information about this collected from a variety of river/stream activities, the possible development of a species’ status so that we can make attributes, mainly over gravel bottom roadway with potential to impact the prompt use of our authority under substrate. This species is historically recharge area for the Meades Quarry section 4(b)(7) in the case of an known only from localized sites within Cave system, urban development in emergency posing a significant risk to the Pascagoula and Pearl River Knox County, water quality impacts the species. drainages in Mississippi and Louisiana. despite existing State and Federal laws, Arkansas darter (Etheostoma Currently, the Pearl darter is considered and hybridization between spring cragini)—The following summary is extirpated from the Pearl River drainage salamanders and Berry Cave based on information contained in our and rare in the Pascagoula River salamanders in Meades Quarry Cave. files. No new information was provided drainage. Since 1983, the range of the These threats, coupled with confined in the petition we received on May 11, Pearl darter has decreased by 55 distribution of the species and apparent 2004. This fish species occurs in percent. low population densities, are all factors Arkansas, Colorado, Kansas, Missouri, The Pearl darter is vulnerable to non- that leave the Berry Cave salamander and Oklahoma. The species is found point source pollution caused by vulnerable to extirpation. We have most often in sand- or pebble-bottomed urbanization and other land use determined that the Berry Cave pools of small, spring-fed streams and activities; gravel mining and resultant salamander faces imminent threats of marshes, with cool water and changes in river geomorphology, moderate magnitude. The threats are broadleaved aquatic vegetation. Its especially head cutting; and the moderate because the species still current distribution is indicative of a possibility of water quantity decline occurs in several different cave systems, species that once was widely dispersed from the proposed Department of and existing populations appear stable. throughout its range, but has been Energy Strategic Petroleum Reserve Based on moderate-magnitude relegated to isolated areas separated by project and a proposed dam on the imminent threats, we continue to assign unsuitable habitat that prevents Bouie River. Additional threats are this species a LPN of 8. dispersal. posed by the apparent lack of adequate Black Warrior waterdog (Necturus Factors influencing the current State and Federal water quality alabamensis)—We continue to find that distribution include: Surface and regulations resulting in the continued listing this species is warranted but groundwater irrigation resulting in degradation of water quality within the precluded as of the date of publication decreased flows or stream dewatering; species’ habitat. The Pearl darter’s of this notice. However, we are working the dewatering of long reaches of localized distribution and apparent low on a proposed listing determination that riverine habitat; conversion of prairie to population numbers may indicate a we expect to publish prior to making the cropland, which influences species with lower genetic diversity; next annual resubmitted petition 12- groundwater recharge and spring flows; this would also make this species more month finding. In the course of water quality degradation from a variety vulnerable to catastrophic events. preparing the proposed listing rule, we of sources; and the construction of Threats affecting the Pearl darter are are continuing to monitor new dams, which act as barriers preventing localized in nature, affecting only information about this species’ status so emigration upstream and downstream portions of the population within the that we can make prompt use of our through the reservoir pool. A current drainage having only a localized impact authority under section 4(b)(7) in the drought in the western portions of the on the species and its’ habitat. While case of an emergency posing a species’ range is also a threat. If drought water quality degradation is the most significant risk to the species. conditions continue into the future, pervasive threat, it is not significant these conditions are likely to have a within the areas protected through The Fishes severe impact on many of these isolated Nature Conservancy ownership and Headwater chub (Gila nigra)—We populations. However, at present, the other areas where best managmenet continue to find that listing this species magnitude of threats facing this species practices are routinely practiced. Thus, is warranted but precluded as of the is still moderate to low, given the we assigned a threat magnitude of date of publication of this notice. number of different locations where the moderate to low to this species. In However, we are working on a proposed species occurs, and the fact that no addition, the threats are imminent since listing determination that we expect to single threat or combination of threats the identified threats are currently publish prior to making the next annual affects more than a portion of the impacting this species in some portions resubmitted petition 12-month finding. species’ widely distributed range. The of its range. Therefore, we have assigned In the course of preparing the proposed immediacy of threats varies across the an LPN of 8 for this species. listing rule, we are continuing to species’ range; groundwater pumping is Sicklefin redhorse (Moxostoma sp.)— monitor new information about this an ongoing concern in the western We continue to find that listing this species’ status so that we can make portion of the species range, although it species is warranted but precluded as of prompt use of our authority under has declined in some portions, and the date of publication of this notice. section 4(b)(7) in the case of an groundwater levels continue to support However, we are working on a proposed emergency posing a significant risk to surface spring and stream flow in the listing determination that we expect to the species. majority of the species’ range. publish prior to making the next annual Roundtail chub (Gila robusta), Lower Development, spills, and runoff are not resubmitted petition 12-month finding. Colorado River DPS—We continue to currently affecting the species on a In the course of preparing the proposed find that listing this species is rangewide basis. Overall, the threats are listing rule, we are continuing to warranted but precluded as of the date nonimminent. Thus, we are retaining an monitor new information about this of publication of this notice. However, LPN of 11 for the Arkansas darter. species’ status so that we can make we are working on a proposed listing Pearl darter (Percina aurora)—The prompt use of our authority under determination that we expect to publish following summary is based on section 4(b)(7) in the case of an

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emergency posing a significant risk to files. The Texas fatmucket is a large, extinction. Based on imminent, high- the species. elongated freshwater mussel that is magnitude threats, we maintained an Longfin smelt (Spirinchus endemic to central Texas. Its shell can LPN of 2 for the Texas fatmucket. thaleichthys), Bay-Delta DPS—The be moderately thick, smooth, and Texas fawnsfoot (Truncilla following summary is based on rhomboidal to oval in shape. Its external macrodon)—The following summary is information contained in our files and coloration varies from tan to brown with based on information contained in our the petition we received on August 8, continuous dark brown, green-brown, or files. The Texas fawnsfoot is a small, 2007. On April 2, 2012 (77 FR19756), black rays, and internally it is pearly relatively thin-shelled freshwater we determined that listing the longfin white, with some having a light salmon mussel that is endemic to central Texas. smelt San Francisco Bay-Delta distinct tint. This species historically occurred Its shell is long and oval, generally free population segment (Bay-Delta DPS) throughout the Colorado and of external sculpturing, with external was warranted but precluded. Longfin Guadalupe-San Antonio River basins coloration that varies from yellowish- or smelt measure 9–11 cm (3.5–4.3 in) but is now known to occur only in nine orangish-tan, brown, reddish-brown, to standard length. Longfin smelt are streams within these basins in very smoky-green with a pattern of broken considered pelagic and anadromous, limited numbers. All existing rays or irregular blotches. The internal although anadromy in longfin smelt is populations are represented by only one color is bluish-white or white and poorly understood, and certain or two individuals and are not likely to iridescent posteriorly. This species populations in other parts of the be stable or recruiting. historically occurred throughout the species’ range are not anadromous and The Texas fatmucket is primarily Colorado and Brazos River basins and is complete their entire life cycle in threatened by habitat destruction and now known from only five locations. freshwater lakes and streams. Longfin modification from impoundments, The Texas fawnsfoot has been smelt usually live for 2 years, spawn, which scour river beds, thereby extirpated from nearly all of the and then die, although some individuals removing mussel habitat; decrease water Colorado River basin and from much of may spawn as 1- or 3-year-old fish quality; modify stream flows; and the Brazos River basin. Of the before dying. In the Bay-Delta, longfin prevent fish host migration and populations that remain, only three are smelt are believed to spawn primarily in distribution of freshwater mussels. This likely to be stable and recruiting; the freshwater in the lower reaches of the species is also threatened by remaining populations are disjunct and Sacramento River and San Joaquin sedimentation, dewatering, sand and restricted to short stream reaches. River. gravel mining, and chemical The Texas fawnsfoot is primarily Longfin smelt numbers in the Bay- contaminants. Additionally, these threatened by habitat destruction and Delta have declined significantly since threats may be exacerbated by the modification from impoundments, the 1980s. Abundance indices derived current and projected effects of climate which scour river beds, thereby from the Fall Midwater Trawl (FMWT), change, population fragmentation and removing mussel habitat; decrease water Bay Study Midwater Trawl (BSMT), and isolation, and the anticipated threat of quality; modify stream flows; and Bay Study Otter Trawl (BSOT) all show nonnative species. Threats to the Texas prevent fish host migration and marked declines in Bay-Delta longfin fatmucket and its habitat are not being distribution of freshwater mussels, as smelt populations from 2002 to 2012. adequately addressed through existing well as by sedimentation, dewatering, Longfin smelt abundance over the last regulatory mechanisms. Because of the sand and gravel mining, and chemical decade is the lowest recorded in the 40- limited distribution of this endemic contaminants. Additionally, these year history of CDFG’s FMWT species and its lack of mobility, these threats may be exacerbated by the monitoring surveys. threats are likely to result in the current and projected effects of climate The primary threat to the DPS is from extinction of the Texas fatmucket in the change, population fragmentation and reduced freshwater flows. Freshwater foreseeable future. isolation, and the anticipated threat of flows, especially winter-spring flows, The threats to the Texas fatmucket are nonnative species. Threats to the Texas are significantly correlated with longfin high in magnitude, because habitat loss fawnsfoot and its habitat are not being smelt abundance—longfin smelt and degradation from impoundments, adequately addressed through existing abundance is lower when winter-spring sedimentation, sand and gravel mining, regulatory mechanisms. Because of the flows are lower. The long-term decline and chemical contaminants are limited distribution of this endemic in abundance of longfin smelt in the widespread throughout the range of the species and its lack of mobility, these Bay-Delta has been partially attributed Texas fatmucket and profoundly affect threats are likely to result in the to reductions in food availability and its survival and recruitment. These extinction of the Texas fawnsfoot in the disruptions of the Bay-Delta food web threats are exacerbated by climate foreseeable future. caused by establishment of the change, which will increase the The threats to the Texas fawnsfoot are nonnative overbite clam and likely by frequency and magnitude of droughts. high in magnitude. Habitat loss and increasing ammonium concentrations. Remaining populations are small, degradation from impoundments, In the 2012, 12-month finding, we isolated, and highly vulnerable to sedimentation, sand and gravel mining, determined that threats were high in stochastic events, which could lead to and chemical contaminants are magnitude and imminent, resulting in extirpation or extinction. These threats widespread throughout the range of the an LPN of 3. The threats still remain are imminent because they are ongoing Texas fawnsfoot and profoundly affect high in magnitude since they pose a and will continue in the foreseeable its habitat. These threats are exacerbated significant risk to the DPS throughout future. Habitat loss and degradation by climate change, which will increase its range. The threats are ongoing, and have already occurred and will continue the frequency and magnitude of thus are imminent. We are maintaining as the human population continues to droughts. Remaining populations are an LPN of 3 for this population. grow in central Texas. Texas fatmucket small, isolated, and highly vulnerable to populations may already be below the stochastic events. These threats are Clams minimum viable population imminent because they are ongoing and Texas fatmucket (Lampsilis requirement, which causes a reduction will continue in the foreseeable future. bracteata)—The following summary is in the number of populations and an Habitat loss and degradation has already based on information contained in our increase in the species’ vulnerability to occurred and will continue as the

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human population continues to grow in species and its lack of mobility, these existing regulatory mechanisms. central Texas. The Texas fawnsfoot threats may be likely to result in the Because of the limited distribution of populations may already be below the golden orb becoming in danger of this endemic species and its lack of minimum viable population extinction in the foreseeable future. mobility, these threats may be likely to requirement, which causes a reduction The threats to the golden orb are result in the smooth pimpleback in the number of populations and an moderate in magnitude. Although becoming in danger of extinction in the increase in the species’ vulnerability to habitat loss and degradation from foreseeable future. extinction. Based on imminent, high- impoundments, sedimentation, sand The threats to the smooth pimpleback magnitude threats, we assigned the and gravel mining, and chemical are moderate in magnitude. Although Texas fawnsfoot an LPN of 2. contaminants are widespread habitat loss and degradation from Texas hornshell (Popenaias popei)— throughout the range of the golden orb, impoundments, sedimentation, sand We continue to find that listing this and are likely to be exacerbated by and gravel mining, and chemical species is warranted but precluded as of climate change, which will increase the contaminants are widespread the date of publication of this notice. frequency and magnitude of droughts, throughout the range of the smooth However, we are working on a proposed four large populations remain, including pimpleback, and may be exacerbated by listing determination that we expect to one that was recently discovered, climate change, which will increase the publish prior to making the next annual suggesting that the threats are not high frequency and magnitude of droughts, resubmitted petition 12-month finding. in magnitude. The threats from habitat several large populations remain, In the course of preparing the proposed loss and degradation are imminent including one that was recently listing rule, we are continuing to because habitat loss and degradation discovered, suggesting that the threats monitor new information about this have already occurred and will likely are not high in magnitude. The threats species’ status so that we can make continue as the human population from habitat loss and degradation are prompt use of our authority under continues to grow in central Texas. imminent because they have already section 4(b)(7) in the case of an Several golden orb populations may occurred and will continue as the emergency posing a significant risk to already be below the minimum viable human population continues to grow in the species. population requirement, which causes a central Texas. Several smooth Golden orb (Quadrula aurea)—The reduction in the number of populations pimpleback populations may already be following summary is based on and an increase in the species’ below the minimum viable population information contained in our files. The vulnerability to extinction. Based on requirement, which causes a reduction golden orb is a small, round-shaped imminent, moderate threats, we in the number of populations and an freshwater mussel that is endemic to maintain an LPN of 8 for the golden orb. increase in the species’ vulnerability to central Texas. This species historically Smooth pimpleback (Quadrula extinction. Based on imminent, occurred throughout the Nueces-Frio houstonensis)—The following summary moderate threats, we maintain an LPN and Guadalupe-San Antonio River is based on information contained in of 8 for the smooth pimpleback. basins and is now known from only our files. The smooth pimpleback is a Texas pimpleback (Quadrula nine locations in four rivers. The golden small, round-shaped freshwater mussel petrina)—The following summary is orb has been eliminated from nearly the that is endemic to central Texas. This based on information contained in our entire Nueces-Frio River basin. Four of species historically occurred throughout files. The Texas pimpleback is a large, these populations appear to be stable the Colorado and Brazos River basins freshwater mussel that is endemic to and reproducing, and the remaining five and is now known from only nine central Texas. This species historically populations are small and isolated and locations. The smooth pimpleback has occurred throughout the Colorado and show no evidence of recruitment. It been eliminated from nearly the entire Guadalupe-San Antonio River basins, appears that the populations in the Colorado River and all but one of its but is now known to only occur in four middle Guadalupe and lower San tributaries, and has been limited to the streams within these basins. Only two Marcos Rivers are likely connected. The central and lower Brazos River drainage. populations appear large enough to be remaining extant populations are highly Five of the populations are represented stable, but evidence of recruitment is fragmented and restricted to short by no more than a few individuals and limited in the Concho River population reaches. are small and isolated. Six of the and is present in the San Saba River The golden orb is primarily existing populations appear to be population, which may be the only threatened by habitat destruction and relatively stable and recruiting. remaining recruiting populations of modification from impoundments, The smooth pimpleback is primarily Texas pimpleback. The remaining two which scour river beds (thereby threatened by habitat destruction and populations are represented by one or removing mussel habitat), decrease modification from impoundments, two individuals and are highly disjunct. water quality, modify stream flows, and which scour river beds (thereby The Texas pimpleback is primarily prevent fish host migration and removing mussel habitat), decrease threatened by habitat destruction and distribution of freshwater mussels. The water quality, modify stream flows, and modification from impoundments, species is also threatened by prevent fish host migration and which scour river beds (thereby sedimentation, dewatering, sand and distribution of freshwater mussels. The removing mussel habitat), decrease gravel mining, and chemical species is also threatened by water quality, modify stream flows, and contaminants. Additionally, these sedimentation, dewatering, sand and prevent fish host migration and threats may be exacerbated by the gravel mining, and chemical distribution of freshwater mussels. This current and projected effects of climate contaminants. Additionally, these species is also threatened by change, population fragmentation and threats may be exacerbated by the sedimentation, dewatering, sand and isolation, and the anticipated threat of current and projected effects of climate gravel mining, and chemical nonnative species. Threats to the golden change, population fragmentation and contaminants. Additionally, these orb and its habitat are not being isolation, and the anticipated threat of threats may be exacerbated by the adequately addressed through existing nonnative species. Threats to the current and projected effects of climate regulatory mechanisms. Because of the smooth pimpleback and its habitat are change (which will increase the limited distribution of this endemic not being adequately addressed through frequency and magnitude of droughts),

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population fragmentation and isolation, habitats. The magnificent ramshorn is disease, or predator infestation, could and the anticipated threat of nonnative believed to be a southeastern North result in the near extinction of the species. Threats to the Texas Carolina endemic. The species is known species. Therefore, we assigned this pimpleback and its habitat are not being from only four sites in the lower Cape species a LPN of 2. adequately addressed through existing Fear River Basin in North Carolina. Sisi snail (Ostodes strigatus)—The regulatory mechanisms. Because of the Although the complete historical range following summary is based on limited distribution of this endemic of the species is unknown, the size of information contained in our files. No species and its lack of mobility, these the species and the fact that it was not new information was provided in the threats may be likely to result in the reported until 1903 are indications that petition we received on May 11, 2004. Texas pimpleback becoming in danger the species may have always been rare The sisi snail is a ground-dwelling of extinction in the foreseeable future. and localized. species in the Potaridae family, and is The threats to the Texas pimpleback Salinity and pH are major factors endemic to American Samoa. The are high in magnitude, because habitat limiting the distribution of the species is now known from a single loss and degradation from magnificent ramshorn, as the snail population on the island of Tutuila, impoundments, sedimentation, sand prefers freshwater bodies with American Samoa. and gravel mining, and chemical circumneutral pH (i.e., pH within the This species is currently threatened contaminants are widespread range of 6.8–7.5). While members of the by habitat loss and modification and by throughout the entire range of the Texas family Planorbidae are hermaphroditic, predation from nonnative predatory pimpleback and profoundly affect its it is currently unknown whether snails. The decline of the sisi snail in survival and recruitment. The only magnificent ramshorns self-fertilize American Samoa has resulted, in part, remaining populations are small, their eggs, mate with other individuals from loss of habitat to logging and isolated, and highly vulnerable to of the species, or both. Like other agriculture, and loss of forest structure stochastic events, which could lead to members of the Planorbidae family, the to hurricanes and nonnative weeds that extirpation or extinction. The threats are magnificent ramshorn is believed to be become established after these storms. imminent because habitat loss and primarily a vegetarian, feeding on All live sisi snails have been found in degradation have already occurred and submerged aquatic plants, algae, and the leaf litter beneath remaining intact will continue as the human population detritus. While several factors likely forest canopy. No snails were found in continues to grow in central Texas. All have contributed to the possible areas bordering agricultural plots or in Texas pimpleback populations may extirpation of the magnificent ramshorn forested areas that were severely already be below the minimum viable in the wild, the primary factors include damaged by hurricanes. Under natural population requirement, which causes a loss of habitat associated with the historical conditions, loss of forest reduction in the number of populations extirpation of beavers (and their canopy to storms did not pose a great and an increase in the species’ impoundments) in the early 20th threat to the long-term survival of these vulnerability to extinction. Based on century and increased salinity and snails; enough intact forest with healthy imminent, high-magnitude threats, we alteration of flow patterns, as well as populations of snails would support assigned the Texas pimpleback an LPN increased input of nutrients and other dispersal back into newly regrown forest of 2. pollutants. canopy. However, the presence of The magnificent ramshorn appears to nonnative weeds such as mile-a-minute Snails be extirpated from the wild due to vine (Mikania micrantha) may reduce Black mudalia (Elimia melanoides)— habitat loss and degradation resulting the likelihood that native forests will re- We continue to find that listing this from a variety of human-induced and establish in areas damaged by species is warranted but precluded as of natural factors. The only known hurricanes. This loss of habitat to storms the date of publication of this notice. surviving individuals of the species are is greatly exacerbated by expanding However, we are working on a proposed presently being held and propagated at agriculture. Agricultural plots on listing determination that we expect to a private residence, a lab at North Tutuila have spread from low elevation publish prior to making the next annual Carolina State University’s Veterinary up to middle and some high elevations, resubmitted petition 12-month finding. School, and the North Carolina Wildlife greatly reducing the forested area and In the course of preparing the proposed Resources Commission’s Watha State thus reducing the resilience of native listing rule, we are continuing to Fish Hatchery. While efforts have been forests and populations of native snails. monitor new information about this made to restore habitat for the These reductions also increase the species’ status so that we can make magnificent ramshorn at one of the sites likelihood that future storms will lead to prompt use of our authority under known to have previously supported the the extinction of populations or species section 4(b)(7) in the case of an species, all of the sites continue to be that rely on the remaining forest canopy. emergency posing a significant risk to affected or threatened by the same In an effort to eradicate the nonnative the species. factors (i.e., salt water intrusion and giant African snail (Achatina fulica), the Magnificent ramshorn (Planorbella other water-quality degradation, nonnative rosy carnivore snail magnifica)—Magnificent ramshorn, is nuisance aquatic plant control, storms, (Euglandina rosea) was introduced in the largest North American air-breathing sea level rise, etc.) believed to have 1980. The rosy carnivore snail has freshwater snail in the family resulted in extirpation of the species spread throughout the main island of Planorbidae. It has a relatively thin from the wild. Currently, only three Tutuila. Numerous studies show that discoidal (i.e., coiling in one plane) captive populations exist; a single the rosy carnivore snail feeds on shell that reaches a diameter commonly robust captive population of the species endemic island snails, including the sisi exceeding 35mm and heights exceeding comprised of greater than 200 adults, snail, and is a major agent in their 20mm. The great width of its shell, in and two small populations of 50 or more declines and extirpations. At present, relation to the diameter, makes it easily individuals. Although the robust captive the major threat to the long-term identifiable at all ages. The shell is population of the species has been survival of the native snail fauna in brown colored (often with leopard-like maintained since 1993, a single American Samoa, including the sisi spots) and fragile, thus indicating it is catastrophic event affecting this captive snail, is predation by nonnative adapted to still or slow-flowing aquatic population, such as a severe storm, predatory snails. The threats are

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imminent and of high magnitude, since ongoing in or adjacent to occupied Therefore, we have retained an LPN of they are severe enough to affect the habitats, and catastrophic wildfire is not 2 for this species. continued existence of the species, known to be an imminent threat. Hawaiian yellow-faced bee (Hylaeus leading to a relatively high likelihood of Accordingly, threats are nonimminent. assimulans)—The following summary is extinction. Therefore, we have retained Therefore, we retain an LPN of 11 for based on information contained in our an LPN of 2 for this species. the Huachuca springsnail. files and in the petition that we received Tutuila tree snail (Eua zebrina)—A Page springsnail (Pyrgulopsis for this species on March 23, 2009. tree-dwelling species, the Tutuila tree morrisoni)—We continue to find that Hylaeus assimulans is a species of snail is a member of the Partulidae listing this species is warranted but Hawaiian yellow-faced bee (family family of snails and is endemic to precluded as of the date of publication Colletidae) found in certain coastal American Samoa. The species is known of this notice. However, we are working areas and dry lowland forests containing from 32 populations on the islands of on a proposed listing determination that native plant communities on the islands Tutuila, Manua, and Ofu. we expect to publish prior to making the of Hawaii, Kahoolawe, Lanai, Maui, This species is currently threatened next annual resubmitted petition 12- Molokai, and Oahu, Hawaii. Hylaeus by habitat loss and modification and by month finding. In the course of assimulans is currently known from five predation from nonnative predatory preparing the proposed listing rule, we populations containing an unknown snails and rats (Rattus spp.). All live are continuing to monitor new number of individuals. This species is Tutuila tree snails were found on information about this species’ status so threatened by ongoing habitat loss and understory vegetation beneath that we can make prompt use of our modification due to the effects of feral remaining intact forest canopy. No authority under section 4(b)(7) in the ungulates, nonnative plants, wildfire, snails were found in areas bordering case of an emergency posing a and climate change. Hylaeus assimulans agricultural plots or in forested areas significant risk to the species. is directly threatened by predation from that were severely damaged by three yellow jacket wasps (Vespula hurricanes (1987, 1990, and 1991). (See Insects pensylvanica) and several species of summary for the sisi snail, above, Hawaiian yellow-faced bee (Hylaeus nonnative ants. Additional indirect regarding impacts of nonnative weeds anthracinus)—The following summary threats to the species include the and of the rosy carnivore snail.) Rats is based on information contained in limited number and small size of have also been shown to devastate snail our files and in the petition that we populations, competition from populations, and rat-damaged snail European honey bees (Apis mellifera), received for this species on March 23, shells have been found at sites where the possibility of habitat destruction 2009. Hylaeus anthracinus is a species the Tutuila snail occurs. At present, the from stochastic and catastrophic events, of Hawaiian yellow-faced bee (family major threat to the long-term survival of and a lack of regulatory mechanisms Colletidae) found in certain coastal the native snail fauna in American affording protection to the species. Samoa is ongoing predation by areas and dry lowland forests containing Some H. assimulans populations nonnative predatory snails and rats. The native plant communities on the islands occur in areas that are managed for one magnitude of threats is high because of Hawaii, Kahoolawe, Lanai, Maui, or more of the threats affecting habitat; they result in direct mortality leading to Molokai, and Oahu, Hawaii. Hylaeus however, no population is entirely significant population declines to the anthracinus is currently known from 16 protected from impacts to habitat, and Tutuila tree snail rangewide. Therefore, populations containing an unknown predation on the species is not currently we have retained an LPN of 2 for this number of individuals. This species is managed at any population site. Because species. threatened by ongoing habitat loss and the ongoing threats adversely affect H. Huachuca springsnail (Pyrgulopsis modification due to the effects of feral assimulans throughout its entire range, thompsoni)—The following is based on ungulates, nonnative plants, wildfire, and cause impacts that are sufficiently information contained in our files. No and climate change. Hylaeus severe that they could lead to new information was provided in the anthracinus is directly threatened by population declines, the threats are high petition received on May 11, 2004. The predation from yellow jacket wasps in magnitude and are imminent. Huachuca springsnail is endemic to (Vespula pensylvanica) and several Therefore, we have retained an LPN of Santa Cruz and Cochise Counties in species of nonnative ants. Additional 2 for this species. southeastern Arizona and adjacent indirect threats to the species include Hawaiian yellow-faced bee (Hylaeus portions of northern Sonora, Mexico. the limited number and small size of facilis)—The following summary is Currently, the Huachuca springsnail populations, competition from based on information contained in our inhabits at least 21 spring sites in European honey bees (Apis mellifera), files and in the petition that we received southeastern Arizona and northern the possibility of habitat destruction for this species on March 23, 2009. Sonora, Mexico. The species is most from stochastic and catastrophic events, Hylaeus facilis is a species of Hawaiian commonly found in shallow water and a lack of regulatory mechanisms yellow-faced bee (family Colletidae) habitats, often in rocky seeps at the affording protection to the species. with a wide historical range of native spring source. Threats include habitat Some H. anthracinus populations plant community habitat including modification and destruction through occur in areas that are managed for one coastal areas, lowland dry and wet catastrophic wildfire, unmanaged or more of the threats affecting habitat; forests, and montane mesic forests on grazing at the landscape scale, and the however, no population is entirely the islands of Lanai, Maui, Molokai, and inadequacy of regulatory mechanisms. protected from impacts to habitat, and Oahu, Hawaii. Now extirpated from the Overall, the threats are low in predation on the species is not currently islands of Lanai and Maui, H. facilis is magnitude, because threats are not managed at any population site. Because currently known from two populations occurring throughout the range of the the ongoing threats adversely affect H. containing an unknown number of species uniformly and not all anthracinus throughout its entire range, individuals. This species is threatened populations would likely be affected and cause impacts that are sufficiently by ongoing habitat loss and simultaneously by the known threats. severe that they could lead to modification due to the effects of feral We have no site-specific information population declines, the threats are high ungulates, nonnative plants, wildfire, indicating that grazing is currently in magnitude and are imminent. and climate change. H. facilis is directly

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threatened by predation from yellow severity presents a relatively high (Vespula pensylvanica) and several jacket wasps (Vespula pensylvanica) likelihood of extinction throughout its species of nonnative ants. Additional and several species of nonnative ants. entire range. The threats to H. hilaris are indirect threats to the species include Additional indirect threats to the imminent, since they are ongoing. the limited number and small size of species include the limited number and Therefore, we have retained an LPN of populations, competition from small size of populations, competition 2 for this species. European honey bees (Apis mellifera), from European honey bees (Apis Hawaiian yellow-faced bee (Hylaeus the possibility of habitat destruction mellifera), the possibility of habitat kuakea)—The following summary is from stochastic and catastrophic events, destruction from stochastic and based on information contained in our and a lack of regulatory mechanisms catastrophic events, and a lack of files and in the petition that we received affording protection to the species. regulatory mechanisms affording for this species on March 23, 2009. Some Hylaeus longiceps populations protection to the species. Hylaeus kuakea is a species of Hawaiian occur in areas that are managed for one Both of the Hylaeus facilis yellow-faced bee (family Colletidae) or more of the threats affecting habitat; populations occur in areas that are found in lowland mesic forests on the however, no population is entirely managed for one or more of the threats island of Oahu, Hawaii. H. kuakea is protected from impacts to habitat, and affecting habitat; however, neither currently known from two populations predation on the species is not currently population is entirely protected from containing an unknown number of managed within any population site. impacts to habitat and predation upon individuals. This species is threatened The threats to H. longiceps are high in the species is not currently managed by ongoing habitat loss and magnitude because their severity within either population site. The modification due to the effects of feral presents a relatively high likelihood of threats to H. facilis are high in ungulates, nonnative plants, wildfire, extinction throughout its entire range. magnitude because their severity and climate change. H. kuakea is The threats to H. longiceps are endangers the species with a relatively directly threatened by predation from imminent, since they are ongoing. high likelihood of extinction throughout yellow jacket wasps (Vespula Therefore, we have retained an LPN of its entire range. The threats are ongoing pensylvanica) and several species of 2 for this species. throughout its entire range, thus the nonnative ants. Additional indirect Hawaiian yellow-faced bee (Hylaeus threats are imminent. Therefore, we threats to the species include the mana)—The following summary is have retained an LPN of 2 for this limited number and small size of based on information contained in our species. populations, competition from files and in the petition that we received Hawaiian yellow-faced bee (Hylaeus European honey bees (Apis mellifera), for this species on March 23, 2009. hilaris)—The following summary is the possibility of habitat destruction Hylaeus mana is a species of Hawaiian based on information contained in our from stochastic and catastrophic events, yellow-faced bee (family Colletidae) files and in the petition that we received and a lack of regulatory mechanisms found in lowland mesic forests on the for this species on March 23, 2009. affording protection to the species. island of Oahu, Hawaii. H. mana is Hylaeus hilaris is a cleptoparasitic Both Hylaeus kuakea populations currently known from four populations species of Hawaiian yellow-faced bee occur in areas that are managed for one containing an unknown number of (family Colletidae) with a historical or more of the threats affecting habitat; individuals. This species is threatened range in coastal habitat on the islands of however, neither population is entirely by ongoing habitat loss and Lanai, Maui, and Molokai, Hawaii. Now protected from impacts to habitat, and modification due to the effects of feral extirpated from the islands of Lanai and predation on the species is not currently ungulates, nonnative plants, wildfire, Maui, H. hilaris is currently known from managed within either population site. and climate change. H. mana is directly a single population on Molokai The threats to H. kuakea are high in threatened by predation from yellow containing an unknown number of magnitude because their severity jacket wasps (Vespula pensylvanica) individuals. This species is threatened presents a relatively high likelihood of and several species of nonnative ants. by ongoing habitat loss and extinction throughout its entire range. Additional indirect threats to the modification due to the effects of feral The threats to H. kuakea are imminent, species include the limited number and ungulates, nonnative plants, wildfire, since they are ongoing. Therefore, we small size of populations, competition and climate change. H. hilaris is directly have retained an LPN of 2 for this from European honey bees (Apis threatened by predation from yellow species. mellifera), the possibility of habitat jacket wasps (Vespula pensylvanica) Hawaiian yellow-faced bee (Hylaeus destruction from stochastic and and several species of nonnative ants. longiceps)—The following summary is catastrophic events, and a lack of Additional indirect threats to the based on information contained in our regulatory mechanisms affording species include the small size of its files and in the petition that we received protection to the species. remaining population, lack of additional for this species on March 23, 2009. The Hylaeus mana populations occur populations, competition from Hylaeus longiceps is a species of in areas that are managed for one or European honey bees (Apis mellifera), Hawaiian yellow-faced bee (family more of the threats affecting habitat; possibility of habitat destruction from Colletidae) found in certain coastal however, the population is not entirely stochastic and catastrophic events, and areas and dry lowland forest containing protected from impacts to habitat, and a lack of regulatory mechanisms native plant communities on the islands predation on the species is not currently affording protection to the species. of Lanai, Maui, Molokai, and Oahu, managed at all. The threats to H. mana The Hylaeus hilaris population occurs Hawaii. H. longiceps is currently known are high in magnitude because their within a private preserve that is from six populations containing an severity presents a relatively high managed for some of the threats unknown number of individuals. This likelihood of extinction throughout its affecting habitat; however, the species is threatened by ongoing habitat entire range. The threats to H. mana are population is not entirely protected loss and modification due to the effects imminent, since they are ongoing. from impacts to habitat, and predation of feral ungulates, nonnative plants, Therefore, we have retained an LPN of upon the species is not currently wildfire, and climate change. H. 2 for this species. managed at all. The threats to H. hilaris longiceps is directly threatened by Hermes copper butterfly are high in magnitude because their predation from yellow jacket wasps (Hermelycaena [Lycaena] hermes)—

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Hermes copper butterfly primarily endemic to the Greater Antilles within Cave beetle is known only from two occurs in San Diego County, California, the genus Atlantea. This species occurs privately owned caves in Woodford and a few records of the species have within the subtropical moist forest life County, Kentucky. Soon after the been documented in Baja California, zone in the northern karst region (i.e., species was first observed in 1963, the Mexico. The species inhabits coastal municipality of Quebradillas) of Puerto cave entrance was blocked due to road sage scrub and southern mixed Rico, and in the subtropical wet forest construction and placement of fill chaparral, and is dependent on its larval (i.e., Maricao Commonwealth Forest, material along KY Highway 1964. We do host plant, Rhamnus crocea (spiny municipality of Maricao). The Puerto not know whether the species still redberry), to complete its lifecycle. Rican harlequin butterfly has only been occurs at the original location or if it has Adult Hermes copper butterflies lay found utilizing Oplonia spinosa (prickly been extirpated from the site by the single eggs on spiny redberry stems bush) as its host plant (i.e., a plant that closure of the cave entrance. A 2008 where they hatch and feed until is used for laying the eggs, and also attempt to re-open the cave was pupation occurs at the base of the plant. serves as a food source for development unsuccessful. Other caves in the vicinity Hermes copper butterflies have one of the larvae). of this cave were surveyed for the flight period occurring in mid-May to The primary threats to the Puerto species during 1995 and 1996, and only early-July, depending on weather Rican harlequin butterfly are one additional site (Richardson’s conditions and elevation. We estimate development, habitat fragmentation, and Spring) was found to support the Clifton there were at least 59 known separate other natural or manmade factors such Cave beetle. historical populations throughout the as human-induced fires, use of The limestone caves in which the species’ range since the species was first herbicides and pesticides, vegetation Clifton Cave beetle is found provide a described. Of the 59 known Hermes management, and climate change. These unique and fragile environment that copper butterfly populations, 21 are threats would substantially affect the supports a variety of species that have extant, 27 are believed to have been distribution and abundance of the evolved to survive and reproduce under extirpated, and 11 are of unknown species, as well as its habitat. In the demanding conditions found in cave status. addition, the lack of effective ecosystems. The limited distribution of Primary threats to Hermes copper enforcement makes the existing policies the species makes it vulnerable to butterfly are megafires (large wildfires), and regulations inadequate for the isolated events that would only have a and small and isolated populations. protection of the species’ habitat. minimal effect on more wide-ranging Secondary threats include increased Activities leading to habitat insects. Events such as toxic chemical wildfire frequency that results in habitat modification and destruction are spills, discharges of large amounts of loss, and combined impacts of existing expected to continue and potentially polluted water or indirect impacts from development, possible future (limited) increase in the foreseeable future. These off-site construction activities, closure development, existing dispersal barriers, threats are high in magnitude and of entrances, alteration of entrances, or and fires that fragment habitat. Hermes imminent because known populations the creation of new entrances could copper butterfly occupies scattered occur in areas that are subject to have serious adverse impacts on on the areas of sage scrub and chaparral habitat ongoing development, increased traffic, survival of this species. Therefore, the in an arid region susceptible to wildfires and increased road maintenance and magnitude of threat is high for this of increasing frequency and size. The construction and they directly affect species. The threats are nonimminent likelihood that individuals of the populations during all life stages because there are no known projects species will be burned as a result of throughout the range of the species. that would affect the species in the near catastrophic wildfires, combined with Therefore, we assigned a LPN of 2 to future. We therefore have assigned an the isolation and small size of extant this species. LPN of 5 to this species. populations, makes Hermes copper Sequatchie caddisfly (Glyphopsyche Coleman cave beetle butterfly particularly vulnerable to sequatchie)—We continue to find that (Pseudanophthalmus colemanensis)— population extirpation rangewide. listing this species is warranted but We continue to find that listing this Overall, the threats that Hermes copper precluded as of the date of publication species is warranted but precluded as of butterfly faces are high in magnitude, of this notice. However, we are working the date of publication of this notice. because the major threats (particularly on a proposed listing determination that However, we are working on a proposed mortality due to wildfire and increased we expect to publish prior to making the listing determination that we expect to wildfire frequency) occur throughout all next annual resubmitted petition 12- publish prior to making the next annual of the species’ range and are likely to month finding. In the course of resubmitted petition 12-month finding. result in significant adverse impacts to preparing the proposed listing rule, we In the course of preparing the proposed the status of the species. The threats are are continuing to monitor new listing rule, we are continuing to nonimminent overall, because the information about this species’ status so monitor new information about this impact of wildfire to Hermes copper that we can make prompt use of our species’ status so that we can make butterfly and its habitat occurs on a authority under section 4(b)(7) in the prompt use of our authority under sporadic basis, and we do not have the case of an emergency posing a section 4(b)(7) in the case of an ability to predict when wildfires will significant risk to the species.. emergency posing a significant risk to occur. This species faces high- Clifton Cave beetle the species. magnitude nonimminent threats; (Pseudanophthalmus caecus)—The Icebox Cave beetle therefore, we assigned this species a following summary is based upon (Pseudanophthalmus frigidus)—The LPN of 5. information contained in our files. No following summary is based upon Puerto Rican harlequin butterfly new information was provided in the information contained in our files. No (Atlantea tulita)—The following petition we received on May 11, 2004. new information was provided in the summary is based on information in our Clifton Cave beetle is a small, eyeless, petition we received on May 11, 2004. files and in the petition we received on reddish-brown, predatory insect that Icebox Cave beetle is a small, eyeless, February 29, 2009. The Puerto Rican feeds upon small cave invertebrates. It reddish-brown, predatory insect that harlequin butterfly is endemic to Puerto is cave dependent and is not found feeds upon small cave invertebrates. It Rico, and one of the four species outside the cave environment. Clifton is not found outside the cave

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environment, and is only known from occurs at the original location or if it has effect on more wide-ranging insects. one privately owned Kentucky cave in been extirpated from the site by the Events such as toxic chemical spills, Bell County. closure of the cave entrance. Several discharges of large amounts of polluted The limestone cave in which this other caves in Jefferson County were water, or indirect impacts from off-site species is found provides a unique and surveyed for the species in 1994, but construction activities, closure of fragile environment that supports a individuals of the species were observed entrances, alteration of entrances, or the variety of species that have evolved to at only one additional location, Eleven creation of new entrances, could have survive and reproduce under the Jones Cave. This cave is located on the serious adverse impacts on this species. demanding conditions found in cave southeast bank of Beargrass Creek near The magnitude of threat is high for this ecosystems. The species has not been Cave Hill Cemetery and Arboretum. Due species, because its limited numbers observed since it was originally to pollution and reportedly high carbon mean that any threats could severely collected, but species experts believe dioxide levels in the cave, additional affect its continued existence. The that it may still exist in the cave in low searches of the cave have not been threats are nonimminent, because there numbers. The limited distribution of the possible. are no known projects that would affect species makes it vulnerable to isolated The limestone caves in which this the species in the near future. We events that would only have a minimal species is found provide a unique and therefore have assigned an LPN of 5 to effect on more wide-ranging insects. fragile environment that supports a this species. Events such as toxic chemical spills or variety of species that have evolved to Orangeblack Hawaiian damselfly discharges of large amounts of polluted survive and reproduce under the (Megalagrion xanthomelas)—The water, or indirect impacts from off-site demanding conditions found in cave following summary is based on construction activities, closure of ecosystems. The limited distribution of information contained in our files. No entrances, alteration of entrances, or the the species makes it vulnerable to new information was provided in the creation of new entrances, could have isolated events that would only have a petition we received on May 11, 2004. serious adverse impacts on the survival minimal effect on more wide-ranging The orangeblack Hawaiian damselfly is of this species. The magnitude of threat insects. Events such as toxic chemical a stream- and pool-dwelling species is high for this species because it is spills, discharges of large amounts of endemic to the Hawaiian Islands of limited in distribution and the threats polluted water, or indirect impacts from Kauai, Oahu, Molokai, Maui, Lanai, and would result in a high level of mortality off-site construction activities, closure Hawaii. The species no longer is found or reduced reproductive capacity. The of entrances, alteration of entrances, or on Kauai, and is now restricted to a total threats are nonimminent because there the creation of new entrances, could of 16 populations distributed across the are no known projects that would affect have serious adverse impacts on the islands of Oahu, Maui, Molokai, Lanai, the species in the near future. We survival of this species. The magnitude and Hawaii. This species is threatened therefore have assigned an LPN of 5 to of threat is high for this species, because by predation from nonnative aquatic this species. it is limited in distribution and the species such as fish and predacious Inquirer Cave beetle threats would have severe negative insects, and habitat loss through (Pseudanophthalmus inquisitor)—We impacts on the species. The threats are dewatering of streams and invasion by continue to find that listing this species non-imminent because there are no nonnative plants. Nonnative fish and is warranted but precluded as of the known projects that would affect the insects prey on the larval-stage naiads of date of publication of this notice. species in the near future. We therefore the damselfly, and loss of water reduces However, we are working on a proposed have assigned an LPN of 5 to this the amount of suitable habitat for the listing determination that we expect to species. naiad life stage. Invasive plants (e.g., publish prior to making the next annual Tatum Cave beetle California grass (Brachiaria mutica)) resubmitted petition 12-month finding. (Pseudanophthalmus parvus)—The also contribute to loss of habitat by In the course of preparing the proposed following summary is based upon forming dense, monotypic stands that listing rule, we are continuing to information contained in our files. No completely eliminate open water. monitor new information about this new information was provided in the Nonnative fish and plants are found in species’ status so that we can make petition we received on May 11, 2004. all the streams where orangeblack prompt use of our authority under Tatum Cave beetle is a small, eyeless, Hawaiian damselflies occur, except at section 4(b)(7) in the case of an reddish-brown predatory insect that the single Oahu population, where there emergency posing a significant risk to feeds upon cave invertebrates. It is not are no nonnative fish. We have retained the species. found outside the cave environment and an LPN of 8 for this species because, Louisville Cave beetle is only known from one privately although the threats are ongoing and (Pseudanophthalmus troglodytes)—The owned Kentucky cave (Tatum Cave) in therefore imminent, they affect the following summary is based upon Marion County. Despite searches in different populations of the species to information contained in our files. No 1980, 1996, 2004, and 2005, the species varying degrees throughout the species’ new information was provided in the has not been observed in Tatum Cave range and are thus of moderate petition we received on May 11, 2004. since 1965. magnitude. The Louisville cave beetle is a small, The limestone cave in which this Rattlesnake-master borer moth eyeless, reddish-brown, predatory insect species is found provides a unique and (Papaipema eryngii)—The following that feeds upon cave invertebrates. It is fragile environment that supports a information is based on information in not found outside the cave environment variety of species that have evolved to our files. Rattlesnake-master borer and is only known from two privately survive and reproduce under the moths are obligate residents of owned Kentucky caves in Jefferson demanding conditions found in cave undisturbed prairie remnants, savanna, County. The cave entrance at the ecosystems. The species has not been and pine barrens that contain their only species’ original location (Oxmoor, also observed since 1965, but species experts food plant—rattlesnake-master called Highbaugh Cave) was closed due believe that it still exists in low (Eryngium yuccifolium). The to residential development and numbers. The limited distribution of the rattlesnake-master borer moth is known placement of fill in the early 1990s. We species makes it vulnerable to isolated from 16 sites distributed over 5 States: do not know whether the species still events that would only have a minimal Illinois, Arkansas, Kentucky, Oklahoma,

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and North Carolina. Currently 12 of the moth populations. Illinois’ endangered endemic riffle beetle historically found sites contain extant populations, 3 species statute provides regulatory in limited spring environments within contain populations with unknown mechanisms to protect the species from the Santa Rita Mountains, Pima County, status, and 1 contains a population that potential impacts from actions such as Arizona. In the most recent surveys is considered extirpated. development and collecting on the 10 conducted in 1993, the Stephan’s riffle Although the rattlesnake-master plant Illinois sites; however, illegal beetle was documented only in is widely distributed across 26 States collections of the species have occurred Sylvester Spring in Madera Canyon, and is a common plant in remnant at two sites. A permit is required for Santa Cruz County, within the Coronado prairies, it is a conservative species, collection by site managers within the National Forest. Suspected potential meaning it is not found in disturbed sites in North Carolina and Oklahoma. threats to that spring are largely from areas, with relative frequencies of less The rattlesnake-master borer moth is habitat modification, and potential than 1 percent. The habitat range for the also listed as endangered in Kentucky changes in water quality and quantity rattlesnake-master borer moth is very by the State’s Nature Preserves due to catastrophic natural events (such narrow and appears to be limiting for Commission, although at this time the as wildfire or flooding from storms). The the species. The ongoing effects of Kentucky legislature has not enacted threats are of low to moderate habitat loss, fragmentation, degradation, any statute that provides legal magnitude because the Forest Service and modification from agriculture, protection for species listed as has no plans to modify the springs development, flooding, invasive species, threatened or endangered. There are no where this species occurs. In addition, and secondary succession have resulted statutory mechanisms in place to protect the effects of the other threats are in fragmented populations and the populations in North Carolina, unlikely to be permanent, as they stem population declines. Rattlesnake-master Arkansas, or Oklahoma. from occasional natural events that do borer moths are affected by habitat Some threats that the rattlesnake- not result in permanent water quality fragmentation and population isolation. master moth faces are high in degradation. In addition, because of the Almost all of the sites with extant magnitude, such as habitat conversion physical habitat structure (large populations of the rattlesnake-master and fragmentation, and population boulders surrounding the springs) and borer moth are isolated from one isolation. These threats with the highest the location of the springs (on hillsides another, with the populations in magnitude occur in many of the above the stream or in the headwaters Kentucky, North Carolina, and populations throughout the species’ where there is little watershed to Oklahoma occurring within a single site range, but although they are likely to generate large flood flows), flooding, for each State, thus precluding affect each population at some time, resulting from thunderstorms or post- recolonization from other populations. they are not likely to affect all of the fire runoff is not a factor affecting this These small, isolated populations are populations at any one time. Other species at this time. Additionally, there likely to become unviable over time due threats, such as agricultural and is a higher likelihood that the species to lower genetic diversity reducing their nonagricultural development, mortality will persist in areas that are unaffected ability to adapt to environmental from implementation of some prairie by the threats; it is unlikely that all change, effects of stochastic events, and management tools (such as fire), areas of the spring would be inability to recolonize areas where they flooding, succession, and climate simultaneously be affected. Threats are extirpated. change are of moderate to low from habitat modification have already Rattlesnake-master borer moths have magnitude. For example, the life history occurred and are no longer ongoing. life-history traits that make them more of rattlesnake-master borer moths makes Therefore, the threats are not imminent. susceptible to outside stressors. They them highly sensitive to fire, which can Thus, we retain an LPN of 11 for the are univoltine (having a single flight per cause mortality of individuals through Stephan’s riffle beetle. year), do not disperse widely, and are most of the year and can affect entire monophagous (have only one food populations. Conversely, complete fire Arapahoe snowfly (Capnia source). The life history of the species suppression can also be a threat to arapahoe)—The following summary is makes it particularly sensitive to fire, rattlesnake-master borer moths as based on information contained in our which is the primary practice used in prairie habitat declines and woody or files. This insect is a winter stonefly prairie management. The species is only invasive species become established associated with clean, cool, running safe from fire once it bores into the root such that the species’ only food plant is waters. Adult snowflies emerge in late of the host plant, which makes adult, not found in disturbed prairies. winter from the space underneath egg, and first larval stages subject to Although these threats can cause direct stream ice. The Arapahoe snowfly is mortality during prescribed burns and and indirect mortality of the species, known to be found only in a short wildfires. Fire and grazing cause direct they are of moderate or low magnitude section of Elkhorn Creek, a small mortality to the moth and destroy food because they affect only some tributary of the Cache la Poudre River in plants if the intensity, extent, or timing populations throughout the range and to the Roosevelt National Forest, Larimer is not conducive to the species’ biology. varying degrees. Overall, the threats are County, Colorado. New surveys Although fire management is a threat to moderate. The threats are imminent completed in 2013 indicate that the the species, lack of management is also because they are ongoing; every known Arapahoe snowfly may occur in a threat, and at least one site has become population of rattlesnake-master borer additional drainages other than Elkhorn extirpated likely because of the moth has at least one ongoing threat, Creek; however, the results are succession to woody habitat. The and some have several working in preliminary, and surveys are continuing species is sought after by collectors, and tandem. Thus, we assigned a LPN of 8 in 2014. We will evaluate and the host plant is very easy to identify, to this species. incorporate the results of these new making the moth susceptible to Stephan’s riffle beetle (Heterelmis surveys into our review when they collection, and thus many sites are kept stephani)—The following summary is become available. The species undisclosed to the public. based on information contained in our previously occurred downriver at Young Existing regulatory mechanisms files. No new information was provided Gulch, but it is likely that either habitat provide protection for 12 of the 16 sites in the petition received on May 11, became unsuitable or other unknown containing rattlesnake-master borer 2004. The Stephan’s riffle beetle is an causes extirpated the species. Habitats

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at Young Gulch were further degraded stonefly was a candidate for listing in a Threats to this species could have a by the High Park Fire in 2012, and warranted-but-precluded 12-month significant adverse effect on the survival potentially by a flash flood disaster in petition finding published on April 5, of the species, leading to a relatively September 2013. 2011 (76 FR 18684). We have assigned high likelihood of extinction, and are Climate change is a threat to the the species an LPN of 5, based on three thus of a high magnitude. The primary Arapahoe snowfly, and modifies its criteria: (1) The high magnitude of threats of predation from fish and loss habitats by reducing snowpacks, threat, which is projected to of habitat due to degradation are increasing temperatures, fostering substantially reduce the amount of nonimminent, because on the islands of mountain pine beetle outbreaks, and suitable habitat relative to the species’ Maui and Hawaii no fish were observed increasing the frequency of destructive current range; (2) the low immediacy of in any of the pools where this species wildfires. Limited dispersal capabilities, the threat based on the lack of occurs, and there has been no an extremely restricted range, documented evidence that climate documented trash dumping in these dependence on pristine habitats, and a change is affecting stonefly habitat; and pools. Therefore, we have retained an small population size make the (3) the taxonomic status of the species, LPN of 5 for this species. Arapahoe snowfly vulnerable to which is a full species. Anchialine pool shrimp demographic stochasticity, Highlands tiger beetle (Cicindela (Palaemonella burnsi)—The following environmental stochasticity, and highlandensis)—We continue to find summary is based on information random catastrophes. Furthermore, that listing this species is warranted but contained in our files. No new regulatory mechanisms inadequately precluded as of the date of publication information was provided in the reduce these threats, which may act of this notice. However, we are working petition we received on May 11, 2004. cumulatively to affect the species. The on a proposed listing determination that Palaemonella burnsi is a species of threats to the Arapahoe snowfly are high we expect to publish prior to making the shrimp belonging to the family in magnitude because they occur next annual resubmitted petition 12- Palaemonidae, that inhabits anchialine throughout the species’ limited range. month finding. In the course of pools. This species is endemic to the However, the threats are nonimminent. preparing the proposed listing rule, we Hawaiian Islands with populations on While limited dispersal capabilities, are continuing to monitor new the islands of Maui and Hawaii. The restricted range, dependence on pristine information about this species’ status so primary threats to this species are habitats, and small population size are that we can make prompt use of our predation by nonnative fish (i.e., fish characteristics that make this species authority under section 4(b)(7) in the species that do not naturally occur in vulnerable to stochastic events and case of an emergency posing a the pools inhabited by this species) and catastrophes (and potential impacts significant risk to the species. habitat loss due to degradation from climate change), these events are (primarily from illegal trash dumping). Crustaceans not currently occurring and increased This species’ populations on Maui are temperatures will adversely affect the Anchialine pool shrimp (Metabetaeus located within a State Natural Area species in the future. Therefore, we have lohena)—The following summary is Reserve (NAR). Hawaii’s State statutes assigned the Arapahoe snowfly an LPN based on information contained in our prohibit the collection of the species of 5. files. No new information was provided and the disturbance of the pools in State Meltwater lednian stonefly (Lednia in the petition we received on May 11, NARs. On the island of Hawaii, the tumana)—The following summary is 2004. Metabetaeus lohena is a species of species occurs within a State NAR and based on information contained in our shrimp belonging to the family a National Park, where collection and files and in the petition we received on Alpheidae that inhabits anchialine disturbance are also prohibited. July 30, 2007. This species is an aquatic pools. This species is endemic to the However, enforcement of these insect in the order Plecoptera Hawaiian Islands, with populations on prohibitions is difficult, and the (stoneflies). Stoneflies are primarily the islands of Oahu, Maui, and Hawaii. negative effects from the introduction of associated with clean, cool streams and The primary threats to this species are fish can occur suddenly and could rivers. Eggs and nymphs (juveniles) of predation by fish (i.e., fish species that quickly decimate a population. the meltwater lednian stonefly are do not naturally occur in the pools Therefore, threats to this species could found in high-elevation, alpine, and inhabited by this species) and habitat have a significant adverse effect on the subalpine streams, most typically in loss from degradation (primarily from survival of the species, leading to a locations closely linked to glacial illegal trash dumping). Populations of relatively high likelihood of extinction, runoff. The species is generally M. lohena on the islands of Maui and and thus are of a high magnitude. The restricted to streams with mean summer Hawaii are located within State Natural threats are nonimminent, because water temperature less than 10 °C Area Reserves (NARs) and in a National surveys in 2004 and 2007 did not find (50 °F). The only known meltwater Park. Both the State NARs and the fish in the pools where these shrimp lednian stonefly occurrences are within National Park prohibit the collection of occur on Maui or the island of Hawaii. Glacier National Park (NP), Montana. the species and the disturbance of the Also, there was no evidence of recent Climate change, and the associated pools. However, enforcement of habitat degradation at those pools. effects of glacier loss (with glaciers collection and disturbance prohibitions Therefore, we have retained an LPN of predicted to be gone by 2030)— is difficult, and the negative effects from 5 for this species. including reduced streamflows, and the introduction of fish can occur Anchialine pool shrimp (Procaris increased water temperatures—are suddenly and could quickly decimate a hawaiana)—The following summary is expected to significantly reduce the population. On Oahu, four pools based on information contained in our occurrence of populations and extent of containing this species are located in a files. No new information was provided suitable habitat for the species in National Wildlife Refuge and are in the petition we received on May 11, Glacier NP. In addition, the existing protected from collection and 2004. Procaris hawaiana is a species of regulatory mechanisms are not adequate disturbance to the pool; however, on shrimp belonging to the family to address these environmental changes State-owned land where the species Procarididae that inhabits anchialine due to global climate change. We occurs, there is no protection from pools. This species is endemic to the determined that the meltwater lednian collection or disturbance of the pools. Hawaiian Islands, and is currently

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known from 2 pools on the island of approximately 130,000 plants in 1997 to have been rerouted, the threats are not Maui and 12 pools on the island of a low of approximately 40,000 plants in imminent. The LPN for A. alpina Hawaii. The primary threats to this 2003. In 2012, when the population was remains an 11 due to the presence of species are predation from nonnative last monitored, the estimated total moderate-to-low threats, and the fish (i.e., fish species that do not population increased to approximately determination that the threats are not naturally occur in the pools inhabited 156,000 plants. imminent at this point in time. by this species) and habitat loss due to The factors currently threatening Argythamnia blodgettii (Blodgett’s degradation (primarily from illegal trash Abronia alpina include natural and silverbush)—We continue to find that dumping). This species’ populations on human habitat alteration, lowering of listing this species is warranted but Maui are located within a State Natural the water table due to erosion within the precluded as of the date of publication Area Reserve (NAR). Twelve pools meadow system, and recreational use of this notice. However, we are working containing this species on the island of within meadow habitats. Lodgepole on a proposed listing determination that Hawaii are also located within a State pines are encroaching upon meadow we expect to publish prior to making the NAR. Hawaii’s State statutes prohibit habitat with trees germinating within A. next annual resubmitted petition 12- the collection of the species and the alpina habitat, occupying up to 20 month finding. In the course of disturbance of the pools in State NARs. percent of two A. alpina preparing the proposed listing However, enforcement of these subpopulations. Lodgepole pine determination, we are continuing to prohibitions is difficult, and the encroachment may alter soil monitor new information about this negative effects from the introduction of characteristics by increasing organic species’ status so that we can make fish can occur suddenly and could matter levels, decreasing porosity, and prompt use of our authority under quickly decimate a population. In moderating diurnal temperature section 4(b)(7) in the case of an addition, there are no prohibitions for fluctuations thus reducing the emergency posing a significant risk to either removal of the species or competitive ability of A. alpina to the species. disturbance to one pool containing this persist in an environment more Artemisia borealis var. wormskioldii species located outside a NAR on the hospitable to other plant species. The (Northern wormwood)—The following island of Hawaii. Therefore, threats to habitat occupied by Abronia alpina summary is based on information this species could have a significant directly borders the meadow system, contained in our files. No new adverse effect on the survival of the which is supported by the South Fork information was provided in the species, leading to a relatively high of the Kern River. The river flows petition we received on May 11, 2004. likelihood of extinction, and thus through the meadow, at times coming Historically known from eight sites, remain at a high magnitude. The threats within 15 m (50 ft) of Abronia alpina Artemisia campestris var. wormskioldii to the species are nonimminent, habitat, particularly in the vicinity of (formerly A. borealis var. wormskioldii) because, during 2004 and 2007 surveys, five subpopulations. Past livestock is currently known from two natural no nonnative fish were observed in the trampling and past removal of bank- populations (one in Klickitat County pools where these shrimp occur on stabilizing vegetation by grazing and one in Grant County, Washington) Maui, nor were they observed in the one livestock have contributed to down- and four outplanted populations in pool on the island of Hawaii that was cutting of the river channel through the Oregon and Washington. This plant is surveyed in 2005. In addition, there meadow, leaving the meadow subject to restricted to exposed basalt, cobbly- were no signs of dumping or fill in any potential alteration by lowering of the sandy terraces, and sand habitat along of the pools where the species occurs. water table. In 2001, the Forest Service the shore of, and on islands within, the Therefore, we have retained an LPN of began resting the grazing allotment for Columbia River. Annual monitoring 5 for this species. 10 years, thereby eliminating cattle use. indicates that the two natural The allotment is still being rested while populations have declined from Flowering Plants the Forest Service assesses the data historical numbers and now total Abronia alpina (Ramshaw Meadows collected on the rested allotment for roughly 550 individuals. Two sand-verbena)—The following summary eventual inclusion in an environmental populations were outplanted with is based on information contained in analysis to consider resumption of approximately 3,000 individuals, and our files. No new information was grazing. Established hiker, packstock, when monitored in 2012, approximately provided in the petition we received on and cattle trails pass through A. alpina 900 individuals still remained; the other May 11, 2004. Abronia alpina is a small subpopulations. Two main hiker trails two outplanted populations have not perennial herb in the Nyctaginaceae pass through Ramshaw Meadow, but in been monitored since 120 individuals (four-o’clock) family, 2.5 to 15.2 cm (1 1988 and 1997, they were rerouted out were outplanted at the sites in 2013. It to 6 in) across, forming compact mats of A. alpina subpopulations. Occasional is possible that additional natural with lavender-pink, trumpet-shaped, incidental use by horses and hikers populations of the species exist as there and generally fragrant flowers. Abronia sometimes occurs on the remnants of are relatively large stretches of the mid- alpina is known from one main cattle trails that pass through Columbia River and its tributaries that population center at Ramshaw Meadow subpopulations in several places. have not been surveyed specifically for and a smaller population at the adjacent The Service has funded studies to this plant; however, we currently know Templeton Meadow. The meadows are determine appropriate conservation of the species only from the above six located on the Kern River Plateau in the measures for the species and is working locations. The species is also cultivated Sierra Nevada, on lands administered by with the U.S. Forest Service on ex situ for future translocation projects. the Inyo National Forest, in Tulare developing a conservation strategy for Habitat loss from inundation behind County, California. The total estimated the species. The remaining threats affect hydroelectric dams and placement of area occupied is approximately 6 individuals in the population and have riprap along the Columbia River is hectares (15 acres). The population not appeared to have population-level thought to be the cause of historical fluctuates from year to year without any effects. Therefore, the threats are low in population loss. Current threats to clear trends. Population estimates for magnitude. In addition, because the northern wormwood include possible the years from 1985 up to, but not grazing activities have been eliminated direct loss of habitat through regulation including, 2012 range from a high of for the time being and the hiking trails of water levels in the Columbia River;

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human trampling of plants from the perimeter of wildfires that occurred narrow endemic perennial plant that recreation; competition with nonnative in 2007 which negatively affected nearly grows in the mature pinyon-juniper invasive species; burial by wind- and 50 percent of the known occurrences in woodland of mesa tops in the Mesa water-borne sediments; small Nevada and Utah. In addition, livestock Verde National Park area and in the Ute population sizes; susceptibility to use impacts were observed at all sites Mountain Ute Tribal Park in Colorado. genetic drift and inbreeding; and the visited in Utah in 2011 with 25 percent The most significant threats to the potential for hybridization with two of the sites (containing 73 percent of the species are degradation of habitat by other species of Artemisia. At the Grant individuals) being directly affected. The fire, followed by invasion by nonnative County site, ongoing conservation threats to the species are imminent, or cheatgrass and subsequent increase in actions have reduced trampling, but currently occurring, largely as a result of fire frequency. These threats currently have not eliminated or reduced the land management actions taken since affect about 40 percent of the species’ other threats. At the Klickitat County fires initially altered the habitat. The entire known range, and cheatgrass is site (Miller Island), active conservation threats associated with livestock grazing likely to increase, given (1) its rapid measures are not currently in place. The and invasive species are occurring spread and persistence in habitat magnitude of these threats is high, as throughout a large portion of the disturbed by wildfires, fire and fuels the remaining populations are small, species’ range. The high magnitude and management and development of isolated, and each could be eliminated immediacy of threats leave the species infrastructure, and (2) the inability of by a single disturbance. The threats are and its small populations more land managers to control it on a imminent because recreational use is vulnerable to stochastic events. landscape scale. Other threats to ongoing, invasive nonnative species Therefore, we have assigned the Goose Schmoll milkvetch include fire break occur at both sites, erosion of the Creek milkvetch an LPN of 2. clearings, drought, and feral livestock substrate is ongoing at the Klickitat Astragalus microcymbus (Skiff grazing; existing regulatory mechanisms County site, and high water flows may milkvetch)—The following summary is are not adequate to address these occur unpredictably in any year. based on information contained in our threats. The threats to the species Therefore, we have retained an LPN of files and in the petition we received on overall are imminent, because they are 3 for this variety. July 30, 2007. Skiff milkvetch is a ongoing, and moderate in magnitude, Astragalus anserinus (Goose Creek perennial forb that dies back to the because the species is currently facing milkvetch)—The following summary is ground every year. It has a very limited them in many portions of its range, but based on information in our files and in range and a spotty distribution within the threats do not collectively result in the petition received on February 3, Gunnison and Saguache Counties in population declines on a short time 2004. The majority (over 80 percent) of Colorado, where it is found in open, scale. Therefore, we have assigned Goose Creek milkvetch sites in Idaho, park-like landscapes in the sagebrush- Schmoll milkvetch an LPN of 8. Utah, and Nevada occur on Federal steppe ecosystem on rocky or cobbly, Astragalus tortipes (sleeping Ute lands managed by the Bureau of Land moderate-to-steep slopes of hills and milkvetch)—The following summary is Management. The rest of the sites occur draws. based on information contained in our as small populations on private and The most significant threats to skiff files. No new information was provided State lands in Utah and on private land milkvetch are recreation, roads, trails, in the petition we received on May 11, in Idaho and Nevada. Goose Creek and habitat fragmentation and 2004. Sleeping Ute milkvetch is a milkvetch occurs in a variety of habitats, degradation. Existing regulatory perennial plant that grows only on the but is typically associated with dry, mechanisms are not adequate to protect Smokey Hills layer of the Mancos Shale tuffaceous soils (made up of rock the species from these threats. Formation on the Ute Mountain Ute consisting of smaller kinds of volcanic Recreational impacts are likely to Indian Reservation in Montezuma detritus) from the Salt Lake Formation. increase, given the close proximity of County, Colorado. The species grows on steep or flat sites, skiff milkvetch to the town of Gunnison In 2000, a total of 3,744 plants were with soil textures ranging from silty to and the increasing popularity of recorded at 24 locations covering 500 sandy to somewhat gravelly. The mountain biking, motorcycling, and all- acres within an overall range of 6,400 species tolerates some level of terrain vehicles. Furthermore, the acres. Available information from 2000 disturbance, based on its occurrence on Hartman Rocks Recreation Area draws and 2009 indicated that the species’ steep slopes, where downhill movement users, and contains over 40 percent of status was stable at that time. However, of soil is common. the skiff milkvetch units. Other threats previous and ongoing threats from The primary threat to Goose Creek to the species include residential and borrow pit excavation, off-highway milkvetch is habitat degradation and urban development; livestock, deer, and vehicles, irrigation canal construction, modification resulting from an altered elk use; climate change; increasing and a prairie dog colony have had minor wildfire regime, fire suppression periodic drought; nonnative invasive impacts that reduced the range and activities, and rehabilitation efforts to cheatgrass; and wildfire. The threats to number of plants by small amounts. Off recover lands that have burned. Other skiff milkvetch are moderate in road-vehicle use of the habitat has factors that also appear to threaten magnitude, because, while serious and reportedly been controlled by fencing. Goose Creek milkvetch include occurring rangewide, they do not Oil and gas development is active in the livestock use and invasive nonnative collectively result in population general area, but the Service has species. The existing regulatory declines on a short time scale. The received no information to indicate that mechanisms are not adequate to address threats are imminent, because the there is development within plant these threats. Climate change effects to species is currently facing them in many habitat. In 2011, the tribal Goose Creek drainage habitats are portions of its range. Therefore, we have Environmental Programs Department possible, but we are unable to predict assigned skiff milkvetch an LPN of 8. reported habitat disturbance by vehicles the specific impacts of this change to Astragalus schmolliae (Schmoll and activity at the shooting range Goose Creek milkvetch at this time. milkvetch)—The following summary is located within the plant habitat. The The magnitude of threats is high as based on information contained in our Tribe reported that the status of the available monitoring data indicate files and in the petition we received on species remained unchanged. The Tribe declines in excess of 70 percent within July 30, 2007. Schmoll milkvetch is a has been working on a management

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plan that will include a monitoring actions. Overutilization, predation, and distributed over 164 ha (405 ac) on three program for this species, among others. the inadequacy of regulatory individual mountain peaks in the We had expected the final plan to be mechanisms are likely threats to the Klamath National Forest and on private released in 2010, but it still has not been species. The threats that B. pusilla faces lands. The northernmost occurrence completed. We have no documentation are moderate in magnitude, primarily consists of not more than five Siskiyou concerning the current status of the because of the recent leveling off of the mariposa lily plants that were plants, condition of habitat, and terms population decline. The threat to B. discovered in 1998, on Bald Mountain, of the species management plan being pusilla is imminent, because we have west of Ashland, Jackson County, drafted by the Tribe. Thus, at this time, evidence that the species is currently Oregon. we cannot accurately assess whether facing a threat indicated by reduced Major threats include competition and populations are being adequately population size. The threat appears to shading by native and nonnative species protected from previously existing be ongoing, although we are unsure of fostered by suppression of wildfire; threats. The threats are moderate in the extent and timing of its effects on increased fuel loading and subsequent magnitude, since they have had only the species. Thus, we have assigned B. risk of wildfire; fragmentation by roads, minor impacts. Until the management pusilla an LPN of 8. fire breaks, tree plantations, and radio- plan is completed there are no Calamagrostis expansa (Maui tower facilities; maintenance and regulatory mechanisms in place to reedgrass)—The following summary is construction around radio towers and protect the species from the threats based on information contained in our telephone relay stations located on described above. Overall, we conclude files. No new information was provided Gunsight Peak and Mahogany Point; and that threats are moderate to low and in the petition we received on May 11, soil disturbance, direct damage, and nonimminent. Therefore, we assigned 2004. Calamagrostis expansa is a nonnative weed and grass species an LPN of 11 to this species. perennial grass found in wet forests and introduction as a result of heavy Boechera pusilla (Fremont County bogs, and in bog margins, on the recreational use and construction of fire rockcress)—The following summary is Hawaiian Islands of Maui and Hawaii. breaks. Dyer’s woad (Isatis tinctoria), an based on information in our files and in This species is known from 13 invasive, nonnative plant that may the petition received on July 24, 2007. populations collectively totaling fewer prevent germination of Siskiyou Boechera pusilla is a perennial herb that than 750 individuals. mariposa lily seedlings, has invaded 75 occupies sparsely vegetated, coarse Calamagrostis expansa is threatened percent of the known lily habitat on granite soil pockets in exposed granite- by habitat degradation and loss by feral Gunsight-Humbug Ridge, the pegmatite outcrops, with slopes pigs (Sus scrofa), and by competition southernmost California occurrence. generally less than 10 degrees, at an with nonnative plants. All of the known Forest Service staff and the Klamath- elevation between 2,438 and 2,469 m populations of C. expansa on Maui Siskiyou Wildlands Center cite (8,000 and 8,100 ft). The only known occur in managed areas. Pig exclusion competition with dyer’s woad as a population of B. pusilla is located in fences have been constructed, and significant and chronic threat to the Wyoming on lands administered by the control of nonnative plants is ongoing survival of Siskiyou mariposa lily. Bureau of Land Management in the within the exclosures but still pose a The combination of restricted range, southern foothills of the Wind River threat to the species. On the island of extremely low numbers (five plants) in Range. B. pusilla is likely restricted in Hawaii, the population in the Upper one of three disjunct populations, poor distribution by the limited occurrence of Waiakea Forest Reserve has been fenced competitive ability, short seed dispersal pegmatite (a very coarse-grained rock entirely. This species is not represented distance, slow growth rates, low seed formed from magma or lava) in the area. in an ex situ collection. Threats to this production, apparently poor survival The specialized habitat requirements of species from feral pigs and nonnative rates in some years, herbivory, habitat B. pusilla have allowed the plant to plants are still ongoing despite the disturbance, and competition from persist without competition from other conservation actions, and are thus nonnative invasive plants threatens the herbaceous plants or sagebrush- imminent and of high magnitude, given continued existence of this species. The grassland species that are present in the the limited number of individuals, main threat is competition by dyer’s surrounding landscape. leading to a relatively high likelihood of woad. However, because efforts are Boechera pusilla has a threat that is extinction. Therefore, we have retained under way to reduce the threat of dyer’s not identified, but that is indicated by an LPN of 2 for this species. woad where it is found and there is no the small and overall declining Calochortus persistens (Siskiyou evidence of a decline in C. persistens population size. Although the threat is mariposa lily)—The following summary populations where this weed has not fully understood, we know it exists is based on information contained in become most widely distributed, the as indicated by the declining our files and the petition we received on magnitude of existing threats is population. The population size may be September 10, 2001. The Siskiyou moderate. Overall, the threats are declining from a variety of unknown mariposa lily is a narrow endemic that nonimment since the threats of causes, with drought or disease possibly is restricted to three disjunct ridge tops competition from nonnative invasive contributing to the trend. The in the Klamath-Siskiyou Range near the plants has been reduced to localized downward trend may have been leveled California-Oregon border. The areas and are not anticipated to off somewhat recently, but without southernmost occurrence of this species overwhelm a large portion of the improved population numbers, the is composed of nine separate sites on species’ range in the immediate future. species may reach a population level at approximately 17.6 ha (43.4 ac) of The likelihood that a large proportion of which other stressors become threats. Klamath National Forest and privately the Gunsight-Humbug Ridge range We are unable to determine how climate owned lands that stretch for 10 km (6 would be affected by disturbance, and change may affect the species in the mi) along the Gunsight-Humbug Ridge, therefore invaded by dyer’s woad at the future. To the extent that we understand Siskiyou County, California. In 2007, a same time, is low. Therefore, we have the species, other potential habitat- new occurrence was confirmed in the assigned a LPN of 11 to this species. related threats have been removed locality of Cottonwood Peak and Little Chamaecrista lineata var. keyensis through the implementation of Federal Cottonwood Peak, Siskiyou County, (Big Pine partridge pea)—We continue regulatory mechanisms and associated where several populations are to find that listing this species is

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warranted but precluded as of the date Ranch. Investigations of historical Chorizanthe parryi var. fernandina is of publication of this notice. However, locations and seemingly suitable habitat particularly vulnerable to extinction due we are working on a proposed listing within the range of the species have not to its concentration in two isolated determination that we expect to publish revealed any other occurrences. areas. The existence of only two areas of prior to making the next annual The threats facing C. parryi var. occurrence, and a relatively small range, resubmitted petition 12-month finding. fernandina include threatened makes the variety highly susceptible to In the course of preparing the proposed destruction, modification, or extinction or extirpation from a listing determination, we are continuing curtailment of its habitat or range significant portion of its range due to to monitor new information about this (Factor A), inadequacy of existing random events such as fire, drought, species’ status so that we can make regulatory mechanisms (Factor D), and and erosion. We retained an LPN of 6 prompt use of our authority under other natural or manmade factors for this species due to high-magnitude, section 4(b)(7) in the case of an (Factor E). The threats to C. parryi var. nonimminent threats. emergency posing a significant risk to fernandina from habitat destruction or Cirsium wrightii (Wright’s marsh the species. modification are lower in magnitude thistle)—The following summary is Chamaesyce deltoidea ssp. pinetorum than they were 9 years ago when we based on information from the 12-month (Pineland sandmat)—We continue to originally determined that the species warranted-but-precluded finding find that listing this species is was a candidate for listing. One of the published November 4, 2010 (75 FR warranted but precluded as of the date two populations (Upper Las Virgenes 67925), as well as any new information of publication of this notice. However, Canyon Open Space Preserve) is now in gathered since then. Wright’s marsh we are working on a proposed listing permanent public ownership and is thistle is a flowering plant in the determination that we expect to publish being managed by an agency that is sunflower family. It is prickly with short prior to making the next annual working to conserve the plant; however, black spines and a 3- to 8-foot (ft) (0.9- resubmitted petition 12-month finding. the use of adjacent habitat for to 2.4-meter (m)) single stalk covered In the course of preparing the proposed Hollywood film productions was with succulent leaves. Flowers are listing determination, we are continuing brought to our attention in 2007, and the white to pale pink in areas of the to monitor new information about this potential impacts to C. parryi var. Sacramento Mountains, but are vivid species’ status so that we can make fernandina are not yet clear. During a pink in all the Pecos Valley locations. prompt use of our authority under site visit to the Preserve in April 2012, There are eight general confirmed section 4(b)(7) in the case of an we noted an abundance of nonnative locations of Wright’s marsh thistle in emergency posing a significant risk to species that, if not managed, could New Mexico: Santa Rosa, Guadalupe the species. degrade the quality of the habitat for C. County; Bitter Lake National Wildlife Chamaesyce deltoidea ssp. serpyllum parryi var. fernandina over time. We Refuge, Chaves County; Blue Spring, (Wedge spurge)—We continue to find will be working with the landowners to Eddy County; La Luz Canyon, Karr that listing this species is warranted but manage the site for the benefit of C. Canyon, Silver Springs, and Tularosa precluded as of the date of publication parryi var. fernandina. Creek, Otero County; and Alamosa of this notice. However, we are working The other population (Newhall Creek, Socorro County. Wright’s marsh on a proposed listing determination that Ranch) is under the threat of thistle has been extirpated from all we expect to publish prior to making the development. A CCA was being previously known locations in Arizona, next annual resubmitted petition 12- developed with the landowner to and was misidentified and likely not month finding. In the course of address conservation of the plants; ever present in Texas. The status of the preparing the proposed listing however, as of 2014, work on the CCA species in Mexico is uncertain, with few determination, we are continuing to has been suspended. Until such an verified collections. monitor new information about this agreement is finalized, the threat of Wright’s marsh thistle faces threats species’ status so that we can make development and the potential damage primarily from natural and human- prompt use of our authority under to the Newhall Ranch population still caused modifications of its habitat due section 4(b)(7) in the case of an exist, as shown by the destruction of to ground and surface water depletion, emergency posing a significant risk to some plants during installation of an drought, invasion of Phragmites the species. agave farm. Furthermore, cattle grazing australis, and from the inadequacy of Chorizanthe parryi var. fernandina on Newhall Ranch may be a current existing regulatory mechanisms. The (San Fernando Valley spineflower)— threat. Cattle grazing may harm C. parryi species occupies relatively small areas The following summary is based on var. fernandina by trampling and soil of seeps, springs, and wetland habitat in information contained in our files and compaction. Grazing activity could also an arid region plagued by drought and the petition received on December 14, alter the nutrient (e.g., elevated organic ongoing and future water withdrawals. 1999. Chorizanthe parryi var. material levels) content of the soils for The species’ highly specific fernandina is a low-growing herbaceous C. parryi var. fernandina habitat requirements of saturated soils with annual plant in the buckwheat family. through fecal inputs, which in turn may surface or subsurface water flow make it Germination occurs following the onset favor the growth of other plant species particularly vulnerable. of late-fall and winter rains and that would otherwise not grow so Long-term drought, in combination typically represents different cohorts readily on the mineral-based soils. Over with ground and surface from the seed bank. Flowering occurs in time, changes in species composition waterwithdrawal, pose a current and the spring, generally between April and may render the sites less favorable for future threat to Wright’s marsh thistle June. The plant currently is known from the persistence of C. parryi var. and its habitat. In addition, we expect two disjunct localities: The first is in the fernandina. Chorizanthe parryi var. that these threats will likely intensify in southeastern portion of Ventura County fernandina may be threatened by the foreseeable future. However, the on a site within the Upper Las Virgenes invasive nonnative plants, including threats are moderate in magnitude Canyon Open Space Preserve, formerly grasses, which could potentially because the majority of the threats known as Ahmanson Ranch, and the displace it from available habitat; (habitat loss and degradation due to second is in an area of southwestern Los compete for light, water, and nutrients; alteration of the hydrology of its rare Angeles County known as Newhall and reduce survival and establishment. wetland habitat), while serious and

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occurring rangewide, do not at this time on a proposed listing determination that in the petition we received on May 11, collectively and significantly adversely we expect to publish prior to making the 2004. This species is a cespitose affect the species at a population level. next annual resubmitted petition 12- (growing in dense, low tufts) annual All of the threats are ongoing and month finding. In the course of found in dry forests on Hawaii Island. therefore imminent. Thus, we continue preparing the proposed listing Festuca hawaiiensis is known from four to assign an LPN of 8 to Wright’s marsh determination, we are continuing to populations collectively totaling thistle. monitor new information about this approximately 1,000 individuals in and Dalea carthagenensis ssp. floridana species’ status so that we can make around the Pohakuloa Training Area. (Florida prairie-clover)—We continue to prompt use of our authority under Historically, this species was also found find that listing this species is section 4(b)(7) in the case of an on Hualalai and Puu Huluhulu, but it no warranted but precluded as of the date emergency posing a significant risk to longer occurs at these sites. In addition, of publication of this notice. However, the species. the historical range of F. hawaiiensis we are working on a proposed listing Eriogonum soredium (Frisco may have included Maui. determination that we expect to publish buckwheat)—The following summary is This species is threatened by pigs prior to making the next annual based on information in our files and (Sus scrofa), goats (Capra hircus), resubmitted petition 12-month finding. the petition we received on July 30, mouflon (Ovis musimon), and feral In the course of preparing the proposed 2007. Frisco buckwheat is a narrow sheep (O. aries) that degrade and listing rule, we are continuing to endemic perennial plant restricted to destroy habitat; fire; military training monitor new information about this soils derived from Ordovician limestone activities; and nonnative plants that species’ status so that we can make outcrops. The range of the species is less outcompete and displace it. Feral pigs, prompt use of our authority under than 5 sq mi (13 sq km), with four goats, mouflon, and feral sheep have section 4(b)(7) in the case of an known populations. All four been fenced out of a portion of the emergency posing a significant risk to populations occur exclusively on populations of F. hawaiiensis and the species. private lands in Beaver County, Utah, nonnative plants have been reduced in Dichanthelium hirstii (Hirst Brothers’ and each population occupies a very the fenced area, but the majority of the panic grass)—The following summary is small area with high densities of plants. populations are still affected by threats based on information contained in our Available population estimates are from ungulates. The threats are files. No new information was provided highly variable and inaccurate due to imminent because they are not in the petition we received on May 11, the limited access for surveys associated controlled and are ongoing in the 2004. Dichanthelium hirstii is a with private lands. remaining, unfenced populations. perennial grass that produces erect, The primary threat to Frisco Firebreaks have been established to leafy, flowering stems from May to buckwheat is habitat destruction from protect two populations, but fire is an October. The species occurs in coastal precious metal and gravel mining. imminent threat to the remaining plain intermittent ponds, usually in wet Mining for precious metals historically populations that have no firebreaks. savanna or pine barren habitats, and is occurred within the vicinity of all four There are no ex situ collections. The known to occur at only three sites in populations. Three of the populations threats are of a high magnitude because New Jersey, one site in Delaware, and are currently in the immediate vicinity they could adversely affect the majority two sites in North Carolina. While all of active limestone quarries. Ongoing of F. hawaiiensis populations resulting six extant D. hirstii populations are mining in the species’ habitat has the in direct mortality or reduced located on public land, threats to the potential to extirpate one population in reproductive capacity which could species from encroachment of woody the near future and extirpate all bring about extinction on a relatively and herbaceous vegetation, competition populations in the foreseeable future. short time scale. Therefore, we have from rhizomatous perennials, Ongoing exploration for precious metals retained an LPN of 2 for this species. fluctuations in hydrology, and threats and gravel indicate that mining will Festuca ligulata (Guadalupe fescue)— associated with small population continue, but will take time for the The following summary is based on number and size are significant. Given mining operations to be put into place. information obtained from the original the naturally fluctuating number of This will result in the loss and species petition, received in 1975, and plants found at each site, and the fragmentation of Frisco buckwheat from our files, on-line herbarium isolated nature of the wetlands (limiting populations over a longer time scale. databases, and scientific publications. dispersal opportunities), even small Other threats to the species include Six small populations of Guadalupe changes in the species’ habitat could nonnative species, vulnerability fescue, a member of the Poaceae (grass result in local extirpation. With so few associated with small population size, family), have been documented in populations, the loss of any known sites and climate change. Existing regulatory mountains of the Chihuahuan desert in would constitute a significant mechanisms are inadequate to protect Texas and in Coahuila, Mexico. Only contraction of the species’ range and the species from these threats. The two extant populations have been increase the risk of extinction of the threats that Frisco buckwheat faces are confirmed in the last 5 years: One in the species. Because most of the significant moderate in magnitude, because while Chisos Mountains, Big Bend National threats to D. hirstii affect the species serious and occurring rangewide, the Park (BIBE), Texas, and one in the over a period of years and, in some threats do not significantly reduce privately owned Area de Proteccio´ n de cases, are being managed to some populations on a short time scale. The Flora y Fauna (APFF, Protected Area for extent, the threats are nonimminent. threats are imminent, because three of Flora and Fauna) Maderas del Carmen Based on nonimminent threats of a high the populations are currently in the in northern Coahuila. Despite intensive magnitude, we retain a LPN of 5 for this immediate vicinity of active limestone searches, a population known from species. quarries. Therefore, we have assigned Guadalupe Mountains National Park, Digitaria pauciflora (Florida pineland Frisco buckwheat an LPN of 8. Texas, has not been found since 1952, crabgrass)—We continue to find that Festuca hawaiiensis (no common and is presumed extirpated. In 2009, listing this species is warranted but name)—The following summary is botanists confirmed Guadalupe fescue at precluded as of the date of publication based on information contained in our one site in APFF Maderas del Carmen, of this notice. However, we are working files. No new information was provided but could not find the species at the

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original site, known as Sierra El Jardı´n, remyi, and nonnative plants have been relatively high probability of extinction. which was first reported in 1973. Two reduced in those areas. However, these Therefore, we have retained an LPN of additional Mexican populations, near threats are ongoing in the remaining, 3 for this subspecies. Fraile in southern Coahuila, and the unfenced populations, and are therefore Kadua (=Hedyotis) fluviatilis Sierra de la Madera in central Coahuila, imminent. In addition, the threat from (Kamapuaa)—The following summary is have not been monitored since 1941 and goats and deer is ongoing and imminent based on information contained in our 1977, respectively. A great amount of throughout the range of the species, files. No new information was provided potentially suitable habitat in Coahuila because no goat or deer control in the petition we received on May 11, and adjacent Mexican States has never measures have been undertaken for any 2004. Kadua fluviatilis (formerly been surveyed; due to prevailing of the populations of G. remyi. All of the Hedyotis fluviatilis) is a scandent security issues in northern Mexico. We threats are of a high magnitude, because (climbing) shrub found in mixed do not know if or when these sites can habitat destruction, predation, and shrubland to wet lowland forests on the be safely monitored. The BIBE site was landslides could significantly affect the islands of Oahu and Kauai, Hawaii. This monitored in September 2013; at that entire species, resulting in direct species is known from 11 populations time the total population was estimated mortality or reduced reproductive collectively totaling between 400 and to be less than 200 individual plants. capacity, leading to a relatively high 900 individuals. Kadua fluviatilis is The potential threats to Guadalupe likelihood of extinction. Therefore, we threatened by pigs (Sus scrofa) and fescue include changes in the wildfire have retained an LPN of 2 for this goats (Capra hircus) that degrade and cycle and vegetation structure, species. destroy habitat, and by nonnative plants trampling from humans and pack that outcompete and displace it. Joinvillea ascendens ssp. ascendens animals, possible grazing, trail runoff, Landslides and hurricanes are a (Ohe)—The following summary is based fungal infection of seeds, small sizes potential threat to populations on Kauai. on information contained in our files. and isolation of populations, and Herbivory by pigs and goats is a likely No new information was provided in limited genetic diversity. A historically threat. This species is not represented in the petition we received on May 11, unprecedented period of exceptional an ex situ collection. Threats to this 2004. Joinvillea ascendens ssp. drought and high temperatures species are imminent because they are ascendens is an erect herb found in wet prevailed throughout the species’ range ongoing, and are of high magnitude, to mesic Metrosideros polymorpha- from October 2010 until November leading to a relatively high likelihood of Acacia koa (ohia-koa) lowland and 2011. The Service and the National Park extinction. Therefore, we have retained Service established a candidate montane forests on the Hawaiian Islands an LPN of 2 for this species. conservation agreement (CCA) in 2008 of Kauai, Oahu, Molokai, Maui, and Lepidium ostleri (Ostler’s to provide additional protection for the Hawaii. This subspecies is known from peppergrass)—The following summary Chisos Mountains population and to 44 widely scattered populations is based on information in our files and promote cooperative conservation collectively totaling approximately 200 the petition we received on July 30, efforts with U.S. and Mexican partners. individuals. Many of the populations, 2007. Ostler’s peppergrass is a long- The threats to Guadalupe fescue are of which are widely separated, include lived perennial herb in the mustard moderate magnitude and are not only one or two individuals. This family that grows in dense, cushion-like imminent due to the provisions of the subspecies is threatened by destruction tufts. Ostler’s peppergrass is a narrow CCA and other conservation efforts that or modification of habitat by pigs (Sus endemic restricted to soils derived from address threats from trampling, grazing, scrofa), goats (Capra hircus), and deer Ordovician limestone outcrops. The trail runoff, and genetic diversity. Thus, (Axis axis and Odocoileus hemionus), range of the species is less than 5 sq mi we maintained an LPN of 11 for this and by nonnative plants that (13 sq km), with only four known species. outcompete and displace native plants. populations. All four populations occur Gardenia remyi (Nanu)—The Herbivory by pigs, goats, deer, and rats exclusively on private lands in the following summary is based on (Rattus exulans, R. norvegicus, and R. southern San Francisco Mountains of information contained in our files. No rattus) is a likely threat to this species. Beaver County, Utah. Available new information was provided in the Landslides are a potential threat to population estimates are highly variable petition we received on May 11, 2004. populations on Kauai and Molokai. and inaccurate due largely to the limited Gardenia remyi is a tree found in mesic Seedlings have rarely been observed in access for surveys associated with to wet forests on the Hawaiian Islands the wild. Seeds germinate in cultivation, private lands. of Kauai, Molokai, Maui, and Hawaii. but most die soon thereafter. It is The primary threat to Ostler’s Gardenia remyi is known from 19 uncertain if the apparent low seedling peppergrass is habitat destruction from populations collectively totaling recruitment is typical of this subspecies, precious metal and gravel mining. between 85 and 87 individuals. This or if it is related to habitat disturbance. Mining for precious metals historically species is threatened by pigs (Sus Feral pigs have been fenced out of a few occurred within the vicinity of all four scrofa), goats (Capra hircus), and deer of the populations of this subspecies, populations. Three of the populations (Axis axis and Odocoileus hemionus), and nonnative plants have been reduced are currently in the immediate vicinity which degrade and destroy habitat and in those populations that are fenced. of active limestone quarries, but mining possibly forage upon the species, and by However, these threats are not is only currently occurring in the area nonnative plants that outcompete and controlled and are ongoing in the of one population. Ongoing mining in displace it. G. remyi is also threatened remaining, unfenced populations. This the species’ habitat has the potential to by landslides and reduced reproductive species is represented in ex situ extirpate one population in the near vigor on the island of Hawaii. This collections. The threats are imminent future. Ongoing exploration for precious species is represented in ex situ because they are ongoing and are of high metals and gravel indicate that mining collections. On Kauai, G. remyi magnitude because habitat degradation, will continue, but will take time for the individuals have been outplanted nonnative plants, and predation result mining operations to be put into place. within ungulate-proof exclosures in two in mortality and may severely affect the This will result in the loss and locations. Feral pigs have been fenced reproductive capacity of the majority of fragmentation of Ostler’s peppergrass out of the west Maui populations of G. populations of this species, leading to a populations over a longer time scale.

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Other threats to the species include Nothocestrum latifolium (1Aiea)—The the fenced areas. The threat from fire is nonnative species, vulnerability following summary is based on of a high magnitude and imminent associated with small population size, information contained in our files. No because no control measures have been climate change, and the overall new information was provided in the undertaken to address this threat that inadequacy of existing regulatory petition we received on May 11, 2004. could adversely affect most O. mechanisms. The threats that Ostler’s Nothocestrum latifolium is a small tree haleakalae population sites. The threats peppergrass faces are moderate in found in dry to mesic forests on the from feral pigs, goats, and cattle are magnitude, because, while serious and islands of Kauai, Oahu, Maui, Molokai, ongoing to the unfenced populations of occurring rangewide, the threats do not and Lanai, Hawaii. N. latifolium is O. haleakalae. The threat from collectively result in significant known from 17 declining populations nonnative plants is imminent and of a population declines on a short time collectively totaling fewer than 1,200 high magnitude to the wild populations scale. The threats are imminent because individuals. This species is threatened on both islands, because it is ongoing the species is currently facing them by feral pigs (Sus scrofa), goats (Capra and adversely affects the survival and across its entire range. Therefore, we hircus), and deer (Axis axis and reproductive capacity of the majority of have assigned Ostler’s peppergrass an Odocoileus hemionus) that degrade and the individuals of this species, leading LPN of 8. destroy habitat and may forage upon it; to a relatively high likelihood of Linum arenicola (Sand flax)—We by nonnative plants that compete for extinction. Therefore, we have retained continue to find that listing this species light and nutrients; and by decreased an LPN of 2 for this species. is warranted but precluded as of the reproductive viability through the loss Pinus albicaulis (Whitebark pine)— date of publication of this notice. of pollinators. This species is The following summary is based on However, we are working on a proposed represented in an ex situ collection. information in our files and in the listing determination that we expect to Ungulates have been fenced out of four petition received on December 9, 2008. publish prior to making the next annual areas where N. latifolium currently Pinus albicaulis is a hardy conifer found resubmitted petition 12-month finding. occurs, hundreds of N. latifolium at alpine tree line and subalpine In the course of preparing the proposed individuals have been outplanted in elevations in Washington, Oregon, listing determination, we are continuing fenced areas, and nonnative plants have Nevada, California, Idaho, Montana, and to monitor new information about this been reduced in some populations that Wyoming, and in British Columbia and species’ status so that we can make are fenced. However, these ongoing Alberta, Canada. In the United States, prompt use of our authority under conservation efforts for this species approximately 96 percent of land where section 4(b)(7) in the case of an benefit only a few of the known the species occurs is federally owned or emergency posing a significant risk to populations. The threats are not managed, primarily by the U.S. Forest the species. controlled and are ongoing in the Service. Pinus albicaulis is a slow- Myrsine fosbergii (Kolea)—The remaining unfenced populations. In growing, long-lived tree that often lives following summary is based on addition, little natural regeneration has for 500 and sometimes more than 1,000 information contained in our files. No been observed in this species. The years. It is considered a keystone, or new information was provided in the threats are imminent because they are foundation, species in western North petition we received on May 11, 2004. ongoing and of high magnitude, since America, where it increases biodiversity Myrsine fosbergii is a branched shrub or they are severe enough to affect the and contributes to critical ecosystem small tree found in lowland mesic and functions. continued existence of the species, wet forests, on watercourses or stream The primary threat to the species is leading to a relatively high likelihood of banks, on the islands of Kauai and from disease in the form of the extinction. Therefore, we have retained Oahu, Hawaii. This species is currently nonnative white pine blister rust and its known from 14 populations collectively an LPN of 2 for this species. interaction with other threats. Pinus totaling a little more than 100 Ochrosia haleakalae (Holei)—The albicaulis also is currently experiencing individuals. Myrsine fosbergii is following summary is based on significant mortality from predation by threatened by feral pigs (Sus scrofa) and information contained in our files. No the native mountain pine beetle. We goats (Capra hircus) that degrade and new information was provided in the also anticipate that continuing destroy habitat and may forage upon the petition we received on May 11, 2004. environmental effects resulting from plant, and by nonnative plants that Ochrosia haleakalae is a tree found in climate change will result in direct compete for light and nutrients. This dry to mesic forests, often on lava, on habitat loss for P. albicaulis. Models species is represented in an ex situ the islands of Hawaii and Maui, Hawaii. predict that suitable habitat for P. collection. Although there are plans to This species is currently known from 8 albicaulis will decline precipitously fence and remove ungulates from the populations collectively totaling within the next 100 years. Past and Helemano area of Oahu, which may between 64 and 76 individuals. ongoing fire suppression is also benefit this species, no conservation Ochrosia haleakalae is threatened by negatively affecting populations of P. measures have yet been taken to protect fire; by feral pigs (Sus scrofa), goats albicaulis through direct habitat loss. this species from nonnative herbivores. (Capra hircus), and cattle (Bos taurus) Additionally, environmental changes Feral pigs and goats are found that degrade and destroy habitat and resulting from changing climatic throughout the known range of M. may directly forage upon it; and, by conditions are acting alone and in fosbergii, as are nonnative plants. The nonnative plants that compete for light combination with the effects of fire threats from feral pigs, goats, and and nutrients. This species is suppression to increase the frequency nonnative plants are imminent and of represented in ex situ collections. Feral and severity of wildfires. Lastly, the high magnitude because because they pigs, goats, and cattle have been fenced existing regulatory mechanisms are are ongoing and they pose a severe out of one wild and one outplanted inadequate to address the threats threat throughout the limited range of population on private lands on the presented above. The threats that face P. this species leading to a relatively high island of Maui and one outplanted albicaulis are high in magnitude, likelihood of extinction. Therefore, we population in Hawaii Volcanoes because the major threats occur have retained an LPN of 2 for this National Park on the island of Hawaii. throughout all of the species’ range and species. Nonnative plants have been reduced in are having a major population-level

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effect on the species. The threats are result in direct mortality or significantly mule deer (Odocoileus hemionus), axis imminent, because rangewide disease, reduce reproductive capacity for the deer (Axis axis), and slugs (Limax predation, fire and fire suppression, and majority of the populations, leading to maximus, Milax gagates, and Vaginulus environmental effects of climate change a relatively high likelihood of plebeius); by habitat degradation and are affecting P. albicaulis currently and extinction. Therefore, we have retained destruction by feral ungulates; and by are expected to continue and likely an LPN of 3 for this plant variety. nonnative plants that compete for light intensify in the foreseeable future. Thus, Ranunculus hawaiensis (Makou)— and nutrients. This species is we have assigned P. albicaulis an LPN The following summary is based on represented in an ex situ collection. of 2. information contained in our files. No Feral pigs have been fenced out of one Platanthera integrilabia (Correll) Leur new information was provided in the Maui population of R. mauiensis, and (White fringeless orchid)—We continue petition we received on May 11, 2004. nonnative plants have been reduced in to find that listing this species is Ranunculus hawaiensis is an erect or the fenced area. One individual occurs warranted but precluded as of the date ascending perennial herb found in in the Kamakou Preserve on Molokai, of publication of this notice. However, mesic to wet forests dominated by managed by The Nature Conservancy. we are working on a proposed listing Metrosideros polymorpha (ohia) and However, ongoing conservation efforts determination that we expect to publish Acacia koa (koa) with scree substrate benefit only two populations. The prior to making the next annual (loose stones or rocky debris on a slope) threats are imminent and of high resubmitted petition 12-month finding. on the Hawaiian Islands of Maui and magnitude, since they are severe enough In the course of preparing the proposed Hawaii. This species is currently known to affect the continued existence of the listing rule, we are continuing to from 6 populations collectively totaling species, leading to a relatively high monitor new information about this 14 individuals on the island of Hawaii. likelihood of extinction. Therefore, we species’ status so that we can make On Maui, it was historically known have retained an LPN of 2 for this prompt use of our authority under from an area in east Maui, but species. section 4(b)(7) in the case of an individuals have not been seen at this Rorippa subumbellata (Tahoe yellow emergency posing a significant risk to location since 1995. Ranunculus cress)—The following summary is based the species. hawaiensis is threatened by direct on information contained in our files Pseudognaphalium (= Gnaphalium) predation by feral pigs (Sus scrofa), and the petition received on December sandwicensium var. molokaiense goats (Capra hircus), cattle (Bos taurus), 27, 2000. Rorippa subumbellata is a (Enaena)—The following summary is mouflon (Ovis musimon), feral sheep small, branching perennial herb known based on information contained in our (O. aries), and slugs (Limax maximus, only from the shores of Lake Tahoe in files. No new information was provided Milax gagates, and Vaginulus plebeius); California and Nevada. in the petition we received on May 11, by degradation and destruction of Data collected over the last 25 years 2004. Pseudognaphalium habitat by feral ungulates; and by generally indicate that species sandwicensium var. molokaiense is a nonnative plants that compete for light occurrence fluctuates yearly as a perennial herb found in strand and nutrients. This species is function of both lake level and the vegetation in dry consolidated dunes on represented in ex situ collections, and amount of exposed habitat. Records kept the islands of Molokai and Maui, three populations have been outplanted since 1900 show a preponderance of Hawaii. Historically, this variety was into protected exclosures; however, feral years with high lake levels that would also found on Oahu and Lanai. This ungulates and nonnative plants are not isolate and reduce R. subumbellata variety is known from five populations controlled in the remaining, unfenced occurrences at higher beach elevations. collectively totaling approximately 200 populations. In addition, the threat from From the standpoint of the species, less to 20,000 individuals (depending upon introduced slugs is of a high magnitude favorable peak years have occurred rainfall) in the Moomomi area on the because slugs occur throughout the almost twice as often as more favorable island of Molokai, and from 2 limited range of this species and no low-level years. Annual surveys are populations of a few individuals at effective measures have been conducted to determine population Waiehu dunes and at Puu Kahulianapa undertaken to control them or prevent numbers, site occupancy, and general on west Maui. Pseudognaphalium s. var. them from predating on the plants disturbance regime. At least within a molokaiense is threatened by feral goats which can result in death or reduction certain range, the data clearly show that (Capra hircus) and axis deer (Axis axis) in reproductive capacity. Overall, the more individuals are present when lake that degrade and destroy habitat and threats to the species from pigs, goats, levels are low and fewer when lake possibly browse upon it, and by cattle, mouflon, feral sheep, slugs, and levels are high. nonnative plants that compete for light nonnative plants are imminent and of Many Rorippa subumbellata sites are and nutrients. Potential threats also high magnitude. Therefore, we have intensively used for commercial and include collection for cultural use, and retained an LPN of 2 for this species. public purposes, and are subject to off-road vehicles that directly damage Ranunculus mauiensis (Makou)—The various activities such as erosion plants and degrade habitat. Weed following summary is based on control, marina developments, pier control is conducted for one population information contained in our files. No construction, and recreation. The U.S. on Molokai; however, no conservation new information was provided in the Forest Service, California Tahoe efforts have been initiated to date for the petition we received on May 11, 2004. Conservancy, and California Department other populations on Molokai or for the Ranunculus mauiensis is an erect to of Parks and Recreation have individuals on Maui. This species is weakly ascending perennial herb found management programs for R. represented in an ex situ collection. The in open sites in mesic to wet forests and subumbellata that include monitoring, ongoing threats from feral goats, axis along streams on the islands of Maui, fenced enclosures, and transplanting deer, nonnative plants, collection, and Kauai, and Molokai, Hawaii. This efforts when funds and staff are off-road vehicles are of a high species is currently known from 14 available. Public agencies (including the magnitude, because no control measures populations collectively totaling 198 Service), private landowners, and have been undertaken for the Maui individuals. Ranunculus mauiensis is environmental groups collaborated to population or for the four of the five threatened by direct predation by feral develop a Conservation Strategy Molokai populations, and the threats pigs (Sus scrofa), goats (Capra hircus), coupled with a Memorandum of

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Understanding–Conservation populations, leading to a relatively high trailing shrub found in coral rubble or Agreement. The Conservation Strategy, likelihood of extinction. Therefore, we sand in coastal sites. This species is completed in 2003, contains goals and have retained an LPN of 2 for this known from populations on Molokai objectives for recovery and survival and species. (approximately 300 individuals), the a research and monitoring agenda, and Sicyos macrophyllus (1Anunu)—We island of Hawaii (5 individuals), and the serves as the foundation for an adaptive continue to find that listing this species northwestern Hawaiian Islands (NWHI), management program. Because of the is warranted but precluded as of the Hawaii. The current populations in the continued commitments to conservation date of publication of this notice. NWHI are found on Kure (unknown demonstrated by regulatory and land However, we are working on a proposed number of individuals), Midway management agencies participating in listing determination that we expect to (approximately 260 individuals), Laysan the conservation strategy, the threats to publish prior to making the next annual (approximately 490 individuals), Pearl R. subumbellata from various land uses resubmitted petition 12-month finding. and Hermes (unknown number of have been reduced to a moderate In the course of preparing the proposed individuals), and Nihoa (8,000 to 15,000 magnitude. In high lake level years such listing determination, we are continuing individuals). On Molokai, S. nelsonii is as 2011 and 2013, however, recreational to monitor new information about this moderately threatened by ungulates use is concentrated within R. species’ status so that we can make which degrade and destroy habitat and subumbellata habitat, and we consider prompt use of our authority under which may eat individuals. On Molokai this threat in particular to be ongoing section 4(b)(7) in the case of an and the NWHI, this species is exposed and imminent. Therefore, we are emergency posing a significant risk to to threats from nonnative plants that maintaining an LPN of 8 for this species. the species. outcompete and displace it. Solanum Solanum conocarpum (marron Schiedea pubescens (Maolioli)—The nelsonii is exposed to threats by bacora)—The following summary is herbivory by a nonnative grasshopper following summary is based on based on information in our files and in information contained in our files. No (Schistocera nitens) in the NWHI. On the petition we received on November Kure, Midway, Laysan, and Pearl and new information was provided in the 21, 1996. Solanum conocarpum is a dry- petition we received on May 11, 2004. Hermes in the NWHI, tsunamis are also forest shrub in the island of St. John, a potential threat to S. nelsonii. This Schiedea pubescens is a reclining or U.S. Virgin Islands. Its current species is represented in ex situ weakly climbing vine found in diverse distribution includes eight localities in collections. Ungulate exclusion fences, mesic to wet forests on the Hawaiian the island of St. John, each ranging from routine fence monitoring and Islands of Maui, Molokai, and Hawaii. It 1 to 144 individuals. The species has maintenance, and weed control protect is presumed extirpated from Lanai. been reported to occur on dry, poor the population of S. nelsonii on Currently, this species is known from 8 soils. It can be locally abundant in Molokai. Limited weed control is populations collectively totaling exposed topography on sites disturbed conducted in the NWHI. However, the between 30 and 32 individuals on Maui, by erosion, areas that have received threats are ongoing and are not being from 4 populations collectively totaling moderate grazing, and around ridgelines controlled in the majority of sites, they between 21 and 22 individuals on as an understory component in diverse are therefore imminent. These threats Molokai, and from 1 population of 4 to woodland communities. A habitat are of moderate magnitude because of 6 individuals on the island of Hawaii. suitability model suggests that the vast the relatively large number of plants, Schiedea pubescens is threatened by majority of Solanum conocarpum and the fact that this species is found on feral pigs (Sus scrofa) and goats (Capra habitat is found in the lower elevation more than one island. Therefore, we hircus) that consume it and degrade and coastal scrub forest. Efforts have been have retained an LPN of 8 for this destroy habitat, and by nonnative plants conducted to propagate the species to species. that compete for light and nutrients. enhance natural populations, and Trifolium friscanum (Frisco clover)— Feral ungulates have been fenced out of planting of seedlings has been The following summary is based on the population of S. pubescens on the conducted in the island of St. John. information in our files and the petition island of Hawaii. Feral goats have been Solanum conocarpum is threatened we received on July 30, 2007. Frisco fenced out of a few of the west Maui by the lack of natural recruitment, clover is a narrow endemic perennial populations of S. pubescens. Nonnative absence of dispersers, fragmented herb found only in Utah, with five plants have been reduced in the distribution, lack of genetic variation, known populations restricted to populations that are fenced on Maui. climate change, and habitat destruction sparsely vegetated, pinion-juniper However, the threats are not controlled or modification by exotic mammal sagebrush communities and shallow, and are ongoing in the remaining species. These threats are evidenced by gravel soils derived from volcanic unfenced populations on Maui and the the reduced number of individuals, low gravels, Ordovician limestone, and four populations on Molokai. number of populations, and lack of dolomite outcrops. The majority (68 Additional fenced areas are planned for connectivity between populations. percent) of Frisco clover plants occur on the Hawaii Island population at Overall, the threats are of high private lands, with the remaining plants Pohakuloa Training Area. Nonnative magnitude because they are leading to found on Federal and State lands. feral ungulates and nonnative plants populations declines for a species that On the private and State lands, the will be controlled within these fenced already has low population numbers most significant threat to Frisco clover areas. Fire is a potential threat to the and fragmented distribution; the threats is habitat destruction from mining for Hawaii Island population. This species are also ongoing and therefore precious metals and gravel. Active is not represented in an ex situ imminent. Therefore, we assigned a LPN mining claims, recent prospecting, and collection. Due to the extremely low of 2 to Solanum conocarpum. an increasing demand for precious number of individuals of this species, Solanum nelsonii (popolo)—The metals and gravel indicate that mining the ongoing threats from goats and following summary is based on in Frisco clover habitats will increase in nonnative plants are imminent and of information contained in our files. No the foreseeable future, likely resulting in high magnitude. These threats cause new information was provided in the the loss of large numbers of plants. mortality and reduced reproductive petition we received on May 11, 2004. Other threats to Frisco clover include capacity for the majority of the Solanum nelsonii is a sprawling or nonnative, invasive species;

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vulnerability associated with small totaling approximately 20 individuals. populations of the grizzly bear (Ursus population size; and drought associated The Maui population has not been arctos horribilis), delta smelt with climate change. Existing regulatory observed since 1995. Huperzia (Hypomesus transpacificus), and mechanisms are inadequate to protect stemmermanniae is threatened by feral Sclerocactus brevispinus (Pariette the species from these threats. The pigs (Sus scrofa), goats (Capra hircus), cactus). Because these species are threats to Frisco clover are moderate in cattle (Bos taurus), and axis deer (Axis already listed under the ESA, they are magnitude because, while serious and axis) that degrade and destroy habitat, not candidates for listing and are not occurring rangewide, they are not acting and by nonnative plants that compete included in Table 1. However, this independently or cumulatively to have for light, space, and nutrients. Huperzia notice and associated species a highly significant negative impact on stemmermanniae is also threatened by assessment forms or 5-year review its survival or reproductive capacity. randomly occurring natural events due documents also constitute the findings For example, although mining for to its small population size. One for the resubmitted petitions to precious metals and gravel historically individual at Waikamoi Preserve may reclassify these species. Our updated occurred throughout Frisco clover’s benefit from fencing for axis deer and assessments for these species are range, and mining operations may pigs. This species is represented in ex provided below. We find that eventually expand into occupied situ collections. The threats from pigs, reclassification to endangered status for habitats, there are no active mines goats, cattle, axis deer, and nonnative one grizzly bear ecosystem population, within the immediate vicinity of any plants are imminent and of a high delta smelt, and Sclerocactus known population. The threats are magnitude because they are sufficiently brevispinus are all currently warranted imminent because the species is severe to adversely affect the species but precluded by work identified above currently facing them across its entire throughout its limited range, resulting (see Findings for Petitioned Candidate range. Therefore, we have assigned in direct mortality or significantly Species). We find that uplisting the Frisco clover an LPN of 8. reducing reproductive capacity and Selkirk ecosystem population and the leading to a relatively high likelihood of Ferns and Allies Cabinet-Yaak ecosystem population of extinction. Therefore, we have retained grizzly bear is no longer warranted; the Cyclosorus boydiae (no common an LPN of 2 for this species. species remains listed as threatened. name)—The following summary is Microlepia strigosa var. mauiensis One of the primary reasons that the based on information contained in our (Palapalai)—The following summary is work identified above is considered to files. No new information was provided based on information contained in our have higher priority is that the grizzly in the petition we received on May 11, files. No new information was provided bear population, delta smelt, and 2004. Cyclosorus boydiae is a small- to in the petition we received on May 11, Sclerocactus brevispinus are currently medium-sized fern found in mesic to 2004. Microlepia strigosa var. mauiensis listed as threatened, and therefore wet forests along stream banks on the is a terrestrial fern found in mesic-to- already receive certain protections Hawaiian Islands of Oahu and Maui. It wet forests. It is currently found on the under the ESA. We promulgated has been extirpated from the island of Hawaiian Islands of Maui, Oahu, and regulations extending take prohibitions Hawaii. Currently, C. boydiae is known Hawaii in 9 known populations for wildlife and plants under section 9 from seven populations collectively collectively totaling at least 50 to threatened species (50 CFR 17.31 and totaling approximately 400 individuals. individuals. M. s. var. mauiensis is 50 CFR 17.71, respectively). Prohibited This species is threatened by feral pigs threatened by feral pigs (Sus scrofa) that actions under section 9 for wildlife that degrade and destroy habitat and degrade and destroy habitat, and by include, but are not limited to, take (i.e., may eat this plant, and by nonnative nonnative plants that compete for light to harass, harm, pursue, hunt, shoot, plants that compete for light and and nutrients. Pigs have been fenced out wound, kill, trap, capture, or collect, or nutrients. Feral pigs have been fenced of some areas on east and west Maui, attempt to engage in such activity). For out of the largest population on Maui, Oahu, and on Hawaii, where M. s. var. plants, prohibited actions under section and nonnative plants have been reduced mauiensis currently occurs and 9 include removing or reducing to in the fenced area. No conservation nonnative plants have been reduced in possession any listed plant from an area efforts are under way to alleviate threats the fenced areas. However, the threats under Federal jurisdiction (50 CFR to the other two populations on Maui, are not controlled and are ongoing in 17.61). Other protections that apply to or the two populations on Oahu. This the remaining unfenced populations on species is represented in an ex situ Maui, Oahu, and Hawaii. Therefore, the these threatened species even before we collection. The threats are imminent threats from feral pigs and nonnative complete proposed and final because they are ongoing, and of plants are imminent. The threats are of reclassification rules include those moderate magnitude because pigs no a high magnitude because they are under section 7(a)(2) of the ESA, longer threaten the largest population sufficiently severe to adversely affect whereby Federal agencies must insure and nonnative plants have been the species throughout its range, that any action they authorize, fund, or reduced. Therefore, we have retained an resulting in direct mortality or carry out is not likely to jeopardize the LPN of 8 for this species. significantly reducing reproductive continued existence of any endangered Huperzia stemmermanniae capacity and leading to a relatively high or threatened species. (Waewaeiole)—The following summary likelihood of extinction. Therefore, we Grizzly bear (Ursus arctos is based on information contained in have retained an LPN of 3 for this plant horribilis)—North Cascades ecosystem our files. No new information was variety. population (Region 6)—Since 1990, we provided in the petition we received on have received and reviewed five May 11, 2004. Huperzia Petitions To Reclassify Species Already petitions requesting a change in status stemmermanniae is an epiphytic, Listed for the North Cascades grizzly bear pendant clubmoss found in mesic-to- We previously made warranted-but- population (55 FR 32103, August 7, wet Metrosideros polymorpha-Acacia precluded findings on five petitions 1990; 56 FR 33892, July 24, 1991; 57 FR koa (ohia-koa) forests on the Hawaiian seeking to reclassify threatened species 14372, April 20, 1992; 58 FR 43856, Islands of Maui and Hawaii. Only 3 to endangered status. The taxa involved August 18, 1993; 63 FR 30453, June 4, populations are known, collectively in the reclassification petitions are three 1998). In response to these petitions, we

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determined that grizzly bears in the extinction’’). This constitutes our not- 2001. Delta smelt abundance, as North Cascade ecosystem warrant a warranted finding on the six uplisting indicated by the Fall Mid-Water Trawl change to endangered status. In 2014, petitions we received. survey, was exceptionally low between we continue to find that reclassifying Grizzly bear (Ursus arctos 2004 and 2010, increased during the wet this population as endangered is horribilis)—Selkirk ecosystem year of 2011, and decreased again to a warranted but precluded and we population (Region 6)—Since 1992, we very a low level in 2012. continue to assign a LPN of 3 for the have received and reviewed four The primary threats to the delta smelt uplisting of the North Cascades petitions requesting a change in status are direct entrainments by State and population based on high magnitude for individual grizzly bear populations Federal water export facilities, summer threats that are ongoing, thus imminent. (57 FR 14372, April 20, 1992; 58 FR and fall increases in salinity and water However, higher priority listing actions, 8250, February 12, 1993; 58 FR 43856, clarity resulting from decreases in including court-approved settlements, August 18, 1993; 64 FR 26725, May 17, freshwater flow into the estuary, and court-ordered and statutory deadlines 1999). In response to these petitions, we effects from introduced species. for petition findings and listing previously determined that grizzly bears Ammonia in the form of ammonium determinations, emergency listing within the Selkirk ecosystem warranted may also be a significant threat to the determinations, and responses to a change to endangered status but survival of the delta smelt. Additional litigation, continue to preclude reclassification was precluded by higher potential threats are predation by reclassifying grizzly bears in this priority listing actions. However, striped and largemouth bass and inland ecosystem. Furthermore, proposed rules improvements to habitat and the silversides, entrainment into power to reclassify threatened species to institutionalization of those plants, contaminants, and small endangered are a lower priority than improvements in National Forest Land population size. Existing regulatory listing currently unprotected species Management Plans, as well as new mechanisms have not proven adequate (i.e., candidate species), since species information about population size have to halt the decline of delta smelt since currently listed as threatened are significantly reduced threats to this the time of listing as a threatened already afforded the protection of the population from habitat destruction, species. ESA and the implementing regulations. and improved the adequacy of As a result of our analysis of the best We continue to monitor this population regulatory mechanisms. Population available scientific and commercial and will change its status or implement estimates indicate that the population is data, we have retained the an emergency uplisting if necessary. approaching recovery goals of 90 bears, recommendation of uplisting the delta and levels of human-caused mortality smelt to an endangered species with a Grizzly bear (Ursus arctos have been low in recent years. LPN of 2, based on high magnitude and horribilis)—Cabinet-Yaak ecosystem Additionally, food storage orders have imminent threats. The magnitude of the population (Region 6)—Since 1992, we been implemented and some movement threats is high, because the threats occur have received and reviewed six between the Selkirk Mountains and rangewide and result in mortality at a petitions requesting a change in status other populations in Canada has been population level, or significantly reduce for the Cabinet-Yaak grizzly bear documented. However, until there are the reproductive capacity of the species. population (57 FR 14372, April 20, significant improvements to regulatory Threats are imminent because they are 1992; 58 FR 8250, February 12, 1993; 58 mechanisms in Canada, full ongoing and, in some cases (e.g., FR 43856, August 18, 1993; 58 FR implementation of motorized access nonnative species), considered 43856, August 18, 1993; 63 FR 30453, management by the U.S. Forest Service, irreversible. June 4, 1998; 64 FR 26725, May 17, and improved population connectivity, Sclerocactus brevispinus (Pariette 1999). In response to these petitions, we we remain cautious in our cactus) (Region 6) (see 72 FR 53211, previously determined that grizzly bears interpretation. We conclude that the September 18, 2007, and the species in the Cabinet-Yaak ecosystem Selkirk ecosystem population continues assessment form (see ADDRESSES) for warranted a change to endangered to face several threats and will retain additional information on why status. However, for several years, this this populations’s threatened status, but reclassification to endangered is population’s status has been improving. we no longer find that the population is warranted but precluded)—Sclerocactus The population trend has now changed warranted for uplisting to endangered brevispinus is restricted to clay from declining to stable. The U.S. Forest status (i.e., ‘‘on the brink of extinction’’). badlands of the Uinta geologic Service has established regulatory This constitutes our not-warranted formation in the Uinta Basin of mechanisms for motorized access finding on the four uplisting petitions northeastern Utah. The species is management and attractant storage, and we received. restricted to one population with an researchers have documented some Delta smelt (Hypomesus overall range of approximately 16 mi by movement between the Cabinet-Yaak transpacificus) (Region 8) (see 75 FR 5 mi in extent. The species’ entire and other populations in Canada. 17667, April 7, 2010, for additional population is within a developed and Together, these improvements have information on why reclassification to expanding oil and gas field. The reduced the threats to this population. endangered is warranted but location of the species’ habitat exposes Until the Record of Decision for precluded)—The following summary is it to destruction from road, pipeline, motorized access management is more based on information contained in our and well-site construction in connection fully implemented and we have several files. In April, 2010 we completed a 12- with oil and gas development. The more years of a positive population month finding for delta smelt in which species may be collected as a specimen trend, we remain cautious in our we determined that a change in status plant for horticultural use. Recreational interpretation. We conclude that the from threatened to endangered was off-road vehicle use and livestock Cabinet-Yaak ecosystem population warranted, although precluded by other trampling are additional potential continues to face several threats, and high priority listings. The primary threats. The species is currently retain this populations’s threatened rationale for reclassifying delta smelt federally listed as threatened by its status, but we no longer find that the from threatened to endangered was the previous inclusion within the species population is warranted for uplisting to significant declines in delta smelt Sclerocactus glaucus. The threats are of endangered status (i.e., ‘‘on the brink of abundance that have occurred since a high magnitude because any one of the

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threats has the potential to severely status of each species according to the territories. Many species no longer affect the survival of this species, a following codes: occur in all of the areas listed. narrow endemic with a highly limited PE—Species proposed for listing as Species in Table 2 of this notice are range and distribution. Threats are endangered. Proposed species are those we included either as proposed ongoing and, therefore, are imminent. those species for which we have species or as candidates in the previous Thus, we assigned an LPN of 2 to this published a proposed rule to list as CNOR (published November 22, 2013, at species for uplisting. endangered or threatened in the 78 FR 70104) that are no longer Current Notice of Review Federal Register. This category does proposed species or candidates for not include species for which we have listing. Since November 22, 2013, we We gather data on plants and animals withdrawn or finalized the proposed listed 33 species, withdrew 3 species native to the United States that appear rule. from proposed status, and removed 13 to merit consideration for addition to PT—Species proposed for listing as species from the candidate list. The first the Lists of Endangered and Threatened threatened. column indicates the present status of Wildlife and Plants (Lists). This notice PSAT—Species proposed for listing as each species, using the following codes identifies those species that we threatened due to similarity of (not all of these codes may have been currently regard as candidates for appearance. used in this CNOR): addition to the Lists. These candidates C—Candidates: Species for which we E—Species we listed as endangered. include species and subspecies of fish, have on file sufficient information on T—Species we listed as threatened. wildlife, or plants, and DPSs of biological vulnerability and threats to Rc—Species we removed from the vertebrate animals. This compilation support proposals to list them as candidate list because currently relies on information from status endangered or threatened. Issuance of available information does not surveys conducted for candidate proposed rules for these species is support a proposed listing. assessment and on information from precluded at present by other higher Rp—Species we removed from because State Natural Heritage Programs, other priority listing actions. This category we have withdrawn the proposed State and Federal agencies, includes species for which we made listing. knowledgeable scientists, public and a 12-month warranted-but-precluded private natural resource interests, and finding on a petition to list. We made The second column indicates why the comments received in response to new findings on all petitions for species is no longer a candidate or previous notices of review. which we previously made proposed species using the following Tables 1 and 2 list animals arranged ‘‘warranted-but-precluded’’ findings. codes (not all of these codes may have alphabetically by common names under We identify the species for which we been used in this CNOR): the major group headings, and list made a continued warranted-but- A—Species that are more abundant or plants alphabetically by names of precluded finding on a resubmitted widespread than previously believed genera, species, and relevant subspecies petition by the code ‘‘C*’’ in the and species that are not subject to the and varieties. Animals are grouped by category column (see the Findings for degree of threats sufficient that the class or order. Plants are subdivided Petitioned Candidate Species section species is a candidate for listing (for into two groups: (1) Flowering plants for additional information). reasons other than that conservation and (2) ferns and their allies. Useful The ‘‘Priority’’ column indicates the efforts have removed or reduced the synonyms and subgeneric scientific LPN for each candidate species, which threats to the species). names appear in parentheses with the we use to determine the most F—Species whose range no longer synonyms preceded by an ‘‘equals’’ appropriate use of our available includes a U.S. territory. sign. Several species that have not yet resources. The lowest numbers have the I—Species for which we have been formally described in the scientific highest priority. We assign LPNs based insufficient information on biological literature are included; such species are on the immediacy and magnitude of vulnerability and threats to support identified by a generic or specific name threats, as well as on taxonomic status. issuance of a proposed rule to list. (in italics), followed by ‘‘sp.’’ or ‘‘ssp.’’ We published a complete description of L—Species we added to the Lists of We incorporate standardized common our listing priority system in the Endangered and Threatened Wildlife names in these notices as they become Federal Register (48 FR 43098, and Plants. available. We sort plants by scientific September 21, 1983). M—Species we mistakenly included as name due to the inconsistencies in The third column, ‘‘Lead Region,’’ common names, the inclusion of candidates or proposed species in the identifies the Regional Office to which last notice of review. vernacular and composite subspecific you should direct information, N—Species that are not listable entities names, and the fact that many plants comments, or questions (see addresses based on the ESA’s definition of still lack a standardized common name. under Request for Information at the ‘‘species’’ and current taxonomic Table 1 lists all candidate species, end of the SUPPLEMENTARY INFORMATION understanding. plus species currently proposed for section). listing under the ESA. We emphasize Following the scientific name (fourth U—Species that are not subject to the that in this notice we are not proposing column) and the family designation degree of threats sufficient to warrant to list any of the candidate species; (fifth column) is the common name issuance of a proposed listing and rather, we will develop and publish (sixth column). The seventh column therefore are not candidates for proposed listing rules for these species provides the known historical range for listing, due, in part or totally, to in the future. We encourage State the species or vertebrate population (for conservation efforts that remove or agencies, other Federal agencies, and vertebrate populations, this is the reduce the threats to the species. other parties to give consideration to historical range for the entire species or X—Species we believe to be extinct. these species in environmental subspecies and not just the historical The columns describing lead region, planning. range for the distinct population scientific name, family, common name, In Table 1, the ‘‘category’’ column on segment), indicated by postal code and historical range include information the left side of the table identifies the abbreviations for States and U.S. as previously described for Table 1.

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Request for Information Director (TE), U.S. Fish and Wildlife Suite W2606, Sacramento, CA 95825 We request you submit any further Service, 500 Gold Avenue SW., Room (916/414–6464). information on the species named in 4012, Albuquerque, NM 87102 (505/ 248–6920). We will provide information received this notice as soon as possible or in response to the previous CNOR to the whenever it becomes available. We are Region 3. Illinois, Indiana, Iowa, Michigan, Minnesota, Missouri, Ohio, Region having lead responsibility for particularly interested in any each candidate species mentioned in the information: and Wisconsin. Regional Director (TE), U.S. Fish and Wildlife Service, submission. We will likewise consider (1) Indicating that we should add a all information provided in response to species to the list of candidate species; 5600 American Blvd. West, Suite 990, (2) Indicating that we should remove Bloomington, MN 55437–1458 (612/ this CNOR in deciding whether to a species from candidate status; 713–5334). propose species for listing and when to (3) Recommending areas that we Region 4. Alabama, Arkansas, Florida, undertake necessary listing actions should designate as critical habitat for a Georgia, Kentucky, Louisiana, (including whether emergency listing species, or indicating that designation of Mississippi, North Carolina, South under section 4(b)(7) of the ESA is critical habitat would not be prudent for Carolina, Tennessee, Puerto Rico, and appropriate). Information and comments a species; the U.S. Virgin Islands. Regional we receive will become part of the (4) Documenting threats to any of the Director (TE), U.S. Fish and Wildlife administrative record for the species, included species; Service, 1875 Century Boulevard, which we maintain at the appropriate (5) Describing the immediacy or Suite 200, Atlanta, GA 30345 (404/ Regional Office. magnitude of threats facing candidate 679–4156). species; Region 5. Connecticut, Delaware, Public Availability of Comments District of Columbia, Maine, (6) Pointing out taxonomic or Before including your address, phone nomenclature changes for any of the Maryland, Massachusetts, New number, email address, or other species; Hampshire, New Jersey, New York, personal identifying information in your (7) Suggesting appropriate common Pennsylvania, Rhode Island, Vermont, names; and Virginia, and West Virginia. Regional submission, be advised that your entire (8) Noting any mistakes, such as Director (TE), U.S. Fish and Wildlife submission—including your personal errors in the indicated historical ranges. Service, 300 Westgate Center Drive, identifying information—may be made Submit information, materials, or Hadley, MA 01035–9589 (413/253– publicly available at any time. Although comments regarding a particular species 8615). you can ask us in your submission to to the Regional Director of the Region Region 6. Colorado, Kansas, Montana, withhold from public review your identified as having the lead Nebraska, North Dakota, South personal identifying information, we responsibility for that species. The Dakota, Utah, and Wyoming. Regional cannot guarantee that we will be able to regional addresses follow: Director (TE), U.S. Fish and Wildlife do so. Region 1. Hawaii, Idaho, Oregon, Service, P.O. Box 25486, Denver Authority Washington, American Samoa, Guam, Federal Center, Denver, CO 80225– and Commonwealth of the Northern 0486 (303/236–7400). This notice is published under the Mariana Islands. Regional Director Region 7. Alaska. Regional Director authority of the Endangered Species Act (TE), U.S. Fish and Wildlife Service, (TE), U.S. Fish and Wildlife Service, of 1973, as amended (16 U.S.C. 1531 et Eastside Federal Complex, 911 NE. 1011 East Tudor Road, Anchorage, AK seq.). 11th Avenue, Portland, OR 97232– 99503–6199 (907/786–3505). 4181 (503/231–6158). Region 8. California and Nevada. Dated: November 18, 2014. Region 2. Arizona, New Mexico, Regional Director (TE), U.S. Fish and David Cottingham, Oklahoma, and Texas. Regional Wildlife Service, 2800 Cottage Way, Acting Director, Fish and Wildlife Service.

TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS) [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

MAMMALS

PE ...... R3 ...... Myotis septentrionalis ...... Bat, northern long-eared U.S.A. (AL, AR, CT, DE, DC, FL, GA, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MO, MT, NE, NH, NJ, NY, NC, ND, OH, OK, PA, RI, SC, SD, TN, VT, VA, WV, WI, WY); Canada (AB, BC, LB, MB, NB, NF, NS, NT, ON, PE, QC, SK, YT). PE ...... 3 ...... R1 ...... Emballonura Emballonuridae ...... Bat, Pacific sheath-tailed U.S.A. (GU, CNMI). semicaudata rotensis. (Mariana Islands sub- species). C * ...... 3 ...... R1 ...... Emballonura Emballonuridae ...... Bat, Pacific sheath-tailed U.S.A. (AS), Fiji, Inde- semicaudata (American Samoa pendent Samoa, semicaudata. DPS). Tonga, Vanuatu.

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TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS)—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

C * ...... 6 ...... R2 ...... Tamias minimus Sciuridae ...... Chipmunk, Pen˜asco U.S.A. (NM). atristriatus. least. C * ...... 2 ...... R5 ...... Sylvilagus transitionalis .. Leporidae ...... Cottontail, New England U.S.A. (CT, MA, ME, NH, NY, RI, VT). PT ...... 6 ...... R8 ...... Martes pennanti ...... Mustelidae ...... Fisher (west coast DPS) U.S.A. (CA, CT, IA, ID, IL, IN, KY, MA, MD, ME, MI, MN, MT, ND, NH, NJ, NY, OH, OR, PA, RI, TN, UT, VA, VT, WA, WI, WV, WY), Canada. C * ...... 8 ...... R1 ...... Urocitellus endemicus .... Sciuridae ...... Squirrel, Southern Idaho U.S.A. (ID). ground. C * ...... 5 ...... R1 ...... Urocitellus washingtoni .. Sciuridae ...... Squirrel, Washington U.S.A. (WA, OR). ground. C * ...... 9 ...... R1 ...... Arborimus longicaudus .. Cricetidae ...... Vole, Red (north Oregon U.S.A. (OR). coast DPS). C * ...... 9 ...... R7 ...... Odobenus rosmarus Odobenidae ...... Walrus, Pacific ...... U.S.A. (AK), Russian divergens. Federation (Kamchatka and Chukotka). PE ...... R2 ...... Canis lupus baileyi ...... Canidae ...... Wolf, Mexican gray ...... U.S.A. (AZ, NM).

BIRDS

C * ...... 3 ...... R1 ...... Porzana tabuensis ...... Rallidae ...... Crake, spotless (Amer- U.S.A. (AS), Australia, ican Samoa DPS). Fiji, Independent Samoa, Marquesas, Philippines, Society Is- lands, Tonga. C * ...... 9 ...... R1 ...... Gallicolumba stairi ...... Columbidae ...... Ground-dove, friendly U.S.A. (AS), Inde- (American Samoa pendent Samoa. DPS). PT ...... 3 ...... R5 ...... Calidris canutus rufa ...... Scolopacidae ...... Knot, red ...... U.S.A. (Atlantic coast), Canada, South Amer- ica. C ...... 2 ...... R1 ...... Gymnomyza samoensis Meliphagidae ...... Ma’oma’o ...... U.S.A. (AS), Inde- pendent Samoa. C * ...... 5 ...... R8 ...... Synthliboramphus Alcidae ...... Murrelet, Xantus’s ...... U.S.A. (CA), Mexico. hypoleucus. C * ...... 2 ...... R2 ...... Amazona viridigenalis .... Psittacidae ...... Parrot, red-crowned ...... U.S.A. (TX), Mexico. C * ...... 8 ...... R6 ...... Anthus spragueii ...... Motacillidae ...... Pipit, Sprague’s ...... U.S.A. (AR, AZ, CO, KS, LA, MN, MS, MT, ND, NE, NM, OK, SD, TX), Canada, Mexico. C * ...... 8 ...... R6 ...... Centrocercus Phasianidae ...... Sage-grouse, greater ..... U.S.A. (AZ, CA, CO, ID, urophasianus. MT, ND, NE, NV, OR, SD, UT, WA, WY), Canada (AB, BC, SK). PT ...... 3 ...... R8 ...... Centrocercus Phasianidae ...... Sage-grouse, greater U.S.A. (AZ, CA, CO, ID, urophasianus. (Bi-State DPS). MT, ND, NE, NV, OR, SD, UT, WA, WY), Canada (AB, BC, SK). C * ...... 6 ...... R1 ...... Centrocercus Phasianidae ...... Sage-grouse, greater U.S.A. (AZ, CA, CO, ID, urophasianus. (Columbia Basin DPS). MT, ND, NE, NV, OR, SD, UT, WA, WY), Canada (AB, BC, SK). PE ...... 2 ...... R6 ...... Centrocercus minimus ... Phasianidae ...... Sage-grouse, Gunnison U.S.A. (AZ, CO, NM, UT). C * ...... 3 ...... R1 ...... Oceanodroma castro ..... Hydrobatidae ...... Storm-petrel, band- U.S.A. (HI), Atlantic rumped (Hawaii DPS). Ocean, Ecuador (Ga- lapagos Islands), Japan. C * ...... 11 ...... R4 ...... Dendroica angelae ...... Emberizidae ...... Warbler, elfin-woods ...... U.S.A. (PR).

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TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS)—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

REPTILES

C * ...... 8 ...... R3 ...... Sistrurus catenatus ...... Viperidae ...... Massasauga U.S.A. (IA, IL, IN, MI, (=rattlesnake), eastern. MN, MO, NY, OH, PA, WI), Canada. PE ...... R1 ...... Emoia slevini ...... Scincidae ...... Skink, Slevin’s (Guali’ek U.S.A. (Guam, Mariana Halom Tano). Islands). PT ...... 3 ...... R4 ...... Pituophis melanoleucus Colubridae ...... Snake, black pine ...... U.S.A. (AL, LA, MS). lodingi. C * ...... 5 ...... R4 ...... Pituophis ruthveni ...... Colubridae ...... Snake, Louisiana pine ... U.S.A. (LA, TX). C * ...... 5 ...... R2 ...... Gopherus morafkai ...... Testudinidae ...... Tortoise, Sonoran desert U.S.A. (AZ, CA, NV, UT). C * ...... 8 ...... R4 ...... Gopherus polyphemus ... Testudinidae ...... Tortoise, gopher (east- U.S.A. (AL, FL, GA, LA, ern population). MS, SC). C * ...... 6 ...... R2 ...... Kinosternon sonoriense Kinosternidae ...... Turtle, Sonoyta mud ...... U.S.A. (AZ), Mexico. longifemorale.

AMPHIBIANS

C * ...... 9 ...... R8 ...... Rana luteiventris ...... Ranidae ...... Frog, Columbia spotted U.S.A. (AK, ID, MT, NV, (Great Basin DPS). OR, UT, WA, WY), Canada (BC). C * ...... 8 ...... R8 ...... Lithobates onca ...... Ranidae ...... Frog, relict leopard ...... U.S.A. (AZ, NV, UT). C * ...... 8 ...... R4 ...... Notophthalmus Salamandridae ...... Newt, striped ...... U.S.A. (FL, GA). perstriatus. C * ...... 8 ...... R4 ...... Gyrinophilus gulolineatus Plethodontidae ...... Salamander, Berry Cave U.S.A. (TN). C ...... 3 ...... R2 ...... Hyla wrightorum ...... Hylidae ...... Treefrog, Arizona U.S.A. (AZ), Mexico (So- (Huachuca/Canelo nora). DPS). C * ...... 2 ...... R4 ...... Necturus alabamensis ... Proteidae ...... Waterdog, black warrior U.S.A. (AL). (=Sipsey Fork).

FISHES

C * ...... 8 ...... R2 ...... Gila nigra ...... Cyprinidae ...... Chub, headwater ...... U.S.A. (AZ, NM). C * ...... 9 ...... R2 ...... Gila robusta ...... Cyprinidae ...... Chub, roundtail (Lower U.S.A. (AZ, CO, NM, Colorado River Basin UT, WY). DPS). C * ...... 11 ...... R6 ...... Etheostoma cragini ...... Percidae ...... Darter, Arkansas ...... U.S.A. (AR, CO, KS, MO, OK). C ...... 8 ...... R4 ...... Etheostoma sagitta ...... Percidae ...... Darter, Cumberland U.S.A. (KY, TN). arrow. PE ...... 2 ...... R5 ...... Crystallaria cincotta ...... Percidae ...... Darter, diamond ...... U.S.A. (KY, OH, TN, WV). C ...... 2 ...... R4 ...... Etheostoma spilotum ..... Percidae ...... Darter, Kentucky arrow .. U.S.A. (KY). C * ...... 8 ...... R4 ...... Percina aurora ...... Percidae ...... Darter, Pearl ...... U.S.A. (LA, MS). C * ...... 5 ...... R4 ...... Moxostoma sp ...... Catostomidae ...... Redhorse, sicklefin ...... U.S.A. (GA, NC, TN). C * ...... 3 ...... R8 ...... Spirinchus thaleichthys .. Osmeridae ...... Smelt, longfin (San Fran- U.S.A. (AK, CA, OR, cisco bay-delta DPS). WA), Canada. PSAT ..... N/A ...... R1 ...... Salvelinus malma ...... Salmonidae ...... Trout, Dolly Varden ...... U.S.A. (AK, WA), Can- ada, East Asia.

CLAMS

C * ...... 2 ...... R2 ...... Lampsilis bracteata ...... Unionidae ...... Fatmucket, Texas ...... U.S.A. (TX). C * ...... 2 ...... R2 ...... Truncilla macrodon ...... Unionidae ...... Fawnsfoot, Texas ...... U.S.A. (TX). C * ...... 8 ...... R2 ...... Popenaias popei ...... Unionidae ...... Hornshell, Texas ...... U.S.A. (NM, TX), Mex- ico. C * ...... 8 ...... R2 ...... Quadrula aurea ...... Unionidae ...... Orb, golden ...... U.S.A. (TX). C * ...... 8 ...... R2 ...... Quadrula houstonensis .. Unionidae ...... Pimpleback, smooth ...... U.S.A. (TX). C * ...... 2 ...... R2 ...... Quadrula petrina ...... Unionidae ...... Pimpleback, Texas ...... U.S.A. (TX).

SNAILS

C * ...... 8 ...... R4 ...... Elimia melanoides ...... Pleuroceridae ...... Mudalia, black ...... U.S.A. (AL). C * ...... 2 ...... R4 ...... Planorbella magnifica .... Planorbidae ...... Ramshorn, magnificent .. U.S.A. (NC). C * ...... 2 ...... R1 ...... Ostodes strigatus ...... Potaridae ...... Sisi snail ...... U.S.A. (AS). PE ...... 2 ...... R1 ...... Samoana fragilis ...... Partulidae ...... Snail, fragile tree ...... U.S.A. (GU, MP). PE ...... 2 ...... R1 ...... Partula radiolata ...... Partulidae ...... Snail, Guam tree ...... U.S.A. (GU).

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TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS)—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

PE ...... 2 ...... R1 ...... Partula gibba ...... Partulidae ...... Snail, Humped tree ...... U.S.A. (GU, MP). PE ...... 2 ...... R1 ...... Partula langfordi ...... Partulidae ...... Snail, Langford’s tree ..... U.S.A. (MP). C * ...... 2 ...... R1 ...... Eua zebrina ...... Partulidae ...... Snail, Tutuila tree ...... U.S.A. (AS). C * ...... 11 ...... R2 ...... Pyrgulopsis thompsoni ... Hydrobiidae ...... Springsnail, Huachuca ... U.S.A. (AZ), Mexico. C * ...... 11 ...... R2 ...... Pyrgulopsis morrisoni .... Hydrobiidae ...... Springsnail, Page ...... U.S.A. (AZ).

INSECTS

C * ...... 2 ...... R1 ...... Hylaeus anthracinus ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus assimulans ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus facilis ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus hilaris ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus kuakea ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus longiceps ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 2 ...... R1 ...... Hylaeus mana ...... Colletidae ...... Bee, Hawaiian yellow- U.S.A. (HI). faced. C * ...... 5 ...... R8 ...... Hermelycaena [Lycaena] Lycaenidae ...... Butterfly, Hermes copper U.S.A. (CA). hermes. PE ...... 3 ...... R1 ...... Hypolimnas octucula Nymphalidae ...... Butterfly, Mariana eight- U.S.A. (GU, MP). mariannensis. spot. PE ...... 2 ...... R1 ...... Vagrans egistina ...... Nymphalidae ...... Butterfly, Mariana wan- U.S.A. (GU, MP). dering. C * ...... 2 ...... R4 ...... Atlantea tulita ...... Nymphalidae ...... Butterfly, Puerto Rican U.S.A. (PR). harlequin. C * ...... 5 ...... R4 ...... Glyphopsyche Limnephilidae ...... Caddisfly, Sequatchie .... U.S.A. (TN). sequatchie. C ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Baker Sta- U.S.A. (TN). insularis. tion (=insular). C * ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Clifton ...... U.S.A. (KY). caecus. C * ...... 11 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Coleman ... U.S.A. (TN). colemanensis. C ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Fowler’s .... U.S.A. (TN). fowlerae. C * ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, icebox ...... U.S.A. (KY). frigidus. C ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Indian U.S.A. (TN). tiresias. Grave Point (= Sooth- sayer). C * ...... 5 ...... R4 ...... Pseudanophthalmus in- Carabidae ...... Cave beetle, inquirer ..... U.S.A. (TN). quisitor. C * ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Louisville ... U.S.A. (KY). troglodytes. C ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Noblett’s ... U.S.A. (TN). paulus. C * ...... 5 ...... R4 ...... Pseudanophthalmus Carabidae ...... Cave beetle, Tatum ...... U.S.A. (KY). parvus. C * ...... 8 ...... R1 ...... Megalagrion Coenagrionidae ...... Damselfly, orangeblack U.S.A. (HI). xanthomelas. Hawaiian. PE ...... R1 ...... Ischnura luta ...... Coenagrionidae ...... Damselfly, Rota blue ..... U.S.A. (Mariana Islands). C ...... 2 ...... R8 ...... Ambrysus funebris ...... Naucoridae ...... Naucorid bug (=Furnace U.S.A. (CA). Creek), Nevares Spring. C * ...... 8 ...... R3 ...... Papaipema eryngii ...... Noctuidae ...... Moth, rattlesnake-master U.S.A. (AR, IL, KY, NC, borer. OK). C * ...... 11 ...... R2 ...... Heterelmis stephani ...... Elmidae ...... Riffle beetle, Stephan’s .. U.S.A. (AZ). PT ...... 8 ...... R3 ...... Hesperia dacotae ...... Hesperiidae ...... Skipper, Dakota ...... U.S.A. (MN, IA, SD, ND, IL), Canada. PE ...... 2 ...... R3 ...... Oarisma poweshiek ...... Hesperiidae ...... Skipperling, Poweshiek .. U.S.A. (IA, IL, IN, MI, MN, ND, SD, WI), Canada (MB). C * ...... 5 ...... R6 ...... Capnia arapahoe ...... Capniidae ...... Snowfly, Arapahoe ...... U.S.A. (CO).

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TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS)—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

C * ...... 5 ...... R6 ...... Lednia tumana ...... Nemouridae ...... Stonefly, meltwater U.S.A. (MT). lednian. C * ...... 5 ...... R4 ...... Cicindela highlandensis Cicindelidae ...... Tiger beetle, highlands .. U.S.A. (FL).

CRUSTACEANS

C ...... 8 ...... R5 ...... Stygobromus kenki ...... Crangonyctidae ...... Amphipod, Kenk’s ...... U.S.A. (DC). C * ...... 5 ...... R1 ...... Metabetaeus lohena ...... Alpheidae ...... Shrimp, anchialine pool U.S.A. (HI). C * ...... 5 ...... R1 ...... Palaemonella burnsi ...... Palaemonidae ...... Shrimp, anchialine pool U.S.A. (HI). C * ...... 5 ...... R1 ...... Procaris hawaiana ...... Procarididae ...... Shrimp, anchialine pool U.S.A. (HI).

FLOWERING PLANTS

C * ...... 11 ...... R8 ...... Abronia alpina ...... Nyctaginaceae ...... Sand-verbena, U.S.A. (CA). Ramshaw Meadows. C * ...... 11 ...... R4 ...... Argythamnia blodgettii ... Euphorbiaceae ...... Silverbush, Blodgett’s .... U.S.A. (FL). C * ...... 3 ...... R1 ...... Artemisia borealis var. Asteraceae ...... Wormwood, northern ..... U.S.A. (OR, WA). wormskioldii. C * ...... 2 ...... R6 ...... Astragalus anserinus ..... Fabaceae ...... Milkvetch, Goose Creek U.S.A. (ID, NV, UT). C * ...... 8 ...... R6 ...... Astragalus microcymbus Fabaceae ...... Milkvetch, skiff ...... U.S.A. (CO). C * ...... 8 ...... R6 ...... Astragalus schmolliae .... Fabaceae ...... Milkvetch, Schmoll ...... U.S.A. (CO). C * ...... 11 ...... R6 ...... Astragalus tortipes ...... Fabaceae ...... Milkvetch, Sleeping Ute U.S.A. (CO). C * ...... 8 ...... R6 ...... Boechera (Arabis) pusilla Brassicaceae ...... Rockcress, Fremont U.S.A. (WY). County or small. PE ...... R1 ...... Bulbophyllum guamense Orchidaceae ...... Cebello halumtano ...... U.S.A. (Guam, Mariana Islands). C * ...... 2 ...... R1 ...... Calamagrostis expansa Poaceae ...... Reedgrass, Maui ...... U.S.A. (HI). C * ...... 11 ...... R8 ...... Calochortus persistens .. Liliaceae ...... Mariposa lily, Siskiyou ... U.S.A. (CA, OR). C * ...... 9 ...... R4 ...... Chamaecrista lineata Fabaceae ...... Pea, Big Pine partridge U.S.A. (FL). var. keyensis. C * ...... 12 ...... R4 ...... Chamaesyce deltoidea Euphorbiaceae ...... Sandmat, pineland ...... U.S.A. (FL). pinetorum. C * ...... 9 ...... R4 ...... Chamaesyce deltoidea Euphorbiaceae ...... Spurge, wedge ...... U.S.A. (FL). serpyllum. C * ...... 6 ...... R8 ...... Chorizanthe parryi var. Polygonaceae ...... Spineflower, San Fer- U.S.A. (CA). fernandina. nando Valley. C * ...... 8 ...... R2 ...... Cirsium wrightii ...... Asteraceae ...... Thistle, Wright’s ...... U.S.A. (AZ, NM), Mex- ico. C ...... 2 ...... R1 ...... Cyanea kauaulaensis .... Campanulaceae ...... No common name ...... U.S.A. (HI). PT ...... R1 ...... Cycas micronesica ...... Cycadaceae ...... Fadang ...... U.S.A. (Guam, Mariana Islands). C ...... 2 ...... R1 ...... Cyperus neokunthianus Cyperaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Cyrtandra hematos ...... Gesneriaceae ...... Ha1iwale ...... U.S.A. (HI). C * ...... 3 ...... R4 ...... Dalea carthagenensis Fabaceae ...... Prairie-clover, Florida ..... U.S.A. (FL). var. floridana. PE ...... R1 ...... Dendrobium guamens ... Orchidaceae ...... No common name ...... U.S.A. (Guam, Mariana Islands). C * ...... 5 ...... R5 ...... Dichanthelium hirstii ...... Poaceae ...... Panic grass, Hirst Broth- U.S.A. (DE, GA, NC, ers’. NJ). C * ...... 5 ...... R4 ...... Digitaria pauciflora ...... Poaceae ...... Crabgrass, Florida pine- U.S.A. (FL). land. C * ...... 8 ...... R6 ...... Eriogonum soredium ...... Polygonaceae ...... Buckwheat, Frisco ...... U.S.A. (UT). PE ...... R1 ...... Eugenia bryanii ...... Myrtaceae ...... No common name ...... U.S.A. (Guam). C ...... 2 ...... R1 ...... Exocarpos menziesii ...... Santalaceae ...... Menzies ballart ...... U.S.A. (HI). C * ...... 2 ...... R1 ...... Festuca hawaiiensis ...... Poaceae ...... No common name ...... U.S.A. (HI). C * ...... 11 ...... R2 ...... Festuca ligulata ...... Poaceae ...... Fescue, Guadalupe ...... U.S.A. (TX), Mexico. C * ...... 2 ...... R1 ...... Gardenia remyi ...... Rubiaceae ...... Nanu ...... U.S.A. (HI). PE ...... R1 ...... Hedyotis megalantha ..... Rubiaceae ...... Paudedo ...... U.S.A. (Guam). PE ...... R1 ...... Heritiera longipetiolata ... Malvaceae ...... Ufa-halomtano ...... U.S.A. (Guam, Mariana Islands). C * ...... 3 ...... R1 ...... Joinvillea ascendens Joinvilleaceae ...... 1Ohe ...... U.S.A. (HI). ascendens. C * ...... 2 ...... R1 ...... Kadua (=Hedyotis) Rubiaceae ...... Kampua1a ...... U.S.A. (HI). fluviatilis. C ...... 2 ...... R1 ...... Kadua haupuensis ...... Rubiaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Labordia lorenciana ...... Loganiaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Lepidium orbiculare ...... Brassicaceae ...... No common name ...... U.S.A. (HI). C * ...... 8 ...... R6 ...... Lepidium ostleri ...... Brassicaceae ...... Peppergrass, Ostler’s .... U.S.A. (UT). C * ...... 5 ...... R4 ...... Linum arenicola ...... Linaceae ...... Flax, sand ...... U.S.A. (FL).

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TABLE 1—CANDIDATE NOTICE OF REVIEW (ANIMALS AND PLANTS)—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Category Priority region

PE ...... R1 ...... Maesa walkeri ...... Primulaceae ...... No common name ...... U.S.A. (Guam, Mariana Islands). C * ...... 2 ...... R1 ...... Myrsine fosbergii ...... Myrsinaceae ...... Kolea ...... U.S.A. (HI). PE ...... R1 ...... Nervilia jacksoniae ...... Orchidaceae ...... No common name ...... U.S.A. (Guam, Mariana Islands). C * ...... 2 ...... R1 ...... Nothocestrum latifolium Solanaceae ...... 1Aiea ...... U.S.A. (HI). C * ...... 2 ...... R1 ...... Ochrosia haleakalae ...... Apocynaceae ...... Holei ...... U.S.A. (HI). PE ...... R1 ...... Phyllanthus saffordii ...... Phyllanthaceae ...... No common name ...... U.S.A. (Guam). C ...... 2 ...... R1 ...... Phyllostegia brevidens ... Lamiaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Phyllostegia helleri ...... Lamiaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Phyllostegia stachyoides Lamiaceae ...... No common name ...... U.S.A. (HI). C * ...... 2 ...... R6 ...... Pinus albicaulis ...... Pinaceae ...... Pine, whitebark ...... U.S.A. (CA, ID, MT, NV, OR, WA, WY), Can- ada (AB, BC). C * ...... 8 ...... R4 ...... Platanthera integrilabia .. Orchidaceae ...... Orchid, white fringeless U.S.A. (AL, GA, KY, MS, NC, SC, TN, VA). C ...... 2 ...... R1 ...... Portulaca villosa ...... Portulacaceae ...... Ihi ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Pritchardia bakeri ...... Arecaceae ...... Lo1ulu (=Lo1ulu lelo) ...... U.S.A. (HI). C * ...... 3 ...... R1 ...... Pseudognaphalium Asteraceae ...... 1Ena1ena ...... U.S.A. (HI). (=Gnaphalium) sandwicensium var. molokaiense. PE ...... R1 ...... Psychotria malaspinae ... Rubiaceae ...... Aplokating-palaoan ...... U.S.A. (Guam). C * ...... 2 ...... R1 ...... Ranunculus hawaiensis Ranunculaceae ...... Makou ...... U.S.A. (HI). C * ...... 2 ...... R1 ...... Ranunculus mauiensis ... Ranunculaceae ...... Makou ...... U.S.A. (HI). C * ...... 8 ...... R8 ...... Rorippa subumbellata .... Brassicaceae ...... Cress, Tahoe yellow ...... U.S.A. (CA, NV). C ...... 2 ...... R1 ...... Sanicula sandwicensis ... Apiaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Santalum involutum ...... Santalaceae ...... No common name ...... U.S.A. (HI). C ...... 3 ...... R1 ...... Schiedea diffusa ssp. Caryophyllaceae ...... No common name ...... U.S.A. (HI). diffusa. C * ...... 2 ...... R1 ...... Schiedea pubescens ..... Caryophyllaceae ...... Ma1oli1oli ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Sicyos lanceoloideus ..... Cucurbitaceae ...... No common name ...... U.S.A. (HI). C * ...... 2 ...... R1 ...... Sicyos macrophyllus ...... Cucurbitaceae ...... 1Anunu ...... U.S.A. (HI). C ...... 12 ...... R4 ...... Sideroxylon reclinatum Sapotaceae ...... Bully, Everglades ...... U.S.A. (FL). austrofloridense. C * ...... 2 ...... R4 ...... Solanum conocarpum .... Solanaceae ...... Bacora, marron ...... U.S.A. (PR). PE ...... R1 ...... Solanum guamense ...... Solanaceae ...... Bereng-henas halomtano U.S.A. (Guam, Mariana Islands). C * ...... 8 ...... R1 ...... Solanum nelsonii ...... Solanaceae ...... Popolo ...... U.S.A. (HI). C ...... 3 ...... R1 ...... Stenogyne kaalae ssp. Lamiaceae ...... No common name ...... U.S.A. (HI). sherffii. C ...... 8 ...... R2 ...... Streptanthus bracteatus Brassicaceae ...... Twistflower, bracted ...... U.S.A. (TX). PT ...... R1 ...... Tabernaemontana Apocynaceae ...... No common name ...... U.S.A. (Guam, Mariana rotensis. Islands). PE ...... R1 ...... Tinospora homosepala .. Menispermaceae ...... No common name ...... U.S.A (Guam). C * ...... 8 ...... R6 ...... Trifolium friscanum ...... Fabaceae ...... Clover, Frisco ...... U.S.A. (UT). PE ...... R1 ...... Tuberolabium guamense Orchidaceae ...... No common name ...... U.S.A. (Guam, Mariana Islands). C ...... 2 ...... R1 ...... Wikstroemia Thymelaeaceae ...... No common name ...... U.S.A. (HI). skottsbergiana.

FERNS AND ALLIES

C ...... 2 ...... R1 ...... Asplenium diellaciniatum Aspleniaceae ...... No common name ...... U.S.A. (HI). C * ...... 8 ...... R1 ...... Cyclosorus boydiae ...... Thelypteridaceae ...... No common name ...... U.S.A. (HI). C ...... 2 ...... R1 ...... Deparia kaalaana ...... Woodsiaceae ...... No common name ...... U.S.A. (HI). C ...... 3 ...... R1 ...... Dryopteris glabra var. Dryopteridaceae ...... Kilau ...... U.S.A. (HI). pusilla. C ...... 3 ...... R1 ...... Hypolepis hawaiiensis Dennstaedtiaceae ...... Olua ...... U.S.A. (HI). var. mauiensis. C * ...... 2 ...... R1 ...... Huperzia Lycopodiaceae ...... Wawae1iole ...... U.S.A. (HI). (=Phlegmariurus) stemmermanniae. C * ...... 3 ...... R1 ...... Microlepia strigosa var. Dennstaedtiaceae ...... Palapalai ...... U.S.A. (HI). mauiensis (=Microlepia mauiensis). PE ...... 3 ...... R4 ...... Trichomanes punctatum Hymenophyllaceae ...... Florida bristle fern ...... U.S.A. (FL). floridanum.

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TABLE 2—ANIMALS AND PLANTS FORMERLY CANDIDATES OR FORMERLY PROPOSED FOR LISTING [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Code Expl. region

MAMMALS

T ...... L ...... R6 ...... Lynx canadensis ...... Felidae ...... Lynx, Canada (New U.S.A. (CO, ID, ME, MI, Mexico population). MN, MT, NH, NY, OR, UT, VT, WA, WI, WY), Canada. E ...... L ...... R2 ...... Zapus hudsonius luteus Zapodidae ...... Mouse, New Mexico U.S.A. (AZ, CO, NM). meadow jumping. T ...... L ...... R1 ...... Thomomys mazama Geomyidae ...... Pocket gopher, Roy U.S.A. (WA). glacialis. Prairie. T ...... L ...... R1 ...... Thomomys mazama Geomyidae ...... Pocket gopher, Olympia U.S.A. (WA). pugetensis. T ...... L ...... R1 ...... Thomomys mazama Geomyidae ...... Pocket gopher, Tenino .. U.S.A. (WA). tumuli. T ...... L ...... R1 ...... Thomomys mazama Geomyidae ...... Pocket gopher, Yelm ..... U.S.A. (WA). yelmensis. Rc ...... A ...... R6 ...... Cynomys gunnisoni ...... Sciuridae ...... Prairie dog, Gunnison’s U.S.A. (CO, NM). (populations in central and south-central Col- orado, north-central New Mexico). Rp ...... A ...... R6 ...... Gulo gulo luscus ...... Mustelidae ...... Wolverine, North Amer- U.S.A. (CA, CO, ID, MT, ican (Contiguous U.S. OR, UT, WA, WY). DPS).

BIRDS

T ...... L ...... R8 ...... Coccyzus americanus .... Cuculidae ...... Cuckoo, yellow-billed U.S.A. (Lower 48 (Western U.S. DPS). States), Canada, Mex- ico, Central and South America. Rc ...... A ...... R7 ...... Gavia adamsii ...... Gaviidae ...... Loon, yellow-billed ...... U.S.A. (AK), Canada, Norway, Russia, coastal waters of southern Pacific and North Sea. T ...... L ...... R2 ...... Tympanuchus Phasianidae ...... Prairie-chicken, lesser ... U.S.A. (CO, KA, NM, pallidicinctus. OK, TX).

REPTILES

T ...... L ...... R2 ...... Thamnophis Colubridae ...... Gartersnake, narrow- U.S.A. (AZ, NM). rufipunctatus. headed. T ...... L ...... R2 ...... Thamnophis eques Colubridae ...... Gartersnake, northern U.S.A. (AZ, NM, NV), megalops. Mexican. Mexico. Rc ...... A ...... R2 ...... Chionactis occipitalis Colubridae ...... Snake, Tucson shovel- U.S.A. (AZ). klauberi. nosed.

AMPHIBIANS

E ...... L ...... R8 ...... Rana muscosa ...... Ranidae ...... Frog, mountain yellow- U.S.A (CA, NV). legged (northern Cali- fornia DPS). T ...... L ...... R1 ...... Rana pretiosa ...... Ranidae ...... Frog, Oregon spotted .... U.S.A. (CA, OR, WA), Canada (BC). E ...... L ...... R8 ...... Rana sierrae ...... Ranidae ...... Frog, Sierra Nevada yel- U.S.A. (CA, NV). low-legged frog. T ...... L ...... R2 ...... Eurycea naufragia ...... Plethodontidae ...... Salamander, George- U.S.A. (TX). town. T ...... L ...... R2 ...... Eurycea chisholmensis .. Plethodontidae ...... Salamander, Salado ...... U.S.A. (TX). T ...... L ...... R8 ...... Anaxyrus canorus ...... Bufonidae ...... Toad, Yosemite ...... U.S.A. (CA).

FISHES

Rc ...... A ...... R6 ...... Iotichthys phlegethontis Cyprinidae ...... Chub, least ...... U.S.A. (UT). Rc ...... A ...... R6 ...... Thymallus arcticus ...... Salmonidae ...... Grayling, Arctic (upper U.S.A. (AK, MI, MT, Missouri River DPS). WY), Canada, north- ern Asia, northern Eu- rope.

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TABLE 2—ANIMALS AND PLANTS FORMERLY CANDIDATES OR FORMERLY PROPOSED FOR LISTING—Continued [Note: See end of SUPPLEMENTARY INFORMATION for an explanation of symbols used in this table]

Status Lead Scientific name Family Common name Historical range Code Expl. region

E ...... L ...... R2 ...... Notropis oxyrhynchus .... Cyprinidae ...... Shiner, sharpnose ...... U.S.A. (TX). E ...... L ...... R2 ...... Notropis buccula ...... Cyprinidae ...... Shiner, smalleye ...... U.S.A. (TX). E ...... L ...... R2 ...... Catostomus discobolus Catostomidae ...... Sucker, Zuni bluehead ... U.S.A. (AZ, NM). yarrowi. Rc ...... U ...... R2 ...... Oncorhynchus clarki Salmonidae ...... Trout, Rio Grande cut- U.S.A. (CO, NM). virginalis. throat.

INSECTS

E ...... L ...... R4 ...... Strymon acis bartrami .... Lycaenidae ...... Butterfly, Bartram’s U.S.A. (FL). scrub-hairstreak. E ...... L ...... R4 ...... Anaea troglodyta Nymphalidae ...... Butterfly, Florida U.S.A. (FL). floridalis. leafwing.

ARACHNIDS

Rc ...... N ...... R2 ...... Cicurina wartoni ...... Dictynidae ...... Meshweaver, Warton’s U.S.A. (TX). cave.

FLOWERING PLANTS

E ...... L ...... R4 ...... Agave eggersiana ...... Agavaceae ...... No common name ...... U.S.A. (VI). T ...... L ...... R4 ...... Arabis georgiana ...... Brassicaceae ...... Rockcress, Georgia ...... U.S.A. (AL, GA). Rc ...... A ...... R1 ...... Astragalus cusickii var. Fabaceae ...... Milkvetch, Packard’s ...... U.S.A. (ID). packardiae. E ...... L ...... R4 ...... Brickellia mosieri ...... Asteraceae ...... Brickell-bush, Florida ..... U.S.A. (FL). Rc ...... A ...... R8 ...... Eriogonum corymbosum Polygonaceae ...... Buckwheat, Las Vegas .. U.S.A. (NV). var. nilesii. Rc ...... A ...... R8 ...... Eriogonum diatomaceum Polygonaceae ...... Buckwheat, Churchill U.S.A (NV). Narrows. Rc ...... A ...... R8 ...... Eriogonum kelloggii ...... Polygonaceae ...... Buckwheat, Red Moun- U.S.A. (CA). tain. E ...... L ...... R4 ...... Gonocalyx concolor ...... Ericaceae ...... No common name ...... U.S.A. (PR). E ...... L ...... R4 ...... Helianthus verticillatus ... Asteraceae ...... Sunflower, whorled ...... U.S.A. (AL, GA, TN). T ...... L ...... R8 ...... Ivesia webberi ...... Rosaceae ...... Ivesia, Webber ...... U.S.A. (CA, NV). E ...... L ...... R4 ...... Leavenworthia crassa .... Brassicaceae ...... Gladecress, fleshy-fruit .. U.S.A. (AL). T ...... L ...... R4 ...... Leavenworthia exigua Brassicaceae ...... Gladecress, Kentucky .... U.S.A. (KY). var. laciniata. E ...... L ...... R4 ...... Linum carteri var. carteri Linaceae ...... Flax, Carter’s small-flow- U.S.A. (FL). ered. E ...... L ...... R8 ...... Mimulus fremontii var. Phrymaceae ...... Monkeyflower, Vanden- U.S.A. (CA). vandenbergensis. berg. Rp ...... A ...... R6 ...... Penstemon grahamii ...... Scrophulariaceae ...... Beardtongue, Graham’s U.S.A. (CO, UT). Rp ...... A ...... R6 ...... Penstemon scariosus Scrophulariaceae ...... Beardtongue, White U.S.A. (CO, UT). var. albifluvis. River. E ...... L ...... R4 ...... Physaria globosa ...... Brassicaceae ...... Bladderpod, Short’s ...... U.S.A. (IN, KY, TN). Rc ...... A ...... R8 ...... Sedum eastwoodiae ...... Crassulaceae ...... Stonecrop, Red Moun- U.S.A. (CA). tain. Rc ...... U ...... R4 ...... Symphyotrichum Asteraceae ...... Aster, Georgia ...... U.S.A. (AL, FL, GA, NC, georgianum. SC). T ...... L ...... R4 ...... Varronia (=Cordia) Boraginaceae ...... No common name ...... U.S.A. (PR), Anegada. rupicola.

[FR Doc. 2014–28536 Filed 12–4–14; 8:45 am] BILLING CODE 4310–55–P

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Part IV

Department of Health and Human Services

Centers for Medicare & Medicaid Services 42 CFR Parts 405, 424, and 498 Medicare Program; Requirements for the Medicare Incentive Reward Program and Provider Enrollment; Final Rule

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DEPARTMENT OF HEALTH AND 424, subpart P. This final rule will offense that CMS determines to be HUMAN SERVICES strengthen program integrity and help detrimental to the best interests of the ensure that fraudulent entities and Medicare program and its beneficiaries. Centers for Medicare & Medicaid individuals do not enroll in or maintain (Under the previous regulation, Services their enrollment in the Medicare enrollment could not be denied or program. revoked based on a managing 42 CFR Parts 405, 424, and 498 employee’s felony conviction.) b. Legal Authority • [CMS–6045–F] Allowing revocation of Medicare Sections 1102 and 1871 of the Social billing privileges if the provider or RIN 0938–AP01 Security Act provide general authority supplier has a pattern or practice of for the Secretary to prescribe regulations submitting claims that fail to meet Medicare Program; Requirements for for the efficient administration of the Medicare requirements. the Medicare Incentive Reward Medicare program. Also, section 1866(j) • With the exception noted in section Program and Provider Enrollment of the Act, codified at 42 U.S.C. II.B.5. of this final rule, requiring all 1395cc(j), provides specific authority revoked providers and suppliers AGENCY: Centers for Medicare & with respect to the enrollment process Medicaid Services (CMS), HHS. (regardless of type) to submit all of their for providers and suppliers. remaining claims within 60 days after ACTION: Final rule. 2. Brief Summary of the Major Provider the effective date of their revocation. SUMMARY: This final rule implements Enrollment Provisions • Limiting the ability of ambulance various provider enrollment We are finalizing the following major companies to ‘‘back bill’’ for services requirements. These include: Expanding provisions regarding provider furnished prior to enrollment. Under the instances in which a felony enrollment: § 424.520(d), physicians, non-physician conviction can serve as a basis for • Allowing denial of enrollment if the practitioners, and physician and non- denial or revocation of a provider or provider, supplier, or owner thereof was physician practitioner organizations supplier’s enrollment; if certain criteria previously the owner of a provider or currently cannot bill for services are met, enabling us to deny enrollment supplier that had a Medicare debt that furnished prior to the later of the date if the enrolling provider, supplier, or existed when the latter’s enrollment was the supplier filed a Medicare enrollment owner thereof had an ownership voluntarily terminated, involuntarily application that was subsequently relationship with a previously enrolled terminated or revoked and— approved by a Medicare contractor or provider or supplier that had a Medicare ++ The owner left the provider or the date the supplier first began debt; enabling us to revoke Medicare supplier that had the Medicare debt furnishing services at a new practice billing privileges if we determine that within 1 year of that provider or location. (Independent diagnostic the provider or supplier has a pattern or supplier’s voluntary termination, testing facilities (IDTFs) and suppliers practice of submitting claims that fail to involuntary termination, or revocation; of durable medical equipment, meet Medicare requirements; and ++ The Medicare debt has not been prosthetics, orthotics, and supplies limiting the ability of ambulance fully repaid; and (DMEPOS) have similar restrictions.) suppliers to ‘‘backbill’’ for services ++ We determine that the uncollected We are expanding this to include performed prior to enrollment. debt poses an undue risk of fraud, ambulance suppliers. • DATES: These regulations are effective waste, or abuse. Limiting the ability of revoked on February 3, 2015. A denial under this provision can be providers and suppliers to submit a averted if the enrolling provider, corrective action plan (CAP) to FOR FURTHER INFORMATION CONTACT: situations where the revocation was Frank Whelan, (410) 786–1302. supplier, or owner thereof—(1) satisfies the criteria set forth in § 401.607 and based on § 424.535(a)(1). SUPPLEMENTARY INFORMATION: agrees to a CMS-approved extended 3. Incentive Reward Program (IRP) I. Executive Summary and Background repayment schedule for the entire outstanding Medicare debt; or (2) repays We may finalize the provisions A. Executive Summary the debt in full. relating to the IRP in future rulemaking. • Allowing denial of enrollment or 1. Purpose 4. Summary of Costs and Benefits revocation of Medicare billing privileges a. Need for Regulatory Action if, within the preceding 10 years, the The following table provides a This final rule is necessary to make provider or supplier, or any owner or summary of the costs and benefits certain changes to the provider managing employee thereof, was associated with the principal provisions enrollment provisions in 42 CFR part convicted of a federal or state felony of this final rule.

TABLE 1—SUMMARY OF COSTS AND IMPACTS

Provision description Impacts

Denial of Enrollment Based on Medicare Debt ...... Though a savings to the federal government will accrue from such a denial, the monetary amount cannot be quantified. Expansion of Ability to Deny or Revoke Medicare Billing Privileges Though a savings to the federal government will accrue from such a Based on Felony Conviction. denial or revocation, the monetary amount cannot be quantified. Revocation Based on Pattern or Practice of Submitting Claims that Do Though a savings to the federal government will accrue from such a Not Meet Medicare Requirements. revocation, the monetary amount cannot be quantified. Requirement for Revoked Providers and Suppliers to Submit Remain- Monetary amount cannot be quantified. However, we believe this re- ing Claims within 60 Days after Effective Date of Revocation. quirement will—(1) limit the Medicare program’s vulnerability to fraudulent claims; and (2) allow more focused medical review. This will likely result in some savings to the federal government.

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TABLE 1—SUMMARY OF COSTS AND IMPACTS—Continued

Provision description Impacts

Inclusion of Ambulance Suppliers within §424.520(d) ...... Will result in a transfer of $327.4 million per year (primary estimate) from ambulance suppliers to the federal government. Limitation of Ability to Submit CAP to Situations where Revocation Monetary amount cannot be quantified. However, the provision will pre- based on § 424.535(a)(1). vent these providers and suppliers from being able to immediately begin billing Medicare again once they submit the correct informa- tion.

B. Background and General Overview the first reporter of information about a requirements are met, these individuals In the April 21, 2006 Federal Register provider’s actual or potential are eligible to enroll for the sole purpose (71 FR 20754), we published a final rule sanctionable conduct. They contended of ordering or certifying Medicare items titled, ‘‘Medicare Program; that this could create ‘‘shoot first, ask or services by completing the CMS– Requirements for Providers and questions later’’ situations; such a rush 855O application. The CMS–855O Suppliers to Establish and Maintain to report could also create tension (OMB Approval #0938–0685), which Medicare Enrollment.’’ The final rule set between providers and patients. became available for use in July 2011, is exclusively designed to allow forth requirements in part 424, subpart Third, several commenters stated that physicians and eligible professionals to P that providers and suppliers must our proposal would encourage enroll in Medicare solely to order or meet in order to obtain and maintain whistleblowers to first report their certify items or services. Medicare billing privileges. Since its concerns to CMS: (1) Instead of using Physicians and non-physician publication in April 2006, we have established internal compliance practitioners who complete the CMS– updated subpart P to address a number reporting methods (such as hotlines) 855O are not eligible to submit claims of enrollment issues. created within Medicare provider to Medicare for services they provide, In the April 2006 final rule, we cited organizations; and (2) without for they are not granted Medicare billing sections 1102 and 1871 of the Act as undertaking any initial validation of privileges. Because some of our general authority for our establishment facts or discussing the matter with the regulatory provisions did not clearly of these requirements, which were provider. articulate the difference between designed for the efficient administration Fourth, commenters questioned enrolling in Medicare: (1) To obtain of the Medicare program. Pursuant to whether CMS has the resources in place Medicare billing privileges; and (2) this general rulemaking authority as to handle the enormous influx of tips solely to order or certify items or well as to section 1866(j) of the Act, we and complaints that our proposal would services for Medicare beneficiaries, we proposed several additional changes to generate. Due to the complexity of the proposed three remedial changes. our provider enrollment regulations to The first change involved the help ensure that Medicare payments are operational aspects of our proposal, we are not finalizing our proposed IRP definition of ‘‘Enroll/Enrollment’’ in only made to qualified providers and § 424.502, the initial sentence of which suppliers. provisions in this rule. We may finalize them in future rulemaking. stated: ‘‘Enroll/Enrollment means the In the April 29, 2013 Federal Register process that Medicare uses to establish (78 FR 25013), we published a proposed B. Provider Enrollment eligibility to submit claims for rule that would revise the IRP As noted previously, in April 2006 we Medicare-covered services and provisions and certain provider published a final rule that set forth supplies.’’ We proposed to change this enrollment requirements in part 424, requirements that providers and to read: ‘‘Enroll/Enrollment means the subpart P. suppliers must meet in order to obtain process that Medicare uses to establish II. Provisions of the Proposed Rule and and maintain Medicare billing eligibility to submit claims for Analysis of and Responses to Public privileges. Since that rule’s publication, Medicare-covered items and services, Comments we have revised and supplemented and the process that Medicare uses to various provisions in part 424, subpart establish eligibility to order or certify for A. Incentive Reward Program (IRP) P to address certain payment safeguard Medicare-covered items and services.’’ We received a number of comments issues. As discussed in the following Our purpose was to clarify that the regarding our proposed IRP provisions. section, this final rule makes additional overall enrollment process includes They focused largely on several issues. changes to subpart P. enrollment via the CMS–855O. First, a number of commenters stated The second revision concerned that the significantly increased reward 1. Definition of Enrollment paragraph (4) of the definition of amount would lead to many reports Most physicians and non-physician ‘‘Enroll/Enrollment’’ in § 424.502. We containing irrelevant or erroneous practitioners enroll in Medicare to proposed to change the language in this information that would ultimately become eligible to receive payment for paragraph from ‘‘(g)ranting the provider impose a heavy burden on CMS and its covered services furnished to Medicare or supplier Medicare billing privileges’’ contractors. Providers would also be beneficiaries. However, some physicians to the following: ‘‘(4) Except for those seriously burdened because they would and non-physician practitioners who are suppliers that complete the CMS–855O constantly have to fight unwarranted not enrolled in Medicare via the Form form or CMS-identified equivalent or complaints, perhaps leaving less time CMS–855I enrollment application may successor form or process for the sole for such providers to treat Medicare wish to enroll for the sole and exclusive purpose of obtaining eligibility to order beneficiaries. purpose of ordering or certifying items or certify Medicare-covered items and Second, several commenters or services for Medicare beneficiaries. services, granting the Medicare provider expressed concern regarding our Consistent with § 424.507, and or supplier Medicare billing privileges.’’ proposal to limit reward eligibility to assuming all other applicable This was intended to emphasize that

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although enrollment via the CMS–855O Medicare to obtain billing privileges, Administrative Procedure Act as a enables the supplier to order or certify and do not apply to providers and means of establishing a new Medicare Medicare-covered items and services, it suppliers enrolling strictly to order or enrollment application—specifically, does not convey Medicare billing certify items or services for Medicare the CMS–855O. A commenter privileges to the supplier. beneficiaries. In order to clarify those contended that CMS essentially used The third change involved § 424.505, requirements that apply to all the PRA process to prohibit physicians which states in part that a provider or enrollments and those that only apply to from obtaining Medicare billing supplier, once enrolled, receives enrollments to obtain billing privileges, privileges via the CMS–855O. The Medicare billing privileges. We we are revising § 424.510 as follows: commenter recommended that CMS proposed to revise the second sentence • The first two sentences of existing explain its use of the CMS–855O: (1) of this section to state: ‘‘Except for those paragraph (a) will be designated as new Without having utilized the notice and suppliers that complete the CMS–855O paragraph (a)(1). comment rulemaking process; and (2) in or CMS-identified equivalent or • The third sentence of existing lieu of using the CMS–855I, which has successor form or process for the sole paragraph (a) will be designated as new a legal basis, has already been subject to purpose of obtaining eligibility to order paragraph (a)(2) and is revised to read: rulemaking, and duplicates all of the or certify Medicare-covered items and ‘‘To be enrolled to furnish Medicare- data on the CMS–855O; the commenter services, once enrolled the provider or covered items and services, a provider argued that CMS has already established supplier receives billing privileges and or supplier must meet the requirements an enrollment application for is issued a valid billing number effective specified in paragraphs (d) and (e) of physicians (that is, the CMS–855I) and for the date a claim was submitted for this section.’’ that the CMS–855O is therefore an item that was furnished or a service • New paragraph (a)(3) will state the duplicative of the CMS–855I. With that was rendered. (See 45 CFR part 162 following: ‘‘To be enrolled solely to respect to the second suggestion for information on the National Provider order and certify Medicare items or regarding CMS using the PRA process to Identifier and its use as the Medicare services, a physician or non-physician prohibit physicians from enrolling to billing number.)’’ Again, our purpose practitioner must meet the requirements obtain billing privileges, the commenter was to clarify that enrollment via the specified in paragraph (d) of this section added that CMS could modify the CMS– CMS–855O enables the supplier to order except for paragraphs (2)(iii)(B), (2)(iv), 855I to accommodate physicians and or certify Medicare-covered items and (3)(ii), (5), (6), and (9).’’ These non-physician practitioners seeking services but does not grant Medicare paragraphs only apply to individuals only to order or certify items or services. billing privileges to the supplier. enrolling to obtain Medicare billing The commenter stated that this would The following is a summary of the privileges. ease the paperwork burden on such comments we received on these three With respect to the commenter’s individuals should they later wish to changes and our responses: suggestion regarding deactivation, obtain Medicare billing privileges; Comment: Several commenters enrollment via the CMS–855O does not rather than having to complete two recommended that the CMS–855O be confer billing privileges. Hence, there separate forms (the CMS–855I and modified to require the applicant to are no billing privileges to deactivate. CMS–855O), the commenter continued, provide information about his or her Comment: Several commenters the individual would only need to practice location and medical record disagreed with the use of the CMS– submit an updated CMS–855I location. The commenters contended 855O, arguing that CMS: (1) Lacks the application as part of the enrollment that § 424.510(d)(2)(ii) mandates that statutory and regulatory basis to either process. each submitted enrollment application establish a registration process for Another commenter stated that the include the submission of all ordering and certifying physicians and Privacy Act Statement for the CMS– documentation to uniquely identify a non-physician practitioners or to use an 855O includes various references to provider or supplier—including, but not enrollment application for any purpose payments to providers and suppliers. limited to, proof of a practice location other than to enroll a provider or Since the CMS–855O is designed for the and medical record storage location. supplier (including physicians and non- sole purpose of ordering and certifying, Such proof, the commenters stated, can physician practitioners); and (2) violates the commenter requested that CMS help reduce identity theft and other 5 U.S.C. 551 et seq. in its use of the explain its rationale for including such forms of Medicare fraud, waste and CMS–855O without having issued a references in the CMS–855O Privacy abuse. A commenter recommended that proposed and final regulation. The Act Statement. CMS deactivate the billing privileges of commenters further contended that Response: As already indicated, any individual who enrolled in § 424.500 does not contemplate such a comments regarding the use or content Medicare using the CMS–855O because registration process and that CMS did of the CMS–855O are outside the scope the CMS–855O does not collect not solicit comments on revising of this rule. However, we note that information on practice locations and § 424.500 for such purpose. A section 6405 of the Affordable Care Act medical record storage locations. commenter recommended that CMS: (1) gave us the authority to require the Another commenter suggested that CMS Discontinue use of the CMS–855O until Medicare enrollment of physicians and require individuals who have enrolled it completes the notice and comment non-physician practitioners who order using the CMS–855O to provide practice rulemaking process described in section or certify certain items or services for location information. 1871 of the Act; and (2) furnish the legal Medicare beneficiaries. We Response: These recommended basis for registering physicians and non- implemented this statutory provision at changes regarding the CMS–855O are physician practitioners for the sole § 424.507 via a May 5, 2010 interim outside the scope of this rule, though we purpose of ordering or certifying final rule with comment period (75 FR may consider adding practice location Medicare services or items. 24437) and an April 27, 2012 final rule information to the CMS–855O at a later Other commenters expressed concern (77 FR 25284). These two rules, as well date. that CMS is using the Paperwork as the CMS–855O itself, were subject to Some of the enrollment requirements Reduction Act of 1995 (PRA) to a notice-and-comment process. (We in § 424.510 are applicable only to circumvent the notice and comment solicited public comments on the CMS– providers and suppliers enrolling in rulemaking requirements of the 855O in two Federal Register notices as

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mandated by the PRA.) Moreover, we Medicare per year or whether he or she commenter suggested that CMS disagree with the contention that the must use the CMS–855I. establish a definition of ‘‘register.’’ PRA process was used to prohibit Response: In the scenario the Response: Our use of the term physicians from obtaining Medicare commenter poses, the physician or non- ‘‘registration’’ on the CMS–855O was billing privileges via the CMS–855O. physician practitioner must use the designed to clarify the distinction The CMS–855O was not designed as a CMS–855I because he or she will be between enrolling in Medicare to obtain prohibition of any kind but instead as billing for Medicare services. As billing privileges and enrolling in means of permitting—consistent with discussed previously, the CMS–855O Medicare solely to order or certify items section 6405 of the Affordable Care may only be used by physicians or other and services. In the latter situation, the Act—certain physicians and non- eligible practitioners who wish to enroll process is the same irrespective of the physician practitioners to enroll in solely to order or certify items or precise term that is used to describe it. Medicare solely to order or certify services. It cannot be used to obtain For this reason, and because the CMS– Medicare items or services. We believe Medicare billing privileges. 855O process will now be included that completion of an abbreviated form Comment: A commenter questioned within the scope of the enrollment such as the CMS–855O, rather than all whether a Medicare-enrolled physician provisions of §§ 424.502, 424.505, and or part of the CMS–855I, has eased the or non-physician practitioner who also 424.510, we do not believe a separate burden on the physician and non- works part-time at (and only orders definition of ‘‘register’’ is warranted or physician practitioner communities. services from) a rural health clinic needed. Comment: A commenter questioned (RHC) must complete the CMS–855O for Comment: Citing the current whether physicians who submit the his or her activities at the RHC. definition of ‘‘Enroll/Enrollment’’ in CMS–855O are required to revalidate Response: The individual need not § 424.502, a commenter noted that the their enrollment with the Medicare complete a CMS–855O in this scenario, enrollment process includes identifying and confirming the provider’s practice contractor every 5 years. for he or she is already enrolled in locations. The commenter contended Response: We reserve the right to Medicare via the CMS–855I. that since the CMS–855O does not require individuals who are enrolled Comment: A commenter stated that if collect practice location information, solely to order or certify items or suppliers who enroll solely to order or referencing the CMS–855O in § 424.502 services to revalidate their enrollment certify Medicare items or services are is inappropriate. The commenter information every 5 years. not granted Medicare billing privileges, suggested that CMS discontinue use of Comment: A commenter stated that the regulatory provisions found in Part the CMS–855O until it proposes since CMS did not discuss reassignment 424, subpart P do not apply and CMS changes to the definition of ‘‘Enroll/ in this proposed rule, it would seem does not have the authority to approve, Enrollment’’ that eliminate the reference that section 1871 of the Act would not deny, deactivate, or revoke individuals to practice location data. preclude CMS from barring physicians who have enrolled or seek to enroll in Response: As mentioned earlier, we and non-physician practitioners from Medicare via the CMS–855O solely to may consider adding practice location enrolling in Medicare via the CMS– order and certify. The commenter information to the CMS–855O at a later 855O and reassigning their benefits to a recommended that CMS propose a new date. Therefore, we do not believe that medical group. The commenter sought rule to allow CMS to approve, deny, the definition of ‘‘Enroll/Enrollment’’ in clarification as to whether a physician revoke, or deactivate the enrollment of § 424.502 should be revised to remove can enroll using the CMS–855O and a physician or non-physician the reference to practice locations. reassign payment/benefits to either an practitioner in such instances. However, we will modify paragraph (2) employer or an entity under contractual Response: The regulations in Part 424, of the definition of ‘‘Enroll/Enrollment’’ arrangement. Another commenter subpart P apply to suppliers who are in § 424.502 to account for that questioned whether a physician can enrolled or enrolling in Medicare and paragraph’s inapplicability to CMS– simultaneously submit a CMS–855O are not limited to suppliers who have or 855O applications. The current version and CMS–855R if he or she is billing for seek Medicare billing privileges. In light of paragraph (2) states that the services through a group practice. of our changes to §§ 424.502, 424.505, enrollment process includes, Response: The concept of and 424.510, the provisions of subpart ‘‘Validation of the provider’s or reassignment (as that term is used in P apply equally to suppliers who enroll supplier’s eligibility to provide items or § 424.80) does not apply to CMS–855O in order to obtain Medicare billing services to Medicare beneficiaries.’’ situations because there is no right to privileges and those who enroll Since suppliers who complete the CMS– payment associated with an enrollment exclusively to order or certify Medicare 855O are enrolling solely to order or via the CMS–855O. In other words, a items or services. certify Medicare items and services, we physician or non-physician practitioner Comment: A commenter requested are modifying paragraph (2) to state: who enrolls via the CMS–855O does not clarification as to whether a physician ‘‘Except for those suppliers who have Medicare billing privileges, and must have a valid enrollment record in complete the CMS–855O form, CMS- therefore has no right to payment to PECOS to order infusion and nebulizer identified equivalent, successor form or reassign via the CMS–855R. If he or she drugs or other Part B drugs. process for the sole purpose of obtaining wishes to enroll in Medicare, bill the Response: We believe this comment is eligibility to order or certify Medicare- program for services, and reassign his or outside the scope of this final rule. covered items and services, validating her benefits to an eligible party, he or Comment: Several commenters sought the provider or supplier’s eligibility to she must complete both the CMS–855I clarification from CMS concerning the provide items or services to Medicare and CMS–855R forms. A CMS–855O difference between the use of the term beneficiaries.’’ We note that the new form cannot be used as a means of ‘‘registration’’ on the CMS–855O and language in paragraph (2) is the same as obtaining Medicare billing privileges. the proposed changes to §§ 424.502 and that which is being added to paragraph Comment: A commenter questioned 424.505, which use the term (4). whether a physician or non-physician ‘‘enrollment.’’ One commenter Comment: Several commenters practitioner can use the CMS–855O if he questioned whether these two terms supported our proposed changes to or she submits only very few claims to have the same meaning. Another §§ 424.502 and 424.505 to reflect that

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some physicians and non-physician revised in order for CMS to establish a to receive a Medicare identification practitioners may enroll solely to order registration process for physicians and number (without being approved for or certify certain items or services for non-physician practitioners seeking billing privileges) for the sole purpose of Medicare beneficiaries. However, one only to order or certify items and ordering and referring beneficiaries to commenter suggested that the verbiage services. approved Medicare providers and ‘‘or CMS-equivalent or successor form Response: Our use of the term suppliers. The commenter indicated or process for the sole purpose of ‘‘registration’’ on the CMS–855O was further that CMS states, in the proposed obtaining eligibility to order or certify intended to articulate the distinction rule on which the commenter is Medicare-covered items and services’’ is between enrolling in Medicare to obtain commenting, that the CMS–855O is too wordy and confusing and should be billing privileges and enrolling in exclusively designed to allow stricken from both sections. Medicare strictly to order or certify physicians and eligible professionals to Response: While we appreciate the items and services. In the latter enroll in Medicare solely to order or commenters’ support, we do not believe situation, the process is the same certify items or services. The commenter the quoted language should be stricken regardless of the precise term that is requested that CMS explain this from §§ 424.502 and 424.505. This used to describe it. The general apparent discrepancy. The commenter language is necessary to account for the procedures for completing the CMS– also requested CMS to outline how possibility that a different process for 855O and the contractor’s processing of giving a physician or practitioner a enabling individuals to enroll solely to the application are similar to those used Medicare billing number (which is order or certify Medicare items and for other CMS–855 forms. As such, we already required to be the National services could be established in the do not believe that §§ 424.507 and Provider Identifier) is consistent with future. 424.510 need to be revised to establish enrolling in the Medicare program. Comment: A commenter believed that a unique process for submitting and Another commenter questioned why the there remains confusion in the reviewing CMS–855O applications. September 30, 2011 and April 14, 2012 physician and non-physician Nevertheless, we have (as explained notices refer to the registration of such practitioner communities regarding the earlier) revised § 424.510 to clarify individuals while our proposed rule difference between enrolling exclusively which paragraphs in that section do not refers to enrollment. This commenter to order and certify Medicare services, apply to individuals who enroll solely also urged CMS to explain why it did and enrolling for the purpose of to order or certify items or services. not choose to solicit public comments participating in and billing Medicare. Comment: A commenter questioned on changes to regulatory provisions The commenter urged CMS to make this whether a physician who completes the found in §§ 424.502 and 424.505 for distinction clear on the CMS–855O form CMS–855O can elect to be a almost 2 years after adopting and using itself and in all applicable CMS participating physician even though he the CMS–855O. educational efforts. or she is ordering services in the Response: If the commenter is Response: We have undertaken Medicare program. extensive educational efforts—including Response: A CMS–855O form cannot referring to the use of the term ‘‘order close collaboration with various be used as a means of obtaining or certify’’ in lieu of the term ‘‘order or professional associations—to clarify for Medicare billing privileges. Medicare refer,’’ we replaced ‘‘refer’’ with the public and the provider community participation status does not apply in ‘‘certify’’ because, as explained in the the distinction between the two situations where the physician or non- April 27, 2012 final rule: (1) A processes. We will continue our physician practitioner enrolls solely for ‘‘certifying’’ provider generally means a outreach activities on this issue. the purpose of ordering or certifying person who orders/certifies home health Comment: A commenter questioned items or services. If the individual services for a beneficiary, and (2) home whether CMS is changing its wishes to enroll in Medicare to furnish health services fall within the purview longstanding policy of requiring Medicare services, he or she must of § 424.507. providers and suppliers to submit to submit a CMS–855I application. The Medicare number referenced in CMS or its Medicare contractor the Comment: A commenter the three notices is not a ‘‘billing applicable provider enrollment recommended that CMS identify number’’ and is not intended to grant application based on the type of whether any other federal or state health billing privileges to the individual; it provider or supplier enrolling. The plan or any state Medicaid agency instead serves as an identifier of the commenter also requested that CMS permits a physician or non-physician physician or non-physician practitioner. propose and explain the differences practitioner to obtain Medicare billing Likewise, our revisions to §§ 424.502 between the Medicare enrollment privileges for the sole purpose of and 424.505 do not furnish billing process to convey Medicare billing ordering or certifying services for their privileges to an individual who is privileges and this ostensibly new members. The commenter was unaware enrolling solely to order or certify items concept of enrolling solely to order and of any other health plan that permits or services. certify items and services in the this. As explained earlier, our use of the Medicare program. Response: One cannot obtain term ‘‘registration’’ was intended to Response: All providers and Medicare billing privileges through any clarify the difference between enrolling suppliers, including those suppliers state health plan, state Medicaid agency, in Medicare to obtain billing privileges submitting the CMS–855O, will or federal health plan other than and enrolling in Medicare solely to continue to submit enrollment Medicare. order or certify items and services. applications based on the provider or Comment: A commenter stated that Comment: A commenter requested supplier type involved. As for the on May 20, 2011, September 30, 2011, whether completion of another CMS– second comment, we will continue our and April 14, 2012, CMS published a 855O is required if the applicable educational efforts to clarify the summary of the information collection physician or non-physician practitioner distinction between these two for the CMS–855O in the Federal moves and opens a new practice in processes. Register. The commenter noted that in another contractor jurisdiction. Comment: A commenter contended each of these summaries, CMS stated Response: At this time, a separate that §§ 424.507 and 424.510 must be that the CMS–855O permits a physician CMS–855O is required for each

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Medicare contractor jurisdiction in is the only way that Medicare can verify payments by, among other means, which the individual practices. that a physician is treating a patient and operating businesses that are publicly Comment: Section 1866(j) of the Act not merely signing an order for services. fronted by business associates, family states that the Secretary shall establish Response: This comment is outside members, or other individuals posing as by regulation a process for enrolling the scope of this rule. owners.1 In its study, the OIG selected providers and suppliers; such process Comment: A commenter a random sample of 10 DMEPOS shall include, in part, a screening recommended that in lieu of using the suppliers in Texas that each had process. A commenter contended that CMS–855O, CMS should exempt Medicare debt of at least $50,000 CMS has violated section 1866(j) of the infrequent billers or physicians who see deemed currently not collectible (CNC) Act because our proposed rule does not Medicare patients at a rural health clinic by CMS during 2005 and 2006.2 The establish a screening process for from deactivation for 3 or 5 years. This OIG found that 6 of the 10 reviewed physicians and non-physician approach ensures that a physician can DMEPOS suppliers were associated practitioners enrolling solely to order or bill if he/she needs to, but reduces the with 15 other DMEPOS suppliers or certify items or services. The commenter amount of paperwork associated with an HHAs that received Medicare payments recommended that CMS propose a annual deactivation process. Another totaling $58 million during 2002 moderate level of risk for such commenter offered several alternatives through 2007.3 The OIG also found that physicians and non-physician to the use of the CMS–855O: (1) A 1- most of the reviewed DMEPOS practitioners because CMS cannot link year deactivation process for physicians suppliers were connected with their an order from such individual to the who accept assignment and bill the associated DMEPOS suppliers and billing by a DMEPOS supplier, imaging Medicare program on a regular basis; (2) HHAs through shared owners or facility, or clinical laboratory. a 5-year deactivation process for managers.4 Response: We disagree with the physicians who bill Medicare as non- We have continued to receive reports commenter. The screening process participating and only bill infrequently; of providers, suppliers, and owners implemented pursuant to section 1866(j) and (3) an exception to the 1-year thereof accumulating large Medicare of the Act applies to all CMS–855 deactivation process for certain debts, departing Medicare, and then applications, including the CMS–855O. physicians—such as those listed on the attempting to reenter the program Regardless of which CMS–855 CMS–855O—who bill the Medicare through other channels—often to incur enrollment application is used, program infrequently. additional debts. While our current physician and non-physician Response: These comments are authority to deny based on practitioners are designated to the outside the scope of this rule. § 424.530(a)(6) enables us to stem this limited screening level pursuant to After consideration of the comments practice to a certain extent, it is limited § 424.518(a)(1)(i), unless an adjustment received, we are finalizing the three to situations where an enrolling applies under § 424.518(c)(3). proposed changes to §§ 424.502 and physician, non-physician practitioner, Comment: A commenter 424.505. We are also further modifying or an owner of the enrolling provider or recommended that CMS provide the the definition of ‘‘enroll/enrollment’’ in supplier has a current Medicare number of individuals enrolled or § 424.502 and modifying § 424.510(a) as overpayment. It does not apply to registered in the Medicare program previously discussed. instances where an enrolling provider or using the CMS–855O since July 2011. 2. Debts to Medicare supplier entity has a current Medicare Response: This comment is outside debt, be it an overpayment or some the scope of this rule. Under § 424.530(a)(6), an application other type of financial obligation to the Comment: A commenter stated that can be denied if ‘‘[t]he current owner (as Medicare program. Furthermore, it does contrary to the information found in the defined in § 424.502), physician or non- not address cases where an entity with CMS–855O Privacy Act Notice, CMS physician practitioner has an existing which the enrolling provider, supplier, has not updated the PECOS System of overpayment at the time of filing of an or owner was affiliated had incurred the Records document to include the CMS– enrollment application.’’ This provision debt. We believed that these latter 855O. The commenter recommended was established in large part to address situations were of particular concern to that CMS update the System of Records situations in which the owner of a the OIG in the 2008 memorandum. document No 09–70–0532 to reflect the provider or supplier incurs a substantial Therefore, we proposed several changes collection and dissemination of debt to Medicare, exits the Medicare to § 424.530(a)(6). information from the CMS–855O. program or shuts down operations First, we proposed to incorporate the Response: This comment is outside altogether, and attempts to re-enroll existing language of § 424.530(a)(6) into the scope of this rule. through another vehicle or under a new a new paragraph (a)(6)(i) that would Comment: A commenter stated that business identity. apply to all enrolling providers, permitting physicians who do not bill As we explained in II.B.2. of the suppliers (including physicians and Medicare to order services for Medicare proposed rule, such situations were non-physician practitioners), and beneficiaries will likely increase discussed in a November 2008 owners thereof. We stated that we did Medicare fraud and the number of Department of Health and Human not believe (a)(6) should be limited to improper Medicare payments. The Services Office of Inspector General individual physicians and non- commenter recommended that CMS: (1) (OIG) Early Alert Memorandum entitled, physician practitioners. All providers Explain how it will protect the Medicare ‘‘Payments to Medicare Suppliers and and suppliers, regardless of type, are Trust Funds from fraud when it cannot Home Health Agencies Associated with verify whether the physician actually ‘Currently Not Collectible’ 1 Department of Health and Human Services, conducted an exam or treated a Overpayments’’ (OEI–06–07–00080). Office of Inspector General (OIG). ‘‘Early Alert Medicare beneficiary; and (2) require The memorandum noted that anecdotal Memorandum: Payments to Medicare Suppliers and prior authorization for any service information from OIG investigators and Home Health Agencies Associated with ‘Currently Not Collectible’ Overpayments (OEI–06–07– ordered by a physician or practitioner assistant United States Attorneys 00080),’’ November 26, 2008, p.1. who does not have an associated claim indicated that DMEPOS suppliers with 2 Ibid. p.1. for medical services; using prior outstanding Medicare debts may 3 Ibid. p.7. authorization, the commenter believed, inappropriately receive Medicare 4 Ibid. p.2.

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responsible for reimbursing Medicare Similar to proposed § 424.530(a)(6)(i), direct versus indirect ownership). For for any debts they owe to the program. we proposed in § 424.530(a)(6)(iii) that this reason, we believed it was Permitting them to enroll additional the enrolling provider or supplier would important that CMS have the flexibility provider or supplier sites in Medicare be able to avoid a denial under to make enrollment decisions under when they have existing debts to § 424.530 (a)(6) if the enrolling provider, § 424.530(a)(6)(ii) on a case-by-case Medicare potentially endangers the supplier, or owner thereof satisfies the basis, using the factors previously Trust Funds. If the provider or supplier criteria set forth in § 401.607 and agrees outlined. However, we also solicited cannot repay its existing Medicare to an extended repayment schedule for comment on the following issues related debts, this raises questions about its the entire outstanding Medicare debt of to these factors: ability to pay future debts incurred as the revoked provider or supplier. We • Whether additional factors should part of any additional enrollments. noted our belief that this provision is be considered and, if so, what those We proposed that a denial of warranted because agreement to a factors should be. • Medicare enrollment under paragraph repayment plan evidences an intention Which, if any, of the proposed to pay back the debt. We also proposed factors should not be considered. (a)(6)(i) could be avoided if the enrolling • provider, supplier, or owner thereof in § 424.530(a)(6)(iii) that no denial Which, if any, factors should be satisfied the criteria set forth in would occur under paragraph (a)(6)(ii) if given greater or lesser weight than the debt was repaid in full. others. § 401.607 and agreed to an extended • CMS-approved repayment schedule for We explained that the difference Whether a minimum or maximum the entire outstanding Medicare debt; between our proposed § 424.530(a)(6)(ii) threshold for consideration should be agreement to such a schedule would and the existing language in established for the ‘‘amount of Medicare indicate that the provider, supplier, or § 424.530(a)(6) was that the latter debt’’ and ‘‘percentage of ownership’’ owner is not seeking to avoid its debts involved situations in which the current factors. We also solicited comments on to Medicare. The provider, supplier, or owner, physician or non-physician whether paragraph (ii) should apply to owner thereof could also avoid denial practitioner had a Medicare debt. the enrolling entity’s managing by repaying the debt in full. We also Section 424.530(a)(6)(ii), on the other employees (as that term is defined in solicited comment on whether the scope hand, would focus on the entity with § 424.502), corporate officers, corporate of our proposed revision to which the enrolling provider, supplier, or owner thereof had a prior directors, and/or board members. § 424.530(a)(6)(i) should be expanded to Many of the comments we received include the enrolling provider or relationship. That is, the ‘‘prior entity’’ had a debt to Medicare rather than the regarding our proposed changes to supplier’s managing employees (as that § 424.530(a)(6) were applicable to two or term is defined in § 424.502), corporate enrolling provider, supplier, or owner thereof. We offered the following more of the proposals. Hence, we have officers, corporate directors, and/or summarized and collectively listed all board members. illustration: Provider X is applying for enrollment in Medicare. Y owns 50 of the comments we received on Second, we proposed to replace the percent of X. Y was also a 20 percent § 424.530(a)(6). Our responses to these term ‘‘overpayment,’’ as it is currently owner of Supplier Entity Z, which was comments are as follows: used in § 424.530(a)(6), with ‘‘Medicare revoked from Medicare 12 months ago Comment: Several commenters debt’’ in our regulatory text. We noted and currently has a large outstanding supported CMS’s proposal to use the that ‘‘overpayment’’ more appropriately Medicare debt. The current version of term ‘‘Medicare debt’’ instead of describes the types of debts that are § 424.530(a)(6) could not be used to ‘‘overpayment’’ for the reasons specified subject to (a)(6). We also stated that our deny X’s application because X’s in the proposed rule, with one denial authority under proposed (a)(6) current owner (Y) does not have a commenter stating that the term should include all forms of debt to Medicare debt. Rather, the entity with ‘‘overpayment’’ has long seemed Medicare, not just overpayments. We which Y was affiliated (Z) has the debt. inaccurate and, at times, confusing to solicited comments on this proposed However, under proposed Medicare physicians. One commenter, change as well as on the appropriate § 424.530(a)(6)(ii), and assuming the encouraged CMS to more thoroughly scope of the term ‘‘Medicare debt’’ for other criteria are met, X’s application define ‘‘Medicare debt.’’ Another purposes of § 424.530(a)(6). could be denied because X’s owner was commenter recommended that the term Third, we proposed to add a new an owner of a supplier (Z) that has a ‘‘Medicare debt’’ be interpreted paragraph (ii) to § 424.530(a)(6) Medicare debt. We cited section liberally. permitting a denial of Medicare 1866(j)(5) of the Act, codified at 42 Response: We appreciate the enrollment if the provider, supplier, or U.S.C. 1395cc(j)(5) and which was commenters’ support for our proposed current owner (as defined in § 424.502) established by section 6401(a)(3) of the change. We did not propose a definition thereof was the owner (as defined in Affordable Care Act, as authority for of ‘‘Medicare debt’’ and do not do so in § 424.502) of a provider or supplier that proposed paragraph (ii). this final rule; rather, we had sought had a Medicare debt that existed when We proposed the following as factors comments on the appropriate scope of the latter’s enrollment was voluntarily we would consider in determining the term for purposes of applying or involuntarily terminated or revoked, whether an ‘‘undue risk’’ exists under § 424.530(a)(6). and the following criteria are met: paragraph (ii): (1) The amount of the With respect to § 424.530(a)(6)(i) and • The owner left the provider or Medicare debt; (2) the length and (ii), we agree that the term ‘‘Medicare supplier that had the Medicare debt timeframe that the enrolling provider, debt’’ should be interpreted broadly. An within 1 year of that provider or supplier, or owner thereof was an owner existing Medicare liability, simply put, supplier’s voluntary termination, of the prior entity; and (3) the is an unpaid Medicare debt. As such, an involuntary termination, or revocation. percentage of the enrolling provider’s, existing debt to the Medicare program— • The Medicare debt has not been supplier’s, or owner’s ownership of the regardless of its type, or how the debt fully repaid. prior entity. We also noted that the was incurred or discovered—may result • We determine that the uncollected scope and breadth of ownership in the denial of Medicare enrollment debt poses an undue risk of fraud, interests would vary widely (for under § 424.530(a)(6). The only waste, or abuse. example, the amount of ownership; exceptions to this would be the

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situations described in proposed privileges simply because the debt is same extent as someone who has been § 424.530(a)(6)(iii) regarding: (1) The being appealed. Second, permitting a 50 percent owner for 5 years. satisfaction of the criteria set forth in providers and suppliers to obtain Response: We appreciate the § 401.607 and the agreement to an additional Medicare billing privileges if commenter’s support and, as stated, will extended repayment schedule for the a Medicare debt is being appealed may apply § 424.530(a)(6)(ii) in a fair and entire outstanding Medicare debt; or (2) encourage providers and suppliers to careful manner. We also agree with the the repayment of the debt in full. We are file meritless appeals simply to avoid commenter’s suggestion to include as a finalizing these two exceptions. and circumvent the application of factor the party’s ownership status at the We do not believe that specific types § 424.530(a)(6)(ii). time the debt was incurred. We have of Medicare debt should be articulated Comment: A commenter expressed added this as a factor at in the text of § 424.530(a)(6). Since the concern that an expansion of the word § 424.530(a)(6)(C)(5), although a finding particular facts of each case will differ, ‘‘overpayment’’ to the word ‘‘debt’’ that the party was not an owner when we must retain the flexibility to address could lead to inequitable results, such the debt was incurred will not in and of a variety of situations. We also note that as denials due to debts stemming from— itself result in § 424.530(a)(6)(ii)’s non- our denial authority under (1) coordination of benefits issues with application. All factors and particular § 424.530(a)(6) is discretionary, and secondary payers; and (2) meaningful circumstances will be considered before there may be instances when a denial use audits. The commenter urged CMS a denial under § 424.530(a)(6)(ii) is under § 424.530(a)(6) might not be to strictly narrow the scope of whatever imposed. warranted. For instance, under term it finalizes to ensure that Comment: A commenter expressed § 424.530(a)(6)(ii), our determination as physicians do not unreasonably concern that a physician group may not to whether the debt poses an undue risk experience enrollment denials. be aware that an individual physician to the Medicare program will include Response: As alluded to earlier, we has unpaid Medicare debt related to consideration of the three factors we believe that any type of Medicare debt— previous affiliations. The commenter proposed: (1) The amount of the regardless of how it was incurred or urged CMS to make such information discovered—is of concern to us. It is for Medicare debt; (2) the length and available in an accessible database. this reason that we are not excluding timeframe of the ownership interest; Response: While we understand the particular types of debts (such as those and (3) the percentage of ownership commenter’s concern, it is ultimately to which the commenter refers) from interest—as well as two additional the hiring provider or supplier’s factors that we discuss in more detail § 424.530(a)(6)’s scope. Nevertheless, we responsibility to perform a thorough later in this section—specifically; (4) do not believe that our intended use of review of the physician’s background, whether the Medicare debt is currently the term ‘‘Medicare debt’’ will lead to including his or her prior affiliations. being appealed; and (5) whether the inequitable results, for we will only We do not believe that such a review provider was an owner when the debt exercise our discretion under should be dependent upon the creation was incurred. (These factors will be § 424.530(a)(6) in a careful and of a publicly available database. added at § 424.530(a)(6)(ii)(C).) We will consistent manner. make all final determinations regarding Comment: Several commenters did Comment: A commenter disagreed § 424.530(a)(6)(i) and (ii), and may not support expanding § 424.530(a)(6)’s with our proposal to add conclude after reviewing the relevant purview to include the enrolling entity’s § 424.530(a)(6)(ii), contending that CMS factors that a particular denial under current managing employees, corporate did not explain why it—(1) needs this § 424.530(a)(6)(i) is unwarranted. officers, directors, or board members. new authority; and (2) cannot collect a Comment: A commenter suggested They contended that such an expansion debt through the Federal Payment Levy that CMS limit the term ‘‘Medicare would be excessively broad and Program. The commenter also requested debt’’ to those debts that have unnecessarily complicated. CMS to explain why it did not propose undergone and completed the CMS Response: We disagree that such an revoking existing providers and appeals process and final administrative expansion would be overly broad and suppliers that have Medicare adjudication; the commenter complex. To nonetheless ensure that we overpayments. specifically requested that the phrase can focus on the implementation of our Response: Our rationale for the ‘‘after final administration adjudication’’ revisions to § 424.530(a)(6), we have proposed addition of § 424.530(a)(6)(ii) be inserted into a definition of decided not to include the enrolling was contained in the preamble of the ‘‘Medicare debt.’’ Otherwise, the entity’s current managing employees, proposed rule and is restated earlier in commenter stated, honest and legitimate corporate officers, directors, or board this final rule. While we are aware of providers and suppliers could be members within the scope of the authority furnished by the Federal prohibited from expanding or selling § 424.530(a)(6) at this time, although we Payment Levy Program, the issue is not their practices based upon a single may consider doing so via future merely the collection of existing claim determination. rulemaking. Medicare debts; it is also the need to Response: We have added at Comment: A commenter expressed prevent the accumulation of additional § 424.530(a)(6)(ii)(C)(4) the appeal status general support for our proposed Medicare debts. We believe that our of the debt as a factor in the § 424.530(a)(6)(ii) and stated that CMS denial authority under determination of whether the debt poses identified the appropriate factors to § 424.530(a)(6)(ii) will be an important an undue risk to Medicare. However, we consider in this respect. However, the step in this direction. are not wholly excluding debts that are commenter did: (1) Suggest that CMS We did not propose to incorporate a being appealed from § 424.530(a)(6)’s also adopt as a factor whether or not the new revocation reason regarding application for two reasons. First, a person was an owner at the time the Medicare debts that would apply to provider or supplier with a Medicare debt was incurred; and (2) urge CMS to currently enrolled providers (for debt (particularly a large debt) that exercise its discretion regarding example, via revalidation), for this is a poses an undue risk to the Medicare § 424.530(a)(6)(ii) fairly and carefully; different situation than what is being program should not be given an the commenter, citing an example, described here. However, we may automatic opportunity to incur future argued that a 5 percent owner for 6 consider establishing such a revocation debts with additional Medicare billing months should not be penalized to the reason via future rulemaking.

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Comment: A commenter supported complexities of the new coordinated commenter stated that Transmittal 469 the denial of enrollment of providers care models that are evolving pursuant contained a $1,500 threshold—which and suppliers that have existing to payment and delivery reform the commenter believed was too low— Medicare debts that have not been fully advanced by the Affordable Care Act. yet the proposed rule contained no such repaid or if the provider or supplier is The commenter stated that denials threshold and does not define the scope not current in its existing repayment under our proposed provision could be of the overpayments that would be schedule. Yet the commenter urged frequent because many of today’s subject to our proposed provisions. CMS to exclude from § 424.530(a)(6)’s systems of health care are diverse, Response: The publication of purview debts that: (1) Are currently geographically large, and encompass Transmittal 469—which has since been within a CMS-approved appeals numerous entities and groups. rescinded and replaced by Transmittal process; and (2) have not been forgiven Response: We are adopting as a factor 479—did not violate the APA. The by CMS due to financial considerations. in our § 424.530(a)(6)(ii) determinations current version of § 424.530(a)(6) was Other commenters, too, suggested that whether or not the person was an owner subject to public notice and comment debts that are currently being appealed at the time the debt was incurred. In prior to its enactment. Transmittal 479 or are part of an extended repayment addition, we will only deny a Medicare adds guidance regarding existing plan should be exempt from application under § 424.530(a)(6)(ii) § 424.530(a)(6) to chapter 15 of our § 424.530(a)(6)’s application. With after careful review of all the factors Program Integrity Manual (CMS Pub. respect to appeals, one commenter associated with a particular situation. 100–08). contended that the Congress’ passage of We believe these actions may alleviate Upon publication of this final rule, we section 935 of the Medicare to some extent the commenters’ will revise CMS Publication 100–08, Modernization Act (MMA) envisioned a concerns about § 424.530(a)(6)(ii)’s chapter 15, to ensure that the guidance congressional intent to permit application. to our contractors and the public is physicians to delay repaying an Comment: A commenter requested consistent with our changes to overpayment pending the completion of that CMS furnish evidence that the § 424.530(a)(6). problem of suppliers departing the appeals process. Comment: A commenter offered Medicare with large, unpaid Response: As explained earlier, we several suggestions regarding our overpayments and then re-enrolling in will consider a debt’s appeal status in proposed changes to § 424.530(a)(6). Medicare exists with respect to our determination of whether the debt First, the commenter recommended that poses an undue risk to the Medicare physicians and group practices. CMS exclude from § 424.530(a)(6)’s program under § 424.530(a)(6)(ii). In Response: As explained in the scope those debts resulting from addition, we will exclude from proposed rule and earlier in this final contractor error or from retroactive § 424.530(a)(6)(i) and (ii) those rule, the OIG’s November 2008 Early changes made by CMS or the Congress. situations where the enrolling provider, Alert Memorandum titled ‘‘Payments to Second, the commenter suggested that supplier, or owner thereof meets the Medicare Suppliers and Home Health CMS establish a debt monetary criteria of § 401.607 and agrees to an Agencies Associated with ‘Currently threshold below which § 424.530(a)(6) extended repayment schedule for the Not Collectible’ Overpayments’’ (OEI– would not apply; the commenter cited entire outstanding Medicare debt. While 06–07–00080) cautioned that DMEPOS the $1,500 threshold set forth in the we are unclear as to the commenter’s suppliers with outstanding Medicare suggestion that debts that CMS has not debts may inappropriately receive aforementioned Transmittal 469 as an forgiven due to financial considerations Medicare payments by, among other example. Third, the commenter be excluded from our § 424.530(a)(6) means, operating businesses that are suggested that CMS establish an determinations, we can assure the publicly fronted by business associates, ownership percentage threshold below commenter that we will apply family members, or other individuals which § 424.530(a)(6) would not apply; § 424.530(a)(6)(i) and (ii) in a careful posing as owners. We also noted our the commenter recommended 20 and judicious manner. receipt of reports of providers, percent. The commenter stated that We do not believe that our revisions suppliers, and owners thereof such thresholds would foster to § 424.530(a)(6) are inconsistent with accumulating large Medicare debts, consistency and assist CMS’s efforts to section 935 of the MMA. Our provisions departing Medicare, and then curb fraud and abuse without address enrollment denials, not attempting to reenter the program unnecessarily burdening providers and recoupment. Nothing in § 424.530(a)(6) through other channels. suppliers that have small debts. requires a provider to repay an Comment: A commenter expressed Response: We mentioned earlier that overpayment prior to the completion of concern with CMS’s publication of the amount of the debt and the the appeals process. Transmittal 469, which operationalizes percentage of ownership will be factors Comment: Several commenters the current version of § 424.530(a)(6). in our § 424.530(a)(6)(ii) determinations, opposed our proposed The commenter contended that CMS although specific thresholds will not be § 424.530(a)(6)(ii), contending that the did not abide by the Administrative established due to the need to maintain provision would potentially punish Procedure Act (APA) in issuing flexibility to address various situations. persons and entities who: (1) Were not Transmittal 469 because it did not use In terms of contractor errors, we will be responsible for the debt; or (2) had only the prescribed notice and public including the debt’s appeal status as a very limited association with the party comment process. Another commenter another factor. that was responsible for the debt. One urged CMS to retract Transmittal 469, We are not adding retroactive changes commenter noted that our proposed contending that certain policies in the as a factor because we are unclear as to criteria for denying enrollment under transmittal conflict with the contents of the types of situations to which the § 424.530(a)(6)(ii) did not take into our proposed rule, thereby causing commenter is referring. account whether the enrolling provider confusion in the provider community. Comment: A commenter requested or supplier is actually responsible for Another commenter sought clarification that CMS identify the enrollment the debt. Another commenter contended as to how Transmittal 469 would applications and types of enrollment that our proposal is overreaching and interact with our proposed revisions to changes that would be impacted by our exhibits a lack of understanding of the § 424.530(a)(6). As an example, the proposed revisions to § 424.530(a)(6).

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Response: Initial CMS–855 make an individual determination— ++ Whether the enrolling provider, applications are the only applications based on the factors set forth at supplier, or owner thereof was an owner subject to § 424.530(a)(6). § 424.530(a)(6)(ii)(C)—as to whether the of the prior entity at the time the Comment: A commenter expressed debt in question poses an undue risk. If Medicare debt was incurred. support for our proposed revisions to the debt, after our analysis, does not • To ensure consistency in § 424.530(a)(6), stating that this will present such a risk, we will not deny the application, in § 424.530(a)(6)(iii) we are lead to increased scrutiny of the enrollment application under combining proposed paragraphs (A) and ownership and leadership of provider § 424.530(a)(6)(ii). (B)(1) into a revised paragraph (A) that and supplier organizations. Comment: A commenter noted that will read as follows: ‘‘(1) Satisfies the Response: We appreciate the certain DMEPOS suppliers are subject to criteria set forth in § 401.607; and (2) commenter’s support. a $50,000 bond requirement. As such, agrees to a CMS-approved extended Comment: A commenter contended there is an existing avenue—outside of repayment schedule for the entire that our proposed § 424.530(a)(6) denying enrollment—to address CMS’s outstanding Medicare debt.’’ Proposed exceeds the statutory authority granted concerns regarding uncollected debts. paragraph (B)(2) will be redesignated as to the Secretary in 42 U.S.C. Response: Though it is true that new paragraph (B) and will read as 1395cc(j)(5), which provides that the certain DMEPOS suppliers must obtain follows: ‘‘Repays the debt in full.’’ Secretary may deny an application a surety bond in order to enroll in based on a disclosure of a current or Medicare, there are at least 1.4 million 3. Felony Convictions previous affiliation, subject to a finding other Medicare providers and suppliers Under § 424.530(a)(3) and of ‘‘undue risk.’’ At a minimum, the that do not. Moreover, the presence of § 424.535(a)(3), respectively, a provider commenter recommended, CMS should a surety bond does not in itself or supplier’s Medicare enrollment may revise the proposed regulatory text to: guarantee that the full amount of a be denied or revoked if the provider or (1) Include the criteria for a finding of Medicare debt will be recovered via the supplier—or any owner of the provider undue risk as described in the proposed bond. Therefore, we need additional or supplier—has, within the 10 years rule’s preamble; and (2) state that a mechanisms—such as those we are preceding enrollment or revalidation of denial of enrollment ‘‘may be finalizing with respect to enrollment, been convicted of a federal warranted,’’ rather than ‘‘is warranted’’. § 424.530(a)(6)—to help ensure that or state felony offense that CMS has Response: We agree with the Medicare debts are repaid and that determined to be detrimental to the best commenter’s first recommendation and providers and suppliers with unpaid interests of the Medicare program and will revise the regulatory text debts do not incur additional Medicare its beneficiaries. Under accordingly. We note that the second debts through the establishment of § 424.535(a)(3)(i), as currently codified, recommendation is moot because the additional enrollments. such offenses include the following: regulatory text does not contain the Given the comments received and the • Felony crimes against persons; such phrase ‘‘is warranted.’’ preceding discussion, we are finalizing as murder, rape, assault, and other We disagree with the assertion that our proposed revisions to similar crimes for which the individual our changes to § 424.530(a)(6) exceed § 424.530(a)(6), albeit with three was convicted, including guilty pleas our statutory authority. Our expansion revisions to § 424.530(a)(6)(ii)(C) and and adjudicated pretrial diversions. of § 424.530(a)(6)(i)—the existing one change to § 424.530(a)(6)(iii): • Financial crimes, such as extortion, version of which has been in effect since • We are revising embezzlement, income tax evasion, 2009—and our addition of § 424.530(a)(6)(ii)(A) to state: ‘‘The insurance fraud and other similar § 424.530(a)(6)(ii) are consistent with owner left the provider or supplier with crimes for which the individual was the authority in section 1866(j)(1) and the Medicare debt within 1 year before convicted, including guilty pleas and (5) of the Act (42 U.S.C. 1395cc(j)(1) and or after that provider or supplier’s adjudicated pretrial diversions. (5)). It is also consistent with our voluntary termination, involuntary • Any felony that placed the general rulemaking authority in sections termination or revocation.’’ The Medicare program or its beneficiaries at 1102 and 1871 of the Act. insertion of ‘‘with’’ in lieu of ‘‘that had’’ immediate risk, such as a malpractice Comment: A commenter supported and the insertion of ‘‘before or after’’ are suit that results in a conviction of CMS’s proposal to extend merely intended to clarify our original criminal neglect or misconduct. • § 424.530(a)(6)(i) to other provider and intention that the 1-year period applies Any felonies that would result in supplier entities. The commenter stated to separations occurring prior to or after mandatory exclusion under section that since physicians are in the the provider or supplier’s termination or 1128(a) of the Act. ‘‘limited’’ screening level in revocation. (Section 424.530(a)(3)(i) mirrors § 424.518(a), it is sensible to include • To § 424.530(a)(6)(ii)(C) will be § 424.535(a)(3)(i) with the exception of higher risk providers and suppliers in added a second sentence that reads: ‘‘In paragraph (D), which uses the phrase: that category as well. making this determination, we consider ‘‘Any felonies outlined in section 1128 Response: We appreciate the the following factors:’’ of the Act.’’) commenter’s support. • New paragraphs (1) through (5) will We proposed several changes to Comment: A commenter stated that be added to § 424.530(a)(6)(ii)(C) §§ 424.530(a)(3) and 424.535(a)(3). CMS proposed § 424.530(a)(6)(ii) is identifying these factors. The First, we proposed to modify the list based on a false premise that any paragraphs state the following: of felonies in each section such that any uncollected debt poses an undue risk of ++ The amount of the Medicare debt. felony conviction that we determine to fraud, waste or abuse and does not take ++ The length and timeframe that the be detrimental to the best interests of into consideration the due process enrolling provider, supplier, or owner the Medicare program and its rights that should be afforded to thereof was an owner of the prior entity. beneficiaries would constitute a basis providers through the appeals process. ++ The percentage of the enrolling for denial or revocation. We stated that Response: We do not believe that provider’s, supplier’s, or owner’s considering the very serious nature of every uncollected debt poses an undue ownership of the prior entity. any felony conviction, our authority in risk of fraud, waste or abuse. As we ++ Whether the Medicare debt is §§ 424.530(a)(3)(i) and 424.535(a)(3)(i) stated in the proposed rule, we will currently being appealed. should not be restricted to the categories

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of felonies identified in (a)(3)(i); this factor into account in such law classifications of certain criminal was especially true considering that the determinations. actions can vary widely. Therefore, we types of felony offenses often vary from Although we did propose to expand must maintain the flexibility to address state to state. the categories of felonies that can serve all potential situations. Second, we proposed to expand as the basis of a denial or revocation, we Comment: A commenter supported §§ 424.530(a)(3) and 424.535(a)(3) to are not suggesting that every felony our proposed expansion of include felony convictions against a conviction will automatically result in §§ 424.530(a)(3) and 424.535(a)(3), provider or supplier’s ‘‘managing such an action. Each case will be believing it was a step forward in CMS’s employee,’’ as that term is defined in carefully reviewed on its own merits attempts to prevent Medicare fraud on § 424.502. Since certain managing and, as the commenter recommends, we the front end. employees of a provider or supplier may will act judiciously and with Response: We appreciate the have as much (if not more) day-to-day reasonableness in our determinations. commenter’s support. control as an owner, we explained that Comment: Several commenters Comment: A commenter questioned managing employees should be held to disagreed with CMS’s proposed whether CMS will revoke the Medicare the same standard as owners. expansion of §§ 424.530(a)(3) and billing privileges of a physician who is Third, we proposed to revise the 424.535(a)(3) to include all felonies. convicted of a non-violent firearm language ‘‘within the 10 years preceding They contended that (1) our proposal is felony. enrollment or revalidation of arbitrary and an abuse of discretion; and Response: The determination of enrollment’’ in § 424.530(a)(3) and (2) CMS offered no facts to support its whether a particular conviction will or § 424.535(a)(3) to ‘‘within the preceding proposal. One commenter stated that will not result in the revocation or 10 years.’’ The existing language has some felonies—such as those related to denial of Medicare enrollment will caused confusion as to how the 10-year drugs, alcohol, or traffic violations— depend upon the specific facts of each period is calculated. We believe that our could not reasonably be considered as individual situation. revised wording clarifies this timeframe. detrimental to the Medicare program, Comment: A commenter expressed Fourth, we proposed to clarify in yet CMS would have the discretion to concern that CMS will deny or revoke §§ 424.530(a)(3) and 424.535(a)(3) that deny or revoke a provider for such a billing privileges under § 424.530(a)(3) the term ‘‘convicted’’—as used in these felony. This could lead to unfair results, or § 424.535(a)(3), respectively, such two sections—has the same definition as particularly if a sentence of less than 3 that a physician’s right to participate in the one set forth in 42 CFR 1001.2. This years (which is the maximum re- the Medicaid program will be affected. was intended to address the numerous enrollment bar period) is imposed. The Response: The commenter correctly inquiries we have received regarding the commenter—as well as several other notes that under § 455.416(c), a State proper interpretation of the term commenters—requested that CMS Medicaid agency must deny enrollment ‘‘convicted’’ as it relates to reconsider its proposal and: (1) Furnish or terminate the enrollment of any §§ 424.530(a)(3) and 424.535(a)(3). a definition of ‘‘detrimental to the provider whose Medicare enrollment is The following is a summary of the Medicare program or its beneficiaries;’’ revoked for cause, although there is no comments received regarding these four and (2) exclude felonies related to corresponding requirement in cases proposed changes and our responses drugs, alcohol, or traffic violations from where a provider is denied enrollment thereto. the scope of §§ 424.530(a)(3) and in the Medicare program. As noted Comment: A commenter urged CMS 424.535(a)(3). previously, we will only exercise our to retain the current language in Response: We disagree that our authority under § 424.530(a)(3) or §§ 424.530(a)(3) and 424.535(a)(3) that proposal was arbitrary or an abuse of § 424.535(a)(3) after consideration of the states that CMS will consider the discretion. Section 4302 of the Balanced relative seriousness of the underlying severity of the underlying offense before Budget Act (BBA) amended section offense and all of the circumstances denying or revoking enrollment. The 1866 of the Act to furnish CMS with surrounding the conviction. commenter contended that while some broad authority to refuse to enter into Comment: A commenter contended felony convictions may bear directly on Medicare agreements with individuals that our proposed expansions of a provider’s ability to care for patients, or entities convicted of felonies that the §§ 424.530(a)(3) and 424.535(a)(3) other convictions may be irrelevant to Secretary determines to be detrimental violate the principles of federalism patient care—especially those that may to the best interests of the program or established in Executive Order 13132 be as many as 10 years old. In all program beneficiaries. We identified in 3(b), 3(c) and 3(d) and diminishes the instances, the commenter added, CMS the proposed rule the legal grounds for role of state licensing boards across the should employ its denial and revocation all of our proposed enrollment country. The commenter requested that authority under §§ 424.530(a)(3) and provisions and explained the policy CMS furnish justification for expanding 424.535(a)(3) judiciously and should rationale for each of them. For instance, the role of the federal government into use a reasonableness standard in making we indicated the need for flexibility matters best resolved by state licensing such determinations. with respect to the application of boards. Response: Regardless of whether the §§ 424.530(a)(3)(i) and 424.535(a)(3)(i) Response: We disagree with the ‘‘severity of the underlying offense’’ when considering that categories of commenter. As mentioned earlier, language is present in §§ 424.530(a)(3) felony offenses often vary from state to section 4302 of the BBA (which and 424.535(a)(3), we have always state. We do not believe that felonies amended section 1866 of the Act) gave considered—and will continue to do relating to drugs, alcohol, or traffic CMS broad authority to refuse to enter so—the seriousness of the offense in violations cannot be detrimental to the into Medicare agreements with determining whether a denial or best interests of Medicare beneficiaries, individuals or entities convicted of revocation is warranted under and thus should be automatically felonies that the Secretary determines to §§ 424.530(a)(3) and 424.535(a)(3). excluded from the purview of be detrimental to the best interests of Therefore, we do not believe that §§ 424.530(a)(3) and 424.535(a)(3). the program or program beneficiaries. including the ‘‘severity’’ verbiage in While certain felonies carry different, Additionally, our changes to §§ 424.530(a)(3) and 424.535(a)(3) is potentially more severe penalties than §§ 424.530(a)(3) and 424.535(a)(3) in no necessary, for CMS already takes this others, each case is distinct and state way impair or infringe upon a state

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licensing agency’s ability to take or not threaten its integrity, and we believe our ++ Any felony that placed the take action on a provider’s licensure expansion of §§ 424.530(a)(3) and Medicare program or its beneficiaries at status in the event of a criminal 424.535(a)(3) is an important step immediate risk, such as a malpractice conviction. Such a decision will—as it towards this end. suit that results in a conviction of should—remain within the purview of Comment: A commenter stated that criminal neglect or misconduct. the state. providers seeking to hire physicians or ++ Any felonies that would result in Comment: A commenter stated that managing employees must have clear mandatory exclusion under section CMS should not deny or revoke a rules as to the types of felonies that 1128(a) of the Act.’’ supplier’s enrollment based on CMS would consider detrimental to the Section 424.535(a)(3) will state that § 424.530(a)(3) or § 424.535(a)(3) if the Medicare program. The commenter the provider, supplier, or any owner or supplier made a good-faith effort—using favored retaining the current versions of managing employee of the provider or generally accepted employee screening §§ 424.530(a)(3) and 424.535(a)(3) supplier was, within the preceding 10 and hiring practices—to ensure that an because CMS identifies specific felonies years, convicted (as that term is defined employee did not have a felony that fall within the scope of these two in 42 CFR 1001.2) of a federal or state conviction. The commenter added, if provisions. If, the commenter added, felony offense that CMS determines is CMS desires comprehensive screening CMS seeks to include additional detrimental to the best interests of the for felony convictions, it should work categories of felonies, it should use the Medicare program and its beneficiaries. with other government agencies to formal rulemaking process to propose Offenses include, but are not limited in develop a nationwide database so that these new categories and allow the scope or severity to— employers have one reliable source from public to comment. Another commenter ++ Felony crimes against persons, which to screen their employees for stated that our proposed revisions to such as murder, rape, assault, and other felony convictions. The commenter §§ 424.530(a)(3) and 424.535(a)(3) fail to similar crimes for which the individual further stated that recent enforcement provide adequate notice of the types of was convicted, including guilty pleas actions by the United States Equal felony convictions that may lead to a and adjudicated pretrial diversions. ++ Financial crimes, such as Employment Opportunity Commission denial or revocation of Medicare extortion, embezzlement, income tax (EEOC) have targeted companies for enrollment. evasion, insurance fraud and other alleged discrimination against minority Response: In light of the differences in applicants based on policies to exclude similar crimes for which the individual state laws, it would be impossible to was convicted, including guilty pleas people from employment based on a identify in our revised §§ 424.530(a)(3) criminal record. CMS’s revisions to and adjudicated pretrial diversions. and 424.535(a)(3) every felony offense ++ Any felony that placed the §§ 424.530(a)(3) and 424.535(a)(3) that could result in a denial or should be reconciled with the EEOC’s Medicare program or its beneficiaries at revocation; indeed, if we accepted the current enforcement position. immediate risk, such as a malpractice commenter’s suggestion, hundreds of Response: We disagree with the suit that results in a conviction of commenter. The core issue is not crimes—perhaps even identified on a criminal neglect or misconduct. whether the organization made a good- state-by-state basis—might have to be ++ Any felonies that would result in faith effort to determine whether a listed. Nevertheless, we agree that mandatory exclusion under section current or prospective owner or retaining the lists of felonies in the 1128(a) of the Act. managing employee has a felony current versions of §§ 424.530(a)(3) and (Revocations based on felony conviction. Rather, it is whether the 424.535(a)(3) could prove helpful in convictions are for a period to be owner or managing employee has such identifying for the public some of the determined by the Secretary, but not a conviction and whether the conviction felonies that may serve as a basis for less than 10 years from the date of poses a risk to the Medicare program or denial or revocation, respectively. conviction if the individual has been its beneficiaries. In other words, it is the Therefore, we are combining our convicted on one previous occasion for felony conviction itself—not whether proposed revisions to §§ 424.530(a)(3) one or more offenses.) the organization screened for such and 424.535(a)(3) with the existing Note that the previous revisions convictions—that is the relevant matter. language in both provisions. contain two important changes. First, We note that there are many resources Section 424.530(a)(3) will state that the current language in §§ 424.530(a)(3) available to help organizations ascertain the provider, supplier, or any owner or and 424.535(a)(3) refers to a felony one’s criminal background history; a managing employee of the provider or offense that CMS ‘‘has determined to be CMS-initiated project to establish a supplier was, within the preceding 10 detrimental to the best interests of the single, all-encompassing felony database years, convicted (as that term is defined program and its beneficiaries.’’ for the use of employers is not in 42 CFR 1001.2) of a Federal or State (Emphasis added.) Consistent with our necessary. We further add that CMS is felony offense that CMS determines is proposed revisions to §§ 424.530(a)(3) not requiring, through its expansion of detrimental to the best interests of the and 424.535(a)(3), we are revising this § 424.530(a)(3) and § 424.535(a)(3), that Medicare program and its beneficiaries. language to include any felony offense providers and suppliers perform Offenses include, but are not limited in that CMS ‘‘determines is detrimental to criminal background checks of their scope or severity to— the best interests of the Medicare current or prospective owners or ++ Felony crimes against persons, program and its beneficiaries.’’ managing employees as part of the such as murder, rape, assault, and other (Emphasis added.) This distinction is enrollment process. similar crimes for which the individual important. The phrase ‘‘has We do not believe that the EEOC’s was convicted, including guilty pleas determined’’ incorrectly implies that the recent enforcement actions mandate that and adjudicated pretrial diversions. only felonies that may serve as a basis prospective employers discourage ++ Financial crimes, such as for denial or revocation are those taking into account a prospective extortion, embezzlement, income tax specifically listed in §§ 424.530(a)(3) employee’s criminal background evasion, insurance fraud and other and 424.535(a)(3). We believe that the history. Our principal focus in this rule similar crimes for which the individual term ‘‘determines’’ makes clearer that is to protect the Medicare program from was convicted, including guilty pleas the lists of felonies in these two individuals and entities that could and adjudicated pretrial diversions. provisions are not exhaustive and

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include other felonies that CMS may practices in place; (3) the provider or preceding the effective date of the deem as meeting the ‘‘detrimental’’ supplier has not submitted a corrective enrollment application.’’ standard based on the particular facts of action plan; (4) the disruption to Response: While we appreciate the the case. Second, and to further beneficiaries does not outweigh the commenter’s support, we disagree with emphasize CMS’ discretion to use provider or supplier’s termination due the commenter’s suggestion because it felonies other than those specified in to one individual; and (5) CMS has would be difficult to use a future date— §§ 424.530(a)(3) and 424.535(a)(3) as already established and implemented a that is, a date that could be well after grounds for denial or revocation, we comprehensive state and federal the date the application was have included the phrase ‘‘but are not database that is available to providers submitted—as the 10-year cut-off point. limited in scope or severity’’ within and suppliers. After a careful consideration of the both provisions. Response: We disagree with the comments and in light of the previous However, notwithstanding these commenter’s suggestion. As stated discussion, we are revising changes, we again stress that we will earlier, it is the felony conviction itself §§ 424.530(a)(3) and 424.535(a)(3) as only exercise our authority under and not the extent of the organization’s follows: §§ 424.530(a)(3) and 424.535(a)(3) after efforts in performing a criminal Section § 424.530(a)(3) will state that very careful consideration of the relative background check that is the crucial the provider, supplier, or any owner or seriousness of the underlying offense consideration. managing employee of the provider or and all of the circumstances Comment: To improve transparency— supplier was, within the preceding 10 surrounding the conviction. It should in and since the OIG publicly posts years, convicted (as that term is defined no way be assumed that every felony information about individuals and in 42 CFR 1001.2) of a federal or state conviction will automatically result in a entities excluded from federal health felony offense that CMS determines is denial or revocation. care programs—a commenter suggested detrimental to the best interests of the Comment: A commenter stated that in that CMS post on its provider Medicare program and its beneficiaries. proposing its expansion of enrollment Web page the name and NPI Offenses include, but are not limited in §§ 424.530(a)(3) and 424.535(a)(3) to (if applicable) of any person who has scope or severity to— include all felonies, CMS did not had his or her Medicare billing ++ Felony crimes against persons, comply with section 1(b)(7) of Executive privileges denied or revoked based upon such as murder, rape, assault, and other Order 12866 and base its proposal on a felony conviction; the date of the similar crimes for which the individual reasonably obtainable scientific, denial or revocation and, if applicable, was convicted, including guilty pleas technical and other information. The the length of the re-enrollment bar and adjudicated pretrial diversions. commenter recommended that CMS should be listed as well. ++ Financial crimes, such as identify the specific felony reasons in a Response: We appreciate this extortion, embezzlement, income tax new proposed rule. suggestion and may consider it in a evasion, insurance fraud and other Response: We do not agree that our future initiative to the extent it is similar crimes for which the individual proposed changes to §§ 424.530(a)(3) consistent with the Privacy Act. was convicted, including guilty pleas and 424.535(a)(3) violated section Comment: A commenter was and adjudicated pretrial diversions. 1(b)(7) of Executive Order 12866. To the concerned that the expansion of the ++ Any felony that placed the contrary, the changes were based on a felonies encompassed by § 424.535(a)(3) Medicare program or its beneficiaries at careful consideration of the need to would be applied to providers and immediate risk, such as a malpractice ensure that individuals and entities suppliers whose recently submitted suit that results in a conviction of convicted of a felony offense that is revalidation applications were criminal neglect or misconduct. detrimental to the best interests of the approved. The commenter, in other ++ Any felonies that would result in Medicare program and its beneficiaries words, opposed the retroactive mandatory exclusion under section are kept out of the Medicare program. application of our proposed 1128(a) of the Act.’’ For the reasons previously stated, we § 424.535(a)(3). Section 424.535(a)(3) will state that believe it is neither feasible nor Response: Our changes to the provider, supplier, or any owner or practical to identify every conceivable § 424.535(a)(3) do not preclude CMS managing employee of the provider or felony offense that could result in the from reviewing the enrollment records supplier was, within the preceding 10 application of §§ 424.530(a)(3) or of currently enrolled providers and years, convicted (as that term is defined 424.535(a)(3). suppliers to determine if the provider, in 42 CFR 1001.2) of a federal or state Comment: A commenter supplier, or an owner or managing felony offense that CMS determines is recommended that CMS establish employee thereof has a felony detrimental to the best interests of the protections, such as a knowledge conviction that CMS deems detrimental Medicare program and its beneficiaries. threshold, for suppliers that perform to the best interests of the Medicare Offenses include, but are not limited reasonable due diligence to determine if program or its beneficiaries. However, in scope or severity to— a potential employee has a felony we again stress that not every felony ++ Felony crimes against persons, record. The commenter stated that CMS conviction will necessarily result in a such as murder, rape, assault, and other should work with suppliers that act in denial or revocation. similar crimes for which the individual good-faith to determine if a prospective Comment: A commenter expressed was convicted, including guilty pleas employee has a felony record rather support for our proposed revisions to and adjudicated pretrial diversions. than automatically excluding a supplier. §§ 424.530(a)(3) and 424.535(a)(3). ++ Financial crimes, such as The commenter specifically suggested Response: We appreciate the extortion, embezzlement, income tax adding language to §§ 424.530(a)(3) and commenter’s support. evasion, insurance fraud and other 424.535(a)(3) that, in effect, would Comment: A commenter agreed with similar crimes for which the individual permit a denial or revocation only if: (1) CMS’s proposal to clarify that the was convicted, including guilty pleas The provider or supplier knew or enrollment bar is for felony convictions and adjudicated pretrial diversions. should have known about the ‘‘within the preceding 10 years’’ but ++ Any felony that placed the conviction; (2) the provider or supplier suggested that the date be further Medicare program or its beneficiaries at did not have industry standard hiring clarified as ‘‘within the 10 years immediate risk, such as a malpractice

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suit that results in a conviction of • Whether the provider or supplier on appeal; and (2) finally and fully criminal neglect or misconduct. has any history of ‘‘final adverse adjudicated will be excluded from our ++ Any felonies that would result in actions’’ (as that term is defined in consideration in determining whether mandatory exclusion under section § 424.502). the provider or supplier’s Medicare 1128(a) of the Act. • The length of time over which the billing privileges should be revoked Revocations based on felony pattern has continued. under § 424.535(a)(8)(ii). This is • convictions are for a period to be How long the provider or supplier because, for purposes of determined by the Secretary, but not has been enrolled in Medicare. § 424.535(a)(8)(ii), the claim denial has less than 10 years from the date of With respect to these factors, we been effectively negated. Yet we do not solicited comment on the following: believe a claim denial that fails to meet conviction if the individual has been • convicted on one previous occasion for Whether additional factors should both of these requirements should be one or more offenses. be considered and, if so, what those excluded from our review for two factors should be. reasons. First, excluding claims that are • 4. Abuse of Billing Privileges Which, if any, of these factors currently being appealed could Section 424.535(a)(8) currently states should not be considered. encourage providers and suppliers to • Which, if any, of these factors that a provider or supplier’s Medicare file meritless appeals simply to should be given greater or lesser weight billing privileges may be revoked if the circumvent the application of than others. provider or supplier submits a claim or § 424.535(a)(8)(ii). Second, merely • Whether a minimum or maximum claims for services that could not have because a claim is under appeal does threshold for consideration should be been furnished to a specific individual not necessarily mean it will be established for the ‘‘percentage of claims on the date of service. These instances overturned. denied’’ and ‘‘total number of claims include, but are not limited to, For purposes of this claim denial denied’’ factors. exclusion, the term ‘‘finally and fully situations where the beneficiary is We further solicited comment on deceased, the directing physician or adjudicated’’ means that—(1) the whether there should be a set appeals process has been exhausted; or beneficiary is not in the state or country knowledge standard associated with our when the service was provided, or when (2) the deadline for filing an appeal has proposed provision—for example, passed. the equipment necessary for testing was whether revocation is warranted only if not present where the testing is said to Comment: A number of commenters the provider or supplier submitted the opposed CMS’s proposed have occurred. claims in question with ‘‘reckless § 424.535(a)(8)(ii). They stated that: (1) We proposed to expand this disregard’’ as to their accuracy or the The proposal is arbitrary and subjective revocation reason by adding a new provider ‘‘knew or should have known’’ and grants too much discretion to CMS paragraph (a)(8)(ii) to § 424.535. The that the claims did not meet Medicare and its contractors; (2) CMS failed to existing revocation reason would be requirements. include in its proposed rule a thorough incorporated into a new paragraph The following is summary of the discussion of the factors that would be (a)(8)(i). Proposed new paragraph comments received regarding used in making determinations related (a)(8)(ii) would permit revocation if we § 424.535(a)(8)(ii) and our responses to § 424.535(a)(8)(ii); (3) did not define determine that the provider or supplier thereto: ‘‘pattern or practice’’; and (4) there is has a pattern or practice of billing for Comment: A commenter stated that it nothing in the proposed rule that limits services that do not meet Medicare did not dispute CMS’s right to revoke CMS’s authority under requirements such as, but not limited to, billing privileges if a Medicare provider § 424.535(a)(8)(ii). They added that the requirement that the service be has a pattern of billing for services that despite CMS’s statement in the reasonable and necessary. We explained do not meet Medicare requirements. proposed rule’s preamble that it would that a provider or supplier should be However, the commenter recommended not use this provision to revoke responsible for submitting valid claims that in applying any criteria regarding providers for isolated and sporadic at all times and that the provider or the number of claim denials, CMS claim denials or innocent billing errors, supplier’s repeated failure to do so should take into account the number of there are no safeguards to prohibit CMS poses a risk to the Medicare Trust denials that were overturned on appeal. or its multiple contractors from doing Funds. We note that the responsibility Several other commenters also stated so. The commenters stated that given for submitting valid claims exists that they did not object to CMS’s the complexity of Medicare’s billing and irrespective of whether the provider or proposal, but urged that results of the coding rules and the frequency with supplier itself submits the claims or administrative appeals process be which they change, Medicare providers hires a billing agency to perform this considered as a significant factor before would inevitably submit claims that fail function; in either case, the claims are CMS concludes that a provider has to meet Medicare requirements though submitted on behalf of the provider or engaged in a ‘‘pattern or practice’’ of without any nefarious intent. They supplier. submitting improper claims. Other urged CMS to furnish appropriate, We solicited comment on what commenters stated that due process consistent, and clear guidelines should qualify as a ‘‘pattern or practice’’ mandates that claim denials under regarding billing, coding, and payment under our proposed change. We also appeal be excluded from any policies before implementing proposed several factors we would take measurement that takes into account the § 424.535(a)(8)(ii). Other commenters into account when determining whether number or percentage of denied claims. stated that contractor errors, which can a revocation under § 424.535(a)(8)(ii) is Another commenter questioned whether include a contractor’s misinterpretation warranted including, but not limited to an appeal is considered to be successful or misunderstanding of CMS the following: when it is pursued up to and including requirements, sometimes result in claim • The percentage of submitted claims the Administrative Law Judge (ALJ) denials. that were denied. level. Response: We do not believe that our • The total number of claims that Response: A provider or supplier’s proposal is arbitrary or grants CMS were denied. claim denial that has been both—(1) unlimited discretion. To the contrary, • The reason(s) for the claim denials. fully (rather than partially) overturned and as the commenters noted, we were

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very clear in the preamble of the Response: We disagree that our Response: We disagree with this proposed rule that sporadic billing proposal will have a chilling effect on recommendation. While we concede errors would not result in revocation health care. This rule will not affect that providers in these circumstances under § 424.535(a)(8)(ii). Although we providers that take seriously their often need to learn new LCD policies, did not define ‘‘pattern or practice’’ to responsibilities to submit valid claims claims can be denied for many reasons maintain flexibility to address a variety and to seek clarification when there is unrelated to LCDs. We thus believe it of factual scenarios, we listed several confusion or disagreement involving would be inappropriate to institute a factors that would be considered in our applicable policies. No payer, public or blanket 1-year exemption in such cases, § 424.535(a)(8)(ii) determinations and private, should be required to continue for we would lose the ability during that requested feedback regarding other doing business with a provider or time to take action to address repeated potential factors. Additionally, not only supplier that demonstrates the type of claim denials over a period of time. will CMS (rather than its contractors) clear pattern or practice of billing abuse Again, though, and as we have stated make all such determinations, but also that this rule addresses. Moreover, we elsewhere in this preamble, we § 424.535(a)(8)(ii) will be applied only: do not believe that any additional recognize that Medicare has many rules (1) In situations where the behavior formal notification to the provider of its and requirements regarding billing and could not be considered sporadic; and billing deficiencies prior to the potential coding, and that claims are sometimes (2) after the most careful and thorough application of § 424.535(a)(8)(ii) is submitted in error due to a provider’s consideration of the relevant factors. required. Under our current rules and honest misunderstanding of these These points cannot be stressed enough. practices, by the time CMS would policies. It is not our intention to revoke We recognize that Medicare has many revoke a provider or supplier under billing privileges under rules and requirements regarding billing § 424.535(a)(8)(ii), the provider would § 424.535(a)(8)(ii) for such occasional and coding, and that claims are have received information and misinterpretations. occasionally submitted in error due to a education about the reasons for the Comment: A commenter provider’s misunderstanding of these claim denials on multiple occasions. recommended that CMS delay policies or denied incorrectly by the From the first claim denial, when a implementation of § 424.535(a)(8)(ii) for contractor. It is not CMS’s intention to provider of supplier is notified of the 2 years after the implementation of the revoke billing privileges under reason for the denial, providers receive ICD–10 standard. The commenter § 424.535(a)(8)(ii) in such instances. information indicating compliance or believed that ICD–10’s implementation However, Medicare billing privileges non-compliance with Medicare rules will likely lead to the submission of come with a responsibility for the and requirements. It is ultimately the incorrect claims for a period of time. Response: We do not believe that a provider to diligently seek and obtain provider’s responsibility to review its delay in the implementation of clarification of Medicare policies should denied claims and to take whatever § 424.535(a)(8)(ii) is necessary. Again, there be a misunderstanding or remedial action is necessary. any delay of the applicability of confusion. Constant, repeated, and Comment: A commenter contended § 424.535(a)(8)(ii) would deny us the systemic claim denials (as opposed to that proposed § 424.535(a)(8)(ii) should ability to address situations (unrelated sporadic or occasional claim denials) have certain objective measures and to the ICD–10 implementation) can be indicative of the provider’s standards—such as a 50 percent involving repeated claim denials. failure to do so. To address such benchmark—to ensure that it is not Furthermore, as we have already noted, situations, we believe that the applied in an arbitrary manner. we recognize that Medicare has many implementation of § 424.535(a)(8)(ii) Response: We solicited and received requirements and that in isolated should not be delayed, as some of the several comments regarding whether instances claims are submitted commenters appeared to suggest we do. certain numerical thresholds should be erroneously due to a provider’s Comment: Several commenters established in § 424.535(a)(8)(ii). After misinterpretation of these policies. Such believed that any appeals stemming considering these comments, we have occasional misunderstandings will from revocations initiated under concluded that numerical thresholds generally not rise to the level of a § 424.535(a)(8)(ii) should be subject to should not be established because we ‘‘pattern or practice’’ of improper an expedited appeals process. need the flexibility to address a myriad billing, and thus will not warrant Response: Since the impact of a of scenarios. For example, merely revocation under § 424.535(a)(8)(ii). revocation is the same regardless of the because a provider had over 30 percent Comment: A commenter stated that it reason involved, we do not believe that of its claims denied does not would be inappropriate for CMS to revocations based on certain reasons automatically mean that a revoke billing privileges under should be subject to a faster appeals § 424.535(a)(8)(ii) revocation should be § 424.535(a)(8)(ii) when no finding of process than those predicated on other imposed; likewise, an under-30 percent fraud is involved. The commenter reasons. denial rate does not mean that a recommended that CMS withdraw this Comment: A commenter contended § 424.535(a)(8)(ii) revocation is never proposed provision. that CMS’s proposed § 424.535(a)(8)(ii) warranted. Each case must be judged on Response: We disagree. Revocation is will have a chilling effect on the its own specific facts, and establishing an administrative remedy separate and practice of medicine because it gives the numerical thresholds would, we distinct from the government’s other federal government significant authority believe, hinder our ability to do so. remedies for fraudulent behavior, and is to target honest physicians. The Comment: A few commenters intended to protect the Medicare commenter requested that CMS remove recommended that CMS exclude program and its beneficiaries from this proposed provision from the final providers from the application of fraud, waste, and abuse. Indeed, many rule or at least develop and solicit § 424.535(a)(8)(ii) for a period of 1 year of our existing revocation reasons under comments on a process for notifying when Medicare changes the Medicare § 424.535(a) do not require a finding of providers of their billing issues and Administrative Contractor for the fraud. For example, § 424.535(a)(1) giving them an opportunity to correct provider’s state, as providers in such permits revocation of the provider or the problem prior to revoking billing instances must learn new local coverage supplier’s Medicare billing privileges if privileges. determination (LCD) policies. the provider or supplier is out of

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compliance with Medicare enrollment mistakes or errors are brought to their program for practitioners who prescribe requirements. The fact that there has not attention. However, this final rule is DMEPOS items; (5) exercise better been a legal finding of fraudulent focused on providers who cannot or will supervision of its contractors; and (6) conduct does not automatically mean not come into compliance with our establish clear guidelines for calculating the behavior or activity in question is payment requirements after repeated provider-specific error rates used to compliant with Medicare requirements. claim denials. Despite our audit place providers on prepayment review. We maintain that repeated claim denials practices and educational activities, we The commenter believed these changes over a period of time raise questions as continue to see situations where certain are necessary to better ensure that to the provider or supplier’s ability or providers and suppliers regularly providers—who are often confused by willingness to comply with Medicare’s submit non-compliant claims. Clearly, CMS policy changes, which the billing and coding requirements and our audit and education activities have commenter stated are sometimes procedures. not been enough to sufficiently stem applied retroactively—are able to Comment: A commenter opposed this behavior in all instances, thus submit correct claims and that CMS’s proposed § 424.535(a)(8)(ii), contending demonstrating the need for policies are consistent, clear, and that: (1) CMS already has the authority § 424.535(a)(8)(ii). Yet we reiterate that appropriately announced to providers and tools to revoke the billing privileges not only will we make all with adequate notice. of unscrupulous actors who defraud or determinations under § 424.535(a)(8)(ii), Response: While we appreciate the abuse the Medicare program; (2) denial but also that this provision will be commenter’s suggestions, they are of payment is the appropriate remedy applied in situations where the behavior outside the scope of this rule. for the submission of an incorrect claim; was not sporadic in nature. We are Comment: A commenter expressed (3) CMS should not assume that focused on instances where the provider concern that CMS will use audits providers cannot correct their existing is engaged in an ongoing pattern of performed by its contractors (for practices to ensure that accurate claims submitting non-compliant claims. example, RACs) as a legitimate, ultimate are submitted; and (4) there is no Comment: A commenter stated that indicator of either fraudulent behavior guarantee that the determination criteria the proposed rule does not explain how or noncompliance with Medicare CMS has outlined would not be or why billing is ‘‘abusive’’ merely payment policies. The commenter improperly or inconsistently applied. because the claim appears not to meet recommended, as did a number of other Response: We currently do not have medical necessity criteria. commenters, that CMS eliminate pre- the ability to revoke a provider or Response: There are reasons other payment audits as a basis for supplier’s billing privileges based on a than a failure to meet medical necessity detrimental action under pattern or practice of submitting non- requirements for which a claim can be § 424.535(a)(8)(ii). These commenters compliant claims, hence the need for denied (although the continuous stated that some providers undergo pre- § 424.535(a)(8)(ii). We agree that a claim submission of claims for medically payment review merely as a denial can serve as an adequate remedy unnecessary services can trigger preventative or precautionary measure in many cases. However a repeated § 424.535(a)(8)(ii)). The term ‘‘abusive,’’ to make sure that the claims submitted pattern of submitting non-compliant as used in the context of are appropriate and well-documented or claims indicates that the associated § 424.535(a)(8)(ii), is meant to capture a because of the amount of the claim. claim denials are not altering the variety of situations in which a provider They added that certain providers are provider’s behavior. More serious or supplier regularly and repeatedly subjected to pre-payment review for remedial action—specifically, the submits non-compliant claims over a reasons beyond their control, and that revocation of billing privileges under period of time. losing billing privileges for being placed § 424.535(a)(8)(ii)—may thus be Comment: Several commenters stated on pre-payment review is a draconian necessary in some cases. that whatever criteria CMS plans to use and inappropriate penalty. Several other We do not assume that providers in determining whether a revocation commenters stated that there is no cannot correct their existing practices to under § 424.535(a)(8)(ii) is appropriate evidence to suggest that placing certain ensure that they submit compliant should be included in the final rule’s categories of suppliers or product claims. We believe very strongly that regulatory text or, as one commenter categories under pre-payment review is they can, which is precisely why a suggested, be accompanied by a binding resulting in lower error rates. failure to do so could warrant a administrative document (such as an Response: While we do not intend to revocation under § 424.535(a)(8)(ii). administrator’s ruling) as part of its use the results of audits performed by CMS, rather than our contractors, will implementation. our contractors as the sole and absolute make all determinations under Response: We have included in the criterion of fraudulent behavior or § 424.535(a)(8)(ii) and will consistently regulatory text the factors that CMS will noncompliance with Medicare payment apply the criteria. consider prior to imposing a revocation policies, such results will be considered Comment: A commenter stated that under § 424.535(a)(8)(ii). in our review of all of the factors in existing procedures, including audits, Comment: A commenter § 424.535(a)(8)(ii). are more than sufficient to detect recommended that before CMS finalizes We will not consider the provider’s improper billing and to educate § 424.535(a)(8)(ii), it should: (1) Instruct pre-payment review status in and of providers in complying with Medicare’s its contractors not to repeatedly audit itself as a factor in § 424.535(a)(8)(ii) intricate rules. The commenter believes the same beneficiary’s claims once the determinations. Our concern is with that § 424.535(a)(8)(ii) is in effect claims have been upheld on appeal or actual claim denials, rather than the duplicative of these procedures, and in medical review; (2) instruct its means through which such denials were would simply impose another layer of contractors not to audit a provider for a issued. complexity and financial burden on 1-year period if the provider has been Comment: Several commenters stated providers. audited and found to have an acceptable that the claim denials of some Response: We agree with the error rate; (3) restore contractors’ ability individual practitioners and other commenter’s premise: our current rules to use clinical judgment when suppliers sometimes stem from and procedures are sufficient to bring performing complex medical reviews; deficiencies in the physician’s most providers into compliance when (4) develop a comprehensive education documentation. The commenters

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believed that CMS’s inclusion of such be hundreds of claims at issue) would Comment: A commenter noted that claim denials—that is, claim denials be excessive. Second, if a provider while CMS states that § 424.535(a)(8)(ii) based on the insufficient documentation submits a claim with specific or actual is not designed to revoke enrollment for of another provider—in its knowledge that it does not meet isolated and sporadic claim denials or § 424.535(a)(8)(ii) determinations would Medicare requirements or with reckless for innocent errors in billing, the be arbitrary and capricious. disregard of said compliance, the federal provision itself (as proposed) does not Response: We disagree. We believe it government already has various means make that intent clear. is the responsibility of the provider to address these situations, such as the Response: The regulatory text of submitting the claim to ensure that all False Claims Act. Associating a § 424.535(a)(8)(ii) states that CMS may requirements—including, as necessary, knowledge standard with revoke billing privileges if a provider or proper and compliant supporting § 424.535(a)(8)(ii) would simply supplier has a pattern or practice of documentation—have been met prior to duplicate existing authorities. submitting claims that fail to meet the claim’s submission. Repeated Comment: A commenter stated that Medicare requirements. It also denials due to improper documentation CMS appears to be attempting to keep identified five factors that we will use are an indication to a provider or providers and suppliers from being able to make such a determination, supplier that its billing behavior must to effectively provide care for including: (1) The percentage of claims change in order to become compliant beneficiaries and to limit the overall denied; (2) the reasons for the claim with Medicare requirements—including number of providers and suppliers. The denials; (3) a history of final adverse documentation requirements. commenter believed that: (1) actions; (4) the length of time the Comment: A commenter stated that § 424.535(a)(8)(ii) Is based on a rationale pattern has continued; and (5) the proposed § 424.535(a)(8)(ii) should that all providers and suppliers are a length of time the provider or supplier contain a knowledge standard that the risk to the Medicare Trust Funds; and has been enrolled in Medicare. provider knew that the claims did not (2) CMS has not fully gauged the Comment: Several commenters stated meet Medicare requirements. Several proposed provision’s impact on many that some providers submit many claims other commenters contended that CMS honest providers and suppliers that each year electronically, meaning that a should only revoke billing privileges furnish services to Medicare single inadvertent error could easily be repeated on numerous claims. The under § 424.535(a)(8)(ii) if the supplier beneficiaries. has specific or actual knowledge of the commenters expressed concern that Response: We are neither attempting erroneous nature of a particular claim or such errors when repeated could to impede patient care nor reduce the set of claims. This would preclude constitute a pattern or practice of number of providers and suppliers. We revocations based on honest mistakes; submitting erroneous claims under believe most Medicare suppliers and one commenter noted the challenges § 424.535(a)(8)(ii). One of these associated with EHR systems and the providers are conscientious about commenters added that in light of the possibility that erroneous claims could submitting claims that meet Medicare great complexity of Medicare billing and be submitted as a result. One requirements, and this rule will not coding requirements, a provider could commenter stated that the proposed affect that majority. Once again, we are inadvertently submit a claim that failed provision lacks any standards merely attempting to address the to meet at least one Medicare concerning the state of mind of the problem of providers and suppliers with requirement, even though the provider entity. Another commenter stated that patterns of non-compliant claim in good-faith believed that the claim between the two intent standards that submissions. Providers and suppliers was correct. are under CMS consideration—‘‘reckless that are not engaged in a pattern or Response: We recognize the disregard’’ and ‘‘knew or should have practice of non-compliant billing will possibility that a single inadvertent known’’—the former would be more not be adversely affected by error on similar electronic claim appropriate. Another commenter urged § 424.535(a)(8)(ii). submissions could result in multiple CMS to apply § 424.535(a)(8)(ii) only Comment: Several commenters stated claim denials. As we stated earlier, we when there is clear evidence that a that a mere difference of opinion about recognize that Medicare has many rules provider acted knowingly and willfully what is medically necessary—a term and requirements regarding billing and in submitting non-compliant claims. that is not ‘‘black and white’’—should coding, and that claims are sometimes This commenter stated that under not be the basis for a revocation of submitted in error due to a provider’s Medicare’s complex billing rules, it billing privileges, particularly honest misunderstanding of these would be too easy for CMS or a considering that LCDs and views on policies. It is not our intention to revoke contractor to assert that a provider medical necessity will differ among billing privileges under ‘‘should have known’’ about a billing MACs. § 424.535(a)(8)(ii) for such sporadic rule; as such, CMS should delete the Response: We understand the misinterpretations. phrase ‘‘should have known’’ in the commenter’s concern and believe that Comment: A commenter suggested final rule. The commenter believed that sporadic claim denials based on a lack that the following factors—in order of CMS should focus more on educating of medical necessity generally should importance—be used in determining providers about changes to Medicare not result in revocation under whether a ‘‘pattern or practice’’ exists billing rules than on the punitive § 424.535(a)(8)(ii). However, we do not under § 424.535(a)(8)(ii) and that such remedies outlined in § 424.535(a)(8)(ii). believe that medical necessity-based factors be included in the regulatory Response: Although we solicited denials should be excluded from the text: (1) The reason(s) for the claim comments on whether a knowledge scope of § 424.535(a)(8)(ii). It is of denials; (2) the percentage of submitted standard should be applied to concern to us when a provider claims that were denied (for which there § 424.535(a)(8)(ii), we have decided not consistently submits claims for services should be a minimum threshold); (3) to implement such a standard for two that are not medically necessary, for this how long the provider has been enrolled principal reasons. First, the burden on raises quality of care issues as well as in Medicare; (4) whether the provider CMS of determining the provider or the possibility that the provider is has had any final adverse actions; and supplier’s intent for each claim it seeking to defraud the Medicare (5) the length of time of the pattern or submitted (especially when there could program. practice. Another commenter requested

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that CMS not use the ‘‘total number of results under § 424.535(a)(8)(ii). As regulatory text. We do not agree with claims denied’’ as a criterion, for this written, they provide far too much the fourth suggested factor. Each could disproportionately and unfairly latitude for administrative folly, which provider or supplier must be reviewed impact larger providers that submit is nearly guaranteed to occur. At a individually, rather than as part of a many claims. The commenter also minimum, the commenter stated, the larger class of providers and suppliers. requested CMS to clarify whether the proposed rule must not be finalized We do not agree with the fifth suggested percentage of submitted claims that without: (1) Substantial clarifying text factor, either; for reasons already stated, were denied would be determined using written into the regulation itself; or (2) we will not be applying a knowledge individual, subpart, or organizational being accompanied by a binding standard to § 424.535(a)(8)(ii). We NPIs. administrative document (such as an disagree with the sixth factor as well. If Response: We have decided not to administrator’s ruling) for its a provider is repeatedly and give certain factors greater weight in our implementation. consistently submitting non-compliant § 424.535(a)(8)(ii) determinations than Response: As stated earlier, CMS, claims, this indicates that the provider’s other, for the importance of each factor rather than its contractors, will make all corrective action plan—assuming it has may vary based on the particular § 424.535(a)(8)(ii) determinations. one—is either being partially or wholly situation. We have also decided not to Comment: Several commenters disregarded or is inadequate. As for the establish a minimum percentage recommended that CMS include in the seventh factor, and as stated earlier, a threshold for claim denials; as stated regulatory text of § 424.535(a)(8)(ii) a provider or supplier’s claim denial that earlier, we need flexibility to address a statement that the authority to make has been both: (1) Fully (rather than variety of scenarios. However, we determinations that a ‘‘pattern or partially) overturned on appeal; and (2) included the five factors that the first practice’’ does not rest with CMS’s finally and fully adjudicated will be commenter identified—all of which we contractors. The commenters also excluded from our § 424.535(a)(8)(ii) proposed—in the regulatory text as suggested that CMS incorporate into the determinations. criteria that CMS will consider, as regulatory text the following criteria that Finally, we recognize that there may appropriate or applicable, in its CMS should use in making be special circumstances surrounding § 424.535(a)(8)(ii) determinations. § 424.535(a)(8)(ii) determinations: (1) the provider or supplier’s non- We agree with the second commenter Whether the provider has any history of compliant billing that are beyond the that the ‘‘total number of claims denied’’ ‘‘final adverse actions’’ and the nature of scope of the five factors we are factor could present a distorted view of those actions; (2) the length of time over finalizing. The particular facts of each the provider or supplier’s billing which the pattern or practice has case will vary widely, and the scenarios practices for purposes of continued; (3) how long the provider the commenters have presented § 424.535(a)(8)(ii). Therefore, we will has been enrolled in Medicare; (4) underscore this point. To effectively not be finalizing this as criterion. whether the pattern or practice occurs address these situations, we believe that The ‘‘percentage of claims denied’’ throughout the provider or supplier’s a sixth criterion should be established criterion will be based on the NPI listed industry; (5) whether the provider had that enables CMS to consider any other on the claim. a specific intent to submit a false or applicable and available information Comment: A commenter suggested fraudulent claim; (6) whether the regarding the provider or supplier’s that: (1) The provider should have an provider has a corrective action plan in specific circumstances that CMS deems opportunity to show that it has place; (7) the number of claims relevant to its determination of a pattern remedied any error that occurred; and overturned on appeal; and (8) the or practice of non-compliant billing. (2) proposed § 424.535(a)(8)(ii) should reasons for the claim denials. With However, information considered under be limited to situations that are within respect to the fourth criterion, the this criterion will not alone be decisive the provider’s control. With respect to commenters stated that consistently in our determinations under this second suggestion, the commenter high industry-wide error rates among § 424.535(a)(8)(ii); the five other factors stated that providers sometimes rely suppliers are the result of constant will, of course, be considered as well. upon physicians to provide information changes to billing requirements, Regardless, we believe that such that must be included on the claim; if uncertain and inconsistent information, to the extent it exists, such information is incorrect, CMS interpretation of requirements by should be considered in our should not use this as a basis for regulating and enforcing entities § 424.535(a)(8)(ii) determinations to revocation under § 424.535(a)(8)(ii). (including Medicare contractors), help ensure that the Medicare Trust Other commenters shared this view. inadequately written LCDs, and CMS’s Funds are protected and, by the same Response: We disagree with both of expectation that suppliers can enforce token, that providers and suppliers are the commenter’s suggestions. We physician documentation requirements. treated fairly. believe that the provider already has an They recommended that CMS consider Comment: Several commenters opportunity to remedy an error once it addressing high industry-wide error recommended that CMS give low receives a claim denial notice. Repeated rates through billing requirement reform consideration to claim volume and errors over a period of time indicate that rather than implementing another percentage of claims denied as factors the provider is not taking necessary instrument of supplier punishment via under § 424.535(a)(8)(ii) and that corrective steps. Also, while we § 424.535(a)(8)(ii). thresholds not be established for these recognize that providers sometimes rely Response: As we have stated criteria. The commenters believed that on physicians for certain information, elsewhere in this final rule, we will these factors may lead CMS to focus on the provider remains ultimately make all determinations for revocations the largest suppliers that rely on responsible for ensuring that the claim under § 424.535(a)(8)(ii). We do not automated claims administration and the supporting documentation meet believe this needs to be restated in the systems, while missing smaller Medicare requirements. regulatory text. suppliers that do not attract attention Comment: A commenter stated that Insofar as the commenters’ suggested because their data does not exceed inconsistent claim determinations, factors for consideration, we agree with certain thresholds. policies, and interpretations of policies the first, second, third, and eighth Response: The number of denied among MACs would lead to inequitable factors and have included them in the claims will not be a factor in our

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§ 424.535(a)(8)(ii) determinations, engage in education, counseling, and Comment: A commenter stated that though the ‘‘percentage of denied guidance that leads to correct coding CMS should exclude physicians from claims’’ will remain as a factor and one before taking draconian measures. the purview of § 424.535(a)(8)(ii) that is no less important than the others. Response: We believe that frequent because they fall within the ‘‘limited’’ Also, and as explained earlier, we are claim denials should alert the provider screening category under § 424.518(a). not establishing thresholds for any of that there may be an issue with its claim Response: We do not agree. The issue our criteria. submissions and that remedial action is the correct submission of claims, Comment: Several commenters may be required. We do not believe that rather than the level of screening to expressed concern that an interim notification from CMS (for which the provider or supplier is § 424.535(a)(8)(ii) could be easily example, a ‘‘warning letter’’) should be normally subject under § 424.518(a). misapplied or misused because the a prerequisite for taking action under Comment: A commenter stated that provision is very vague and without § 424.535(a)(8)(ii). Further, if the revocations under proposed clear standards. provider has questions regarding CMS’s § 424.535(a)(8)(ii) should be limited to Response: As previously explained, billing and coding requirements, it instances where CMS has data we are finalizing all but one of the should review CMS’s manuals, indicating that the provider is engaging factors we proposed and are adopting an educational articles, and other in extreme outlier billing and has an additional factor in response to the informational documents at CMS’s Web established and ongoing pattern of comments we received. We believe this site (www.cms.hhs.gov); the provider abusive practices. will furnish sufficient clarity as to the may also contact its local MAC if it has Response: As stated, we will consider, scope of § 424.535(a)(8)(ii). additional questions. as appropriate or applicable, the six Comment: Several commenters factors discussed previously (and Comment: A commenter stated that it expressed concern about the potential contained in § 424.535(a)(8)(ii)(A) fully supported proposed application of § 424.535(a)(8)(ii) through (F)) in determining whether a § 424.535(a)(8)(ii). considering that RACs have a financial revocation under § 424.535(a)(8)(ii) is Response: We appreciate the incentive to deny claims. warranted. A provider or supplier could Response: RACs review claim commenter’s support. be an ‘‘outlier biller’’ for any number of decisions on a post-payment basis. and Comment: Several commenters stated reasons. Hence, a provider or supplier are only paid for a claim denial if a that Medicare providers are already well that is an ‘‘outlier biller’’ should not Medicare Administrative Contractor aware of their legal obligation to submit automatically be subject to revocation (MAC) denial of a claim is upheld on correct and accurate claims for services based on § 424.535(a)(8)(ii). We have appeal; this, we believe, reduces the that were reasonable and necessary. noted previously that we will only take incentive for RACs to make They noted that: (1) The current claim revocation action under inappropriate determinations regarding submission forms require the physician § 424.535(a)(8)(ii) after careful review of claims. We also reiterate that claim to certify that the services ‘‘were factors surrounding the provider or denials that are reversed on appeal will medically indicated and necessary for supplier’s billing behavior. be excluded from the application of the health of the patient’’; and (2) Comment: A commenter stated that § 424.535(a)(8)(ii) if they meet certain enforcement agencies already have while the proposed rule’s preamble criteria. ample authority under several statutory indicated that ‘‘claims for services that Comment: Several commenters urged schemes to penalize providers found to fail to meet Medicare requirements’’ CMS to reconsider revocations based on have inaccurate claims, including the meant claims denied for failing to billing patterns because it does not False Claims Act. Therefore, the satisfy Medicare’s medical necessity appear that there is—nor does CMS cite commenters questioned the benefit of or requirements, the regulatory text did not any—statutory authority to support such need for § 424.535(a)(8)(ii), especially in explicitly state as such. The commenter a remedy. light of the danger of CMS overreach in recommended that CMS either: (1) Response: We cited our statutory its application of this provision. Delete its proposed § 424.535(a)(8)(ii); or authority for § 424.535(a)(8)(ii) and all Response: We acknowledge these (2) revise the provision to clearly limit of our other provider enrollment authorities as well as the certification ‘‘claims for services that fail to meet provisions in both this rule and the language on the current claim Medicare requirements’’ to claims that proposed rule. Specifically, sections submission forms. However, we do not meet medical necessity 1102 and 1871 of the Act provide continue to see instances where, despite requirements. The lack of a specific general authority for the Secretary to these obligations, providers and reference to ‘‘reasonable and necessary’’ prescribe regulations for the efficient suppliers repeatedly submit non- requirements, the commenter believed, administration of the Medicare program; compliant claims. The other federal would enable CMS to unreasonably also, section 1866(j) of the Act (codified authorities provide remedies different apply § 424.535(a)(8)(ii) to a failure to at 42 U.S.C. 1395cc(j)) provides specific from what we have proposed. We thus meet any Medicare requirement. authority with regard to the enrollment believe that the authority to revoke Response: We do not believe that process for providers and suppliers. billing privileges under revocations under § 424.535(a)(8)(ii) Comment: A commenter stated that: § 424.535(a)(8)(ii) can be part of a should be limited to claim denials based (1) There are often good-faith comprehensive strategy to address these on medical necessity. Indeed, proposed differences between providers and situations. § 424.535(a)(8)(ii) was not meant to contractors over appropriate coding; and Comment: A commenter stated that apply only to certain claim denial (2) different payers may have different there do not appear to be any reasons. Repeated claim denials over a rules, which can cause confusion over administrative appeal rights if a period of time are of concern to us the appropriate way to bill. The provider is revoked under irrespective of the particular reason(s) commenter contended that if there is no § 424.535(a)(8)(ii). involved. To alleviate any confusion evidence that the provider intended to Response: Under § 424.545, a provider about the scope of § 424.535(a)(8)(ii), we defraud Medicare, the provider should or supplier may appeal any revocation are deleting the language ‘‘for services’’ be given a chance to remedy the error. of Medicare billing privileges under 42 from this provision. This will clarify Medicare, the commenter added, should CFR part 498. that § 424.535(a)(8)(ii) applies to claims

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that are denied for failing to meet concerns may linger. To that end, we lower-level consequence—such as a Medicare requirements and is not plan to issue written guidance to and suspension—for less severe occurrences. limited to cases where the claim is communicate with the public once this Response: We do not believe that an denied because the services did not final rule is implemented, whereby we interim alert to the provider is mean Medicare requirements. will once again reiterate the objective necessary. The provider’s receipt of a Comment: A commenter stated that behind § 424.535(a)(8)(ii) and, as substantial number of claim denials, in CMS should establish a dispute necessary, discuss certain operational our view, furnishes adequate notice to resolution process prior to revoking a aspects of this provision. the provider that corrective action is provider’s privileges related to claims Comment: A commenter stated that necessary. denials for not meeting Medicare CMS did not—(1) explain how While we appreciate the commenter’s requirements. Several other commenters determinations under § 424.535(a)(8)(ii) suggestion regarding lower-level stated that CMS should afford appeal would be made; (2) explain how errors consequences for less severe cases, we rights under § 424.535(a)(8)(ii) prior to in a revocation determination can be note again that § 424.535(a)(8)(ii) is only revoking a provider’s billing privileges. remedied short of a reapplication after intended to address the most severe of Response: We disagree with the the enrollment bar expires; and (3) situations. Still, we will closely monitor commenters. No other revocation reason furnish rationale as to the specific our application of this provision and the under § 424.535(a) currently has an standards—such as the establishment of scenarios that come before us. Should interim appeals or dispute resolution a percentage threshold for claim we determine that other sanctions may process, and we do not see any basis or denials—that CMS will use in its be appropriate, we may, as needed, rationale for permitting such processes determinations. undertake future rulemaking. Comment: A commenter stated that in the case of § 424.535(a)(8)(ii). As with Response: We will make all CMS should not finalize all other revocation reasons, the § 424.535(a)(8)(ii) determinations after a § 424.535(a)(8)(ii) until the public has provider or supplier may appeal the careful and thorough consideration of had an opportunity to comment on the revocation. the factors outlined in specific policy CMS will use in defining Comment: A commenter stated that § 424.535(a)(8)(ii)(A) through (F). As we revocations under § 424.535(a)(8)(ii) ‘‘pattern or practice.’’ explained in the proposed rule, any Response: As stated, we are not should be reserved for only the most revocation under § 424.535(a)(8)(ii) may serious of abuses. formally defining ‘‘pattern or practice’’ be appealed if the provider or supplier in this rule. We will instead consider a Response: We agree. As we have chooses to do so. stated, § 424.535(a)(8)(ii) will only be number of factors in our determinations We stated earlier that each case will as to whether a § 424.535(a)(8)(ii) applied when it is clearly appropriate. be judged on its own specific facts, and For instance, a § 424.535(a)(8)(ii) revocation is warranted. that establishing specific thresholds Comment: A commenter stated that revocation could be proper, once all of would, we believe, hinder our ability to the appropriate factors have been although CMS sought feedback from the do so. We believe that the factors provider community regarding considered, if— outlined in § 424.535(a)(8)(ii)(A) • There is a demonstrable pattern or § 424.535(a)(8)(ii), it did not believe that through (F) sufficiently indicate to practice; engaging in this type of review and • The pattern is long-term or has providers and suppliers the rationale we analysis during a 60-day public otherwise continued over a period of will use in our § 424.535(a)(8)(ii) comment period was appropriate. The time; determinations. commenter believed that discussions • Education regarding appropriate Comment: A commenter questioned and collaboration with the provider billing is or has been made available to whether a system would be established community via a stakeholder group the provider in the form of claim denial to ensure that § 424.535(a)(8)(ii) would should occur beforehand. notices, CMS instructional materials be implemented and enforced uniformly Response: We disagree with the (such as manuals and articles) on CMS’ across jurisdictions. The commenter commenter. While we recognize the Web site, etc., yet the provider or also requested which entities (for provider community’s concerns supplier continues to submit non- example, RACs) would be tasked with regarding § 424.535(a)(8)(ii), we do not compliant claims, and enforcing these provisions as well as believe that formal discussions with a • A significant percentage of the any financial incentives for identifying stakeholder group resulting in an provider’s or supplier’s claims have wrongdoing. agreement as to what § 424.535(a)(8)(ii) been denied. Response: Once again, we (not our should consist of are necessary prior to (We stress that this is merely an contractors) will make all the provision’s implementation. This is example and should be not be determinations regarding whether a especially true considering that we interpreted as the formal establishment § 424.535(a)(8)(ii) revocation should be received valuable comments from of minimum criteria.) imposed. We will apply the criteria providers and suppliers regarding We again state that § 424.535(a)(8)(ii) consistently. § 424.535(a)(8)(ii) and have incorporated is not targeted toward honest providers Comment: A commenter suggested them into our final provisions as and suppliers that make occasional that in light of the seriousness of a needed. We believe that the notice-and- billing mistakes. Our sole focus is on revocation under § 424.535(a)(8)(ii), comment process under the APA is the providers and suppliers that engage in CMS should provide direct notice to a most appropriate means of soliciting a systemic, ongoing, and repetitive provider that its billing privileges may feedback from the public. practice of improper billing be revoked if its continues to bill for Comment: A commenter, expressing notwithstanding the public availability services that do not meet Medicare concern about CMS’s potential use of of CMS educational materials or requirements. The commenter believed statistical analysis in determining guidance and CMS’ issuance of claim that such a preliminary ‘‘warning’’ patterns under § 424.535(a)(8)(ii), cited denial notices to the provider. While we could encourage the provider to several instances in which a claim is hope that this helps to reassure the improve its claim submission accuracy. denied but cannot automatically or provider and supplier communities of The commenter also suggested that CMS necessarily be considered an abusive CMS’ intentions, we recognize that consider a sliding scale that includes a billing situation: (1) A patient dies prior

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to the interpretation of an applicable situation the commenter describes will Response: We believe this comment is test; (2) claims for services deemed not be considered in such determinations. outside the scope of this rule. medically necessary; (3) the beneficiary Comment: A commenter stated that Comment: A commenter expressed needs a Medicare denial to file ‘‘length of time’’ should only be concern about what the commenter secondary insurance; and (4) the considered as a factor if the provider believed was a lack of definition of beneficiary has exceeded a benefit acted in reckless disregard of whether ‘‘directing physician’’ as that term is category unbeknownst to the provider. its claims did not meet Medicare used in § 424.535(a)(8)(i). The The commenter believed CMS has the requirements. The commenter added commenter stated that the professional capability to distinguish between (a) that: (1) The reckless disregard standard component of diagnostic testing services abusive billing patterns and (b) claim should be used in all cases involving is often not performed in the same denials that occur in the normal course § 424.535(a)(8)(ii); and (2) CMS should physical location or contractor of business and are not based on any not use ‘‘the total number of claims jurisdiction as the technical component, nefarious intent. The commenter added denied’’ and ‘‘percentage of claims and that the date of service may be that in providing examples of what may denied’’ categories in applying different if the interpretation is not done constitute a pattern of abusive billing § 424.535(a)(8)(ii) because there are on the same date done as the technical behavior, CMS must account for certain many instances in which claims are component. Such normal, compliant specialty-specific situations that can denied—such as in coordination of practices could be misinterpreted under occur due to the nature of the provider- benefit situations—for innocuous § 424.535(a)(8)(i). patient encounter; diagnostic services, purposes. Response: As we did not propose any for example, should not be subject to the Response: As stated, we will neither changes to the content of existing same standard as other providers due to be applying a knowledge standard to § 424.535(a)(8), which is merely the remote nature of the physician- § 424.535(a)(8)(ii) nor eliminating the renumbered in this final rule as patient relationship. ‘‘percentage of claims denied’’ or § 424.535(a)(8)(i), this comment is Response: We agree with the ‘‘length of time’’ criteria from our outside the scope of this rule. commenter’s apparent rationale that analysis. However, we are removing Comment: A commenter contended certain claim denials may be for purely ‘‘the total number of claims denied’’ that although § 424.535(a)(8)(i) suggests innocuous reasons and that CMS has the criterion. that an abuse of billing privileges ability to distinguish between these Comment: A commenter stated that includes billing for a service when it situations and extreme instances of non- CMS must furnish the provider would have been impossible to actually compliant billing. We note once more community with guidance regarding provide the service—such as when the that the reason(s) for the claim denials CMS’s requirements for proper medical physician performing the service was will be a factor in our § 424.535(a)(8)(ii) record documentation, including the not available to furnish the service, or determinations. frequency of documentation to support the patient was not available to receive Comment: A commenter stated that a medical necessity for each product the service because he or she was out of provider often will not be aware of a category. The commenter also the state or country—the regulation does pattern of alleged improper billing recommended the inclusion of these not clearly state as such. The under § 424.535(a)(8)(ii) until after a documents within an electronic health commenter expressed particular contractor performs an audit. Under record template. concern regarding the situation where a such circumstances, the commenter Response: We believe these comments laboratory is not in the same state in believed, the provider should be given are outside the scope of this rule. which the physician who ordered the an opportunity to correct the allegedly Comment: A commenter stated that a service is located, meaning that the improper billing via a plan of provider’s claims are sometimes denied service could not have been furnished to correction. because of insufficient physician that beneficiary on that date of service. Response: As already stated, we medical record documentation; such The commenter requested that CMS acknowledge that in sporadic instances instances should not be included within clarify that this situation is outside the providers and suppliers may submit the purview of § 424.535(a)(8)(ii) scope of scenarios to which this rule is claims in error due to a because the provider had no control meant to apply. misunderstanding of Medicare policies. over the physician’s documentation. Response: As we did not propose any It is not our intention to revoke billing Response: We do not believe that changes to the content of existing privileges under § 424.535(a)(8)(ii) for denials based on insufficient medical § 424.535(a)(8), which is merely such isolated misinterpretations. record documentation should be renumbered in this final rule as Comment: A commenter stated that in automatically excluded from the scope § 424.535(a)(8)(i), we believe this situations where coordination of of § 424.535(a)(8)(ii). Again it is comment is outside the scope of this benefits is involved, a provider must ultimately the provider’s responsibility rule. exhaust all efforts to receive payment to ensure that the documentation it Given the comments received and the from a primary payer—such as furnishes in support of a claim meets foregoing discussion, we are finalizing Medicare—before billing a secondary Medicare requirements, though the proposed § 424.535(a)(8)(ii) with a payer. The commenter urged CMS to reason(s) for the claim denial will be a modification. We are adding new exclude coordination of benefit factor in our § 424.535(a)(8)(ii) paragraphs (A) through (F) to identify situations from the category of claim determinations. the factors for consideration. denials that can be considered under Comment: A commenter stated that § 424.535(a)(8)(ii). claims are occasionally denied because 5. Post-Revocation Submission of Response: While we do not believe information on the certificate of medical Claims that such situations should be necessity is inconsistent with CMS’s Section § 424.535(h) currently states automatically excluded from the national coverage criteria. The that a revoked physician organization, purview of § 424.535(a)(8)(ii), we note commenter suggested that the two physician, non-physician practitioner or that the reasons for the claim denials decisional documents be streamlined to IDTF must submit all claims for will be a factor in our § 424.535(a)(8)(ii) coordinate coverage criteria effectively furnished items and services within 60 determinations. Consequently, the and uniformly. calendar days of the effective date of the

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revocation. As we explained in the the two aforementioned dates. In light of regulatory text in § 424.521(a) to include proposed rule, the reason for such a this concern, we proposed to expand the ambulance suppliers. relatively short post-revocation claim scope of § 424.520(d) to include Comment: Several commenters stated submission period is to limit Medicare’s ambulance suppliers, based in part on that proposed § 424.520(d) should have exposure to future vulnerabilities and the elevated risk they pose to the a mechanism by which ambulance potentially fraudulent claims from such Medicare program as stated in suppliers can obtain retroactive billing revoked individuals and organizations. § 424.518. Indeed, in a January 2006 privileges in situations where the failure With this in mind, we proposed to OIG report entitled, ‘‘Medicare to file the enrollment application prior expand § 424.535(h) to require all Payments for Ambulance Transports’’ to commencing operations resulted from revoked providers and suppliers to (OEI–05–02–000590), the OIG found circumstances beyond the supplier’s submit, within 60 days after the that 25 percent of ambulance transports control; one commenter cited the effective date of the revocation, all did not meet Medicare’s program example of a county-owned ambulance claims for items and services furnished requirements; this resulted in an supplier that needs approval from the prior to the date of the revocation letter. estimated $402 million in improper county’s governing board before For HHAs, the date would be 60 days payments. expanding its service area, a process after the later of: (1) The effective date As explained in the proposed rule, we that could delay the submission of the of the revocation; or (2) the date that the did not include certified providers and supplier’s application. The commenters HHA’s last payable episode ends. certified suppliers in our proposed had two suggestions in this regard. First, A summary of the comments received revision to § 424.520(d) because of: (1) the supplier could file a preliminary and our responses thereto are as follows: Existing limitations posed by § 489.13 CMS–855 application when it Comment: A commenter questioned on their ability to ‘‘backbill’’ for anticipates expanding into a new why CMS is proposing to grant services; and (2) the extensive, service area; the supplier could DMEPOS suppliers an additional 45 multilayered review process they must supplement the application with days after revocation to submit claims, undergo prior to enrolling in Medicare. additional information at a later date. for § 424.57(d) currently grants Yet we did solicit comments on whether Second, the supplier could appeal for DMEPOS suppliers only 15 days to any other non-certified provider or non- retroactive billing privileges. Response: As we explained earlier, we submit claims after revocation. certified supplier types that are not have incorporated a revised § 424.521(a) Response: We believe that the currently subject to a backbilling into this final rule. It will permit limited commenter is misreading § 424.57(d), in restriction similar to the one we retrospective billing in exceptional that § 424.57(d) does not address the proposed should be included. timeframe in which post-revocation circumstances. We believe this will The following is a summary of the claims must be submitted. alleviate some of the commenters’ comments received regarding this Comment: A commenter expressed concerns. proposed change and our responses support for our proposed change, stating Comment: Several commenters thereto. that all providers and suppliers would requested CMS to clarify that the ‘‘date now be treated equally with respect to Comment: A commenter stated that of filing’’ of a CMS–855 application is the post-revocation claim submission CMS should treat ambulance services in the date on which the contractor requirement. a manner consistent with physicians initially received the application, not Response: We appreciate the and non-physician practitioners when it the date on which the contractor commenter’s support. comes to enrollment and the filing of deemed the application ‘‘complete.’’ Given the very few comments Medicare claims. Retroactive billing for Response: The ‘‘date of filing’’ is the received and the foregoing discussion, ambulance services, the commenter date on which the provider or supplier we are finalizing our proposed changes continued, should be similar to the 30- submitted its CMS–855 application via to § 424.535(h). day retroactive billing authority that mail or Internet-based PECOS. exists for these individuals; the supplier Comment: Several commenters stated 6. Effective Date of Billing Privileges could seek a longer retroactive billing that a more definitive distinction must Under the current version of period if it can demonstrate that exigent be made as to what is meant by the date § 424.520(d), the effective date of billing circumstances led to a situation that of an application that is subsequently privileges for physicians, non-physician forced it to provide transport services approved. One commenter stated that it practitioners, and physician and non- prior to the normal billing requirements. is not uncommon for contractors to physician practitioner organizations is Response: We agree that the 30-day return applications with a request for the later of: (1) The date of filing of a and 90-day retroactive billing provisions supporting documentation. Another Medicare enrollment application that in § 424.521(a), to which the commenter commenter requested an explicit was subsequently approved by a is referring, should apply to ambulance statement that the date the application Medicare contractor; or (2) the date an suppliers to the same extent that they do is entered into PECOS or a paper CMS– enrolled physician or non-physician to physicians, physician groups, non- 855B is mailed is the effective date of practitioner first began furnishing physician practitioners, and non- billing privileges, assuming the services at a new practice location. This physician practitioner groups. This application is eventually accepted; this policy is meant to address our concerns approach would ensure: (1) Consistent would make it clear that a request for about providers and suppliers being treatment between ambulance suppliers additional documentation is part of the able to bill for Medicare services and the other supplier types covered original process and does not begin an rendered well before enrollment, for it under § 424.520(d); and (2) that entirely new cycle. is not always possible to verify whether ambulance suppliers can avail Response: We indicated earlier that a supplier has met all Medicare themselves of a brief retroactive billing the effective date of billing privileges enrollment requirements prior to the period if they are able to show that under § 424.520(d) will be the later of: date it submits an enrollment urgent circumstances precluded the (1) The ‘‘date of filing’’ of an enrollment application. Thus, the Medicare supplier from submitting its enrollment application that is subsequently program should not be billed for application earlier than it did. approved; or (2) the date the supplier services performed before the later of Therefore, we have revised the began furnishing services at a practice

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location. The ‘‘date of filing’’ is of backbilling makes it difficult to verify § 424.535(g), the effective date of a considered to be the date on which the whether an ambulance supplier was in revocation is either of the following: supplier submitted its CMS–855 compliance with Medicare requirements • Thirty days after CMS or the CMS application via mail or Internet-based well before it submitted an enrollment contractor mails notice of its PECOS. application. determination to the provider or The term ‘‘subsequently approved’’ Comment: A commenter requested supplier. • includes application submissions for that CMS: (1) Furnish the information it If the revocation is based on a which the contractor requested used to single-out ambulance suppliers federal exclusion or debarment, felony additional information from the in § 424.520(d); and (2) explain why it conviction, license suspension or supplier (or otherwise undertook did not propose a similar backbilling revocation, or if the practice location is developmental activities with respect to limitation for other supplier types such determined by CMS or its contractor not the application) and the application was as clinical laboratories and mass to be operational, the date of the ultimately approved. It does not include immunization roster billers. exclusion, debarment, felony applications that were rejected under Response: As we discussed in the conviction, license suspension or § 424.525 or returned pursuant to CMS proposed rule, we elected to include revocation, or the date that CMS or its Publication 100–08, chapter 15, and ambulance suppliers within contractor determined that the provider were later resubmitted. A contractor’s § 424.520(d) based on: (1) Their status as or supplier was no longer operational request for additional information does moderate-risk category suppliers under constitutes the effective date of the not constitute a final disposition § 424.514; (2) the OIG report cited in the revocation and, hence, the date on regarding the application; that is, the preamble; and (3) other program which the re-enrollment bar application is still in process. However, integrity issues we have detected commences. We proposed to revise § 424.535(c) to a rejection or return indicates that the regarding ambulance suppliers. Indeed, specify that all re-enrollment bars begin contractor was unable to process the these issues were outlined in a July 31, application to completion, meaning that 30 days after CMS or the CMS 2013 notice (78 FR 46339) in which we contractor mails notice of the revocation the application processing cycle has imposed a temporary moratorium on the ended and the supplier must submit a determination to the provider or enrollment of new ground ambulance supplier. The rationale for this change new application. suppliers in several Texas counties; a Comment: A commenter stated that was to address situations where the similar moratorium was imposed municipalities are sometimes required revocation is based on a federal effective January 30, 2014 against to temporarily curtail their ambulance exclusion or debarment, felony ambulance suppliers in the services and must contract with another conviction, license revocation or Philadelphia, Pennsylvania area (79 FR ambulance supplier on an emergency, suspension, or non-operational status. short-term basis; in such emergency 6475). Due to potential delays in the updating situations, it may not be possible for the Comment: A commenter stated that of databases with criminal conviction municipality to quickly secure all of the the loss of revenue to ambulance and licensure information, the necessary paperwork to permit suppliers resulting from § 424.520(d) revocation effective dates for these Medicare billing for transport services. could preclude them from expanding actions can be months prior to the date The commenter stated that the into new areas. the contractor mails the revocation municipality should not be held Response: We understand the letter, and it is from these retroactive financially responsible for providing commenter’s concern. Yet as we have effective dates that the re-enrollment bar appropriate transport services for such stated, it is not always possible for us to runs. By starting the re-enrollment bar emergency patients. verify that the supplier met all period after the revocation letter is sent, Response: In response to the enrollment requirements many months the full period can be imposed. comments received, we have revised prior to the application submission. To A summary of the comments we § 424.521(a) to allow ambulance ensure that Medicare payments are received as well as our responses suppliers limited retrospective billing in made to suppliers that we have follow: exceptional circumstances. confirmed met enrollment requirements Comment: A commenter requested Comment: A commenter requested at the time the service was provided, we that CMS identify the reason for its that CMS clarify how the 2006 OIG believe it is necessary to restrict the statement in the preamble discussion for report supports CMS’s proposed period of backbilling. proposed § 424.535(a)(3) regarding § 424.520(d). The OIG report, the Given these comments and in months of potential delay in updating commenter contended, did not indicate accordance with the previous databases with criminal conviction and whether the ambulance transports discussion, we are finalizing our licensure information. The commenter discussed therein occurred prior to the proposed change to § 424.520(d). We further requested CMS to indicate: (1) date the ambulance supplier submitted have also revised the regulatory text of Whether the requirement under its enrollment application; citing the § 424.521(a) to include ambulance § 424.516 for physicians, non-physician OIG report is misleading and creates an suppliers. practitioners, and owners to report a unfair and negative view of all felony conviction within 30 days is 7. Effective Date of Re-Enrollment Bar ambulance suppliers. being waived; and (2) if § 424.516 is Response: Our citation of the report Currently under § 424.535(c), a being waived, whether CMS is also was not intended to disparage all revoked provider, supplier, delegated waiving the requirement in § 424.565 ambulance suppliers but to present official, or authorizing official is barred that CMS assess an overpayment back to examples of instances where certain from participating in Medicare from the the date of the adverse action. ambulance suppliers were not in effective date of the revocation until the Response: We indicated in the compliance with Medicare end of the re-enrollment bar. The re- proposed rule that there could be requirements. Our concern about non- enrollment bar is a minimum of 1 year, instances where a delay exists in compliance is the precise reason for our but not greater than 3 years, depending updating a state Web site with felony or revision to § 424.520(d). We explained on the severity of the basis for licensure data. With respect to the earlier that allowing an extensive period revocation. In accordance with commenter’s two requests, this rule

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does not waive the aforementioned We proposed to revise § 405.809 to § 424.535(a)(9). Although these requirement to report felony convictions state in new paragraph (a)(1) that a commenters generally supported the or the overpayment assessment mandate provider or supplier may only submit a proposed change, they urged CMS to in § 424.565. CAP when the revocation was based on clarify the definition of a ‘‘practice Comment: A commenter disagreed § 424.535(a)(1), which states in part that location’’ for ambulance services with CMS’s proposed revision to a provider or supplier’s billing because Medicare contractors may be § 424.535(c) because this would privileges may be revoked if the interpreting this term differently; for effectively limit overpayment provider or supplier is determined not instance, some may define it as the collections from the date of the felony to be in compliance with our enrollment location of the supplier’s management, conviction or guilty plea, or would requirements. We stated that providers billing, or administrative staff, while expose physicians and non-physician and suppliers generally should not be others consider it to be where the practitioners to higher Medicare exonerated from failing to fully comply supplier garages and/or maintains its overpayment amounts. The commenter with Medicare enrollment requirements vehicles. stated that CMS should retain the simply by furnishing a CAP, for it is the Response: We clarified the meaning of current policies in these two provisions duty of providers and suppliers to the term ‘‘practice location’’ as it until it explains: (1) Their impact on the always maintain such compliance. The pertains to ambulance suppliers in CMS overpayment provision found in proposed exception for § 424.535(a)(1) Transmittal 499, dated December 27, § 424.565; and (2) CMS’s intent to was based on our experiences where a 2013. impose overpayments based on an OIG provider or supplier revoked under Comment: Several commenters exclusion or felony conviction from the § 424.535(a)(1) had only minimally opposed our proposed change to date of the felony conviction or failed to comply with our enrollment § 405.809 and urged CMS to allow CAPs exclusion, the date of the revocation requirements. To revoke its billing to be available for additional scenarios letter, or the actual revocation date. privileges when the problem can be beyond those encompassed by Response: Our revision to § 424.535(c) quickly and easily corrected via a CAP § 424.535(a)(1). One commenter stated neither addresses nor impacts could in some instances lead to unfair that many enrollment violations can be overpayment determinations or results. In cases where § 424.535(a)(1) is cured. The commenter stated that CAPs collections. It simply specifies when the one of several reasons for a particular should be permitted except in cases enrollment bar begins. For example, if a revocation, the provider would be able where a CAP clearly jeopardizes provider is revoked with a retroactive to submit a CAP with respect to the program integrity or beneficiary health effective date, the enrollment bar— § 424.535(a)(1) revocation reason. For and safety. Another commenter whatever the length—will commence as the other revocation grounds, though, expressed concern about CMS’s specified in § 424.535(c). Yet the the provider would not be able to use statement in the preamble concerning effective date of the revocation (and the CAP process; the provider would the revocation of billing privileges for from which date overpayments can be instead have to use the appeals process failing to report a practice location collected) will be the same as that under Part 498. change; to have the provider in such an We also proposed in new paragraph which currently exists under our instance go through the appeals process (a)(2) that providers and suppliers regulations. without the availability of a CAP, the Comment: A commenter stated that would have only one opportunity commenter believed, would be unjust. our proposal that all re-enrollment bars through a particular CAP to correct all Another commenter stated that CMS would begin 30 days after CMS mails of the deficiencies that served as the should never be unwilling to receive the revocation notice to the provider basis of the revocation. We expressed correct information and that, in the appears prudent, for it would streamline our view that providers and suppliers commenter’s opinion, Medicare and simplify current policy. The should not be given multiple contractors furnish misleading and commenter also expressed support for opportunities to become compliant inaccurate information to providers and our additional proposals to eliminate when it is crucial that such compliance suppliers during the enrollment process. redundancies and make technical always be maintained. corrections to the regulatory text. We further proposed to delete the last Response: As we explained in the Response: We appreciate the sentence of § 424.535(a)(1), which reads: proposed rule, we believe that CAPs are commenter’s support. ‘‘All providers and suppliers are granted inappropriate in a number of revocation Given this, we are finalizing our an opportunity to correct the deficient situations and should accordingly be proposal to revise § 424.535(c) to state compliance requirement before a final unavailable; to illustrate, revocations that the re-enrollment bar is effective 30 determination to revoke billing based on a failure to timely report a days after CMS or its contractor mails privileges, except for those imposed practice location change should not be notice of its revocation determination to under paragraphs (a)(2), (a)(3), or (a)(5) retroactively corrected via a CAP. the provider or supplier. of this section.’’ This sentence was Indeed, we must be promptly notified of all practice location changes so we can 8. Corrective Action Plans inconsistent with our proposed change to § 405.809(a)(1). ensure that services are only performed Consistent with § 405.809, a provider Lastly, we proposed to incorporate the at valid locations and, consequently, or supplier whose Medicare billing existing language of § 405.809 into a that payments are made correctly. More privileges are revoked may currently new paragraph § 405.809(b). basically, it is the provider or supplier’s submit a corrective action plan (CAP). A summary of the comments we responsibility—as indicated on the The CAP must provide evidence that the received on these proposed changes and CMS–855 forms that the provider or provider or supplier is in compliance our responses follow: supplier completes and signs as part of with Medicare requirements. If CMS or Comment: Several commenters noted the enrollment process—to report the Medicare contractor determines that that under CMS’s proposal to restrict the changes to CMS on a timely basis. the provider or supplier is, in fact, availability of CAPs, a CAP could not be Comment: A commenter compliant with Medicare requirements, used in cases where a revocation recommended that CMS eliminate the the provider or supplier’s billing occurred due to the provider’s failure to provider enrollment CAP process and privileges can be reinstated. report a practice location under work with Medicare contractors to

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eliminate revocations based on a trivial rates, enrollment file, and beneficiary to satisfy any Medicare enrollment matter. complaints) that furnish an opportunity requirements. Response: We believe that CAPs are for suppliers to investigate, respond to, We also proposed to add the phrase appropriate for revocations based on and correct potential deficiencies, CMS ‘‘or other reliable evidence’’ to § 424.535(a)(1), and they will remain should not finalize its proposed change § 424.535(a)(5) for two reasons. First, available. Moreover, we stress that to § 405.809. § 424.530(a)(5) currently contains the revocations are not imposed for trivial Response: Much of the data the ‘‘or other reliable evidence’’ standard, reasons. Each prospective revocation is commenter refers to is either currently and we believe these two paragraphs carefully reviewed to ensure that there available to individual providers and (§ 424.530(a)(5) and § 424.535(a)(5)) are legitimate grounds for taking such suppliers (for example, by reviewing the should have consistent standards. action and that the integrity of the provider or supplier’s PECOS record) or Second, we believe it is important to be Medicare program warrants it. can be made available to them upon able to ascertain and take action under Comment: A commenter stated that request. However, it is ultimately the § 424.535(a)(5) against a non-operational there generally is not enough time for a provider or supplier’s responsibility to or non-compliant provider or supplier provider to submit both a corrective ensure that it has sufficient internal through means other than a site review. action plan and appeal, for the latter is controls to detect deficiencies on its We received one comment regarding frequently not filed until the results of own. Providers and suppliers must be these proposed changes: the former are known. The commenter proactive in their efforts to comply with Comment: A commenter requested thus recommended that CMS either Medicare requirements. Thus, we do not clarification of the term ‘‘other reliable discontinue the CAP process or require believe that the commenter’s contention evidence’’ as it is used in § 424.530(a)(5) its contractors to decide upon and constitutes grounds for withdrawing our and § 424.535(a)(5). respond to a CAP within 10 days of proposed change to § 405.809. Response: The term means any receipt. credible evidence that demonstrates that Given these comments and the Response: We do not agree that the the provider is not in compliance with aforementioned discussion, we are CAP process should be entirely Medicare requirements. discontinued or that a provider must finalizing our proposed CAP provisions Given the foregoing, we are finalizing wait until the CAP determination has without modification. the proposed changes discussed in been made before filing an appeal. In 9. Revisions to §§ 424.530(a)(5) and section II.B.9 of this final rule albeit fact, many providers and suppliers file 424.535(a)(5) with one very minor technical edit. The a CAP and an appeal as part of the same term ‘‘enrollment requirements’’ will be We also proposed to revise package. Requiring a 10-day period is changed to ‘‘enrollment requirement’’ to §§ 424.530(a)(5) and 424.535(a)(5). We unnecessary and could hinder the clarify our original intention that the stated in the proposed rule that the reviewer’s ability to conduct a thorough, provider or supplier’s non-compliance language in these two subsections is careful analysis of the merits of the with any enrollment requirement can redundant. To illustrate, the first CAP. constitute grounds for revocation. Comment: A commenter urged the sentence of § 424.530(a)(5) states that a continued use of CAPs in situations provider or supplier’s Medicare 10. Technical Changes where the provider misinterpreted a enrollment may be denied if, upon on- We also proposed certain technical requirement or failed to comply with an site review or other reliable evidence, changes related to our provider and administrative or record-keeping CMS determines that the provider or supplier enrollment regulations. requirement but otherwise acted in supplier is not operational or is not In § 424.530(a)(1), we proposed to good-faith. meeting Medicare enrollment change the word ‘‘section’’ to ‘‘subpart Response: CAPs will remain available requirements. Later, paragraphs P’’ in the first sentence so that the for revocations based on § 424.535(a)(1). § 424.530(a)(5)(i) and (a)(5)(ii) sentence would read—‘‘[t]he provider or With respect to other revocation reasons essentially repeat this language. The supplier is determined not to be in that we suspect the commenter may same repetition is evident in compliance with the enrollment classify as ‘‘record-keeping’’ in nature— § 424.535(a)(5), wherein paragraphs requirements described in this subpart P specifically, § 424.535(a)(9) and (a)(5)(i) and (a)(5)(ii) effectively or in the enrollment application (a)(10)—we do not view these as mere duplicate the language in the first applicable for its provider or supplier administrative requirements. The sentence of § 424.535(a)(5). type, and has not submitted a plan of reporting mandates referred to in Accordingly, we proposed to revise corrective action as outlined in part 488 paragraph (a)(9)—and which are § 424.530(a)(5) to state that the provider of this chapter.’’ The purpose of this codified in § 424.516(d)(1)(ii)—help or supplier’s enrollment can be denied change was to clarify that the provider ensure that CMS has correct, up-to-date if (u)pon on-site review or other reliable or supplier must comply with all of the information on the provider so CMS can evidence, CMS determines that the provider enrollment provisions in 42 determine if a provider or supplier is provider or supplier is either of the CFR subpart P, not merely those in still in compliance with Medicare following: (1) Not operational to furnish § 424.530. requirements. The maintenance of Medicare-covered items or services; or For the same reason, we proposed to documentation requirements referred to (2) otherwise fails to satisfy any revise § 424.535(a)(1) to state as follows: in paragraph (a)(10) and codified in Medicare enrollment requirements. ‘‘The provider or supplier is determined § 424.516(f) assist CMS in confirming Likewise, we proposed to revise not to be in compliance with the that the physician or other eligible § 424.535(a)(5) to state that a provider or enrollment requirements described in professional was qualified to order or supplier’s Medicare billing privileges this subpart P or in the enrollment certify the item or service that the would be revoked if (u)pon on-site application applicable for its provider or provider or supplier furnished. review or other reliable evidence, CMS supplier type, and has not submitted a Comment: Another commenter stated determines that the provider or supplier plan of corrective action as outlined in that unless DHHS can provide suppliers is either of the following: (1) No longer part 488 of this chapter.’’ with accurate and routine visibility to operational to furnish Medicare-covered Also, in § 424.535(a)(3)(ii) we statistics (such as the supplier’s error items or services; or (2) otherwise fails proposed to change the term ‘‘denials’’

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to ‘‘revocations,’’ as § 424.535 does not effectively implement our new provider improvement organizations (QIOs); and address denials. enrollment requirements. (5) furnish additional guidance on the Finally, § 498.5(l)(4) states that for Response: We will ensure that the myriad of Medicare rules and appeals of denials based on resources are available and the regulations, which the commenter § 424.530(a)(9) related to temporary necessary systems changes are made to believes are often burdensome and moratoria, the scope of the review is implement the provider enrollment confusing. limited to whether the temporary requirements outlined in this rule. Response: We appreciate these moratorium applies to the provider or Comment: A commenter suggested suggestions and will continue, as supplier. Yet § 424.530(a)(10), rather that CMS consider sharing with other necessary, to expand our outreach than § 424.530(a)(9), applies to payers (both public and private) efforts to providers and suppliers temporary moratoria. We proposed to information regarding actions taken regarding important coding and billing correct § 498.5(l)(4) by changing the against providers pursuant to our issues. reference to § 424.530(a)(9) therein to proposed provisions (for example, Comment: With respect to § 424.530(a)(10). revocations under § 424.535(a)(8)(ii)). §§ 424.530(a)(1) and 424.535(a)(1), a We received no comments on these The commenter stated that such commenter stated that CMS should proposed technical changes. Therefore, dissemination of data is critical to the make available to providers various we are finalizing these revisions without prevention of fraud and abuse in our information (for example, the supplier’s modification. nation’s health care system. error rates, enrollment file, and Response: We agree with the beneficiary complaints) that would C. General and Other Comments commenter that the exchange of enable providers to investigate and We also received a number of general information between medical payers is address potential deficiencies. Only comments regarding the proposed rule. important to the prevention of health through this vehicle can a provider A summary of these comments and our care fraud and abuse. CMS, is working confirm that it is in compliance with responses are as follows: to expand the exchange of information enrollment requirements and, if Comment: A commenter indicated with other payers as evidenced by its necessary, take corrective action. general support for the changes in this initiative, the Healthcare Fraud Response: As we stated earlier in rule that expand CMS’s enrollment Prevention Partnership. response to a similar comment, much of denial authority, for this would improve Comment: A commenter stated that this information is either currently CMS’s ability to detect new fraud any final decision regarding the available to the provider or can be made schemes. However, the commenter revocation of a provider’s Medicare available upon request. Still, providers expressed concern that CMS’s anti-fraud billing privileges should come from must be proactive in establishing efforts could inadvertently harm law- CMS Central Office rather than from the adequate internal controls to ensure abiding physicians who unintentionally Medicare contractor. compliance with Medicare make a mistake during the enrollment Response: For reasons mentioned requirements; such compliance should process—a process, the commenter earlier, we agree. not be contingent upon the provider believed, that has become increasingly Comment: A commenter expressed first receiving substantial quantities of complicated. The commenter support for CMS’s clarification that the information from CMS. recommended that CMS continually re-enrollment bar does not apply if a Comment: A commenter stated that evaluate PECOS and remove and revocation is based on the provider’s program integrity is best ensured when identify unnecessary and outdated failure to respond timely to a providers fully understand how to requirements. revalidation request or other request for comply with complex Medicare Response: Although we are unclear as information. requirements. The commenter thus to the specific anti-fraud effort(s) or Response: We appreciate the urged CMS to issue final rules regarding regulatory provision(s) of concern to the commenter’s support. the requirements of mandatory commenter, we are committed to Comment: Several commenters stated compliance programs (as outlined in the ensuring that the enrollment process that physicians need more information Affordable Care Act) as soon as possible. poses as minimal a burden as possible and education on common billing and The commenter added that CMS should on those providers and suppliers that coding mistakes and better guidance on work with the OIG to update the current are conscientious about complying with how to avoid audits. The commenters compliance guidance by working with Medicare requirements. We have taken recommended that CMS: (1) Publicly industry stakeholders. steps in this direction, including—but release information on frequent billing Response: We appreciate the not limited to—allowing providers and and coding errors, including aggregate commenter’s concerns. However, the suppliers to complete CMS–855 statistics on such errors at a local (MAC compliance plan provisions outlined in applications via the Internet as opposed level) and national level, as well as by section 6401 of the Affordable Care Act to requiring a paper application. We specialty; (2) educate providers on these are outside the scope of this rule. also, as the commenter suggested, errors through existing educational Comment: A commenter stated that if regularly evaluate PECOS, our Program channels (for instance, Open Door CMS sees any provider or Medicare debt Integrity Manual instructions, and our Forum calls and MedLearn Matters as a risk and plans to do everything regulations to determine whether articles); (3) develop a dedicated web possible to prevent unnecessary threats improvements or revisions are presence for publishing the to Medicare beneficiaries and the necessary. We believe it is important aforementioned information and an Medicare Trust Funds, this gives CMS and indeed necessary to strive to associated CMS email list-serve to unrestrained discretion to deny achieve an appropriate balance between disseminate new data as it becomes enrollment or revoke billing privileges. ensuring the integrity of the Medicare public; (4) provide technical assistance The proposed rule, the commenter Trust Funds and easing the burden on for physician practices—primarily those continued, does not focus on narrowly the provider and supplier communities. with a high volume of coding and tailoring the approach to target fraud Comment: A commenter billing errors—on how to avoid these and abuse but instead seems geared recommended that CMS develop the errors, perhaps through an expanded towards reducing the total number of systems and resources necessary to scope of work for Medicare’s quality providers (including those not engaged

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in fraudulent or abusive actions) based Response: We have chosen to address reads: In making this determination, we on CMS’s apparent belief that doing so only Medicare enrollment in this rule, consider the following factors. will concomitantly reduce fraud and though Medicaid enrollment may be —Adding new paragraphs abuse. addressed in the future. (a)(6)(ii)(C)(1) through (5) Response: We have repeatedly stated —In § 424.530(a)(6)(iii), we are in numerous forums and throughout III. Provisions of the Final Rule making the following changes: this rule that the overwhelming majority A. Incentive Reward Program —Combining proposed paragraphs (A) of Medicare providers and suppliers In light of the complexity of the and (B)(1) —Redesignating proposed paragraph submit claims that meet Medicare operational aspects of our proposal, we (a)(6)(iii) as new paragraph (B)(2). requirements. It is not CMS’s overriding are not finalizing our proposed IRP • In § 424.535 we are making the objective to reduce the total number of provisions in this rule. We may finalize Medicare providers and suppliers. following revisions: them in future rulemaking. Nonetheless, a small percentage of ++ Revising paragraph (a)(3). providers and suppliers are engaging in B. Enrollment Provisions ++ In § 424.535(a)(5), we are fraudulent, wasteful, inappropriate, or Based on public comments, we are changing ‘‘requirements’’ to abusive activities. Our provider finalizing our proposed provider ‘‘requirement.’’ enrollment revisions are directed at enrollment provisions with the ++ Adding paragraphs A through F to such providers and suppliers, and we following revisions: paragraph (a)(8)(ii). believe that removing them, as • In § 424.502, we are modifying IV. Collection of Information necessary, from the Medicare program paragraph (2) of the definition of Requirements will only serve to benefit Medicare ‘‘Enroll/Enrollment’’ to read as follows: Under the Paperwork Reduction Act beneficiaries, the Trust Funds, the Except for those suppliers who of 1995, we are required to provide 30- taxpayers, and the hundreds of complete the CMS–855O form, CMS- day notice in the Federal Register and thousands of legitimate Medicare identified equivalent, successor form or solicit public comment before a providers and suppliers that have process for the sole purpose of obtaining collection of information requirement is proven to be reliable partners of the eligibility to order or certify Medicare- submitted to the Office of Management program. covered items and services, validating and Budget (OMB) for review and Comment: A commenter expressed the provider or supplier’s eligibility to approval. In order to fairly evaluate concern that the proposed rule would provide items or services to Medicare whether an information collection give CMS’s contractors unprecedented beneficiaries. discretion to revoke Medicare billing • In § 424.510, we are redesignating should be approved by OMB, section privileges. The commenter also stated the first two sentences of existing 3506(c)(2)(A) of the Paperwork that CMS must clearly articulate the paragraph (a) as new paragraph (a)(1). Reduction Act of 1995 requires that we appeal rights that providers have in solicit comment on the following issues: ++ Revising the third sentence of • revocation cases. existing paragraph (a) and redesignating The need for the information Response: As stated previously, a as new paragraph (a)(2). The new collection and its usefulness in carrying MAC must receive prior CMS approval out the proper functions of our agency. paragraph (a)(2) will state the following: • before revoking a provider’s Medicare To be enrolled to furnish Medicare- The accuracy of our estimate of the billing privileges. With respect to appeal covered items and services, a provider information collection burden. • The quality, utility, and clarity of rights in revocation cases, these are or supplier must meet the requirements the information to be collected. outlined in 42 CFR part 498 and in CMS specified in paragraphs (d) and (e) of • Recommendations to minimize the Publication 100–08, chapter 15. this section. Comment: A commenter supported ++ Adding a new paragraph (a)(3) information collection burden on the the proposed rule’s intent to reduce the that states the following: To be enrolled affected public, including automated time necessary to institute a recovery of solely to order and certify Medicare collection techniques. We are soliciting Medicare funds for a provider who has items or services, a physician or non- public comment on each of these issues submitted bad or faulty billings. physician practitioner must meet the for the following sections of this Response: We appreciate the requirements specified in paragraph (d) document that contain information commenter’s support for our anti-fraud of this section except for paragraphs collection requirements (ICRs): efforts. (2)(iii)(B), (2)(iv), (3)(ii), (5), (6), and (9). A. ICRs Regarding the Definition of Comment: A commenter urged CMS • In § 424.521, we are revising Enrollment (§ 424.502, § 424.505, and to amend its opt-out policy to allow paragraph (a) to include ambulance § 424.510) physicians to opt-out of the Medicare suppliers. program without a requirement to • In § 424.530 we are making the Our revisions to § 424.502, § 424.505, reaffirm the opt-out. After the 2-year following revisions: and § 424.510 reflect the existing usage minimum required by law, the ++ Revising § 424.530(a)(3). of the CMS–855O (OMB Approval commenter explained, the opt-out ++ In § 424.530(a)(5), we are number 0938–0685) and, as such, will period should be effective indefinitely changing ‘‘requirements’’ to not impose any additional information unless and until the physician chooses ‘‘requirement.’’ collection burden. Consistent with to terminate his or her opt-out status —Paragraph (a)(6)(ii)(A) we are § 424.507, an individual who wishes to and private contracts with patients in revising the sentence to state that the enroll in Medicare for the sole purpose order to rejoin Medicare as a owner left the provider or supplier with of ordering or certifying items or participating or non-participating the Medicare debt within 1 year before services for Medicare beneficiaries can physician. or after that provider or supplier’s become eligible to do so by completing Response: This comment is outside voluntary termination, involuntary the CMS–855O. Use of the CMS–855O the scope of this rule. termination or revocation. commenced in July 2011, and OMB at Comment: A commenter questioned —In paragraph (a)(6)(ii)(C)— that time approved the information why Medicaid was excluded from the —Adding additional language to the collection burden associated with its scope of our proposed rule. introductory text, a second sentence that use. The CMS–855O is approved under

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OMB control number 0938–1135 and F. ICRs Regarding the Effective Date of number of: (1) Appeals of revocations; expires August 31, 2015. Billing Privileges (§ 424.520(d)) or (2) resubmitted enrollment applications from revoked providers B. ICRs Regarding the Debts to Medicare Our revisions to § 424.520(d) will and suppliers. (§ 424.530(a)(6)) most likely result in a decrease in the information collection burden because The aforementioned burden Our revisions to § 424.530(a)(6) will fewer claims will be eligible for projections for our provider enrollment likely result in an increase in submission under this change. Yet we revisions are identical to those we application denials. While these are unable to project the extent of the proposed and on which we solicited revisions will not directly impose an decrease in the number of claims comments. We received no comments information collection burden, the because we do not have data available on these estimates. increase in denials could lead to more to support such an estimate. Therefore, V. Regulatory Impact Analysis appeals from denied providers and we cannot estimate the decrease in the suppliers. However, we are unable to information collection burden. A. Statement of Need estimate the number of possible denials because we do not have data available G. ICRs Regarding the Effective Date of This final rule is necessary to make that can support such an estimate. Re-Enrollment Bar (§ 424.535(c)) important revisions to certain Medicare Accordingly, we cannot project the provider enrollment requirements in We believe that our revisions to order to strengthen our program potential information collection burden § 424.535(c) will neither increase nor that could arise from an increased integrity efforts and to help ensure that decrease the information collection fraudulent parties neither enroll in nor number of: (1) Appeals of denials; or (2) burden. With or without this revision, resubmitted enrollment applications maintain their enrollment in the the provider will still need to submit the Medicare program. from the denied providers and applicable CMS–855 application (based suppliers. on the provider or supplier type B. Overview C. ICRs Regarding the Felony involved) after the expiration of the re- We have examined the impacts of this Convictions (§§ 424.530(a)(3) and enrollment bar in order to enroll again rule as required by Executive Order 424.535(a)(3)) in Medicare. 12866 on Regulatory Planning and Although our revisions to H. ICRs Regarding the Corrective Action Review (September 30, 1993), Executive §§ 424.530(a)(3) and 424.535(a)(3) do Plans (§ 405.809) Order 13563 on Improving Regulation and Regulatory Review (January 18, not directly impose paperwork burdens, Our revisions to § 405.809 will result 2011), the Regulatory Flexibility Act they will likely result in an increase in in a decrease in the information application denials and revocations, collection burden because there will be (RFA) (September 19, 1980, Pub. L. 96– respectively. Yet we cannot estimate the a reduction in the number of CAPs 354), section 1102(b) of the Social potential increase in denials and submitted. However, we are unable to Security Act, section 202 of the revocations based on these changes, for project the extent of the decrease in Unfunded Mandates Reform Act of 1995 we do not have data available that can submitted CAPs because we do not have (March 22, 1995; Pub. L. 104–4) and support such an estimate. Therefore, we sufficient data to support such an Executive Order 13132 on Federalism are unable to project the potential estimate. (August 4, 1999). information collection burden that may Executive Orders 12866 and 13563 I. ICRs Regarding the Revisions to result from an increased number of direct agencies to assess all costs and § 424.530(a)(5) and § 424.535(a)(5) appeals of denials and revocations. benefits of available regulatory Our revisions to §§ 424.530(a)(5) and alternatives and, if regulation is D. ICRs Regarding the Abuse of Billing 424.535(a)(5) will not result in a change necessary, to select regulatory Privileges (§ 424.535(a)(8)(ii)) to the information collection burden, for approaches that maximize net benefits Our addition of § 424.535(a)(8)(ii) will we do not believe there will be any (including potential economic, likely lead to an increase in the change in the number of denials or environmental, public health and safety information collection burden because revocations, respectively. We note that effects, distributive impacts, and there will be a concomitant increase in § 424.530(a)(5) already permits equity). A regulatory impact analysis revocations and associated appeals. revocation based upon a site review ‘‘or (RIA) must be prepared for major rules However, we are unable to estimate the other reliable evidence.’’ Thus, we do with economically significant effects number of potential revocations. We do not foresee any change in the number of: ($100 million or more in any 1 year). not have data available that can help us (1) Appeals of denials, or (2) As explained in more detail later in make such an estimate, for each resubmitted enrollment applications this section, we encountered several situation will have to be reviewed and from denied providers and suppliers. As uncertainties in estimating the addressed on a case-by-case basis. for § 424.535(a)(5), the ‘‘or other reliable economic impact of many of our final evidence’’ standard is not in the current provisions. We could not estimate the E. ICRs Regarding the Post-Revocation version of that paragraph. But we note number of denials and revocations that Submission of Claims (§ 424.535(h)) that § 424.535(a)(1) permits revocation if might stem from the finalized We do not believe that our revisions the provider or supplier is determined enrollment changes. We were also to § 424.535(h) will result in a change in not to be in compliance with the unable to estimate the potential the information collection burden. enrollment requirements in this section, monetary savings to the federal While the claims in question will need or in the enrollment application that is government or the costs to providers to be submitted within a shorter applicable to its provider or supplier and suppliers resulting from the timeframe (60 days), they will likely be type. Therefore, the authority to revoke remaining finalized revisions. However, submitted regardless of the applicable based on reliable evidence of non- we estimate that our change to submission period. The shorter compliance is largely similar to the § 424.520(d) will result in an annual timeframe will, in general, neither reasons for revocation stated in transfer of more than $100 million from increase nor decrease the number of § 424.535(a)(1). Hence, we do not providers and suppliers to the federal claims submitted. believe there will be any change in the government. Therefore, we have

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prepared an RIA because this is a major businesses because: (1) Only a small C. Anticipated Effects rule. number of Medicare providers and We indicated in section IV. of this The RFA requires agencies to analyze suppliers have their billing privileges final rule that there may be an ICR options for regulatory relief for small revoked; and (2) the revoked provider’s burden associated with several of our businesses. For purposes of the RFA, claims will likely be submitted provider enrollment provisions but that small entities include small businesses, regardless of the shorter submission the burden cannot be estimated. The nonprofit organization, and small period. following sections discuss other governmental jurisdictions. Most Our revisions to § 405.809 will impact potential costs—as well as savings— entities and most other providers and the ability of some small entities to associated with our enrollment changes. suppliers are small entities, either by nonprofit status or by having revenues submit CAPs in response to a 1. Definition of Enrollment revocation. However, these entities will below Small Business Administration As stated earlier, use of the CMS– thresholds that range from $7 million still be able to file a request for reconsideration. The overall effect of 855O commenced in July 2011. Our and $35.5 million per year. Individuals revisions to §§ 424.502, 424.505, and and states are not included in the this change will thus not impact a substantial number of small entities. 424.510 are intended to clarify that the definition of a small entity. CMS–855O does not convey billing As we stated in the proposed rule, In short, we believe that the vast privileges. As such, these changes will several provisions will have at least majority of providers and suppliers— not result in any additional costs or some effect on certain small entities. both small and large—do not commit savings. These include: (1) The changes at fraud, have not been convicted of a § 424.520(d) to the effective date of felony, and are otherwise compliant 2. Debts to Medicare billing privileges for ambulance with Medicare enrollment requirements. Our revisions to § 424.530(a)(6) will suppliers; (2) the changes at Consequently, they will not be affected likely result in additional application § 424.530(a)(6) regarding Medicare debt; by most of the provisions in this rule. denials. Yet we are unable to estimate (3) the addition of § 424.535(a)(8)(ii) Section 1102(b) of the Act requires us the number of potential denials because concerning patterns or practices of non- to prepare a regulatory impact analysis we do not have data available to support compliant claim submissions; (4) the such an estimate. Therefore, we cannot if a rule may have a significant impact revision of § 424.535(h) regarding the project any costs in possible lost billings on the operations of a substantial submission of claims after revocation; to providers and suppliers or any number of small rural hospitals. This and (5) the revision of § 405.809 associated potential savings to the analysis must conform to the provisions concerning the reinstatement of government. provider or supplier billing privileges of section 604 of the RFA. For purposes While there may be an increase in following corrective action. Yet as of section 1102(b) of the Act, we define costs to the federal government from discussed later in this section, we do a small rural hospital that is located identifying and making available to not believe that this final rule will have outside of a Metropolitan Statistical enrollment contractors information a significant economic impact on a Area for Medicare payment regulations about individuals that were associated substantial number of small entities. and has fewer than 100 beds. We are not with a revoked entity with an unpaid Section 424.520(d), which changes preparing an analysis for section 1102(b) Medicare debt, we are unable to the effective date of billing privileges for of the Act because we have determined estimate the magnitude of any such ambulance suppliers, will only impact and the Secretary certified that this final increase. We also anticipate that an newly-enrolling ambulance suppliers. rule will not have a significant impact increase in costs will be offset by Each year, new ambulance providers on the operations of a substantial savings to the government—(1) in constitute only a very small addition to number of small rural hospitals. preventing billing by such providers the overall universe of the roughly 1.4 Section 202 of the Unfunded and suppliers, and (2) the repayment of million Medicare-enrolled providers Mandates Reform Act of 1995 (UMRA) debt by these providers and suppliers. and suppliers—an average of 1,127 also requires that agencies assess 3. Felony Convictions ambulance suppliers enrolled in anticipated costs and benefits before Medicare each year between 2006 and issuing any rule whose mandates As stated in section IV.B. of this final 2011. We further note that this require spending in any 1 year of $100 rule, our revisions to § 424.530(a)(3) and provision will not affect their ability to million in 1995 dollars, updated § 424.535(a)(3) will likely result in bill for services furnished after the later annually for inflation. In 2014, this is additional application denials and of the two events specified in approximately $141 million. We believe revocations, respectively. However, we § 424.520(d)(1) and (2). that this final rule will have no are unable to estimate the potential Denials and revocations under, consequential effect on state, local or increase in denials and revocations and respectively, § 424.530(a)(6) and tribal governments or on the private associated appeals, for we do not have § 424.535(a)(8), will not occur until after sector. sufficient information to support such a a careful examination by CMS of: (1) projection. Thus, we cannot project the The level of undue risk that the unpaid Executive Order 13132 establishes potential costs to providers and debt poses; or (2) the criteria for certain requirements that an agency suppliers in lost billings or the potential determining whether the provider or must meet when it promulgates a costs or savings to the government supplier has a pattern or practice of proposed rule (and subsequent final arising from these revisions. submitting non-compliant claims. As rule) that imposes substantial direct such, while we anticipate an increase in requirements or costs on state and local 4. Abuse of Billing Privileges some denials and revocations under governments, preempts state law, or Our addition of § 424.535(a)(8)(ii) will these two provisions, we do not believe otherwise has federalism implications. likely result in an increase in they will impact a substantial number of Since this regulation does not impose revocations. Yet we are unable to project small entities. any costs on state or local governments, the number of providers and suppliers Our revisions to § 424.535(h) will not the requirements of Executive Order that might be revoked based on this have a significant impact on small 13132 are not applicable. change because we do not have data

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available to help us make such an × 3/12 × 1,127). If the average figure is 9. Revisions to § 424.530(a)(5) and estimate. Thus, we cannot forecast the 6 months, our projection would be § 424.535(a)(5) potential costs to providers and approximately $327.4 million. We have We stated earlier that we do not suppliers in lost billings or the possible no way of predicting the ratio of believe there will be any change in the costs or savings to the government ambulance suppliers that would have total number of denials or revocations arising from this provision. met our requirements 10 months, 6 based on our revisions to 5. Post-Revocation Submission of months or 3 months (or any other point) §§ 424.530(a)(5) and 424.535(a)(5). Claims prior to enrollment. Therefore, we will Therefore, we do not anticipate any Our revision to § 424.535(h) is use these three timeframes as, resultant change in overall costs or unlikely to increase or decrease the respectively, high-end, primary, and savings. low-end estimates in the accounting number of claims submitted. While the 10. Technical Changes revoked provider or supplier’s claims statement. As these are simply technical will need to be submitted within a 7. Effective Date of Re-Enrollment Bar shorter timeframe, we believe that the revisions, there are no costs or savings vast majority of claims will still be Our revisions to § 424.535(c) will associated with these provisions. submitted. Therefore, we project only a result in a longer re-enrollment bar than D. Comments Received and Conclusion negligible change in costs to providers that which currently exists in cases While we were unable—and remain and suppliers in their claim where the basis of the revocation occurs submissions. unable—to furnish detailed cost and months before the issuance of the savings estimates for many of our 6. Effective Date of Billing Privileges revocation letter. The longer period enrollment revisions, we solicited during which a provider or supplier is The revisions to § 424.520(d) will comments from the public regarding likely result in a decrease in claims unable to re-enroll in Medicare may their views as to the potential burdens submitted to Medicare. Rather than result in lost billings to the provider or and costs of our proposals as well as the being able to bill for Medicare services supplier. This may also lead to savings possible savings. We received several furnished up to 12 months prior to to the government because a provider or comments, which are summarized and enrollment, newly enrolling ambulance supplier that may have been billing accompanied by our responses as suppliers will be unable to bill for Medicare will not be eligible to do so as follows: services furnished prior to the later of: soon as would otherwise be the case. Comment: With respect to our savings (1) The date of filing a Medicare However, we are unable to project the estimates for the proposed change to enrollment application that was possible costs to providers and § 424.520(d), a few commenters believed subsequently approved; or (2) the date suppliers or the savings to the federal that our projections were inflated and the supplier first began furnishing government because we do not have that actual data (as opposed to services at a new practice location. data available to support such estimates. estimates) should be used. One of the According to our statistics, and as We also cannot estimate: (1) How many commenters suggested that CMS use stated earlier, an average of 1,127 providers and suppliers will be affected data regarding Medicare payments made ambulance suppliers enrolled in by this proposed change; or (2) the for services furnished prior to the Medicare each year between 2006 and specific types of providers and suppliers submission of the CMS–855B. The other commenter recommended that CMS 2011. We will use this figure in our that will be affected. calculations. As a result of our calculate the actual payments made to revisions, these suppliers could lose up 8. Corrective Action Plans new ambulance suppliers after January to 10 months in potential Medicare 1, 2011, for this is the date on which billings for services furnished prior to Our revisions to § 405.809 will result CMS began limiting payments to the later of the two events cited in in a reduction in the number of CAPs suppliers to 12 months from the date of § 424.520(d). submitted, as noted in the ICR. This service per § 424.520(d). Based on our data, the average may result in lost billings to the Response: We indeed based our ambulance supplier receives provider or supplier in cases where estimates on actual data—specifically, approximately $581,000 in Medicare CMS’ acceptance of a CAP has occurred the actual average amount of payments payments per year, though this of course more quickly than a reversal of the a Medicare-enrolled ambulance supplier varies by individual supplier. Ten- revocation at the appeals level, as the receives per year. As we indicated in the twelfths of this amount (that is, 10 CAP review process often takes place proposed rule, we cannot predict the months divided by 12 months) is sooner than the reconsideration process. number of ambulance suppliers that $484,167. Thus, we estimate that up to The reduction in the submission of would have met CMS’s requirements at $545.7 million each year (or $484,167 × CAPs will probably also result in a various points (for example, 3 months; 1,127) in savings to the federal savings to the federal government due to 10 months) prior to enrollment. government could accrue as a result of a decrease in the resources needed to Therefore, we can only furnish high- this change. review the CAPs. However, we cannot end, primary, and low-end estimates. We emphasize that our $545.7 million estimate the potential lost billings of Despite the commenters’ request for estimate is a high-end estimate. There providers or suppliers resulting from greater monetary specificity, we believe may be new ambulance suppliers that, this proposed provision, or the savings that our estimates are reasonable. absent our change to § 424.520(d), Comment: A commenter expressed to the federal government. We do not would have met our requirements less concern that CMS did not furnish more have data that can assist us in than 10 months prior to enrollment. For detailed monetary estimates of the rule’s instance, if the average newly enrolling predicting: (1) The number of provider potential impact on providers and ambulance supplier would have met our and suppliers that our proposed change beneficiaries. requirements 3 months prior to will impact; or (2) the specific types of Response: As we explained in both enrollment, the potential savings would providers and suppliers that will be sections III. and IV. of the proposed be roughly $163.7 million (or $581,000 affected. rule, we were unable to formulate

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detailed workload, cost, or savings E. Accounting Statement and Table accounting statement reflecting the projections for many of our provisions As required by OMB Circular A–4 average annualized costs over this because—(1) the necessary background (available at link http://www. period. data were not available; and (2) future whitehouse.gov/sites/default/files/omb/ The accounting statement does not behavior often cannot be predicted. assets/regulatory_matters_pdf/a-4.pdf), address the potential financial benefits Thus, we solicited feedback from the we have prepared an accounting of this proposed rule from the public that could perhaps assist us in statement. standpoint of its effectiveness in developing quantifiable, numerical The ‘‘transfer’’ category in Table 2 preventing or deterring certain estimates, though we received very few reflects the application of a 7 percent providers and suppliers from enrolling comments in response to our request. and 3 percent annualized rate to the in Medicare or maintaining their Therefore, we are finalizing our high-end, primary, and low-end enrollment in Medicare. It is not proposed projections while reiterating estimates referred to in section IV.C.2.f. possible for us to quantify these benefits our inability to develop estimates with of this final rule and involving our in monetary terms. In addition, the respect to other provisions. change to § 424.520(d). statement does not include those In light of these comments, we are The 7 and 3 percent figures were provisions previously discussed that finalizing the estimates as previously applied over a 10-year period beginning may result in a cost or savings that outlined. in 2013, with the figures in the nevertheless cannot be estimated.

TABLE 2—ACCOUNTING STATEMENT AND TABLE [In millions]

Category Primary Low High Discount Period estimates estimates estimates Year dollars rate covered

Transfers: Resulting from the change in the effective date of billing privileges for ambulance suppliers ...... 327.4 163.7 545.7 2013 7% 2014–2023 327.4 163.7 545.7 2013 3% 2014–2023

From Whom to Whom ...... Transfers from Ambulance Suppliers to Federal Government. * Rounded to the nearest hundred-thousandth.

F. Alternatives Considered believe this will continue to give certain Reporting and recordkeeping providers and suppliers an additional requirements. As stated, our provider enrollment opportunity to remedy inadvertent or provisions are needed to help ensure 42 CFR Part 498 minor errors without subjecting all that fraudulent parties do not enroll in parties to the lengthier appeals process, Administrative practice and or maintain their enrollment in the although we continue to believe that procedure, Health facilities, Health Medicare program. Nonetheless, we did eliminating the CAP process for all professions Medicare, Reporting and consider four alternatives when other revocation reasons is warranted. recordkeeping requirements. preparing our enrollment provisions. First, with respect to § 424.530(a)(6)(i) G. Impact on Beneficiary Access For the reasons stated in the preamble and (ii), we considered and elected to of this final rule, the Centers for We do not believe that our finalized propose and finalize an exception to Medicare & Medicaid Services amends provisions will impact beneficiary these denial reasons for providers, 42 CFR chapter IV as follows: access. While some providers and suppliers, and owners thereof that have suppliers may have their Medicare PART 405—FEDERAL HEALTH agreed to an extended repayment enrollment applications denied or their INSURANCE FOR THE AGED AND schedule. We believe that such an Medicare billing privileges revoked as a DISABLED agreement indicates a willingness to result of these provisions, we believe satisfy the debt. this number will be small. ■ 1. The authority for part 405 Second, we considered expanding the In accordance with the provisions of continues to read as follows: scope of § 424.520(d) to include all Executive Order 12866, this final rule Authority: Secs. 205(a), 1102, 1861, certified providers and certified was reviewed by the Office of 1862(a), 1869, 1871, 1874, 1881, and 1886(k) suppliers. Yet as we explained Management and Budget. of the Social Security Act (42 U.S.C. 405(a), previously, there already: (1) Is an 1302, 1395x, 1395y(a), 1395ff, 1395hh, exhaustive and extensive review process List of Subjects 1395kk, 1395rr and 1395ww(k)), and sec. 353 for certified providers and certified of the Public Health Service Act (42 U.S.C. 42 CFR Part 405 suppliers, and (2) are limitations posed 263a). by § 489.13 on the ability of such Administrative practice and ■ 2. Section 405.809 is revised to read providers and suppliers to ‘‘backbill’’ procedure, Health facilities, Health as follows: for services. professions. Kidney diseases, Medical Third, we contemplated eliminating devices, Medicare, Reporting and § 405.809 Reinstatement of provider or CAPs altogether, as the existing appeals recordkeeping requirements, Rural supplier billing privileges following process affords providers and suppliers areas, X-rays. corrective action. adequate due process rights. In the (a) General rule. A provider or 42 CFR Part 424 interests of fairness and efficiency, we supplier— elected to retain the CAP process for Emergency medical services, Health (1) May only submit a corrective revocations based on § 424.535(a)(1). We facilities, Health professions, Medicare, action plan for a revocation for

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noncompliance under § 424.535(a)(1) of identified equivalent, successor form or (2) The date that the supplier first this chapter; and process for the sole purpose of obtaining began furnishing services at a new (2) Subject to paragraph (a)(1) of this eligibility to order or certify Medicare- practice location. section, has only one opportunity to covered items and services, granting the ■ 8. Section 424.521 is revised to read correct all deficiencies that served as the Medicare provider or supplier Medicare as follows: basis of its revocation through a billing privileges. corrective action plan. § 424.521 Request for payment by * * * * * physicians, non-physician practitioners, (b) Review of a corrective action plan. physician and non-physician organizations, § 424.505 [Amended] Subject to paragraph (a)(1) of this and ambulance suppliers. section, CMS or its contractor reviews a ■ 5. Section 424.505 is amended by (a) Physicians, non-physician submitted corrective action plan and removing the phrase ‘‘Once enrolled, practitioners, physician and non- does either of the following: the provider or supplier receives’’ and (1) Reinstates the provider or physician practitioner organizations, adding in its place the phrase ‘‘Except and ambulance suppliers may supplier’s billing privileges if the for those suppliers that complete the provider or supplier provides sufficient retrospectively bill for services when CMS–855O form or CMS-identified the physician, non-physician evidence to CMS or its contractor that equivalent, successor form or process it has complied fully with the Medicare practitioner, physician or non-physician for the sole purpose of obtaining organization, and ambulance supplier requirements, in which case— eligibility to order or certify Medicare- (i) The effective date of the has met all program requirements, covered items and services; once including State licensure requirements, reinstatement is based on the date the enrolled the provider or supplier provider or supplier is in compliance and services were provided at the receives’’. enrolled practice location for up to— with all Medicare requirements; and ■ (ii) CMS or its contractor may pay for 6. Section 424.510 is amended by (1) Thirty days prior to their effective services furnished on or after the revising paragraph (a) to read as follows: date if circumstances precluded enrollment in advance of providing effective date of the reinstatement. § 424.510 Requirements for enrolling in (2) Refuses to reinstate a provider or the Medicare program. services to Medicare beneficiaries; or (2) Ninety days prior to their effective supplier’s billing privileges. The refusal (a)(1) Providers and suppliers must of CMS or its contractor to reinstate a date if a Presidentially-declared disaster submit enrollment information on the under the Robert T. Stafford Disaster provider or supplier’s billing privileges applicable enrollment application. Once based on a corrective action plan is not Relief and Emergency Assistance Act, the provider or supplier successfully 42 U.S.C. 5121–5206 (Stafford Act) an initial determination under part 498 completes the enrollment process, of this chapter. precluded enrollment in advance of including, if applicable, a State survey providing services to Medicare PART 424—CONDITIONS FOR and certification or accreditation beneficiaries. MEDICARE PAYMENT process, CMS enrolls the provider or (b) [Reserved] supplier into the Medicare program. ■ 9. Section 424.530 is amended by ■ 3. The authority for part 424 (2) To be enrolled to furnish revising paragraphs (a)(1), (a)(3) continues to read as follows: Medicare-covered items and services, a introductory text and (a)(3)(i), and (a)(5) provider or supplier must meet the and (6) to read as follows: Authority: Secs. 1102 and 1871 of the requirements specified in paragraphs (d) Social Security Act (42 U.S.C. 1302 and 1395hh). and (e) of this section. § 424.530 Denial of enrollment in the (3) To be enrolled solely to order and Medicare program ■ 4. In § 424.502, the definition of certify Medicare items or services, a (a) * * * ‘‘Enroll/Enrollment’’ is amended by physician or non-physician practitioner (1) Noncompliance. The provider or revising the introductory text and must meet the requirements specified in supplier is determined to not be in paragraphs (2) and (4) to read as follows: paragraph (d) of this section except for compliance with the enrollment paragraphs (d)(2)(iii)(B), (d)(2)(iv), requirements in this subpart P or in the § 424.502 Definitions (d)(3)(ii), and (d)(5), (6), and (9) of this enrollment application applicable for its * * * * * section. provider or supplier type, and has not Enroll/Enrollment means the process * * * * * submitted a plan of corrective action as that Medicare uses to establish outlined in part 488 of this chapter. eligibility to submit claims for ■ 7. Section 424.520 is amended by * * * * * Medicare-covered items and services, revising paragraph (d) to read as follows: (3) Felonies. The provider, supplier, and the process that Medicare uses to or any owner or managing employee of establish eligibility to order or certify § 424.520 Effective date of Medicare billing the provider or supplier was, within the Medicare-covered items and services. privileges. preceding 10 years, convicted (as that The process includes— * * * * * term is defined in 42 CFR 1001.2) of a * * * * * (d) Physicians, non-physician Federal or State felony offense that CMS (2) Except for those suppliers that practitioners, physician and non- determines is detrimental to the best complete the CMS–855O form, CMS- physician practitioner organizations, interests of the Medicare program and identified equivalent, successor form or and ambulance suppliers. The effective its beneficiaries. process for the sole purpose of obtaining date for billing privileges for physicians, (i) Offenses include, but are not eligibility to order or certify Medicare- non-physician practitioners, physician limited in scope or severity to— covered items and services, validating and non-physician practitioner (A) Felony crimes against persons, the provider or supplier’s eligibility to organizations, and ambulance suppliers such as murder, rape, assault, and other provide items or services to Medicare is the later of— similar crimes for which the individual beneficiaries; (1) The date of filing of a Medicare was convicted, including guilty pleas * * * * * enrollment application that was and adjudicated pretrial diversions. (4) Except for those suppliers that subsequently approved by a Medicare (B) Financial crimes, such as complete the CMS–855O form, CMS- contractor; or extortion, embezzlement, income tax

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evasion, insurance fraud and other (B) Repays the debt in full. (ii) Otherwise fails to satisfy any similar crimes for which the individual * * * * * Medicare enrollment requirement. was convicted, including guilty pleas ■ 10. Section 424.535 is amended by * * * * * and adjudicated pretrial diversions. revising paragraphs (a)(1) introductory (8) Abuse of billing privileges. Abuse (C) Any felony that placed the text, (a)(3), (a)(5), (a)(8), (c), and (h) to of billing privileges includes either of Medicare program or its beneficiaries at read as follows: the following: immediate risk, such as a malpractice (i) The provider or supplier submits a suit that results in a conviction of § 424.535 Revocation of enrollment and claim or claims for services that could criminal neglect or misconduct. billing privileges in the Medicare program. not have been furnished to a specific (D) Any felonies that would result in * * * * * individual on the date of service. These mandatory exclusion under section (a) * * * instances include but are not limited to 1128(a) of the Act. (1) Noncompliance. The provider or the following situations: * * * * * supplier is determined to not be in (A) Where the beneficiary is deceased. (5) On-site review. Upon on-site compliance with the enrollment (B) The directing physician or review or other reliable evidence, CMS requirements described in this subpart P beneficiary is not in the state or country determines that the provider or or in the enrollment application when services were furnished. supplier: applicable for its provider or supplier (C) When the equipment necessary for (i) Is not operational to furnish type, and has not submitted a plan of testing is not present where the testing Medicare-covered items or services; or corrective action as outlined in part 488 is said to have occurred. (ii) Otherwise fails to satisfy any of this chapter. The provider or supplier (ii) CMS determines that the provider Medicare enrollment requirement. may also be determined not to be in or supplier has a pattern or practice of (6) Medicare debt. (i) The enrolling compliance if it has failed to pay any submitting claims that fail to meet provider, supplier, or owner thereof (as user fees as assessed under part 488 of Medicare requirements. In making this defined in § 424.502), has an existing this chapter. determination, CMS considers, as Medicare debt. * * * * * appropriate or applicable, the following: (ii) The enrolling provider, supplier, (3) Felonies. (i) The provider, (A) The percentage of submitted or owner (as defined in § 424.502) supplier, or any owner or managing claims that were denied. thereof was previously the owner (as employee of the provider or supplier (B) The reason(s) for the claim defined in § 424.502) of a provider or was, within the preceding 10 years, denials. supplier that had a Medicare debt that convicted (as that term is defined in 42 (C) Whether the provider or supplier existed when the latter’s enrollment was CFR 1001.2) of a Federal or State felony has any history of final adverse actions voluntarily terminated, involuntarily offense that CMS determines is (as that term is defined under § 424.502) terminated, or revoked, and all of the detrimental to the best interests of the and the nature of any such actions. (D) The length of time over which the following criteria are met: Medicare program and its beneficiaries. (A) The owner left the provider or (ii) Offenses include, but are not pattern has continued. (E) How long the provider or supplier supplier with the Medicare debt within limited in scope or severity to— (A) Felony crimes against persons, has been enrolled in Medicare. 1 year before or after that provider or (F) Any other information regarding supplier’s voluntary termination, such as murder, rape, assault, and other similar crimes for which the individual the provider or supplier’s specific involuntary termination or revocation. circumstances that CMS deems relevant (B) The Medicare debt has not been was convicted, including guilty pleas to its determination as to whether the fully repaid. and adjudicated pretrial diversions. (C) CMS determines that the (B) Financial crimes, such as provider or supplier has or has not uncollected debt poses an undue risk of extortion, embezzlement, income tax engaged in the pattern or practice fraud, waste, or abuse. In making this evasion, insurance fraud and other described in this paragraph. determination, CMS considers the similar crimes for which the individual * * * * * following factors: was convicted, including guilty pleas (c) Reapplying after revocation. If a (1) The amount of the Medicare debt. and adjudicated pretrial diversions. provider, supplier, owner, or managing (2) The length and timeframe that the (C) Any felony that placed the employee has their billing privileges enrolling provider, supplier, or owner Medicare program or its beneficiaries at revoked, they are barred from thereof was an owner of the prior entity. immediate risk, such as a malpractice participating in the Medicare program (3) The percentage of the enrolling suit that results in a conviction of from the date of the revocation until the provider, supplier, or owner’s criminal neglect or misconduct. end of the re-enrollment bar. ownership of the prior entity. (D) Any felonies that would result in (1) The re-enrollment bar begins 30 (4) Whether the Medicare debt is mandatory exclusion under section days after CMS or its contractor mails currently being appealed. 1128(a) of the Act. notice of the revocation and lasts a (5) Whether the enrolling provider, (iii) Revocations based on felony minimum of 1 year, but not greater than supplier, or owner thereof was an owner convictions are for a period to be 3 years, depending on the severity of the of the prior entity at the time the determined by the Secretary, but not basis for revocation. Medicare debt was incurred. less than 10 years from the date of (2) The re-enrollment bar does not (iii) A denial of Medicare enrollment conviction if the individual has been apply in the event a revocation of under this paragraph (a)(6) can be convicted on one previous occasion for Medicare billing privileges is imposed avoided if the enrolling provider, one or more offenses. under paragraph (a)(1) of this section supplier or owner thereof does either of * * * * * based upon a provider or supplier’s the following: (5) On-site review. Upon on-site failure to respond timely to a (A)(1) Satisfies the criteria set forth in review or other reliable evidence, CMS revalidation request or other request for § 401.607; and determines that the provider or supplier information. (2) Agrees to a CMS-approved is either of the following: * * * * * extended repayment schedule for the (i) No longer operational to furnish (h) Submission of claims for services entire outstanding Medicare debt. Medicare-covered items or services. furnished before revocation. (1)(i)

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Except for HHAs as described in PART 498—APPEALS PROCEDURES the cross-reference ‘‘§ 424.530(a)(10)’’ in paragraph (h)(1)(ii) of this section, a FOR DETERMINATIONS THAT AFFECT its place. revoked provider or supplier must, PARTICIPATION IN THE MEDICARE (Catalog of Federal Domestic Assistance within 60 calendar days after the PROGRAM AND FOR Program No. 93.773, Medicare—Hospital effective date of revocation, submit all DETERMINATIONS THAT AFFECT THE Insurance; and Program No. 93.774, claims for items and services furnished PARTICIPATION OF ICFs/MR AND Medicare—Supplementary Medical before the date of the revocation letter. CERTAIN NFs IN THE MEDICAID Insurance Program) PROGRAM (ii) A revoked HHA must submit all Dated: August 8, 2014. claims for items and services within 60 ■ 11. The authority citation for part 498 Marilyn Tavenner, days after the later of the following: continues to read as follows: Administrator, Centers for Medicare & (A) The effective date of the Authority: Secs. 1102, 1128I and 1871 of Medicaid Services. revocation. the Social Security Act (42 U.S.C. 1302, Approved: November 20, 2014. 1320a–7j, and 1395hh). (B) The date that the HHA’s last Sylvia M. Burwell, payable episode ends. § 498.5 [Amended] Secretary, Department of Health and Human (2) Nothing in this paragraph (h) ■ 12. In § 498.5, paragraph (l)(4) is Services. impacts the requirements of § 424.44 amended by removing the cross- [FR Doc. 2014–28505 Filed 12–3–14; 8:45 am] regarding the timely filing of claims. reference ‘‘§ 424.530(a)(9)’’ and adding BILLING CODE 4120–01–P

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Part V

The President

Proclamation 9217—International Day of Persons With Disabilities, 2014

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Federal Register Presidential Documents Vol. 79, No. 234

Friday, December 5, 2014

Title 3— Proclamation 9217 of December 2, 2014

The President International Day of Persons With Disabilities, 2014

By the President of the United States of America

A Proclamation Each year, the United States joins with the international community to celebrate the inherent dignity and worth of every person. In America and in countries around the world, individuals with disabilities support families, strengthen their communities, and contribute to the global economy. On International Day of Persons with Disabilities, we reaffirm the fundamental principle that those with disabilities are entitled to the same rights and freedoms as everyone else: to belong and fully participate in society, to live with respect and free from discrimination, and to make of their lives what they will. Nearly a quarter century ago, the Congress came together to pass the Ameri- cans with Disabilities Act (ADA), a landmark civil rights bill and a historic milestone in our journey toward a more perfect Union. The first Nation on earth to comprehensively declare equality for its citizens with disabilities, we enshrined into law the promise of equal access, equal opportunity, and equal respect for every American. The ADA was a formal acknowledge- ment that individuals with disabilities deserve to live full and independent lives the way they choose, and today, my Administration continues to fight to give every person a fair shot at realizing their greatest potential. We are working to rigorously enforce the protections against disability-based discrimination and expand workforce training and employment opportunities for people with disabilities, including our wounded warriors and those with serious disabilities. Today’s theme, ‘‘Sustainable Development: The promise of technology,’’ reminds us that as we strive to increase accessibility in our communities, we cannot allow the benefits of groundbreaking innova- tion to be out of reach for those who seek to participate fully in our democracy and economy. Disability rights are not only civil rights to be enforced here at home; they are universal rights to be recognized and promoted around the globe. That is why I am proud that during my time in Office, the United States signed the Convention on the Rights of Persons with Disabilities, and why I continue to call on the Senate to provide its advice and consent to the ratification of what is the first new human rights convention of the 21st century. Around the world, more than 1 billion people experience a dis- ability. These women, men, and children seek a fair chance to complete an education, succeed in a career, and support a family—and the United States stands with them wherever they live. America continues to be the world leader on disability rights. Today, we celebrate the courage and commitment of all who have agitated and sacrificed to bring us to this point, and all who continue to press ahead toward greater access, opportunity, and inclusion. With advocates from around the world and all those whose lives have been touched by a disability, we can build on our progress. Let us recommit to fostering a society free of barriers and full of a deeper understanding of the value each person adds to our global community. NOW, THEREFORE, I, BARACK OBAMA, President of the United States of America, by virtue of the authority vested in me by the Constitution

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and the laws of the United States, do hereby proclaim December 3, 2014, as International Day of Persons with Disabilities. I call on all Americans to observe this day with appropriate ceremonies, activities, and programs. IN WITNESS WHEREOF, I have hereunto set my hand this second day of December, in the year of our Lord two thousand fourteen, and of the Independence of the United States of America the two hundred and thirty- ninth.

[FR Doc. 2014–28774 Filed 12–4–14; 11:15 am] Billing code 3295–F5

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Reader Aids Federal Register Vol. 79, No. 234 Friday, December 5, 2014

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Federal Register/Code of Federal Regulations At the end of each month the Office of the Federal Register General Information, indexes and other finding 202–741–6000 publishes separately a List of CFR Sections Affected (LSA), which aids lists parts and sections affected by documents published since Laws 741–6000 the revision date of each title. 141...... 71634 Presidential Documents 3 CFR Proposed Rules: Executive orders and proclamations 741–6000 Proclamations: 39 ...... 71031, 71033, 71037, The United States Government Manual 741–6000 9214...... 71621 71363 9215...... 71951 Other Services 71 ...... 71364, 71365, 71710 9216...... 71953 Electronic and on-line services (voice) 741–6020 9217...... 72537 15 CFR Privacy Act Compilation 741–6064 Administrative Orders: 730...... 71013 741–6043 Public Laws Update Service (numbers, dates, etc.) Presidential 734...... 71013 TTY for the deaf-and-hard-of-hearing 741–6086 Determinations: 736...... 71013 No. 2015–02 of 742...... 71013 ELECTRONIC RESEARCH November 21, 744...... 71013 2014 ...... 71619 745...... 71013 World Wide Web 748...... 71014 5 CFR 902...... 71313, 71510 Full text of the daily Federal Register, CFR and other publications 2641...... 71955 is located at: www.fdsys.gov. Proposed Rules: 16 CFR Federal Register information and research tools, including Public 890...... 71695 Proposed Rules: Inspection List, indexes, and Code of Federal Regulations are 892...... 71695 1422...... 71712 located at: www.ofr.gov. 7 CFR 17 CFR E-mail 1423...... 70995 240...... 72252 FEDREGTOC-L (Federal Register Table of Contents LISTSERV) is Proposed Rules: 242...... 72252 an open e-mail service that provides subscribers with a digital 318...... 71973 249...... 72252 form of the Federal Register Table of Contents. The digital form 319...... 71703, 71973 Proposed Rules: of the Federal Register Table of Contents includes HTML and 915...... 71031 1...... 71973 PDF links to the full text of each document. 15...... 71973 9 CFR To join or leave, go to http://listserv.access.gpo.gov and select 17...... 71973 Online mailing list archives, FEDREGTOC-L, Join or leave the list 93...... 70997 19...... 71973 (or change settings); then follow the instructions. 94...... 70997 32...... 71973 95...... 70997 37...... 71973 PENS (Public Law Electronic Notification Service) is an e-mail 145...... 71623 38...... 71973 service that notifies subscribers of recently enacted laws. 146...... 71623 140...... 71973 To subscribe, go to http://listserv.gsa.gov/archives/publaws-l.html 317...... 71007 150...... 71973 and select Join or leave the list (or change settings); then follow 381...... 71007 the instructions. 21 CFR 10 CFR FEDREGTOC-L and PENS are mailing lists only. We cannot 11...... 71156, 71259 respond to specific inquiries. 52...... 71295 101...... 71156, 71259 429...... 71624 201...... 72064 Reference questions. Send questions and comments about the 431...... 71624 Federal Register system to: [email protected] 1708...... 71009 29 CFR The Federal Register staff cannot interpret specific documents or Proposed Rules: 4044...... 71019 regulations. 430...... 71705, 71894 33 CFR CFR Checklist. Effective January 1, 2009, the CFR Checklist no 431...... 71710 longer appears in the Federal Register. This information can be 110...... 71654 12 CFR found online at http://bookstore.gpo.gov/. 117...... 72140 46...... 71630 165...... 71020, 71022 210...... 72107, 72112 Proposed Rules: FEDERAL REGISTER PAGES AND DATE, DECEMBER 1238...... 72120 117...... 72154 70995–71294...... 1 165...... 72155 13 CFR 167...... 72157 71295–71620...... 2 121...... 71296 71621–71954...... 3 34 CFR 71955–72106...... 4 14 CFR 600...... 71957 72107–72538...... 5 39 ...... 71296, 71300, 71302, 668...... 71957 71304, 71308, 72121, 72124, Proposed Rules: 72127, 72132 263...... 71930 61...... 71634 612...... 71820 71 ...... 71309, 71310, 71311, 686...... 71820 71312, 72135 97 ...... 71639, 71641, 71646, 37 CFR 71652 381...... 71319

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38 CFR 127...... 71066 485...... 71081 4...... 71975 12...... 71319 180...... 71713 488...... 71081 9...... 71975 17...... 71653 403...... 71066 22...... 71975 501...... 71066 46 CFR Proposed Rules: 52...... 71975 503...... 71066 Proposed Rules: 3...... 71366 401...... 71082 42 CFR 50 CFR 40 CFR 47 CFR 405...... 72500 300...... 71327 51...... 71663 409...... 71320 1...... 72143 622...... 71959 52 ...... 71025, 71663, 71672 424...... 72500 2...... 71321 97...... 71663, 71674 447...... 71679 22...... 72143 635 ...... 71029, 71331, 71510 180...... 71676, 72140 498...... 72500 73...... 72153 648...... 71339, 71960 300...... 71679 Proposed Rules: 90...... 71321 660...... 71340 Proposed Rules: 136...... 72160 Proposed Rules: 679 ...... 71313, 71344, 71350 52 ...... 71040, 71057, 71061, 409...... 71081 25...... 71714 Proposed Rules: 71369, 71712 410...... 71081 17...... 71373, 72450 48 CFR 63...... 72160 418...... 71081 226...... 71714 122...... 71066 440...... 71081 Proposed Rules: 300...... 71729 123...... 71066 484...... 71081 1...... 71975

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