Vol. 78 Thursday, No. 239 December 12, 2013

Pages 75449–75896

OFFICE OF THE FEDERAL REGISTER

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The FEDERAL REGISTER (ISSN 0097–6326) is published daily, SUBSCRIPTIONS AND COPIES Monday through Friday, except official holidays, by the Office PUBLIC of the Federal Register, National Archives and Records Administration, Washington, DC 20408, under the Federal Register Subscriptions: Act (44 U.S.C. Ch. 15) and the regulations of the Administrative Paper or fiche 202–512–1800 Committee of the Federal Register (1 CFR Ch. I). The Assistance with public subscriptions 202–512–1806 Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402 is the exclusive distributor of the official General online information 202–512–1530; 1–888–293–6498 edition. Periodicals postage is paid at Washington, DC. Single copies/back copies: The FEDERAL REGISTER provides a uniform system for making Paper or fiche 202–512–1800 available to the public regulations and legal notices issued by Assistance with public single copies 1–866–512–1800 Federal agencies. These include Presidential proclamations and (Toll-Free) Executive Orders, Federal agency documents having general FEDERAL AGENCIES applicability and legal effect, documents required to be published Subscriptions: by act of Congress, and other Federal agency documents of public interest. Paper or fiche 202–741–6005 Documents are on file for public inspection in the Office of the Assistance with Federal agency subscriptions 202–741–6005 Federal Register the day before they are published, unless the issuing agency requests earlier filing. For a list of documents currently on file for public inspection, see www.ofr.gov. The seal of the National Archives and Records Administration authenticates the Federal Register as the official serial publication established under the Federal Register Act. Under 44 U.S.C. 1507, the contents of the Federal Register shall be judicially noticed. The Federal Register is published in paper and on 24x microfiche. It is also available online at no charge at www.fdsys.gov, a service of the U.S. Government Printing Office. The online edition of the Federal Register is issued under the authority of the Administrative Committee of the Federal Register as the official legal equivalent of the paper and microfiche editions (44 U.S.C. 4101 and 1 CFR 5.10). It is updated by 6:00 a.m. each day the Federal Register is published and includes both text and graphics from Volume 59, 1 (January 2, 1994) forward. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202-512-1800 or 866-512-1800 (toll free). E-mail, gpocusthelp.com. The annual subscription price for the Federal Register paper edition is $749 plus postage, or $808, plus postage, for a combined Federal Register, Federal Register Index and List of CFR Sections Affected (LSA) subscription; the microfiche edition of the Federal Register including the Federal Register Index and LSA is $165, plus postage. Six month subscriptions are available for one-half the annual rate. The prevailing postal rates will be applied to orders according to the delivery method requested. The price of a single copy of the daily Federal Register, including postage, is based on the number of pages: $11 for an issue containing less than 200 pages; $22 for an issue containing 200 to 400 pages; and $33 for an issue containing more than 400 pages. Single issues of the microfiche edition may be purchased for $3 per copy, including postage. Remit check or money order, made payable to the Superintendent of Documents, or charge to your GPO Deposit Account, VISA, MasterCard, American Express, or Discover. Mail to: U.S. Government Printing Office—New Orders, P.O. Box 979050, St. Louis, MO 63197-9000; or call toll free 1- 866-512-1800, DC area 202-512-1800; or go to the U.S. Government Online Bookstore site, see bookstore.gpo.gov. There are no restrictions on the republication of material appearing in the Federal Register. How To Cite This Publication: Use the volume number and the page number. Example: 77 FR 12345. Postmaster: Send address changes to the Superintendent of Documents, Federal Register, U.S. Government Printing Office, Washington, DC 20402, along with the entire mailing label from the last issue received.

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Contents Federal Register Vol. 78, No. 239

Thursday, December 12, 2013

Agency for Toxic Substances and Disease Registry Federal Aviation Administration NOTICES RULES Agency Information Collection Activities; Proposals, Special Conditions: Submissions, and Approvals, 75568–75569 Cessna Model 750 Series Airplanes; Aircraft Electronic System Security Isolation or Protection from Internal Children and Families Administration Access, 75453–75454 Cessna Model 750 Series Airplanes; Aircraft Electronic NOTICES System Security Protection from Unauthorized Agency Information Collection Activities; Proposals, External Access, 75451–75452 Submissions, and Approvals: Standard Instrument Approach Procedures, and Takeoff Head Start Family and Child Experiences Survey, 75569– Minimums and Obstacle Departure Procedures, 75455– 75570 75458 PROPOSED RULES Commerce Department Airworthiness Directives: See Industry and Security Bureau The Boeing Company Airplanes, 75512–75515 See International Trade Administration Special Conditions: See National Oceanic and Atmospheric Administration Bombardier Inc., Models BD–500–1A10 and BD–500– NOTICES 1A11 series airplanes; Electronic Flight Control Agency Information Collection Activities; Proposals, System: Control Surface Awareness and Mode Submissions, and Approvals, 75543 Annunciation, 75511–75512 NOTICES Agency Information Collection Activities; Proposals, Commodity Futures Trading Commission Submissions, and Approvals: PROPOSED RULES Advanced Qualification Program, 75670–75671 Position Limits for Derivatives, 75680–75842 Ferry Flights in On-Demand Operations, 75671–75672 General Aviation and Air Taxi Activity and Avionics Corporation for National and Community Service Survey, 75671 NOTICES Agency Information Collection Activities; Proposals, Federal Communications Commission Submissions, and Approvals, 75549–75550 NOTICES Commission Policies and Procedures, Foreign Investment in Broadcast Licensees, 75563–75568 Department of Transportation See Pipeline and Hazardous Materials Safety Federal Election Commission Administration NOTICES Meetings; Sunshine Act, 75568 Education Department NOTICES Federal Emergency Management Agency Tests Determined To Be Suitable for Use in the National RULES Reporting System for Adult Education, 75550–75552 Suspension of Community Eligibility, 75485–75488 PROPOSED RULES Flood Elevation Determinations for Fayette County, PA (All Energy Department Jurisdictions); Withdrawal, 75542 See Federal Energy Regulatory Commission NOTICES NOTICES Agency Information Collection Activities; Proposals, Meetings: Submissions, and Approvals, 75573–75574 Environmental Management Site-Specific Advisory Agency Information Collection Activities; Proposals, Board, Northern New Mexico, 75552 Submissions, and Approvals: Environmental Management Site-Specific Advisory Effecitiveness of Implementation of the NFIP Community Board, Oak Ridge Reservation, 75552–75553 Assistance Program CAC and CAV Reports, 75574– 75575 Environmental Protection Agency Request for the Site Inspection, Landowners Authorization/Ingress/Egress Agreement, 75575 RULES Major Disaster Declarations: National Priorities List, 75475–75483 PROPOSED RULES Pennsylvania; Amendment No. 2, 75575 National Priorities List, 75534–75542 Federal Energy Regulatory Commission NOTICES Export-Import Bank Applications: NOTICES Cedar Rapids Water Board, 75553–75554 Applications for Final Commitment for Long-Term Loans or Combined Filings, 75554–75557 Financial Guarantees in Excess of 100 Million Dollars, Environmental Impact Statements; Availability, etc.: 75563 CE FLNG, LLC; CE Pipeline, LLC, 75557–75559

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Filings: International Trade Administration Kaukauna Utilities, 75559–75560 NOTICES Initial Market-Based Rate Filings Including Requests for Antidumping Duty Administrative Reviews; Results, Blanket Section 204 Authorization: Extensions, Amendments, etc.: Astral Energy, LLC, 75561–75562 Certain Magnesia Carbon Bricks from Mexico, 75543– Biofuels Washington, LLC, 75560 75544 Great Bay Energy V, LLC, 75561 Preliminary Determination of Sales at Less Than Fair Value Green Current Solutions, LLC, 75560–75561 and Postponement of Final Determination: South Bay Energy Corp., 75561 Prestressed Concrete Steel Rail Tie Wire from Mexico, Meetings: 75544–75545 Zero Rate Reactive Power Rate Schedules; Staff Preliminary Determination of Sales at Less Than Fair Value: Workshop, 75562 Prestressed Concrete Steel Rail Tie Wire from the Petitions for Waivers: People’s Republic of China, 75545–75547 MarkWest Pipeline Co., LLC, 75562–75563 Preliminary Determination of Sales at Not Less Than Fair Value: Federal Maritime Commission Prestressed Concrete Steel Rail Tie Wire from Thailand, NOTICES 75547–75548 Request for Additional Information, 75568 International Trade Commission Fiscal Service NOTICES PROPOSED RULES Investigations; Terminations, Modifications, Rulings, etc.: Federal Government Participation in the Automated Low Enriched Uranium From France, 75579 Clearing House, 75528–75534 Land Management Bureau Food and Drug Administration NOTICES PROPOSED RULES Realty Actions: Veterinary Feed Directive, 75515–75527 Recreation and Public Purposes Act Classification; Lease NOTICES and Conveyance of Public Land, Dona Ana County, Draft Guidance for Industry and Staff: NM, 75577–75578 Animal Drugs and New Animal Drug Combination Segregation and Proposed (Non-Competitive) Direct Sale Products Administered in or on Medicated Feed or of Public Land, Sweetwater County, WY, 75578– Drinking Water of Food-Producing Animals, 75570– 75579 75571 Independent Assessments: National Institutes of Health Process for the Review of Device Submissions; High NOTICES Priority Recommendations, 75571–75572 Meetings: Center for Scientific Review, 75572 General Services Administration RULES National Oceanic and Atmospheric Administration Federal Management Regulation: RULES Shipping Household Goods, 75484–75485 Pacific Halibut Fisheries: Federal Travel Regulation: Catch Sharing Plan for Guided Sport and Commercial Relocation Allowances; Commuted Rate, 75483–75484 Fisheries in Alaska, 75844–75895 Taking and Importing Marine Mammals: Health and Human Services Department Operation of Offshore Oil and Gas Facilities in the U.S. See Agency for Toxic Substances and Disease Registry Beaufort Sea, 75488–75510 NOTICES See Children and Families Administration National Estuarine Research Reserve System, 75548–75549 See Food and Drug Administration See National Institutes of Health Nuclear Regulatory Commission RULES Homeland Security Department Miscellaneous Corrections; Corrections, 75449–75451 See Federal Emergency Management Agency NOTICES See U.S. Customs and Border Protection License Renewal Applications: Grand Gulf Nuclear Station, Unit 1, 75579–75580 Industry and Security Bureau RULES Peace Corps Additions and Removals of Certain Persons to the Entity NOTICES List, 75458–75471 Agency Information Collection Activities; Proposals, Submissions, and Approvals, 75580–75581 Interior Department See Land Management Bureau Personnel Management Office NOTICES Internal Revenue Service Patient Protection and Affordable Care Act: RULES Establishment of the Multi-State Plan Program for the Section 3504 Agent Employment Tax Liability, 75471– Affordable Insurance Exchanges; Effective Date, 75475 75581

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Pipeline and Hazardous Materials Safety Administration Transportation Department NOTICES See Federal Aviation Administration Administrative Determination of Preemption: See Pipeline and Hazardous Materials Safety New Jersey Regulations on Transportation of Regulated Administration Medical Waste, 75672–75676 See Surface Transportation Board

Public Debt Bureau Treasury Department See Fiscal Service See Fiscal Service See Internal Revenue Service NOTICES Securities and Exchange Commission Agency Information Collection Activities; Proposals, NOTICES Submissions, and Approvals, 75677 Applications: Minnesota Life Insurance Co., et al., 75581–75585 U.S. Customs and Border Protection Self-Regulatory Organizations; Proposed Rule Changes: NOTICES BATS Exchange, Inc., 75607–75619 Agency Information Collection Activities; Proposals, BATS Y-Exchange, Inc., 75585–75597 Submissions, and Approvals, 75576 Boston Stock Exchange Clearing Corp., 75633–75642 Agency Information Collection Activities; Proposals, BOX Options Exchange LLC, 75644–75645 Submissions, and Approvals: C2 Options Exchange, Inc, 75597–75598 Importation Bond Structure, 75576–75577 Chicago Board Options Exchange, Inc, 75653–75655 Miami International Securities Exchange LLC, 75627– 75631 Separate Parts In This Issue NASDAQ OMX BX, Inc., 75645–75653 NASDAQ OMX PHLX LLC, 75661–75669 Part II NYSE Arca, Inc., 75655–75657 Commodity Futures Trading Commission, 75680–75842 NYSE MKT LLC, 75642–75643 Options Clearing Corp., 75659–75660 Part III Stock Clearing Corp. of Philadelphia, 75598–75607 Commerce Department, National Oceanic and Atmospheric The NASDAQ Stock Market LLC, 75619–75627, 75631– Administration, 75844–75895 75633, 75657–75659 Temporary Exemptions, 75669–75670 Reader Aids Surface Transportation Board Consult the Reader Aids section at the end of this page for NOTICES phone numbers, online resources, finding aids, reminders, Acquisitions of Control Exemptions: and notice of recently enacted public laws. Mark W. Dobronski and Susan K. Dobronski; Adrian and To subscribe to the Federal Register Table of Contents Blissfield Rail Road Company, etc., 75676–75677 LISTSERV electronic mailing list, go to http:// listserv.access.gpo.gov and select Online mailing list Toxic Substances and Disease Registry Agency archives, FEDREGTOC-L, Join or leave the list (or change See Agency for Toxic Substances and Disease Registry 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.

10 CFR 40...... 75449 50...... 75449 52...... 75449 70...... 75449 14 CFR 25 (2 documents) ...... 75451, 75453 97 (2 documents) ...... 75455, 75456 Proposed Rules: 25...... 75511 39...... 75512 15 CFR 744...... 75458 902...... 75844 17 CFR Proposed Rules: 1...... 75680 15...... 75680 17...... 75680 19...... 75680 32...... 75680 37...... 75680 38...... 75680 140...... 75680 150...... 75680 21 CFR Proposed Rules: 514...... 75515 558...... 75515 26 CFR 31...... 75471 31 CFR Proposed Rules: 210...... 75528 40 CFR 300...... 75475 Proposed Rules: 300...... 75534 41 CFR 102–117...... 75484 302–7...... 75483 44 CFR 64...... 75485 Proposed Rules: 67...... 75542 50 CFR 217...... 75488 300...... 75844 679...... 75844

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Rules and Regulations Federal Register Vol. 78, No. 239

Thursday, December 12, 2013

This section of the FEDERAL REGISTER then select ‘‘Begin Web-based ADAMS by the NRC. Also, the final rule does not contains regulatory documents having general Search.’’ For problems with ADAMS, change the substantive responsibilities applicability and legal effect, most of which please contact the NRC’s Public of any person or entity regulated by the are keyed to and codified in the Code of Document Room (PDR) reference staff at NRC. Furthermore, for the reasons Federal Regulations, which is published under 1–800–397–4209, 301–415–4737, or by stated above, the NRC finds, pursuant to 50 titles pursuant to 44 U.S.C. 1510. email to [email protected]. 5 U.S.C. 553(d)(3), that good cause • The Code of Federal Regulations is sold by NRC’s PDR: You may examine and exists to make this rule effective upon the Superintendent of Documents. Prices of purchase copies of public documents at publication of this notice. the NRC’s PDR, Room O1–F21, One new books are listed in the first FEDERAL List of Subjects REGISTER issue of each week. White Flint North, 11555 Rockville Pike, Rockville, Maryland 20852. 10 CFR Part 40 FOR FURTHER INFORMATION CONTACT: Criminal penalties, Government NUCLEAR REGULATORY Christian Leatherbury, Office of contracts, Hazardous materials COMMISSION Administration, U.S. Nuclear Regulatory transportation, Nuclear materials, Commission, Washington, DC 20555– 10 CFR Parts 40, 50, 52, and 70 Reporting and recordkeeping 0001, telephone: 301–287–3419, email: requirements, Source material, RIN 3150–AJ23 [email protected]. Uranium. SUPPLEMENTARY INFORMATION: The NRC [NRC–2013–0019] 10 CFR Part 50 published a final rule in the Federal Miscellaneous Corrections; Register on June 7, 2013 (78 FR 34245), Antitrust, Classified information, Corrections to make miscellaneous corrections to its Criminal penalties, Fire protection, regulations in chapter I of Title 10 of the Intergovernmental relations, Nuclear AGENCY: Nuclear Regulatory Code of Federal Regulations (10 CFR). power plants and reactors, Radiation Commission. These changes included revising the protection, Reactor siting criteria, ACTION: Correcting amendments. name of its human capital office, Reporting and recordkeeping correcting and adding missing cross- requirements. SUMMARY: The U.S. Nuclear Regulatory references, correcting grammatical 10 CFR Part 52 Commission (NRC) published a final errors, revising language for clarity and Administrative practice and rule in the Federal Register on June 7, consistency, and specifying metric procedure, Antitrust, Backfitting, 2013, to make miscellaneous corrections units. The final rule inadvertently Combined license, Early site permit, to its regulations. The final rule included additional errors in grammar Emergency planning, Fees, Inspection, contained minor errors in grammar, and punctuation in 10 CFR 40.36(e)(2), Limited work authorization, Nuclear punctuation, and referencing. This appendix G to 10 CFR part 50, 10 CFR power plants and reactors, Probabilistic document corrects the final rule by 52.17(b)(2)(ii), and 10 CFR 70.25; and risk assessment, Prototype, Reactor amending the sections that contain referencing in 10 CFR 52.17(b)(2)(i) and these errors. siting criteria, Redress of site, Reporting 10 CFR 52.18(f)(2). This document and recordkeeping requirements, DATES: This rule is effective on corrects the final rule by revising the December 12, 2013. Standard design, Standard design sections that contain these errors. certification. ADDRESSES: Please refer to Docket ID NRC–2013–0019 when contacting the Rulemaking Procedure 10 CFR Part 70 NRC about the availability of Under the Administrative Procedure Criminal penalties, Hazardous information for this document. You may Act (5 U.S.C. 553(b)), an agency may materials transportation, Material access publicly-available information waive the normal notice and comment control and accounting, Nuclear related to this document by any of the requirements if it finds, for good cause, materials, Packaging and containers, following methods: that they are impracticable, • Radiation protection, Reporting and Federal Rulemaking Web site: Go to unnecessary, or contrary to the public recordkeeping requirements, Scientific http://www.regulations.gov and search interest. As authorized by 5 U.S.C. equipment, Security measures, Special for Docket ID NRC–2013–0019. Address 553(b)(3)(B), the NRC finds good cause nuclear material. questions about NRC dockets to Carol to waive notice and opportunity for For the reasons set out in the Gallagher; telephone: 301–287–3422; comment on these amendments because preamble and under the authority of the email: [email protected]. For they will have no substantive impact Atomic Energy Act of 1954, as amended; technical questions, please contact the and are of a minor and administrative the Energy Reorganization Act of 1974, individual listed in the FOR FURTHER nature dealing with corrections to as amended; and 5 U.S.C. 552 and 553, INFORMATION CONTACT section of this certain CFR sections related only to the NRC is adopting the following final rule. management, organization, procedure, amendments to 10 CFR parts 40, 50, 52, • NRC’s Agencywide Documents and practice. Specifically, these and 70. Access and Management System amendments are to correct grammatical (ADAMS): You may access publicly errors and to revise cross-references to PART 40—DOMESTIC LICENSING OF available documents online in the NRC comply with the Office of the Federal SOURCE MATERIAL Library at http://www.nrc.gov/reading- Register’s Document Drafting Handbook. rm/adams.html. To begin the search, These amendments do not require ■ 1. The authority citation for part 40 select ‘‘ADAMS Public Documents’’ and action by any person or entity regulated continues to read as follows:

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Authority: Atomic Energy Act secs. under Pub. L. 97–415 (42 U.S.C. 2239). ■ 7. In § 52.18, revise the last sentence 11(e)(2), 62, 63, 64, 65, 81, 161, 181, 182, 183, Section 50.78 also issued under Atomic to read as follows: 186, 193, 223, 234, 274, 275 (42 U.S.C. Energy Act sec. 122 (42 U.S.C. 2152). 2014(e)(2), 2092, 2093, 2094, 2095, 2111, Sections 50.80–50.81 also issued under § 52.18 Standards for review of 2113, 2114, 2201, 2231, 2232, 2233, 2236, Atomic Energy Act sec. 184 (42 U.S.C. 2234). applications. 2243, 2273, 2282, 2021, 2022); Energy ■ Reorganization Act secs. 201, 202, 206 (42 4. In appendix G to part 50, section IV, * * * The Commission shall U.S.C. 5841, 5842, 5846); Government paragraph A.2.c., revise the first determine, after consultation with Paperwork Elimination Act sec. 1704 (44 sentence to read as follows: FEMA, whether the information U.S.C. 3504 note); Energy Policy Act of 2005, Appendix G to Part 50—Fracture required of the applicant by Pub. L. No. 109–59, 119 Stat. 594 (2005). Toughness Requirements § 52.17(b)(1) shows that there is not Section 40.7 also issued under Energy significant impediment to the Reorganization Act sec. 211, Pub. L. 95– * * * * * development of emergency plans that 601, sec. 10, as amended by Pub. L. IV. * * * cannot be mitigated or eliminated by 102–486, sec. 2902 (42 U.S.C. 5851). A. * * * 2. * * * measures proposed by the applicant, Section 40.31(g) also issued under c. The minimum temperature requirements whether any major features of Atomic Energy Act sec. 122 (42 U.S.C. given in table 1 pertain to the controlling emergency plans submitted by the 2152). Section 40.46 also issued under material, which is either the material in the applicant under § 52.17(b)(2)(i) are Atomic Energy Act sec. 184 (42 U.S.C. closure flange or the material in the beltline acceptable in accordance with the 2234). Section 40.71 also issued under region with the highest reference applicable standards of § 50.47 of this Atomic Energy Act sec. 187 (42 U.S.C. temperature. * * * chapter and the requirements of 2237). * * * * * appendix E to part 50 of this chapter, ■ 2. In § 40.36, paragraph (e)(2) and whether any emergency plans PART 52—LICENSES, introductory text, revise the fifth submitted by the applicant under CERTIFICATIONS, AND APPROVALS sentence to read as follows: § 52.17(b)(2)(ii) provide reasonable FOR NUCLEAR POWER PLANTS assurance that adequate protective § 40.36 Financial assurance and measures can and will be taken in the recordkeeping for decommissioning. ■ 5. The authority citation for part 52 event of a radiological emergency. * * * * * continues to read as follows: (e) * * * Authority: Atomic Energy Act secs. 103, PART 70—DOMESTIC LICENSING OF (2) * * * For commercial companies 104, 147, 149, 161, 181, 182, 183, 185, 186, SPECIAL NUCLEAR MATERIAL that do not issue bonds, a guarantee of 189, 223, 234 (42 U.S.C. 2133, 2201, 2167, 2169, 2232, 2233, 2235, 2236, 2239, 2282); funds by the applicant or licensee for ■ Energy Reorganization Act secs. 201, 202, 8. The authority citation for part 70 decommissioning costs may be used if 206, 211 (42 U.S.C. 5841, 5842, 5846, 5851); continues to read as follows: the guarantee and test are as contained Government Paperwork Elimination Act sec. Authority: Atomic Energy Act secs. 51, 53, in appendix D to part 30 of this chapter. 1704 (44 U.S.C. 3504 note); Energy Policy Act 161, 182, 183, 193, 223, 234 (42 U.S.C. 2071, *** of 2005, Pub. L. No. 109–58, 119 Stat. 594 2073, 2201, 2232, 2233, 2243, 2273, 2282, * * * * * (2005). 2297f); secs. 201, 202, 204, 206, 211 (42 ■ 6. In § 52.17, revise paragraphs U.S.C. 5841, 5842, 5845, 5846, 5851); PART 50—DOMESTIC LICENSING OF (b)(2)(i) and (ii) to read as follows: Government Paperwork Elimination Act sec. PRODUCTION AND UTILIZATION 1704 (44 U.S.C. 3504 note); Energy Policy Act FACILITIES § 52.17 Contents of applications; technical of 2005, Pub. L. No. 109–58, 119 Stat. 194 information. (2005). ■ 3. The authority citation for part 50 * * * * * Sections 70.1(c) and 70.20a(b) also issued continues to read as follows: (b) * * * under secs. 135, 141, Pub. L. 97–425, 96 Stat. (2) * * * 2232, 2241 (42 U.S.C. 10155, 10161). Authority: Atomic Energy Act secs. 102, (i) Propose major features of the Section 70.21(g) also issued under Atomic 103, 104, 105, 147, 149, 161, 181, 182, 183, emergency plans, in accordance with Energy Act sec. 122 (42 U.S.C. 2152). Section 186, 189, 223, 234 (42 U.S.C. 2132, 2133, the pertinent standards of § 50.47 of this 70.31 also issued under Atomic Energy Act 2134, 2135, 2167, 2169, 2201, 2231, 2232, sec. 57(d) (42 U.S.C. 2077(d)). Sections 70.36 2233, 2236, 2239, 2273, 2282); Energy chapter and the requirements of appendix E to part 50 of this chapter, and 70.44 also issued under Atomic Energy Reorganization Act secs. 201, 202, 206 (42 Act sec. 184 (42 U.S.C. 2234). Section 70.81 U.S.C. 5841, 5842, 5846); Nuclear Waste such as the exact size and configuration also issued under Atomic Energy Act secs. Policy Act sec. 306 (42 U.S.C. 10226); of the emergency planning zones, for 186, 187 (42 U.S.C. 2236, 2237). Section Government Paperwork Elimination Act sec. review and approval by the NRC, in 70.82 also issued under Atomic Energy Act 1704 (44 U.S.C. 3504 note); Energy Policy Act consultation with the Federal sec. 108 (42 U.S.C. 2138). of 2005, Pub. L. No. 109–58, 119 Stat. 194 Emergency Management Agency (2005). Section 50.7 also issued under Pub. (FEMA) in the absence of complete and ■ 9. In § 70.25, paragraph (f)(2) L. 95–601, sec. 10, as amended by Pub. L. integrated emergency plans; or introductory text, revise the fourth 102–486, sec. 2902 (42 U.S.C. 5851). Section sentence to read as follows: 50.10 also issued under Atomic Energy Act (ii) Propose complete and integrated secs. 101, 185 (42 U.S.C. 2131, 2235); emergency plans for review and § 70.25 Financial assurance and National Environmental Policy Act sec. 102 approval by the NRC, in consultation recordkeeping for decommissioning. with FEMA, in accordance with the (42 U.S.C. 4332). Sections 50.13, 50.54(dd), * * * * * and 50.103 also issued under Atomic Energy applicable standards of § 50.47 of this Act sec. 108 (42 U.S.C. 2138). chapter and the requirements of (f) * * * Sections 50.23, 50.35, 50.55, and 50.56 also appendix E to part 50 of this chapter. To (2) * * * For commercial issued under Atomic Energy Act sec. 185 (42 the extent approval of emergency plans corporations that issue bonds, a U.S.C. 2235). Appendix Q also issued under is sought, the application must contain National Environmental Policy Act sec. 102 guarantee of funds by the applicant or (42 U.S.C. 4332). Sections 50.34 and 50.54 the information required by § 50.33(g) licensee for decommissioning costs also issued under sec. 204 (42 U.S.C. 5844). and (j) of this chapter. based on a financial test may be used if Sections 50.58, 50.91, and 50.92 also issued * * * * * the guarantee and test are as contained

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in appendix C to part 30 of this chapter. Fax: Fax comments to Docket these special conditions has been *** Operations at 202–493–2251. subject to the public comment process * * * * * Privacy: The FAA will post all in several prior instances with no comments it receives, without change, substantive comments received. The Dated at Rockville, Maryland, this 6th day to http://www.regulations.gov/, of December, 2013. FAA therefore finds that good cause including any personal information the exists for making these special For the Nuclear Regulatory Commission. commenter provides. Using the search conditions effective upon publication in Cindy Bladey, function of the docket Web site, anyone the Federal Register. Chief, Rules, Announcements, and Directives can find and read the electronic form of Comments Invited Branch, Division of Administrative Services, all comments received into any FAA Office of Administration. docket, including the name of the We invite interested people to take [FR Doc. 2013–29694 Filed 12–11–13; 8:45 am] individual sending the comment (or part in this rulemaking by sending BILLING CODE 7590–01–P signing the comment for an association, written comments, data, or views. The business, labor union, etc.). DOT’s most helpful comments reference a complete Privacy Act Statement can be specific portion of the special DEPARTMENT OF TRANSPORTATION found in the Federal Register published conditions, explain the reason for any on April 11, 2000 (65 FR 19477–19478), recommended change, and include Federal Aviation Administration as well as at http://DocketsInfo.dot supporting data. .gov/. We will consider all comments we 14 CFR Part 25 Docket: Background documents or receive by the closing date for comments received may be read at comments. We may change these special [Docket No. FAA–2013–1036; Special http://www.regulations.gov/ at any time. conditions based on the comments we Conditions No. 25–510–SC] Follow the online instructions for receive. Special Conditions: Cessna Model 750 accessing the docket or go to the Docket Background Series Airplanes; Aircraft Electronic Operations in Room W12–140 of the West Building Ground Floor at 1200 On September 10, 2010, Cessna System Security Protection From Aircraft Company applied for an Unauthorized External Access New Jersey Avenue SE., Washington, DC, between 9 a.m. and 5 p.m., Monday amendment to the Model 750 Type AGENCY: Federal Aviation through Friday, except federal holidays. Certificate No. T00007WI. Administration (FAA), DOT. The Model 750 is a twin-engine FOR FURTHER INFORMATION CONTACT: pressurized executive jet airplane with ACTION: Final special condition; request Varun Khanna, FAA, Airplane and standard seating provisions for 14 for comments. Flight Crew Interface Branch, ANM– passenger/crew. This airplane will have 111, Transport Airplane Directorate, SUMMARY: These special conditions are a maximum takeoff weight of 36,600 Aircraft Certification Service, 1601 Lind pounds with a wingspan of 69.2 feet, a issued for the Cessna Model 750 Series Avenue SW., Renton, Washington airplanes. These airplanes will have a maximum operating altitude of 51,000 98057–3356; telephone 425–227–1298; feet, and will have two aft-mounted novel or unusual design feature facsimile 425–227–1149. associated with the architecture and Rolls-Royce AE3007C2 engines. SUPPLEMENTARY INFORMATION: The connectivity capabilities of the The proposed Cessna Model 750 proposed network architecture includes airplanes’ computer systems and avionics architecture is novel or the following connectivity between networks. Connectivity to, or access by, unusual for executive jet airplanes by systems: external systems and networks may allowing connection to airplane 1. Airplane control, communication, result in security vulnerabilities to the electronic systems and networks, and display, monitoring and navigation airplanes’ systems. access from aircraft external sources systems, (e.g., wireless devices, Internet DATES: The effective date of these 2. Operator business and connectivity) to the previously isolated special conditions is December 12, administrative support systems, and airplane electronic assets. Cessna’s 2013. We must receive your comments 3. Passenger entertainment systems, proposed design is considered by the by January 27, 2014. and access by systems external to the FAA to be an architecture which ADDRESSES: Send comments identified airplane. introduces potential security risks and by docket number [FAA–2013–XXXX] The applicable airworthiness vulnerabilities not addressed in current using any of the following methods: regulations do not contain adequate or regulations and aircraft-level or system- • Federal eRegulations Portal: Go to appropriate safety standards for this level safety assessment methods. http://www.regulations.gov/ and follow design feature. These special conditions Consequently, this special condition has the online instructions for sending your contain the additional safety standards been produced to address security and comments electronically. that the Administrator considers safety issues arising from the use of this Mail: Send comments to Docket necessary to establish a level of safety type of architecture, and foreseeable Operations, M–30, U.S. Department of equivalent to that established by the flight and maintenance applications Transportation (DOT), 1200 New Jersey existing airworthiness standards. impacted by these interconnected data Avenue SE., Room W12–140, West The FAA has determined that notice networks and the addition of external Building Ground Floor, Washington, of, and opportunity for prior public access points. DC, 20590–0001. comment on, these special conditions Hand Delivery or Courier: Take are impracticable because these Type Certification Basis comments to Docket Operations in procedures would significantly delay Under Title 14, Code of Federal Room W12–140 of the West Building issuance of the design approval and Regulations (14 CFR) 21.17, Cessna Ground Floor at 1200 New Jersey thus delivery of the affected aircraft. must show that the Model 750 series Avenue SE., Washington, DC, between 8 The FAA has also determined that meets the applicable provisions of 14 a.m. and 5 p.m., Monday through notice of these special conditions is CFR part 25, as amended by Friday, except federal holidays. unnecessary because the substance of Amendments 25–1 through 25–128. The

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certification basis for the 750 (S/N information services perform functions and comment are unnecessary, and good -000501 and on) is documented and required for the safe operation and cause exists for adopting these special agreed to within the Cessna Aircraft maintenance of the airplane. Previously conditions upon publication in the Company Model 750 Block Point these functions and services had very Federal Register. The FAA is requesting Change G–1 Issue Paper. limited connectivity with external comments to allow interested persons to If the Administrator finds that the sources. The architecture and network submit views that may not have been applicable airworthiness regulations configuration may allow the submitted in response to the prior (i.e., 14 CFR part 25) do not contain exploitation of network security opportunities for comment described adequate or appropriate safety standards vulnerabilities resulting in intentional above. for the Model 750 series because of a or unintentional destruction, disruption, novel or unusual design feature, special degradation, or exploitation of data, List of Subjects in 14 CFR Part 25 conditions are prescribed under § 21.16. systems, and networks critical to the Special conditions are initially safety and maintenance of the airplane. Aircraft, Aviation safety, Reporting applicable to the model for which they This configuration may also include the and recordkeeping requirements. are issued. Should the type certificate electronic transmission of field-loadable The authority citation for these for that model be amended later to software (and hardware) applications special conditions is as follows: include any other model that and databases to the airplane, which incorporates the same novel or unusual would subsequently be loaded into the Authority: 49 U.S.C. 106(g), 40113, 44701, design feature, the proposed special safety-related equipment and systems. 44702, 44704. conditions would also apply to the other The existing regulations and guidance The Special Conditions model under § 21.101. material did not anticipate these types In addition to the applicable of airplane system architectures. Accordingly, pursuant to the airworthiness regulations and proposed Furthermore, 14 CFR regulations and authority delegated to me by the special conditions, the Cessna Model current system safety assessment policy Administrator, the following special 750 series airplane must comply with and techniques do not address potential conditions are issued as part of the type the fuel vent and exhaust emission security vulnerabilities, which could be certification basis for Cessna Model 750 requirements of 14 CFR part 34 and the exploited by unauthorized access to Series airplanes. noise certification requirements of 14 airplane systems, data buses, and CFR part 36 and the FAA must issue a servers. Therefore, these special System Security Protection for Aircraft finding of regulatory adequacy under conditions are issued to ensure that the Control Domain and Information § 611 of Public Law 92–574, the ‘‘Noise security (i.e., confidentiality, integrity, Services Domain From External Access Control Act of 1972.’’ and availability) of airplane systems is The FAA issues special conditions, as not compromised by unauthorized 1. The applicant must ensure airplane defined in 14 CFR 11.19, under § 11.38, wired or wireless electronic electronic system security protection and they become part of the type- connections. from access by unauthorized sources certification basis under § 21.17(a)(2). For the reasons discussed above, these external to the airplane, including those special conditions contain the possibly caused by maintenance Novel or Unusual Design Features additional safety standards that the activity. The Cessna Model 750 will Administrator considers necessary to 2. The applicant must ensure that incorporate the following novel or establish a level of safety equivalent to electronic system security threats are unusual design features: digital systems that established by the existing identified and assessed, and that architecture composed of several airworthiness standards. effective electronic system security connected networks. The proposed architecture and network configuration Applicability protection strategies are implemented to may be used for, or interfaced with, a As discussed above, these special protect the airplane from all adverse diverse set of functions, including: conditions are applicable to the Cessna impacts on safety, functionality, and 1. Flight-safety related control, Model 750 Series airplanes. Should continued airworthiness. communication, display, monitoring, Cessna apply at a later date for a change 3. The applicant must establish and navigation systems (aircraft control to the type certificate to include another appropriate procedures to allow the functions); model incorporating the same novel or operator to ensure that continued 2. Operator business and unusual design feature, the special airworthiness of the aircraft is administrative support (operator conditions would apply to that model as maintained, including all post-type- information services); well. certification modifications that may 3. Passenger information and Conclusion have an impact on the approved entertainment systems (passenger electronic system security safeguards. entertainment services); and, This action affects only certain novel 4. The capability to allow access to or or unusual design features on one model Issued in Renton, Washington, on by systems external to the airplane. series of airplanes. It is not a rule of December 4, 2013. general applicability. Discussion John P. Piccola, Jr., The substance of these special Manager, Transport Airplane Directorate, The architecture and network conditions has been subjected to the Aircraft Certification Service. configuration in the Cessna Model 750 notice and comment period in several [FR Doc. 2013–29684 Filed 12–11–13; 8:45 am] Series airplanes may allow increased prior instances and has been derived connectivity to, or access by, external without substantive change from those BILLING CODE 4910–13–P airplane sources, airline operations, and previously issued. It is unlikely that maintenance systems to the aircraft prior public comment would result in a control functions and airline significant change from the substance information services. The aircraft contained herein. Therefore, the FAA control functions and airline has determined that prior public notice

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DEPARTMENT OF TRANSPORTATION Docket: Background documents or Background comments received may be read at On September 10, 2010, Cessna Federal Aviation Administration http://www.regulations.gov/ at any time. applied for a change to Type Certificate Follow the online instructions for 14 CFR Part 25 No. T00007WI in the digital systems accessing the docket or go to the Docket architecture in the Cessna Model 750 [Docket No. FAA–2013–1037; Special Operations in Room W12–140 of the series airplanes. Conditions No. 25–509–SC] West Building Ground Floor at 1200 The Model 750 is a twin-engine New Jersey Avenue SE., Washington, pressurized executive jet airplane with Special Conditions: Cessna Model 750 DC, between 9 a.m. and 5 p.m., Monday standard seating provisions for 14 Series Airplanes; Aircraft Electronic through Friday, except federal holidays. passenger/crew. This airplane will have System Security Isolation or Protection FOR FURTHER INFORMATION CONTACT: a maximum takeoff weight of 36,600 From Internal Access Varun Khanna, FAA, Airplane and pounds with a wingspan of 69.2 feet, a AGENCY: Federal Aviation Flight Crew Interface Branch, ANM– maximum operating altitude of 51,000 Administration (FAA), DOT. 111, Transport Airplane Directorate, feet, and will have two aft-mounted ACTION: Final special condition; request Aircraft Certification Service, 1601 Lind Rolls-Royce AE3007C2 engines. for comments. Avenue SW., Renton, Washington The proposed Cessna Model 750 98057–3356; telephone 425–227–1298; architecture is novel or unsual for SUMMARY: These special conditions are facsimile 425–227–1149. executive jet airplanes by allowing issued for the Cessna Model 750 series connection to previously isolated data SUPPLEMENTARY INFORMATION: The airplanes. These airplanes will have networks connected to systems that network architecture is composed of novel or unusual design features perform functions required for the safe several connected networks including associated with connectivity of the operation of the airplane. This proposed the following: passenger service computer systems to data network and design integration the airplane critical systems and data 1. Flight-safety related control and may result in security vulnerabilities networks. navigation systems, from intentional or unintentional DATES: The effective date of these 2. Operator business and corruption of data and systems critical special conditions is December 12, administrative support, and to the safety and maintenance of the 2013. We must receive your comments 3. Passenger entertainment. airplane. The existing regulations and by January 27, 2014. The applicable airworthiness guidance material did not anticipate this ADDRESSES: Send comments identified regulations do not contain adequate or type of system architecture or electronic by docket number FAA–XXXX–XXXX appropriate safety standards for this access to aircraft systems. Furthermore, using any of the following methods: design feature. These special conditions regulations and current system safety • Federal eRegulations Portal: Go to contain the additional safety standards assessment policy and techniques do http://www.regulations.gov/ and follow that the Administrator considers not address potential security the online instructions for sending your necessary to establish a level of safety vulnerabilities, which could be caused comments electronically. equivalent to that established by the by unauthorized access to aircraft data Mail: Send comments to Docket existing airworthiness standards. buses and servers. The intent of these special conditions is to ensure that Operations, M–30, U.S. Department of The FAA has determined that notice security, integrity, and availability of Transportation (DOT), 1200 New Jersey of, and opportunity for prior public aircraft systems are not compromised by Avenue SE., Room W12–140, West comment on, these special conditions certain wired or wireless electronic Building Ground Floor, Washington, are impracticable because these connections between airplane data DC, 20590–0001. procedures would significantly delay Hand Delivery or Courier: Take busses and networks. A separate Cessna issuance of the design approval and comments to Docket Operations in Model 750 project special condition thus delivery of the affected aircraft. In Room W12–140 of the West Building addresses aircraft electronic system addition, the substance of these special Ground Floor at 1200 New Jersey security protection from unauthorized conditions has been subject to the Avenue SE., Washington, DC, between 9 external access. public comment process in several prior a.m. and 5 p.m., Monday through instances with no substantive comments Type Certification Basis Friday, except federal holidays. Fax: Fax comments to Docket received. The FAA therefore finds that Under Title 14, Code of Federal Operations at 202–493–2251. good cause exists for making these Regulations (14 CFR) 21.17, Cessna Privacy: The FAA will post all special conditions effective upon must show that the Model 45 series comments it receives, without change, publication in the Federal Register. meets the applicable provisions of 14 to http://www.regulations.gov/, Comments Invited CFR part 25, as amended by including any personal information the Amendments 25–1 through 25–128. commenter provides. Using the search We invite interested people to take If the Administrator finds that the function of the docket Web site, anyone part in this rulemaking by sending applicable airworthiness regulations can find and read the electronic form of written comments, data, or views. The (i.e., 14 CFR part 25) do not contain all comments received into any FAA most helpful comments reference a adequate or appropriate safety standards docket, including the name of the specific portion of the special for the Model 45 series because of a individual sending the comment (or conditions, explain the reason for any novel or unusual design feature, special signing the comment for an association, recommended change, and include conditions are prescribed under § 21.16. business, labor union, etc.). DOT’s supporting data. Special conditions are initially complete Privacy Act Statement can be We will consider all comments we applicable to the model for which they found in the Federal Register published receive by the closing date for are issued. Should the type certificate on April 11, 2000 (65 FR 19477–19478), comments. We may change these special for that model be amended later to as well as at http://DocketsInfo.dot conditions based on the comments we include any other model that .gov/. receive. incorporates the same novel or unusual

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design feature, the proposed special conditions for the airplanes and significant change from the substance conditions would also apply to the other occupants. This potential exploitation of contained herein. Therefore, because a model under § 21.101. security vulnerabilities may result in delay would significantly affect the In addition to the applicable intentional or unintentional destruction, certification of the airplane, which is airworthiness regulations and proposed disruption, degradation, or exploitation imminent, the FAA has determined that special conditions, the Cessna Model of data and systems critical to the safety prior public notice and comment are 750 series airplane must comply with and maintenance of the airplane. unnecessary and impracticable, and the fuel vent and exhaust emission Cessna Aircraft Company should good cause exists for adopting these develop instructions for the operators to requirements of 14 CFR part 34 and the special conditions upon publication in maintain the built-in security safeguards noise certification requirements of 14 the Federal Register. The FAA is CFR part 36 and the FAA must issue a after the airplane enters commercial requesting comments to allow interested finding of regulatory adequacy under service. The instructions should address persons to submit views that may not § 611 of Public Law 92–574, the ‘‘Noise physical security, operational security, have been submitted in response to the Control Act of 1972.’’ audit and monitoring of the The FAA issues special conditions, as effectiveness of security safeguards and prior opportunities for comment defined in 14 CFR 11.19, under § 11.38, key management procedures. A test plan described above. and they become part of the type- should also be developed and List of Subjects in 14 CFR Part 25 certification basis under § 21.17(a)(2). implemented to insure that security requirements are met and there is no Aircraft, Aviation safety, Reporting Novel or Unusual Design Features inadvertent or malicious change to any and recordkeeping requirements. The Cessna Model 750 will system, software or data. incorporate the following novel or The existing regulations and guidance The authority citation for these unusual design features. material did not anticipate these types special conditions is as follows: The proposed architecture and of system architectures. Furthermore, 14 Authority: 49 U.S.C. 106(g), 40113, 44701, network configuration may be used for, CFR regulations and current system 44702, 44704. or interfaced with, a diverse set of safety assessment policy and techniques functions, including: do not address potential security The Special Conditions 1. Flight-safety related control, vulnerabilities which could be exploited Accordingly, pursuant to the communication, and navigation systems by unauthorized access to airplane authority delegated to me by the (aircraft control domain); networks and servers. Therefore, these 2. Operator business and special conditions are being issued to Administrator, the following special administrative support (operator ensure that the security (i.e., conditions are issued as part of the type information domain); and confidentiality, integrity, and certification basis for Cessna Model 750 3. Passenger information and availability) of airplane systems is not series airplanes. entertainment systems (passenger compromised by unauthorized wired or entertainment domain). Isolation or Security Protection of the wireless electronic connections between Aircraft Control Domain and the In addition, the operating systems airplane systems and the passenger (OS) for current aircraft systems are Information Services Domain From the entertainment services. Passenger Services Domain usually and historically proprietary. For the reasons discussed above, these Therefore, they are not as susceptible to special conditions contain the 1. The applicant must ensure that the corruption from worms, viruses, and additional safety standards that the design provides isolation from, or other malicious actions as more widely Administrator considers necessary to airplane electronic system security used commercial operating systems establish a level of safety equivalent to because access to the design details of protection against, access by that established by the existing unauthorized sources internal to the these proprietary OS is limited to the airworthiness standards. system developer and aircraft integrator. airplane. The design must prevent Some systems installed on the Cessna Applicability inadvertent and malicious changes to, Model 750 series airplanes will use As discussed above, these special and all adverse impacts upon, airplane operating systems that are widely used conditions are applicable to the Cessna equipment, systems, networks, or other and commercially available from third Model 750 series airplanes. Should assets required for safe flight and party software suppliers. The security Cessna apply at a later date for a change operations. vulnerabilities of these operating to the type certificate to include another 2. The applicant must establish systems may be more widely known model incorporating the same novel or appropriate procedures to allow the than proprietary operating systems unusual design feature, the special operator to ensure that continued currently used by avionics conditions would apply to that model as airworthiness of the aircraft is manufacturers. well. maintained, including all post-type- Discussion Conclusion certification modifications that may have an impact on the approved The integrated network configurations This action affects only certain novel in the Cessna Model 750 series airplanes or unusual design features on one model electronic system security safeguards. may allow increased connectivity with series of airplanes. It is not a rule of Issued in Renton, Washington, on external network sources and will have general applicability. December 4, 2013. more interconnected networks and The substance of these special John P. Piccola, Jr., systems, such as passenger conditions has been subjected to the Acting Manager, Transport Airplane entertainment and information services notice and comment period in several Directorate, Aircraft Certification Service. than previous airplane models. This prior instances and has been derived [FR Doc. 2013–29683 Filed 12–11–13; 8:45 am] may allow the exploitation of network without substantive change from those security vulnerabilities and increased previously issued. It is unlikely that BILLING CODE 4910–13–P risks potentially resulting in unsafe prior public comment would result in a

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DEPARTMENT OF TRANSPORTATION online free of charge. Visit http:// textual ODP amendments may have www.nfdc.faa.gov to register. been issued previously by the FAA in a Federal Aviation Administration Additionally, individual SIAP and Flight Data Center (FDC) Notice to Takeoff Minimums and ODP copies may Airmen (NOTAM) as an emergency 14 CFR Part 97 be obtained from: action of immediate flight safety relating [Docket No. 30932; Amdt. No. 3567] 1. FAA Public Inquiry Center (APA– directly to published aeronautical 200), FAA Headquarters Building, 800 charts. The circumstances which Standard Instrument Approach Independence Avenue SW., created the need for some SIAP and Procedures, and Takeoff Minimums Washington, DC 20591; or Takeoff Minimums and ODP and Obstacle Departure Procedures; 2. The FAA Regional Office of the amendments may require making them Miscellaneous Amendments region in which the affected airport is effective in less than 30 days. For the located. remaining SIAPS and Takeoff AGENCY: Federal Aviation FOR FURTHER INFORMATION CONTACT: Minimums and ODPS, an effective date Administration (FAA), DOT. Richard A. Dunham III, Flight Procedure at least 30 days after publication is ACTION: Final rule. Standards Branch (AFS–420), Flight provided. Further, the SIAPs and Takeoff Technologies and Programs Divisions, SUMMARY: This rule establishes, amends, Minimums and ODPS contained in this Flight Standards Service, Federal suspends, or revokes Standard amendment are based on the criteria Aviation Administration, Mike Instrument Approach Procedures contained in the U.S. Standard for Monroney Aeronautical Center, 6500 (SIAPs) and associated Takeoff Terminal Instrument Procedures South MacArthur Blvd., Oklahoma City, Minimums and Obstacle Departure (TERPS). In developing these SIAPS and OK 73169 (Mail Address: P.O. Box Procedures for operations at certain Takeoff Minimums and ODPs, the 25082, Oklahoma City, OK 73125) airports. These regulatory actions are TERPS criteria were applied to the needed because of the adoption of new Telephone: (405) 954–4164. conditions existing or anticipated at the or revised criteria, or because of changes SUPPLEMENTARY INFORMATION: This rule affected airports. Because of the close occurring in the National Airspace amends Title 14 of the Code of Federal and immediate relationship between System, such as the commissioning of Regulations, Part 97 (14 CFR part 97), by these SIAPs, Takeoff Minimums and new navigational facilities, adding new establishing, amending, suspending, or ODPs, and safety in air commerce, I find obstacles, or changing air traffic revoking SIAPS, Takeoff Minimums that notice and public procedures before requirements. These changes are and/or ODPS. The complete regulators adopting these SIAPS, Takeoff designed to provide safe and efficient description of each SIAP and its Minimums and ODPs are impracticable use of the navigable airspace and to associated Takeoff Minimums or ODP and contrary to the public interest and, promote safe flight operations under for an identified airport is listed on FAA where applicable, that good cause exists instrument flight rules at the affected form documents which are incorporated for making some SIAPs effective in less airports. by reference in this amendment under 5 than 30 days. U.S.C. 552(a), 1 CFR part 51, and 14 DATES: This rule is effective December CFR 97.20. The applicable FAA Forms Conclusion 12, 2013. The compliance date for each are FAA Forms 8260–3, 8260–4, 8260– The FAA has determined that this SIAP, associated Takeoff Minimums, 5, 8260–15A, and 8260–15B when regulation only involves an established and ODP is specified in the amendatory required by an entry on 8260–15A. body of technical regulations for which provisions. The large number of SIAPs, Takeoff frequent and routine amendments are The incorporation by reference of Minimums and ODPs, in addition to necessary to keep them operationally certain publications listed in the their complex nature and the need for current. It, therefore—(1) is not a regulations is approved by the Director a special format make publication in the ‘‘significant regulatory action’’ under of the Federal Register as of December Federal Register expensive and Executive Order 12866; (2) is not a 12, 2013. impractical. Furthermore, airmen do not ‘‘significant rule’’ under DOT ADDRESSES: Availability of matters use the regulatory text of the SIAPs, Regulatory Policies and Procedures (44 incorporated by reference in the Takeoff Minimums or ODPs, but instead FR 11034; February 26,1979); and (3) amendment is as follows: refer to their depiction on charts printed does not warrant preparation of a For Examination— by publishers of aeronautical materials. regulatory evaluation as the anticipated 1. FAA Rules Docket, FAA The advantages of incorporation by impact is so minimal. For the same Headquarters Building, 800 reference are realized and publication of reason, the FAA certifies that this Independence Avenue SW., the complete description of each SIAP, amendment will not have a significant Washington, DC 20591; Takeoff Minimums and ODP listed on economic impact on a substantial 2. The FAA Regional Office of the FAA forms is unnecessary. This number of small entities under the region in which the affected airport is amendment provides the affected CFR criteria of the Regulatory Flexibility Act. located; sections and specifies the types of SIAPs List of Subjects in 14 CFR part 97 3. The National Flight Procedures and the effective dates of the, associated Office, 6500 South MacArthur Blvd., Takeoff Minimums and ODPs. This Air Traffic Control, Airports, Oklahoma City, OK 73169 or, amendment also identifies the airport Incorporation by reference, and 4. The National Archives and Records and its location, the procedure, and the Navigation (air). Administration (NARA). For amendment number. Issued in Washington, DC, on November information on the availability of this 22, 2013. The Rule material at NARA, call 202–741–6030, John Duncan, or go to: http://www.archives.gov/ This amendment to 14 CFR part 97 is Director, Flight Standards Service. federal_register/code_of_federal_ effective upon publication of each regulations/ibr_locations.html. separate SIAP, Takeoff Minimums and Adoption of the Amendment Availability—All SIAPs and Takeoff ODP as contained in the transmittal. Accordingly, pursuant to the Minimums and ODPs are available Some SIAP and Takeoff Minimums and authority delegated to me, Title 14,

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Code of Federal Regulations, Part 97 (14 Chicago, IL, Chicago Midway Intl, RNAV SIAP, associated Takeoff Minimums, CFR part 97) is amended by (RNP) Y RWY 22L, Orig and ODP is specified in the amendatory establishing, amending, suspending, or Chicago, IL, Chicago Midway Intl, VOR/DME provisions. revoking Standard Instrument Approach RNAV OR GPS RWY 22L, Amdt 3C, The incorporation by reference of CANCELED certain publications listed in the Procedures and/or Takeoff Minimums Taylorville, IL, Taylorville Muni, NDB RWY and/or Obstacle Departure Procedures 18, Amdt 4A, CANCELED regulations is approved by the Director effective at 0902 UTC on the dates Gladwin, MI, Gladwin Zettel Memorial, NDB of the Federal Register as of December specified, as follows: RWY 27, Amdt 4, CANCELED 12, 2013. Romeo, MI, Romeo State, VOR/DME–A, ADDRESSES: Availability of matter PART 97—STANDARD INSTRUMENT Amdt 8, CANCELED incorporated by reference in the APPROACH PROCEDURES Minneapolis, MN, Minneapolis-St Paul Intl/ amendment is as follows: Wold-Chamberlain, RNAV (GPS) RWY 4, ■ 1. The authority citation for part 97 For Examination— Amdt 2A 1. FAA Rules Docket, FAA continues to read as follows: Clinton, NC, Clinton-Sampson County, Headquarters Building, 800 Authority: 49 U.S.C. 106(g), 40103, 40106, RNAV (GPS) Z RWY 24, Orig-A Teterboro, NJ, Teterboro, RNAV (GPS) X Independence Avenue SW., 40113, 40114, 40120, 44502, 44514, 44701, Washington, DC 20591; 44719, 44721–44722. RWY 6, Amdt 1 Brockport, NY, Ledgedale Airpark, RNAV 2. The FAA Regional Office of the ■ 2. Part 97 is amended to read as (GPS) RWY 28, Amdt 1A region in which the affected airport is follows: Prineville, OR, Prineville, NDB RWY 10, located; Amdt 1 Effective 9 January 2014 3. The National Flight Procedures Prineville, OR, Prineville, RNAV (GPS) RWY Office, 6500 South MacArthur Blvd., Little Rock, AR, Bill and Hillary Clinton 10, Amdt 1 Oklahoma City, OK 73169 or, National/Adams Field, RNAV (GPS) RWY Prineville, OR, Prineville, RNAV (GPS) RWY 18, Amdt 1B 4. The National Archives and Records 28, Amdt 1 Administration (NARA). For Springdale, AR, Springdale Muni, RNAV Beaumont/Port Arthur, TX, Jack Brooks Rgnl, (GPS) RWY 36, Amdt 1C ILS OR LOC RWY 12, Amdt 23A information on the availability of this Twentynine Palms, CA, Twentynine Palms, Omak, WA, Omak, Takeoff Minimums and material at NARA, call 202–741–6030, RNAV (GPS) RWY 26, Amdt 2 Obstacle DP, Amdt 1 or go to: http://www.archives.gov/ Denver, CO, Denver Intl, RNAV (GPS) Y _ _ _ _ [FR Doc. 2013–29308 Filed 12–11–13; 8:45 am] federal register/code of federal RWY 16R, Amdt 1A regulations/ibr_locations.html. Denver, CO, Denver Intl, RNAV (GPS) Y BILLING CODE 4910–13–P RWY 34L, Amdt 2A Availability—All SIAPs are available Sullivan, IN, Sullivan County, VOR/DME–A, online free of charge. Visit nfdc.faa.gov Amdt 2, CANCELED DEPARTMENT OF TRANSPORTATION to register. Additionally, individual McPherson, KS, McPherson, NDB RWY 18, SIAP and Takeoff Minimums and ODP Amdt 1, CANCELED Federal Aviation Administration copies may be obtained from: Gothenburg, NE., Quinn Field, NDB–A, Orig, 1. FAA Public Inquiry Center (APA– CANCELED 14 CFR Part 97 200), FAA Headquarters Building, 800 Olean, NY, Cattaraugus County-Olean, Independence Avenue SW., Takeoff Minimums and Obstacle DP, [Docket No. 30933; Amdt. No. 3568] Amdt 3 Washington, DC 20591; or 2. The FAA Regional Office of the Sevierville, TN, Gatlinburg-Pigeon Forge, Standard Instrument Approach region in which the affected airport is VOR/DME RWY 10, Amdt 6A Procedures, and Takeoff Minimums located. Nacogdoches, TX, A L Mangham JR. Rgnl, and Obstacle Departure Procedures; ILS OR LOC RWY 36, Amdt 3A FOR FURTHER INFORMATION CONTACT: Land O’Lakes, WI, Kings Land O’Lakes, NDB Miscellaneous Amendments RWY 14, Orig, CANCELED Richard A. Dunham III, Flight Procedure AGENCY: Federal Aviation Land O’Lakes, WI, Kings Land O’Lakes, NDB Standards Branch (AFS–420) Flight RWY 32, Orig, CANCELED Administration (FAA), DOT. Technologies and Programs Division, ACTION: Final rule. Flight Standards Service, Federal Effective 6 February 2014 Aviation Administration, Mike Haines, AK, Haines, Takeoff Minimums and SUMMARY: This rule establishes, amends, Monroney Aeronautical Center, 6500 Obstacle DP, Orig, CANCELED suspends, or revokes Standard South MacArthur Blvd., Oklahoma City, Sacramento, CA, Sacramento Executive, ILS Instrument Approach Procedures OK 73169 (Mail Address: P.O. Box OR LOC RWY 2, Amdt 24A (SIAPs) and associated Takeoff Sacramento, CA, Sacramento Executive, 25082 Oklahoma City, OK 73125) RNAV (GPS) RWY 2, Orig-A Minimums and Obstacle Departure telephone: (405) 954–4164. Procedures for operations at certain Sacramento, CA, Sacramento Executive, VOR SUPPLEMENTARY INFORMATION: This rule RWY 2, Amdt 10A airports. These regulatory actions are amends Title 14, Code of Federal San Diego/El Cajon, CA, Gillespie Field, needed because of the adoption of new Regulations, Part 97 (14 CFR part 97) by RNAV (GPS) RWY 17, Amdt 2A or revised criteria, or because of changes amending the referenced SIAPs. The Greeley, CO, Greeley-Weld County, VOR–A, occurring in the National Airspace Amdt 9A complete regulatory description of each System, such as the commissioning of SIAP is listed on the appropriate FAA Homestead, FL, Homestead General Aviation, new navigational facilities, adding new RNAV (GPS) RWY 28, Orig Form 8260, as modified by the National obstacles, or changing air traffic Zephyrhills, FL, Zephyrhills Muni, NDB Flight Data Center (FDC)/Permanent RWY 4, Amdt 1A, CANCELED requirements. These changes are Notice to Airmen (P–NOTAM), and is Zephyrhills, FL, Zephyrhills Muni, RNAV designed to provide safe and efficient incorporated by reference in the (GPS) RWY 4, Orig-B, CANCELED use of the navigable airspace and to amendment under 5 U.S.C. 552(a), 1 Zephyrhills, FL, Zephyrhills Muni, RNAV promote safe flight operations under (GPS) RWY 22, Orig-A, CANCELED CFR part 51, and § 97.20 of Title 14 of instrument flight rules at the affected the Code of Federal Regulations. Hilo, HI, Hilo Intl, RNAV (GPS) RWY 21, airports. Orig-A The large number of SIAPs, their Chicago, IL, Chicago Midway Intl, RNAV DATES: This rule is effective December complex nature, and the need for a (GPS) Z RWY 22L, Orig 12, 2013. The compliance date for each special format make their verbatim

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publication in the Federal Register to published aeronautical charts. The Issued in Washington, DC, on November expensive and impractical. Further, circumstances which created the need 22, 2013. airmen do not use the regulatory text of for all these SIAP amendments requires John Duncan, the SIAPs, but refer to their graphic making them effective in less than 30 Director, Flight Standards Service. depiction on charts printed by days. publishers of aeronautical materials. Because of the close and immediate Adoption of the Amendment Thus, the advantages of incorporation relationship between these SIAPs and by reference are realized and safety in air commerce, I find that notice Accordingly, pursuant to the publication of the complete description and public procedure before adopting authority delegated to me, Title 14, of each SIAP contained in FAA form these SIAPs are impracticable and Code of Federal regulations, Part 97, 14 documents is unnecessary. This contrary to the public interest and, CFR part 97, is amended by amending amendment provides the affected CFR where applicable, that good cause exists Standard Instrument Approach sections and specifies the types of SIAP for making these SIAPs effective in less Procedures, effective at 0901 UTC on and the corresponding effective dates. than 30 days. the dates specified, as follows: This amendment also identifies the Conclusion airport and its location, the procedure PART 97—STANDARD INSTRUMENT and the amendment number. The FAA has determined that this APPROACH PROCEDURES regulation only involves an established The Rule body of technical regulations for which ■ 1. The authority citation for part 97 This amendment to 14 CFR part 97 is frequent and routine amendments are continues to read as follows: necessary to keep them operationally effective upon publication of each Authority: 49 U.S.C. 106(g), 40103, 40106, separate SIAP as amended in the current. It, therefore—(1) is not a 40113, 40114, 40120, 44502, 44514, 44701, transmittal. For safety and timeliness of ‘‘significant regulatory action’’ under 44719, 44721–44722. change considerations, this amendment Executive Order 12866; (2) is not a incorporates only specific changes ‘‘significant rule’’ under DOT regulatory ■ 2. Part 97 is amended to read as contained for each SIAP as modified by Policies and Procedures (44 FR 11034; follows: FDC/P–NOTAMs. February 26, 1979); and (3) does not The SIAPs, as modified by FDC warrant preparation of a regulatory §§ 97.23, 97.25, 97.27, 97.29, 97.31, 97.33, P–NOTAM, and contained in this evaluation as the anticipated impact is 97.35 [Amended] amendment are based on the criteria so minimal. For the same reason, the By amending: § 97.23 VOR, VOR/ contained in the U.S. Standard for FAA certifies that this amendment will DME, VOR or TACAN, and VOR/DME Terminal Instrument Procedures not have a significant economic impact or TACAN; § 97.25 LOC, LOC/DME, (TERPS). In developing these changes to on a substantial number of small entities LDA, LDA/DME, SDF, SDF/DME; SIAPs, the TERPS criteria were applied under the criteria of the Regulatory § 97.27 NDB, NDB/DME; § 97.29 ILS, only to specific conditions existing at Flexibility Act. ILS/DME, MLS, MLS/DME, MLS/RNAV; the affected airports. All SIAP § 97.31 RADAR SIAPs; § 97.33 RNAV amendments in this rule have been List of Subjects in 14 CFR Part 97 SIAPs; and § 97.35 COPTER SIAPs, previously issued by the FAA in a FDC Air Traffic Control, Airports, Identified as follows: NOTAM as an emergency action of Incorporation by reference, and immediate flight safety relating directly Navigation (Air). * * * Effective Upon Publication

AIRAC Date State City Airport FDC No. FDC date Subject

1/9/14 ...... WA Spokane ...... Felts Field ...... 3/0131 11/15/13 RNAV (GPS) RWY 4L, Amdt 1. 1/9/14 ...... WI Madison ...... Dane County Rgnl-Truax 3/1049 11/20/13 VOR RWY 18, Amdt 1A. Field. 1/9/14 ...... WI Madison ...... Dane County Rgnl-Truax 3/1063 11/20/13 VOR/DME OR TACAN RWY 18, Field. Amdt 1B. 1/9/14 ...... TX Dallas ...... Addison ...... 3/1575 11/15/13 ILS OR LOC RWY 15, Amdt 11. 1/9/14 ...... TX Dallas ...... Addison ...... 3/1582 11/15/13 ILS OR LOC RWY 33, Amdt 3. 1/9/14 ...... TX Dallas ...... Addison ...... 3/1599 11/15/13 RNAV (GPS) RWY 15, Amdt 1. 1/9/14 ...... TX Dallas ...... Addison ...... 3/1617 11/15/13 RNAV (GPS) RWY 33, Amdt 1. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4020 11/15/13 ILS OR LOC RWY 6R, ILS RWY 6R (SA CAT II), Amdt 21A. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl...... 3/4023 11/15/13 ILS OR LOC RWY 24L, ILS RWY 24L (SA CAT II), Amdt 22A. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl...... 3/4029 11/15/13 ILS OR LOC/DME RWY 24R, ILS RWY 24R (SA CAT I), ILS RWY 24R (CAT II & III), Amdt 5A. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4053 11/15/13 RNAV (GPS) RWY 24R, Amdt 3A. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4058 11/15/13 LDA/DME RWY 24L, Amdt 1B. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl...... 3/4059 11/15/13 RNAV (GPS) RWY 24L, Amdt 3A. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4064 11/15/13 RNAV (GPS) RWY 6R, Amdt 2B. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4069 11/15/13 LDA/DME RWY 6R, Amdt 1B. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4070 11/15/13 RNAV (GPS) RWY 6L, Amdt 1B. 1/9/14 ...... OK Hugo ...... Stan Stamper Muni ...... 3/4154 11/15/13 NDB OR GPS RWY 35, Amdt 1. 1/9/14 ...... OH Cleveland ...... Cleveland-Hopkins Intl ...... 3/4237 11/15/13 ILS OR LOC RWY 6L, ILS RWY 6L (CAT II & III), Amdt 2D.

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AIRAC Date State City Airport FDC No. FDC date Subject

1/9/14 ...... IA Sibley ...... Sibley Muni ...... 3/4251 11/15/13 NDB OR GPS RWY 35, Amdt 1A. 1/9/14 ...... IA Sibley ...... Sibley Muni ...... 3/4252 11/15/13 NDB OR GPS RWY 17, Amdt 1B. 1/9/14 ...... CA Crescent City...... Jack McNamara Field...... 3/5300 11/15/13 ILS OR LOC/DME RWY 11, Amdt 8. 1/9/14 ...... CA Montague ...... Montague/Siskiyou County 3/5899 11/20/13 Takeoff Minimums and (Obsta- cle) DP, Amdt 2. 1/9/14 ...... CA Montague ...... Montague/Siskiyou County 3/5905 11/20/13 NDB OR GPS–A, Amdt 7. 1/9/14 ...... IN Kentland ...... Kentland Muni ...... 3/6824 11/15/13 VOR/DME RNAV OR GPS RWY 27, Orig. 1/9/14 ...... CA Hawthorne ...... Jack Northrop Field/Haw- 3/8749 11/15/13 RNAV (GPS) RWY 25, Orig. thorne Muni. 1/9/14 ...... CA Hawthorne ...... Jack Northrop Field/Haw- 3/8750 11/15/13 LOC RWY 25, Amdt 11A. thorne Muni. 1/9/14 ...... CA San Bernadino .... San Bernadino Intl ...... 3/8757 11/15/13 NDB RWY 6, Amdt 1. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8758 11/15/13 RNAV (GPS) Y RWY 24L, Amdt 2. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8759 11/15/13 RNAV (GPS) Y 25L, Amdt 3. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8762 11/15/13 ILS OR LOC RWY 25R, Amdt 17A. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8764 11/15/13 RNAV (RNP) Z RWY 24L, Amdt 1A. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8768 11/15/13 RNAV (GPS) Y RWY 24R, Amdt 1. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8775 11/15/13 RNAV (RNP) Z RWY 24R, Orig- A. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8779 11/15/13 RNAV (GPS) RWY 25R, Amdt 2. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8785 11/15/13 RNAV (RNP) Z RWY 25L, Amdt 1. 1/9/14 ...... CA Los Angeles ...... Los Angeles Intl ...... 3/8789 11/15/13 ILS OR LOC RWY 24L, Amdt 26.

[FR Doc. 2013–29309 Filed 12–11–13; 8:45 am] Thailand, Turkey, and the United Arab the diversion of exported, reexported or BILLING CODE 4910–13–P Emirates (U.A.E.). This rule is also transferred (in-country) items to revising one existing entry under weapons of mass destruction (WMD) Sweden to correct the entry by programs. Since its initial publication, DEPARTMENT OF COMMERCE providing an address for this listed grounds for inclusion on the Entity List person under the destination of Estonia, have expanded to include activities Bureau of Industry and Security and revising two entries in Canada, the sanctioned by the State Department and first by removing two addresses, and the activities contrary to U.S. national 15 CFR Part 744 second by updating an address. Lastly, security or foreign policy interests, this rule removes one person in Russia [Docket No. 130809700–3700–01] including terrorism and export control from the Entity List. This person is violations involving abuse of human RIN 0694–AF96 being removed from the Entity List as a rights. Certain exports, reexports, and result of a request for removal submitted transfers (in-country) to entities Addition of Certain Persons to the by the person, a review of information identified on the Entity List require Entity List; Amendment of Entity List provided in the removal request in licenses from BIS and are usually Entries; and Removal of One Person accordance with the procedures for subject to a policy of denial. The From the Entity List Based on a requesting removal or modification of availability of license exceptions in Removal Request an Entity List entity, and further review such transactions is very limited. The AGENCY: Bureau of Industry and conducted by the ERC. license review policy for each entity is Security, Commerce. DATES: Effective Date: This rule is identified in the license review policy ACTION: Final rule. effective December 12, 2013. column on the Entity List and the FOR FURTHER INFORMATION CONTACT: availability of license exceptions is SUMMARY: This rule amends the Export Karen Nies-Vogel, Chair, End-User noted in the Federal Register notices Administration Regulations (EAR) by Review Committee, Office of the adding persons to the Entity List. BIS adding thirty-six persons under forty-six Assistant Secretary, Export places entities on the Entity List based entries to the Entity List, revising three Administration, Bureau of Industry and on certain sections of part 744 (Control existing entries, and removing one Security, Department of Commerce, Policy: End-User and End-Use Based) of entry. The persons who are added to the Phone: (202) 482–5991, Fax: (202) 482– the EAR. Entity List have been determined by the 3911, Email: [email protected]. The End-user Review Committee U.S. Government to be acting contrary SUPPLEMENTARY INFORMATION: (ERC), composed of representatives of to the national security or foreign policy the Departments of Commerce (Chair), interests of the United States. These Background State, Defense, Energy and, where persons will be listed on the Entity List The Entity List (Supplement No. 4 to appropriate, the Treasury, makes all under the following destinations: Part 744) notifies the public about decisions regarding additions to, Armenia, Canada, China, Germany, entities that have engaged in activities removals from, or other modifications to Greece, Hong Kong, Iran, Malaysia, that could result in an increased risk of the Entity List. The ERC makes all

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decisions to add an entry to the Entity determined by the ERC to be involved subject to the EAR from U.S. companies List by majority vote and all decisions in activities that are contrary to the and shipped them via Germany and to remove or modify an entry by national security or foreign policy Turkey to Iran. To facilitate his scheme, unanimous vote. interests of the United States, Talebi established businesses in the specifically the activities described U.A.E., Germany, and Canada. Peker, an ERC Entity List Decisions under paragraphs (b)(4) and (b)(5) of employee of AAG Makina in Turkey, Additions to the Entity List § 744.11. worked with Talebi to facilitate certain The ERC has reasonable cause to This rule implements the decision of of the shipments through the provision believe that the following five persons, the ERC to add thirty-six persons under of false information to the U.S. who are being added under nine entries forty-six entries to the Entity List on the Government on the shipments’ final in this rule and are located in Hong basis of § 744.11 (License requirements destination. Kong, Iran, and Malaysia, reexported or The ERC also has reasonable cause to that apply to entities acting contrary to caused to be reexported items subject to believe that the following nineteen the national security or foreign policy the EAR to Iran in violation of persons, which are being added under interests of the United States) of the Department of the Treasury, Office of twenty-two entries in this rule and are EAR. The forty-six entries added to the Foreign Assets Control regulations and located in Armenia, Greece, Iran, Entity List consist of one entry in the EAR: Anvik Technologies Sdn. Bhd., Thailand, Turkey, and the U.A.E., are Armenia, two entries in Canada, four Montana Advanced Engineering Sdn part of a procurement ring that has entries in China, one entry in Germany, Bhd., Albin Technologies Sdn Bhd., coordinated the sale and supply of items two entries in Greece, five entries in Hansen Technologies Limited, and subject to the EAR to Iran in violation Hong Kong, five entries in Iran, four Babak Jafarpour. Specifically, the above- of Department of the Treasury, Office of entries in Malaysia, four entries in referenced persons were involved in Foreign Assets Control (OFAC) Thailand, eleven entries in Turkey, and purchasing items subject to the EAR regulations and the EAR: Aeolian seven entries in the U.A.E. There are 46 from U.S. companies and having the Airlines, Seyyed Abdolreza Mousavi, entries to address 36 persons because items shipped via virtual offices and Eurocenter Havacilik Dis Ticaret seven of the persons are being listed freight forwarders in Hong Kong and Limited Sirketi, Kral Aviation Services under multiple countries, resulting in Malaysia to Iran. The items purchased Ltd., Kral Aviaton, Asian Aviation the additional ten entries. Specifically, included items controlled under Logistics Co., Ltd., Gulnihal Yegane, these ten additional entries cover one categories three and seven on the Pioneer Logistics Havacilik Turizm person in Canada who also has Commerce Control List (CCL). Yoonetim Danismanlik Ithalat Thracat addresses in Iran and the U.A.E. The ERC also has reasonable cause to San. Tic. Ltd. Sti, Thrust Aviation FZE, (resulting in two additional entries for believe that the following five persons, Aerostar Asset Management FZC, the Iranian and U.A.E. addresses), one who are being added under six entries Avistar Havacilik Bilisim Turizm Insaat person in China who also has an in this rule and are located in China and Sanayi Ve Ticaret Limited Sirketi, address in Hong Kong (resulting in one Hong Kong, acted as procurement agents Mostafa Oveici, Vertir Airlines, Sawa additional entry for the Hong Kong for Beijing University of Aeronautics Air Aviation FZCO, Avia Trust, address), two persons in Greece who and Astronautics (a.k.a. BUAA, Beihang Khalidee Boolay Surinanda, Kosol also have addresses in Turkey (resulting University): Beijing Tianhua, Tenfine Surinanda, Ergin Turker, and Glasgow in two additional entries for the Turkish Ltd., Longtek Company, Ltd., FOC (HK) International Trading. Specifically, addresses), two persons in Hong Kong Technology Co., Ltd., and Comsum these persons have engaged in the who also have addresses in Iran and Technologies (Group) Ltd. BUAA has development and operation of an illicit Malaysia (resulting in four additional been on the Entity List since May 2001 aviation procurement network designed entries for the Iranian and Malaysian (see 66 FR 24266). As a result of its to evade the U.S. Government’s addresses), and one person in Iran who inclusion on the Entity List, BUAA is sanctions against Iran. The aggressive also has an address in Thailand subject to a license requirement for all procurement scheme implemented by (resulting in one additional entry for the items subject to the EAR and a license these persons has directly supported the Thai addresses). review policy pursuant to § 744.3 of the operation of Mahan Airlines within Iran The ERC reviewed § 744.11(b) EAR (Restrictions on Certain Rocket and throughout the world. Mahan (Criteria for revising the Entity List) in Systems . . . and Unmanned Air Airlines has been on BIS’s Denied making the determination to add these Vehicles . . . End-Uses). The ERC Persons List since 2008. See 78 FR thirty-six persons under forty-six entries determined that these entities have 48138 (August 7, 2008). to the Entity List. Under that paragraph, facilitated at least seventy-five Pursuant to § 744.11(b)(4) and (b)(5) of persons for whom there is reasonable shipments of items subject to the EAR the EAR, the ERC determined that the cause to believe, based on specific and and destined for end-use at BUAA. conduct of these thirty-six persons articulable facts, that they have been The ERC also has reasonable cause to raises sufficient concern that prior involved, are involved, or pose a believe that the following seven review of exports, reexports, or transfers significant risk of being or becoming persons, who are being added under (in-country) of items subject to the EAR involved in, activities that are contrary nine entries in this rule and are located involving these persons, and the to the national security or foreign policy in Canada, Germany, Iran, Turkey, and possible imposition of license interests of the United States and those the U.A.E., are part of a procurement conditions or license denials on acting on behalf of such persons may be ring that coordinated the sale and shipments to the persons, will enhance added to the Entity List pursuant to supply of items subject to the EAR to BIS’s ability to prevent violations of the § 744.11. Paragraphs (b)(1) through Iran in violation of Department of the EAR. (b)(5) of § 744.11 include an illustrative Treasury, Office of Foreign Assets For the thirty-six persons under forty- list of activities that could be contrary Control (OFAC) regulations and the six entries added to the Entity List, the to the national security or foreign policy EAR: Saeed Talebi, Satco, Satco ERC specified a license requirement for interests of the United States. Corporation, Satco GmbH, Kadin Satco all items subject to the EAR, and The thirty-six persons under forty-six FZE, AAG Makina, and Murat Peker. established a license application review entries being added have been Specifically, Talebi purchased items policy of a presumption of denial. The

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license requirement applies to any Yuan Lu, Haidian District, Beijing, Hong Kong transaction in which items are to be China; and (1) Anvik Technologies Sdn. Bhd., a.k.a., exported, reexported, or transferred (in- Room 311A, 3f Shining Tower, 35 the following eight aliases: country) to any of the persons or in Xue Yuan Lu, Haidian, Beijing, —Anvik Technologies; which such persons act as purchaser, China; and —Cason Technologies; intermediate consignee, ultimate Room 411A, 4f Shining Tower, 35 —Henan Electronics; consignee, or end-user. In addition, no Xue Yuan Lu, Haidian, Beijing, —Hixton Technologies; license exceptions are available for China; and —Hudson Technologies, Ltd.; exports, reexports, or transfers (in- Room 401, 4f Shining Tower, 35 Xue —Hudson Engineering (Hong Kong) country) to the persons being added to Yuan Lu, Haidian District, Beijing, Ltd.; the Entity List in this rule. China; and —Madison Engineering Ltd.; and This final rule adds the following Room 402a, 4f Shining Tower, 35 Xue —Montana Advanced Engineering. thirty-six persons under forty-six entries Yuan Lu, Haidian, Beijing, China; Level 19, Two International Finance to the Entity List: and Centre, 8 Finance Street, Central, Armenia Xueyan Road, Haidain District, Hong Kong (See alternate addresses Beijing City, 35th Ning Building, under Iran and Malaysia); (1) Vertir Airlines, 8/3 D Angaght Street, Room 402a; (2) Babak Jafarpour, a.k.a., the following 376009 Yerevan, Armenia; and 54– (2) Comsum Technologies (Group) Ltd., five aliases: 100 Mamikonyan Str., Yerevan, —Bob Jefferson; Armenial 79, Armenia. Room 408, Unit 6, Xin Qi Dian Jia Yan, 5 Chang Qiao Road, Beijing, —Peter Jay; Canada 100089, China (See alternate —Sam Lee; (1) Saeed Talebi, a.k.a., the following address under Hong Kong); —Samson Lee; and two aliases: (3) Longtek Company, Ltd., a.k.a., the —David Lee. —Al; and following one alias: Unit 501, 5/F, Global Gateway, 168 —Allen Talebi. —Beijing Landuyt Feng Technology Yeung HK Road, Tsuen Wan, Hong P.O. Box 626, Gormley, ONT LOH Co., Ltd. Room 1105, TianZuo Kong; and 9/F, Henan Building, 19 1G0 Canada (See alternate International Center A, No, 12, Luard Road, Wanchai, Hong Kong; addresses under Iran and U.A.E.); Zhongguncun South Street, Haidan and Level 19, Two International and District, Beijing 100081, China; and Finance Centre, 8 Finance Street, (2) Satco Corporation, P.O. Box 626, (4) Tenfine Ltd., a.k.a., the following two Central, Hong Kong (See alternate Gormley, ONT LOH 1G0 Canada. aliases: addresses under Iran and Malaysia); —Beijing Beihang Assets Management (3) Comsum Technologies (Group) Ltd., China Co. Ltd.; and Room 1005, 10/F Carnarvon Plaza, 20 Carnarvon Road, TST, Kowloon, (1) Beijing Tianhua, a.k.a., the following —Tenfine Limited Company. Hong Kong (See alternate address seventeen aliases: No 37 Xue Yuan Lu, Haidian, Beijing, under China); —Beijing Tianhua International Co., China; and (4) FOC (HK) Technology Co., Ltd., Ltd.; 37 Xue Yuan Road, Beijing, China; —Beijing BUAA Tianhua Technology Room 8, 6/F, Shun On Commercial and Room 401, 4f Shining Tower, Building, 112–114 Des Voeux Road, Company; 35 Xue Yuan Lu, —Beijing BUAA Tianhua Technology Central, Hong Kong; and Haidian District, Beijing, China; and Co., Ltd.; (5) Hansen Technologies Limited, Unit Room 402b, 4F Shining Tower, 35 —Beijing Aerospace Technology 501, 5/F, Global Gateway, 168 Xue Yuan Lu, Limited Liability Company; Yeung HK Road, Tsuen Wan, Hong —Beihang Tenfine Industry Group; Haidian, Beijing, China; and Xueyan Kong; and 9/F, Henan Building, 19 —Beijing Beihang Assets Management Road, Haidain District, Beijing City, Luard Road, Wanchai, Hong Kong. 35th Ning Building, Room 402a. Co., Ltd.; Iran —Beijing Beihang Science & Germany Technology Co., Ltd.; (1) Anvik Technologies Sdn. Bhd., a.k.a., —Beijing Aerospace Technology LLC; (1) Satco GmbH, a.k.a., the following the following eight aliases: —Beijing North China Aerospace one alias: —Anvik Technologies; Science & Technology Ltd., Co.; —Satco Inc. —Cason Technologies; —Beijing North Space Technology Park Street 4, Bremen, Germany —Henan Electronics; Co., Ltd.; 28209. —Hixton Technologies; —Hudson Technologies, Ltd.; —Beijing the Tianhua Easytouch Greece International Trade Co., Ltd.; —Hudson Engineering (Hong Kong) —North and Astronautics, Beijing (1) Aeolian Airlines, 551 Mesogeion Ltd.; China Times Technology Co., Ltd.; Ave, Agia Paraskevi, 15343A, —Madison Engineering Ltd.; and —Beijing Beihang Haier Software Co., Athens, Greece; and 72 —Montana Advanced Engineering. Ltd.; Vouliagmenis Ave, Glyfada 16675, F10, No. 21, 9th Alley, Vozara Ave., —Red Technology; Athens, Greece; and Blg Mtb 1/E 74, Tehran, Iran (See alternate —TRW Navigation Communication Athens, Greece; and 58 addresses under Hong Kong and Technology Co., Ltd.; Vouliagmenis Ave, Voula 16673, Malaysia); —Beijing North Aerospace Co- Athens, Greece (See alternate (2) Babak Jafarpour, a.k.a., the following Technology Co., Ltd.; and addresses under Turkey); and five aliases: —Beijing Full Three Dimensional (2) Seyyed Abdolreza Mousavi, 551 —Bob Jefferson; Power Engineering Co., Ltd. Mesogeion Ave, Agia Paraskevi, —Peter Jay 37 Xue Yuan Rd., Beijing, China; and 15343A, Athens, Greece (See —Sam Lee; Room 301, 3f Shining Tower, 35 Xue alternate address under Turkey). —Samson Lee; and

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—David Lee. Kong and Iran); and Ozgur KK No 4 Da 5 Davran Ap Flo, F10, No. 21, 9th Alley, Vozara Ave., (4) Montana Advanced Engineering Sdn Istanbul, Turkey; and Davran Ap Tehran, Iran (See alternate Bhd., Level 26, Tower 2, Etiqa Florya, Istanbul, Turkey 34153; and addresses under Hong Kong and Twins 11, Jalan Pinang, Kuala Attaturk Airport, Istanbul, Turkey Malaysia); Lumpur, Malaysia 50450; and Level (See alternate addresses under (3) Mostafa Oveici, a.k.a., the following 20, Menara Standard Chartered, 30 Greece); one alias: Jalan Sultan Ismail, Kuala Lumpur, (3) Avistar Havacilik Bilisim Turizm —Mosi Oveici. Malaysia, 50250; and P.O. Box 4, Insaat Sanayi Ve Ticaret Limited Mehrabad Airport, Tehran, Iran (See Level 13A, Menara Park, Block D, Sirketi, Yenibosna Dogu Sanayi alternate address under Thailand); Megan Ave. II, No 12, Jalan Yap Sitesi, 9 Blok No: 1, Bahcelievler— (4) Saeed Talebi, a.k.a., the following Kwan Seng, Kuala Lumpur, Istanbul, Turkey; and Dogu Sanayi two aliases: Malaysia. Sitesi 9. Blok No: 9/1 Yenibosna, —Al; and Istanbul, Turkey; —Allen Talebi. Thailand (4) Ergin Turker, Yenibosna Dogu No. 27, Zarif Nia, Pesyan Valley, (1) Asian Aviation Logistics Co., Ltd., 21 Sanayi Sitesi, 9 Blok No: 1, Tehran, Iran; and No. 3, West Saeb Tower 2nd Floor Zone A805 Bahcelievler—Istanbul, Turkey; Tabrizi Lane, North Sheikh Bahaee Srinakarin Road, Suanluang (5) Eurocenter Havacilik Dis Ticaret Street, Tehran, Iran (See alternate Bangkok 10250 Thailand; and 111/ Limited Sirketi, Kemalpasa Mh, addresses under Canada and 11 Village 0.14 Kingkaew Road, Ordu Cad., Yesil Tulumba Sk No 9, U.A.E.); and Rajatheva, Bangplee District, Fatih, Istanbul, Turkey; and Yesil (5) Satco, No. 3, West Saeb Tabrizi Lane, Samutprakarn 10540, Thailand; and Tulumba Eminonu Sok No.9, North Sheikh Bahaee Street, 188/5 Moo 5 Srinakarin Rd, Eminonu—Istanbul, Turkey 34143; Tehran, Iran. Samrongnua, Muang, Samut and Yesil Tulumba Sk:No 9 Fatih, Eminonu—Istanbul, Turkey 34143; Malaysia Prakarn 10270, Thailand; (2) Khalidee Boolay Surinanda, a.k.a., and Senlikkoy Mahallesi, Ozgur Sk (1) Albin Technologies Sdn Bhd., M–3– the following one alias: No. 4, Da:5, Davran Ap Florya, 19 Plaza Damas, Sri Hartamas, —Khalidee Boolay Surinandha. 34153 Istanbul, Turkey; Kuala Lumpur, Malaysia 50480; 21 Tower 2nd Floor Zone A805 (6) Gulnihal Yegane, Egs Bloklari B–1 and P.O. Box 4, Level 13A, Menara Srinakarin Road, Suanluang Blok K.1 No: 114, Yesilkoy— Park, Block D, Megan Ave. II, No Bangkok 10250 Thailand; and 111/ Bakirkoy, Istanbul, Turkey; and 12, Jalan Yap Kwan Seng, Kuala 11 Village 0.14 Kingkaew Road, Huzur mah, Ayazaga Oyak sitesi, Lumpur, Malaysia; Rajatheva, Bangplee District, 9.Blok, No:19, Sisli, Istanbul, (2) Anvik Technologies Sdn. Bhd., a.k.a., Samutprakarn 10540, Thailand and Turkey; and Turgut Reis Mh. the following eight aliases: 111/11 Village 0.14 King Kaeo Glyimkent Kath Is Merk. K:4 D:4412 —Anvik Technologies; Road, Racha Thewa Sub-District, Esenler/Istanbul, Turkey; and —Cason Technologies; Bang Phli District, Samut Prakarn, Onucreis Mah. Giyimkent Sitesi 3. —Henan Electronics; 10540, Thailand; Sokak No:118 Esenler/Istanbul, —Hixton Technologies; (3) Kosol Surinanda, a.k.a., the Turkey; —Hudson Technologies, Ltd.; following one alias: (7) Kral Aviation Services Ltd., Yesilkoy —Hudson Engineering (Hong Kong) —Kosol Surinandha. Mh.Ataturk Cd., Esg Business Park Ltd.; 140/65 ITF Tower, 27 Floor, Silom B1. B2 K:6 No:234, Bakirkoy —Madison Engineering Ltd.; and Rd., Suriyawongse, Bangrak, Istanbul, Turkey; —Montana Advanced Engineering. Bangkok, 10500, Thailand; and 21 (8) Kral Aviation, a.k.a., the following —Level 36, Menara Citibank, 165 Tower 2nd Floor Zone A805 two aliases: Jalan Ampang, Kuala Lumpur, Srinakarin Road, Suanluang —Kral Havacilik Ic Ve Dis Ticaret Malaysia, 50450; and Level 20, Bangkok 10250 Thailand; and 495 Sirketi; and Menara Standard Chartered, 30 Soi Anamai, Sri-nakarin Road, —Kral Aviation Ltd. Jalan Sultan Ismail, Kuala Lumpur, Suanluang Bangkok 10250 Senlikkoy Mah, Gumus Sok, No: 1/3, Malaysia, 50250 (See alternate Thailand; and 111/11 Village 0.14 Floor: 11, Florya 134159, Istanbul, addresses under Hong Kong and Kingkaew Road, Rajatheva, Turkey; and Senlikkoy Mah. Gumus Iran); Bangplee District, Samutprakarn Sok. No 3/1 Floor: 1 Florya (3) Babak Jafarpour, a.k.a., the following 10540, Thailand; and 111/11 Istanbul, 34153 Turkey; and five aliases: Village 0.14 King Kaeo Road, Racha Yesilkoy Mh. Ataturk Cad. EGS —Bob Jefferson; Thewa Sub-District, Bang Phli Business Park Bloklari B2 Blok —Peter Jay; District, Samut Prakarn, 10540, Kat:6, Istanbul, Turkey; —Sam Lee; Thailand; and (9) Murat Peker, Mah. Idris Kosku —Samson Lee; and (4) Mostafa Oveici, a.k.a., the following Caddesi Kutu, Sokak No:1 —David Lee. one alias: Pierreloti/Eyup, Istanbul, Turkey. Level 36, Menara Citibank, 165 Jalan —Mosi Oveici. (10) Pioneer Logistics Havacilik Turizm Ampang, Kuala Lumpur, Malaysia, 21 Tower 2nd Floor Zone A805 Yonetim Danismanlik Ithalat 50450; and Level 20, Menara Srinakarin Road, Suanluang Ihracat San. Tic. Ltd. Sti, Egs Standard Chartered, 30 Jalan Sultan Bangkok 10250 Thailand (See Bloklari B–1 Blok Kat: 1 No; 114, Ismail, Kuala Lumpur, Malaysia, alternate address under Iran). Yesilkoy—Bakirkoy, Istanbul, 50250; and Level 26, Tower 2, Etiqa Turkey and Huzur mah, Ayazaga Twins 11, Jalan Pinang, Kuala Turkey Oyak sitesi, 9.Blok, No:19, Sisli, Lumpur, Malaysia 50450; and M–3– (1) AAG Makina, Mah. Idris Kosku Istanbul, Turkey; and Turgut Reis 19 Plaza Damas, Sri Hartamas, Caddesi Kutu, Sokak No:1 Mh. Glyimkent Kath Is Merk. K:4 Kuala Lumpur, Malaysia 50480 (See Pierreloti/Eyup, Istanbul, Turkey; D:4412 Esenler/Istanbul, Turkey alternate addresses under Hong (2) Aeolian Airlines, and Onucreis Mah. Giyimkent

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Sitesi 3. Sokak No:118 Esenler/ Canada Supplement No. 4 to part 744 for Istanbul, Turkey; and (1) Anastassia Voronkevitch, 7150 Rue exports, reexports and transfers (in- (11) Seyyed Abdolreza Mousavi, Chouinard, Montreal, QC H8N 2Z6 country) to this person. However, the Kemalpasa Mh, Ordu Cad., Yesil Canada; and removal of this person from the Entity Tulumba Sk No 9, Fatih, Istanbul, (2) Zurab Kartvelishvili, a.k.a., the List does not relieve persons proposing Turkey (See alternate address under following one alias: to export, reexport or transfer (in- Greece); —George Kartveli. country) items subject to the EAR to the removed person of other obligations United Arab Emirates 7380 Vansickle Rd. Unit 660, St. Catharines, ON L2126P7, Canada; under part 744 of the EAR or under (1) Aerostar Asset Management FZC, and 127 Rue Wilson, Dollard-des- other parts of the EAR. Neither the a.k.a., the following two aliases: Ormeaux, Quebec H9A1W7, removal of a person from the Entity List —Star Aviation Group; and Canada. nor the removal of Entity List-based license requirements relieves persons of —Star Aviation Services FZC. This rule also amends one entry their obligations under General Sharjah Airport International Free currently on the Entity List, which is Prohibition 5 in § 736.2(b)(5) of the EAR Zone (Saif Zone), Sharjah, U.A.E.; currently listed under Sweden. This which provides that, ‘‘you may not, and P.O. Box 9300, A2–59, Saif amendment changes the address for this without a license, knowingly export or Zone, Sharjah, U.A.E.; listed person from one in Sweden to one reexport any item subject to the EAR to (2) Avia Trust, a.k.a. the following one in Estonia. The amendments provide a an end-user or end-use that is alias: corrected address for this listed person, prohibited by part 744 of the EAR.’’ —Avia Trust FZE. as follows: Additionally this removal does not Warehouse G–22, PO Box 54541, Estonia relieve persons of their obligation to Dubai Airport Free Zone, Dubai, apply for export, reexport or in-country U.A.E.; (1) Andrey Shevlyakov, Kalevipoja 12A, transfer licenses required by other 13625 Tallinn, Estonia. (3) Glasgow International Trading, a.k.a. provisions of the EAR. BIS strongly the following one alias: For the three modifications, the ERC urges the use of Supplement No. 3 to —Glasgow International General did not change the license requirements part 732 of the EAR, ‘‘BIS’s ‘Know Your Trading LLC. or license application review policies. Customer’ Guidance and Red Flags,’’ For each of the three entries subject to P.O. Box 6462, Dubai, U.A.E.; and PO when persons are involved in modifications, the license requirement Box 42064, Dubai, U.A.E. transactions that are subject to the EAR. remains for all items subject to the EAR, (4) Kadin Satco FZE, No. 28 Street 6, and the license application review Savings Clause Phase Springs 10, Emirates Hills, policy remains a presumption of denial. Shipments of items removed from Dubai, U.A.E.; eligibility for a License Exception or (5) Saeed Talebi, a.k.a., the following Removal From the Entity List export or reexport without a license two aliases: This rule implements a decision of (NLR) as a result of this regulatory —Al; and the ERC to remove one entry consisting action that were en route aboard a —Allen Talebi. of one person located in Russia from the carrier to a port of export or reexport, on No. 28 Street 6, Phase Springs 10, Entity List on the basis of a removal December 12, 2013, pursuant to actual Emirates Hills, Dubai, U.A.E. (See request by the listed person. Based upon orders for export or reexport to a foreign alternate addresses under Canada a review of the information provided in destination, may proceed to that and Iran); the removal request in accordance with destination under the previous (6) Sawa Air Aviation FZCO, a.k.a., the § 744.16 (Procedure for requesting eligibility for a License Exception or following two aliases: removal or modification of an Entity export or reexport without a license —Sawa Aviation; and List entity), the ERC determined that (NLR). Although the Export Administration —Sawa Air. this person should be removed from the Entity List. Act expired on August 20, 2001, the P.O. Box 42707, Al Sahel Bldg, Fish The ERC decision to remove this President, through Executive Order Round About, Deira, Dubai, U.A.E. person took into account this person’s 13222 of August 17, 2001, 3 CFR, 2001 254; and cooperation with the U.S. Government, Comp., p. 783 (2002), as amended by (7) Thrust Aviation FZE, 17c–F3 PO Box as well as this person’s assurances of Executive Order 13637 of March 8, 5406 Fujairah Free Zone, Fujairah, future compliance with the EAR. In 2013, 78 FR 16129 (March 13, 2013) and U.A.E.; and PO Box 5232 Fujairah accordance with § 744.16(c), the Deputy as extended by the Notice of August 8, Free Zone, Fujairah U.A.E.; and Assistant Secretary for Export 2013, 78, 2013, 78 FR 49107 (August 12, Q4–168 PO 8318 Sharjah Free Zone, Administration has sent written 2013), has continued the Export Sharjah, U.A.E.; notification to this person, informing Administration Regulations in effect Modifications to the Entity List the person of the ERC’s decision to under the International Emergency remove them from the Entity List. Economic Powers Act. BIS continues to On the basis of decisions made by the This final rule removes the following carry out the provisions of the Export ERC, in addition to the thirty-six person located in Russia from the Entity Administration Act, as appropriate and persons under forty-six entries additions List: to the extent permitted by law, pursuant described above, this rule amends three to Executive Order 13222. entries currently on the Entity List. Russia Two of the amended entries are in (1) ECO–MED–SM Ltd, Petrovsko- Rulemaking Requirements Canada. The first entry is amended by Razumovsky proyezd 29, bed.2, 1. Executive Orders 13563 and 12866 removing two addresses, one no longer Moscow, Russia 127287. direct agencies to assess all costs and current and the other duplicative, and The removal of the above referenced benefits of available regulatory the second entry is amended by person from the Entity List eliminates alternatives and, if regulation is updating an address, as follows: the existing license requirements in necessary, to select regulatory

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approaches that maximize net benefits U.S.C. 553(a)(1)). BIS implements this Authority: 50 U.S.C. app. 2401 et seq.; 50 (including potential economic, rule to protect U.S. national security or U.S.C. 1701 et seq.; 22 U.S.C. 3201 et seq.; environmental, public health and safety foreign policy interests by preventing 42 U.S.C. 2139a; 22 U.S.C. 7201 et seq.; 22 effects, distributive impacts, and items from being exported, reexported, U.S.C. 7210; E.O. 12058, 43 FR 20947, 3 CFR, equity). Executive Order 13563 1978 Comp., p. 179; E.O. 12851, 58 FR 33181, or transferred (in country) to the persons 3 CFR, 1993 Comp., p. 608; E.O. 12938, 59 emphasizes the importance of being added to the Entity List. If this FR 59099, 3 CFR, 1994 Comp., p. 950; E.O. quantifying both costs and benefits, of rule were delayed to allow for notice 12947, 60 FR 5079, 3 CFR, 1995 Comp., p. reducing costs, of harmonizing rules, and comment and a delay in effective 356; E.O. 13026, 61 FR 58767, 3 CFR, 1996 and of promoting flexibility. This rule date, then entities being added to the Comp., p. 228; E.O. 13099, 63 FR 45167, 3 has been determined to be not Entity List by this action would CFR, 1998 Comp., p. 208; E.O. 13222, 66 FR significant for purposes of Executive continue to be able to receive items 44025, 3 CFR, 2001 Comp., p. 783; E.O. Order 12866. without a license and to conduct 13224, 66 FR 49079, 3 CFR, 2001 Comp., p. 2. Notwithstanding any other activities contrary to the national 786; Notice of January 17, 2013, 78 FR 4303 (January 22, 2013) Notice of August 8, 2013, provision of law, no person is required security or foreign policy interests of the to respond to nor be subject to a penalty 78 FR 49107 (August 12, 2013); Notice of United States. In addition, because these September 18, 2013, 78 FR 58151 (September for failure to comply with a collection parties may receive notice of the U.S. 20, 2013); Notice of November 7, 2013, 78 FR of information, subject to the Government’s intention to place these 67289 (November 12, 2013). requirements of the Paperwork entities on the Entity List once a ■ Reduction Act of 1995 (44 U.S.C. 3501 proposed rule was published, it would 2. Supplement No. 4 to part 744 is et seq.) (PRA), unless that collection of create an incentive for these persons to amended: information displays a currently valid either accelerate receiving items subject ■ a. By adding under Armenia, in Office of Management and Budget to the EAR to conduct activities that are alphabetical order, one Armenian entity; (OMB) Control Number. This regulation contrary to the national security or ■ b. By revising under Canada, the involves collections previously foreign policy interests of the United Canadian entities: ‘‘Anastassia approved by OMB under control States, and/or to take steps to set up Voronkevitch, 7320 St. Jacques St. W. number 0694–0088, Simplified Network additional aliases, change addresses, Montreal QC, H4B1W1, Canada;’’ and Application Processing System, which and other measures to try to limit the ‘‘Zurab Kartvelishvili, a.k.a., the includes, among other things, license impact of the listing on the Entity List following one alias: —George Kartveli, applications and carries a burden once a final rule was published. Further, 7380 Vansickle Rd. Unit 660, St. estimate of 43.8 minutes for a manual or no other law requires that a notice of Catharines, ON L2126P7, Canada; and electronic submission. Total burden proposed rulemaking and an 320 St. Jacques St., W. Montreal QC, hours associated with the PRA and opportunity for public comment be H4B1W1, Canada; and 7380 Vansickle OMB control number 0694–0088 are not given for this rule. Because a notice of Rd, Unit 660, St. Catharines, ON expected to increase as a result of this proposed rulemaking and an L2126P7, Canada; and 127 Rue Wilson, rule. You may send comments regarding opportunity for public comment are not Dollard-des-Ormeaux, Quebec H9A1W7, the collection of information associated required to be given for this rule by 5 Canada’’; with this rule, including suggestions for U.S.C. 553, or by any other law, the ■ c. By adding under Canada, in reducing the burden, to Jasmeet K. analytical requirements of the alphabetical order, two Canadian Seehra, Office of Management and Regulatory Flexibility Act, 5 U.S.C. 601 entities; Budget (OMB), by email to ■ _ _ et seq., are not applicable. Accordingly, d. By adding under China, in Jasmeet K. [email protected], or by no regulatory flexibility analysis is alphabetical order, four Chinese entities; fax to (202) 395–7285. required and none has been prepared. ■ 3. This rule does not contain policies e. By adding under Germany, in with Federalism implications as that List of Subject in 15 CFR Part 744 alphabetical order, one German entity; ■ f. By adding under Greece, in term is defined in Executive Order Exports, Reporting and recordkeeping 13132. alphabetical order, two Greek entities; requirements, Terrorism. ■ g. By adding under Hong Kong, in 4. The provisions of the Accordingly, part 744 of the Export Administrative Procedure Act (5 U.S.C. alphabetical order, five Hong Kong Administration Regulations (15 CFR entities; 553) requiring notice of proposed parts 730–774) is amended as follows: rulemaking, the opportunity for public ■ h. By adding under Iran, in comment and a delay in effective date PART 744—[AMENDED] alphabetical order, five Iranian entities; are inapplicable because this regulation ■ i. By adding under Malaysia, in involves a military or foreign affairs ■ 1. The authority citation for 15 CFR alphabetical order, four Malaysian function of the United States. (See 5 part 744 is revised to read as follows: entities;

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■ j. By adding in alphabetical order, the ■ l. By adding under the United Arab Grev Turegatan 14, 11446 Stockholm, destination of Thailand under the Emirates, in alphabetical order, seven Sweden’’ and then revising and adding Country column and four Thai entities; Emirati entities; the entry under Estonia, as the Estonian ■ k. By adding, in alphabetical order, ■ m. By removing under Russia, one entity: ‘‘Andrey Shevlyakov, Kalevipoja the destination of Turkey under the Russian entity: ‘‘ECO–MED–SM Ltd, 12A, 13625 Tallinn, Estonia.’’ The additions and revisions read as Country column and eleven Turkish Petrovsko-Razumovsky proyezd 29, follows: entities; bed.2, Moscow, Russia 127287;’’ and ■ n. By removing under Sweden, the Supplement No. 4 to Part 744—Entity Swedish entity: ‘‘Andrey Shevlyakov, List

Country Entity License requirement License review policy Federal Register citation

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ARMENIA ...... Vertir Airlines, 8/3 D Angaght Street, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE 376009, Yerevan, Armenia; and 54– the EAR. (See § 744.11 NUMBER], 12/12/2013. 100 Mamikonyan Str., Yerevan, of the EAR.). Armenial 79, Armenia.

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CANADA *****

***** Anastassia Voronkevitch, 7150 Rue For all items subject to Presumption of denial ...... 77 FR 61249, 10/9/12.78 Chouinard, Montreal, QC H8N 2Z6 the EAR. (See § 744.11 FR [INSERT FR PAGE Canada. of the EAR.). NUMBER], 12/12/2013.

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Saeed Talebi, a.k.a., the following two For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE aliases: Al; and Allen Talebi. P.O. the EAR. (See § 744.11 NUMBER], 12/12/2013. Box 626, Gormley, ONT L0H 1G0 of the EAR). Canada (See alternate addresses under Iran and U.A.E.). Satco Corporation, P.O. Box 626, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Gormley, ONT L0H 1G0 Canada. the EAR. (See § 744.11 NUMBER], 12/12/2013. of the EAR).

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Zurab Kartvelishvili, a.k.a., the following For all items subject to Presumption of denial ...... 77 FR 61249, 10/9/12. 78 one alias: George Kartveli. 7380 the EAR. (See § 744.11 FR [INSERT FR PAGE Vansickle Rd. Unit 660, St. of the EAR.). NUMBER], 12/12/2013. Catharines, ON L2126P7, Canada; and 127 Rue Wilson, Dollard-des- Ormeaux, Quebec H9A 1W7, Can- ada.

CHINA, PEO- ***** PLE’S RE- PUBLIC OF

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Country Entity License requirement License review policy Federal Register citation

Beijing Tianhua, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE seventeen aliases: Beijing Tianhua the EAR. (See § 744.11 NUMBER], 12/12/2013. International Co., Ltd.; Beijing BUAA of the EAR). Tianhua Technology Company; Bei- jing BUAA Tianhua Technology Co., Ltd.; Beijing Aerospace Technology Limited Liability Company; Beihang Tenfine Industry Group; Beijing Beihang Assets Management Co., Ltd.; Beijing Beihang Science & Technology Co., Ltd.; Beijing Aero- space Technology LLC; Beijing North China Aerospace Science & Tech- nology Ltd., Co.; Beijing North Space Technology Co., Ltd.; Beijing the Tianhua Easytouch International Trade Co., Ltd.; North and Astronau- tics, Beijing China Times Technology Co., Ltd.; Beijing Beihang Haier Soft- ware Co., Ltd.; Red Technology; TRW Navigation Communication Technology Co., Ltd.; Beijing North Aerospace Co-Technology Co., Ltd.; and Beijing Full Three Dimensional Power Engineering Co., Ltd. 37 Xue Yuan Rd., Beijing, China; and Room 301, 3f Shining Tower, 35 Xue Yuan Lu, Haidian District, Beijing, China; and Room 311A, 3f Shining Tower, 35 Xue Yuan Lu, Haidian, Beijing, China; and Room 411A, 4f Shining Tower, 35 Xue Yuan Lu, Haidian, Beijing, China; and Room 401, 4f Shining Tower, 35 Xue Yuan Lu, Haidian District, Beijing, China; and Room 402a, 4f Shining Tower, 35 Xue Yuan Lu, Haidian, Beijing, China; and Xueyan Road, Haidain District, Beijing City, 35th Ning Build- ing, Room 402a.

*****

Comsum Technologies (Group) Ltd., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Room 408, Unit 6, Xin Qi Dian Jia the EAR. (See § 744.11 NUMBER], 12/12/2013. Yan, 5 Chang Qiao Road, Beijing, of the EAR). 100089, China (See alternate ad- dress under Hong Kong).

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Longtek Company, Ltd., a.k.a., the fol- For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE lowing one alias: Beijing Landuyt the EAR. (See § 744.11 NUMBER], 12/12/2013. Feng Technology Co., Ltd. Room of the EAR). 1105, TianZuo International Center A, No, 12, Zhongguncun South Street, Haidan District, Beijing 100081, China.

*****

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Country Entity License requirement License review policy Federal Register citation

Tenfine Ltd., a.k.a., the following two For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE aliases: Beijing Beihang Assets Man- the EAR. (See § 744.11 NUMBER], 12/12/2013. agement Co. Ltd.; and Tenfine Lim- of the EAR). ited Company. No 37 Xue Yuan Lu, Haidian, Beijing, China; and 37 Xue Yuan Road, Beijing, China; and Room 401, 4f Shining Tower, 35 Xue Yuan Lu, Haidian District, Beijing, China; and Room 402b, 4F Shining Tower, 35 Xue Yuan Lu, Haidian, Beijing, China; and Xueyan Road, Haidain District, Beijing City, 35th Ning Building, Room 402a.

***** *

***** * *

ESTONIA ...... Andrey Shevlyakov, Kalevipoja 12A, For all items subject to Presumption of denial ...... 77 FR 61249, 10/9/12. 78 13625 Tallinn, Estonia. the EAR. (See § 744.11 FR [INSERT FR PAGE of the EAR). NUMBER], 12/12/2013.

*****

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GERMANY *****

Satco GmbH, a.k.a., the following one For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE alias: Satco Inc. Park Street 4, Bre- the EAR. (See § 744.11 NUMBER], 12/12/2013. men, Germany 28209. of the EAR).

*****

GREECE ...... Aeolian Airlines, 551 Mesogeion Ave, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Agia Paraskevi, 15343A, Athens, the EAR. (See § 744.11 NUMBER AND 12/12/ Greece; and72 Vouliagmenis Ave, of the EAR). 2013. Glyfada 16675, Athens, Greece; andBlg Mtb 1/E 74, Athens, Greece; and 58 Vouliagmenis Ave, Voula 16673, Athens, Greece;(See alter- nate addresses under Turkey).

*****

Seyyed Abdolreza Mousavi, 551 For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Mesogeion Ave, Agia Paraskevi, the EAR. (See § 744.11 NUMBER], 12/12/2013. 15343A, Athens, Greece; (See alter- of the EAR). nate address under Turkey).

*****

HONG KONG *****

Anvik Technologies Sdn. Bhd., a.k.a., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE the following eight aliases: Anvik the EAR. (See § 744.11 NUMBER], 12/12/2013. Technologies; Cason Technologies; of the EAR). Henan Electronics; Hixton Tech- nologies; Hudson Technologies, Ltd.; Hudson Engineering (Hong Kong) Ltd.; Madison Engineering Ltd.;and Montana Advanced Engineering. Level 19, Two International Finance Centre, 8 Finance Street, Central, Hong Kong (See alternate addresses under Iran and Malaysia).

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Babak Jafarpour, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE five aliases: Bob Jefferson;-Peter the EAR. (See § 744.11 NUMBER], 12/12/2013. Jay; Sam Lee; Samson Lee; and of the EAR). David Lee. Unit 501, 5/F, Global Gateway, 168 Yeung HK Road, Tsuen Wan, Hong Kong; and 9/F, Henan Building, 19 Luard Road, Wanchai, Hong Kong; and Level 19, Two International Finance Centre, 8 Finance Street, Central, Hong Kong (See alternate addresses under Iran and Malaysia).

*****

Comsum Technologies (Group) Ltd., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Room 1005, 10/F Carnarvon Plaza, the EAR. (See § 744.11 NUMBER], 12/12/2013. 20 Carnarvon Road, TST, Kowloon, of the EAR). Hong Kong (See alternate address under China).

*****

FOC (HK) Technology Co., Ltd., Room For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE 8, 6/F, Shun On Commercial Build- the EAR. (See § 744.11 NUMBER], 12/12/2013. ing, 112–114 Des Voeux Road, Cen- of the EAR). tral, Hong Kong.

*****

Hansen Technologies Limited, Unit For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE 501, 5/F, Global Gateway, 168 the EAR. (See § 744.11 NUMBER], 12/12/2013. Yeung HK Road, Tsuen Wan, Hong of the EAR). Kong; and 9/F, Henan Building, 19 Luard Road, Wanchai, Hong Kong.

*****

***** * *

IRAN *****

Anvik Technologies Sdn. Bhd., a.k.a., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE the following eight aliases: Anvik the EAR. (See § 744.11 NUMBER] 12/12/2013. Technologies; Cason Technologies; of the EAR). Henan Electronics; Hixton Tech- nologies; Hudson Technologies, Ltd.; Hudson Engineering (Hong Kong) Ltd.; Madison Engineering Ltd.; and Montana Advanced Engineering. F10, No. 21, 9th Alley, Vozara Ave., Tehran, Iran (See alternate address- es under Hong Kong and Malaysia)..

*****

Babak Jafarpour, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE five aliases: Bob Jefferson; Peter the EAR. (See § 744.11 NUMBER], 12/12/2013. Jay; Sam Lee; Samson Lee; and of the EAR). David Lee. F10, No. 21, 9th Alley, Vozara Ave., Tehran, Iran (See alter- nate addresses under Hong Kong and Malaysia).

*****

Mostafa Oveici, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE one alias: Mosi Oveici. Mehrabad the EAR. (See § 744.11 NUMBER], 12/12/2013. Airport, Tehran, Iran, (See alternate of the EAR). address under Thailand).

*****

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Saeed Talebi, a.k.a., the following two For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE aliases: Al; and Allen Talebi. No. 27, the EAR. (See § 744.11 NUMBER], 12/12/2013. Zarif Nia, Pesyan Valley, Tehran, of the EAR). Iran; and No. 3, West Saeb Tabrizi Lane, North Sheikh Bahaee Street, Tehran, Iran (See alternate address- es under Canada and U.A.E.).

*****

Satco, No. 3, West Saeb Tabrizi Lane, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE North Sheikh Bahaee Street, Tehran, the EAR. (See § 744.11 NUMBER], 12/12/2013. Iran. of the EAR).

*****

***** * *

MALAYSIA *****

Albin Technologies Sdn Bhd., M–3–19 For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Plaza Damas, Sri Hartamas, Kuala the EAR. (See § 744.11 NUMBER], 12/12/2013. Lumpur, Malaysia 50480; and P.O. of the EAR). Box 4, Level 13A, Menara Park, Block D, Megan Ave. II, No 12, Jalan Yap Kwan Seng, Kuala Lumpur, Ma- laysia.

*****

Anvik Technologies Sdn. Bhd., a.k.a., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE the following eight aliases: Anvik the EAR. (See § 744.11 NUMBER], 12/12/2013. Technologies; Cason Technologies, of the EAR). Henan Electronics; Hixton Tech- nologies; Hudson Technologies, Ltd.; Hudson Engineering (Hong Kong) Ltd.; Madison Engineering Ltd.; and Montana Advanced Engineering. Level 36, Menara Citibank, 165 Jalan Ampang, Kuala Lumpur, Malaysia, 50450; and Level 20, Menara Stand- ard Chartered, 30 Jalan Sultan Ismail, Kuala Lumpur, Malaysia, 50250, (See alternate addresses under Hong Kong and Iran).

*****

Babak Jafarpour, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE five aliases: Bob Jefferson; Peter the EAR. (See § 744.11 NUMBER], 12/12/2013. Jay; Sam Lee; Samson Lee; and of the EAR). David Lee. Level 36, Menara Citibank, 165 Jalan Ampang, Kuala Lumpur, Malaysia, 50450; and Level 20, Menara Standard Chartered, 30 Jalan Sultan Ismail, Kuala Lumpur, Malaysia, 50250; and Level 26, Tower 2, Etiqa Twins 11, Jalan Pinang, Kuala Lumpur, Malaysia 50450; and M–3–19 Plaza Damas, Sri Hartamas, Kuala Lumpur, Malay- sia 50480 (See alternate addresses under Hong Kong and Iran).

*****

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Montana Advanced Engineering Sdn For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Bhd., Level 26, Tower 2, Etiqa Twins the EAR. (See § 744.11 NUMBER], 12/12/2013. 11, Jalan Pinang, Kuala Lumpur, Ma- of the EAR). laysia 50450; and Level 20, Menara Standard Chartered, 30 Jalan Sultan Ismail, Kuala Lumpur, Malaysia, 50250; and P.O. Box 4, Level 13A, Menara Park, Block D, Megan Ave. II, No 12, Jalan Yap Kwan Seng, Kuala Lumpur, Malaysia.

*****

***** * *

THAILAND ...... Asian Aviation Logistics Co., Ltd., 21 For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Tower 2nd Floor Zone A805 the EAR. (See § 744.11 NUMBER], 12/12/2013. Srinakarin Road, Suanluang Bangkok of the EAR). 10250 Thailand; and 111/11 Village 0.14 Kingkaew Road, Rajatheva, Bangplee District, Samutprakarn 10540, Thailand; and 188/5 Moo 5 Srinakarin Rd, Samrongnua, Muang, Samut Prakarn 10270, Thailand. Khalidee Boolay Surinanda, a.k.a., the For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE following one alias: Khalidee Boolay the EAR. (See § 744.11 NUMBER], 12/12/2013. Surinandha. 21 Tower 2nd Floor of the EAR). Zone A805 Srinakarin Road, Suanluang Bangkok 10250 Thailand; and 111/11 Village 0.14 Kingkaew Road, Rajatheva, Bangplee District, Samutprakarn 10540, Thailand; and 111/11 Village 0.14 King Kaeo Road, Racha Thewa Sub-District, Bang Phli District, Samut Prakarn, 10540, Thai- land. Kosol Surinanda, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE one alias: Kosol Surinandha.140/65 the EAR. (See § 744.11 NUMBER], 12/12/2013. ITF Tower, 27 Floor, Silom Rd., of the EAR). Suriyawongse, Bangrak, Bangkok, 10500, Thailand; and 21 Tower 2nd Floor Zone A805 Srinakarin Road, Suanluang Bangkok 10250 Thailand; and495 Soi Anamai, Srinakarin Road, Suanluang Bangkok 10250 Thailand;and 111/11 Village 0.14 Kingkaew Road, Rajatheva, Bangplee District, Samutprakarn 10540, Thailand; and 111/11 Village 0.14 King Kaeo Road, Racha Thewa Sub-District, Bang Phli District, Samut Prakarn, 10540, Thailand. Mostafa Oveici, a.k.a., the following For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE one alias: Mosi Oveici. 21 Tower 2nd the EAR. (See § 744.11 NUMBER], 12/12/2013. Floor Zone A805 Srinakarin Road, of the EAR). Suanluang Bangkok 10250 Thailand, (See alternate address under Iran).

TURKEY ...... AAG Makina, Mah. Idris Kosku Caddesi For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Kutu, Sokak No: 1 Pierreloti/Eyup, the EAR. (See § 744.11 NUMBER], 12/12/2013. Istanbul, Turkey. of the EAR). Aeolian Airlines, Ozgur KK No 4 Da 5 For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Davran Ap Flo, Istanbul, Turkey; and the EAR. (See § 744.11 NUMBER], 12/12/2013. Davran Ap Florya, Istanbul, Turkey of the EAR). 34153; and Attaturk Airport, Istanbul, Turkey, (See alternate addresses under Greece).

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Avistar Havacilik Bilisim Turizm Insaat For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Sanayi Ve Ticaret Limited Sirketi, the EAR. (See § 744.11 NUMBER], 12/12/2013. Yenibosna Dogu Sanayi Sitesi, 9 of the EAR). Blok No: 1, Bahcelievler—Istanbul, Turkey; and Dogu Sanayi Sitesi 9. Blok No:9/1 Yenibosna, Istanbul, Tur- key. Ergin Turker, Yenibosna Dogu Sanayi For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Sitesi, 9 Blok No: 1, Bahcelievler— the EAR. (See § 744.11 NUMBER], 12/12/2013. Istanbul, Turkey. of the EAR). Eurocenter Havacilik Dis Ticaret Lim- For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE ited Sirketi, Kemalpasa Mh, Ordu the EAR. (See § 744.11 NUMBER], 12/12/2013. Cad., Yesil Tulumba Sk No 9, Fatih, of the EAR). Istanbul, Turkey; and Yesil Tulumba Eminonu Sok No. 9, Eminonu— Istanbul, Turkey 34143; and Yesil Tulumba Sk: No 9 Fatih, Eminonu Istanbul, Turkey 34143; and Senlikkoy Mahallesi, Ozgur Sk No. 4, Da: 5, Davran Ap Florya, 34153 Istanbul, Turkey. Gulnihal Yegane, Egs Bloklari B–1 Blok For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE K.1 No: 114, Yesilkoy Bakirkoy, the EAR. (See § 744.11 NUMBER], 12/12/2013. Istanbul, Turkey; and Huzur mah, of the EAR). Ayazaga Oyak sitesi, 9. Blok, No: 19, Sisli, Istanbul, Turkey; and Turgut Reis Mh. Glyimkent Kath Is Merk. K:4 D:4412 Esenler/Istanbul, Turkey; and Onucreis Mah. Giyimkent Sitesi 3. Sokak No:118 Esenler/Istanbul, Turkey. Kral Aviation Services Ltd., Yesilkoy For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Mh.Ataturk Cd., Esg Business Park the EAR. (See § 744.11 NUMBER], 12/12/2013. B1. B2 K:6 No:234, Bakirkoy of the EAR). Istanbul, Turkey. Kral Aviation, a.k.a., the following two For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE aliases: Kral Havacilik Ic Ve Dis the EAR. (See § 744.11 NUMBER], 12/12/2013. Ticaret Sirketi; and Kral Aviation Ltd. of the EAR). Senlikkoy Mah, Gumus Sok, No: 1/3, Floor: 11, Florya 134159, Istanbul, Turkey; and Senlikkoy Mah. Gumus Sok. No 3/1 Floor: 1 Florya Istanbul, 34153 Turkey and Yesilkoy Mh. Ataturk Cad. EGS Business Park Bloklari B2 Blok Kat:6, Istanbul Tur- key. Murat Peker, Mah. Idris Kosku Caddesi For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Kutu, Sokak No: 1 Pierreloti/Eyup, the EAR. (See § 744.11 NUMBER], 12/12/2013. Instanbul, Turkey. of the EAR). Pioneer Logistics Havacilik Turizm For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Yonetim Danismanlik Ithalat Ihracat the EAR. (See § 744.11 NUMBER], 12/12/2013. San. Tic. Ltd. Sti, Egs Bloklari B–1 of the EAR). Blok Kat: 1 No; 114, Yesilkoy Bakirkoy, Istanbul, Turkey and Huzur mah, Ayazaga Oyak sitesi, 9. Blok, No:19, Sisli, Istanbul, Turkey; and Turgut Reis Mh. Glyimkent Kath Is Merk. K:4 D:4412 Esenler/Istanbul, Turkey and Onucreis Mah. Giyimkent Sitesi 3. Sokak No:118 Esenler/ Istanbul, Turkey. Seyyed Abdolreza Mousavi, Kemalpasa For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Mh, Ordu Cad., Yesil Tulumba Sk No the EAR. (See § 744.11 NUMBER], 12/12/2013. 9, Fatih, Istanbul, Turkey, (See alter- of the EAR). nate address under Greece).

***** * *

UNITED ARAB ***** EMIRATES

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Aerostar Asset Management FZC, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE a.k.a., the following two aliases: Star the EAR. (See § 744.11 NUMBER], 12/12/2013. Aviation Group; and Star Aviation of the EAR). Services FZC. Sharjah Airport Inter- national Free Zone (Saif Zone), Sharjah, United Arab Emirates; and P.O. Box 9300, A2–59, Saif Zone, Sharjah, U.A.E.

*****

Avia Trust, a.k.a., the following one For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE alias: Avia Trust FZE. Warehouse G– the EAR. (See § 744.11 NUMBER], 12/12/2013. 22 PO Box 54541, Dubai Airport of the EAR). Free Zone Dubai, U.A.E.

*****

Glasgow International Trading, a.k.a., For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE the following one alias: Glasgow the EAR. (See § 744.11 NUMBER], 12/12/2013. International General Trading LLC. of the EAR). P.O. Box 6462, Dubai, U.A.E.; and P.O. Box 42064, Dubai U.A.E.

*****

Kadin Satco FZE, No. 28 Street 6, For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE Phase Springs 10, Emirates Hills, the EAR. (See § 744.11 NUMBER], 12/12/2013. Dubai, U.A.E. of the EAR).

*****

Saeed Talebi, a.k.a., the following two For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE aliases: Al; and Allen Talebi. No. 28 the EAR. (See § 744.11 NUMBER], 12/12/2013. Street 6, Phase Springs 10, Emirates of the EAR). Hills, Dubai, U.A.E., (See alternate addresses under Canada and Iran). Sawa Air Aviation FZCO, a.k.a., the fol- For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE lowing two aliases: Sawa Aviation; the EAR. (See § 744.11 NUMBER], 12/12/2013. and Sawa Air. P.O. Box 42707, Al of the EAR). Sahel Bldg, Fish Round About, Deira, Dubai, U.A.E. 254. ***** Thrust Aviation FZE, 17c–F3 PO Box For all items subject to Presumption of denial ...... 78 FR [INSERT FR PAGE 5406 Fujairah Free Zone, Fujairah the EAR. (See § 744.11 NUMBER], 12/12/2013. U.A.E.; and PO Box 5232 Fujairah of the EAR). Free Zone, Fujairah U.A.E.; and Q4– 168 PO 8318 Sharjah Free Zone, Sharjah, U.A.E.

*****

***** * *

Dated: November 21, 2013. DEPARTMENT OF THE TREASURY by the Secretary under section 3504 of Kevin J. Wolf, the Internal Revenue Code to perform Assistant Secretary for Export Internal Revenue Service acts required of employers who are Administration. home care service recipients. The final 26 CFR Part 31 [FR Doc. 2013–28663 Filed 12–11–13; 8:45 am] regulations affect employers and their BILLING CODE 3510–33–P [TD 9649] designated agents who pay wages for home care services, which are subject to RIN 1545–BI21 taxes under the Federal Unemployment Section 3504 Agent Employment Tax Tax Act. The final regulations also Liability modify the existing regulations under section 3504 to be consistent with the AGENCY: Internal Revenue Service (IRS), organizational structure of the Internal Treasury. Revenue Service (IRS), and to update ACTION: Final regulations. the citation to the Internal Revenue SUMMARY: This document contains final Code of 1986. regulations relating to agents authorized

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DATES: Effective Date: These regulations provide that the IRS may authorize an for income tax withholding and FICA are effective on December 12, 2013. agent to undertake the employment tax tax purposes. The proposed regulations Applicability Date: For dates of obligations of an employer with respect under § 31.3504–1(b) do not apply to an applicability, see § 31.3504–1(c) of these to FUTA tax in certain circumstances. agent that is authorized to report, file, regulations. and pay income tax withholding or Summary of Comments and FICA tax for an employer who is not a FOR FURTHER INFORMATION CONTACT: Explanation of Revisions Michelle R. Weigelt at (202) 622–0047 home care service recipient, or for (not a toll-free number). A. Amendments to § 31.3504–1(a) wages paid for services other than home care services. SUPPLEMENTARY INFORMATION: Under § 31.3504–1(a), an employer Several commenters sought legal or may request that the IRS authorize an Background procedural explanations which were agent under section 3504 to report, file, beyond the scope of the proposed This document contains amendments and pay income tax withholding, tax regulations. Thus, those comments are to 26 CFR part 31 under section 3504 of under the FICA, or tax under the not addressed in these final regulations. the Internal Revenue Code (Code). On Railroad Retirement Tax Act (RRTA), For example, these regulations do not January 13, 2010, the Treasury with respect to wages or compensation. address comments seeking clarification Department and the IRS published a The proposed regulations under on the identity of the common law notice of proposed rulemaking (REG– § 31.3504–1(a) proposed amendments to employer if the home care service 137036–08, 75 FR 1735, 2010–6 I.R.B. the existing regulatory language recipient has a representative acting on 398) (the proposed regulations) in the designed to update citations and be his or her behalf, the ability of an agent Federal Register under section 3504 of consistent with the current to delegate its responsibility to a third- the Code. The Treasury Department and organizational structure of the IRS. party, the application of certain the IRS did not hold a public hearing One commenter expressed concern exceptions to FICA and FUTA taxes, the because there were no requests to speak that deletion of the limiting language proper use of employer identification at a hearing. The Treasury Department ‘‘in respect of such acts’’ from these numbers (EIN) in filing employment tax and the IRS received written and regulations implied an agent could be returns, and the deposit requirements of electronic comments responding to the held liable for all of an employer’s agents. However, Revenue Procedure proposed regulations. After employment tax liabilities, regardless of 2013–39, which is being released consideration of all the comments, the which acts the agent was authorized to simultaneously with these final proposed regulations are adopted as perform. Under section 3504, the agent regulations updates the procedures for amended by this Treasury decision. The is only liable for acts the IRS has requesting that the IRS authorize a comments and revisions are discussed authorized the agent to perform on person to act as agent under section in the preamble. behalf of the employer. Thus, language 3504, and addresses filing, reporting, Explanation of Provisions that limits the scope of the agent’s and deposit rules for agents. liability has been reincorporated into In case a fiduciary, agent, or other the final regulations. 1. Certification of State Unemployment person has the control, receipt, custody, Another commenter suggested that Contributions or disposal of, or pays the wages of an the final regulations include a rule that Section 3504 provides that all employee or group of employees, the agent is only liable for employment provisions of law applicable to an employed by one or more employers, taxes with respect to wages or employer apply to the agent. Thus, an section 3504 of the Code authorizes the compensation paid by the agent on agent authorized under the proposed Secretary of the Treasury to promulgate behalf of the employer. Because section regulations for FUTA tax purposes regulations to authorize the person 3504 provides an agent may also be reports the state unemployment (‘‘agent’’) to perform certain specified authorized under section 3504 if the contributions paid into a state acts required of employers. Under person has the control, receipt, custody, unemployment fund on behalf of a section 3504, all provisions of law or disposal of the wages of an home care service recipient as a credit (including penalties) applicable with employer’s employees, a rule that the under section 3302 against the FUTA respect to employers are applicable to agent can only be held liable for tax reported on the agent’s aggregate the agent and remain applicable to the employment taxes with respect to those FUTA tax return. The IRS has employer. Accordingly, both the agent wages paid by the agent would be more designated Form 940, Employer’s and employer are liable for the narrow than the statute. Therefore, this Annual Federal Unemployment Tax employment taxes and penalties rule was not adopted in the final (FUTA) Return, as the return to file to associated with the employer’s regulations. report FUTA tax. The credit can be employment tax obligations which the In addition to the change to proposed reported by the agent regardless of agent is authorized to perform. Prior to § 31.3504–1(a) made in response to whether the state unemployment the amendments made by these final comments, these final regulations adopt contributions are made under the name regulations, § 31.3504–1 of the minor changes for clarity and and state identifying number of the Employment Tax Regulations provided consistency. home care service recipient or of the that the IRS may authorize an agent to agent. undertake the employment tax B. Amendments Under § 31.3504–1(b) Several commenters expressed obligations of an employer with respect The proposed regulations under concern that the IRS will be unable to to income tax withholding and Federal § 31.3504–1(b) provide a special rule verify the state unemployment Insurance Contributions Act (FICA) that allows an employer who is a home contributions made on behalf of a home taxes. However, the employer was care service recipient to request that the care service recipient if such required to continue to meet its IRS authorize an agent to act with contributions are reported on an employment tax obligations with respect to FUTA taxes imposed on aggregate Form 940 FUTA tax return respect to Federal Unemployment Tax wages paid for home care services, using the agent’s name and EIN. The Act (FUTA) tax. Like the proposed provided that the agent is authorized to commenters suggested that each home regulations, these final regulations act for the home care service recipient care service recipient’s name and EIN be

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included on the aggregate return for outside the home care service from the definition of home care purposes of the annual certification recipient’s private home may qualify as services in the final regulations. process. home care services for purposes of these Finally, one commenter interpreted Following the publication of the regulations even if the services do not the definition of home care services to proposed regulations, the IRS issued qualify as domestic service in a private include only services provided to Schedule R (Form 940), Allocation home of the employer for purposes of elderly individuals and individuals Schedule for Aggregate Form 940 Filers, sections 3121(a)(7), 3306(c)(2), and with physical disabilities, and not to for use beginning in tax year 2010. 3401(a)(3). include services provided to individuals Agents of home care service recipients One commenter requested a rule with intellectual and developmental are required to use Schedule R (Form deeming the special statutory rules for disabilities. The definition of home care 940) to allocate the information reported domestic services as applying to all services in the proposed regulations are on the aggregate FUTA tax return, and home care services. The determination not limited by the type of disability. must separately list each home care of whether the statutory rules for Rather, the definition of home care service recipient’s name and EIN on domestic services apply depends on services includes any services for which Schedule R (Form 940). Because the whether the services are domestic an individual enrolled in a government issuance of Schedule R (Form 940) services provided in the private home of program described in the regulations resolves the concerns raised by these the employer as explained in the would be eligible to receive funds. commenters, no changes were made to regulations. Thus, a bright line rule that Therefore, no changes were made to the the final regulations. home care services are domestic final regulations with regard to the definition of home care services to 2. Domestic Service Employment Tax services in all cases is beyond the scope address this comment. Rules and Home Care Services of these regulations, and the proposal was not adopted. The proposed regulations define 3. Clarification Regarding Home Care home care services to include health However, we anticipate that there will Service Recipients care and personal attendant care only be limited circumstances when The proposed regulations define services rendered in the home care home care services would not be subject home care service recipient as any service recipient’s home or local to the domestic service rules and note individual who receives home care community. Several commenters that the regulations on domestic service services while enrolled, and for the requested clarification of whether home described in this section, and other remainder of the calendar year after care services constitute domestic public guidance currently available ceasing to be enrolled, in a program services for employment tax purposes, address these comments. For example, administered by a Federal, state, or local particularly when the services involve Revenue Ruling 56–109, 1956–1 CB 467, government agency that provides travel outside the home. provides that services performed by an Federal, state, or local government The Code has special rules for employee as a companion to a funds, to pay, in whole or in part, for domestic services. These special rules convalescent employer, including the home care services for that include provisions in section 3401(a)(3) accompanying the convalescent on individual. Several commenters regarding the requirement to withhold trips, constitute domestic service in a submitted questions regarding this income tax; sections 3121(a)(7)(B), private home of the employer for definition that did not require changes 3306(a)(3), and 3306(c)(2) regarding purposes of employment taxes. to the regulations, but with respect to minimum dollar thresholds for Several commenters interpreted the which clarification is provided in this imposition of FICA and FUTA taxes; use of the phrase ‘‘home or local preamble. section 3121(b)(3)(B) regarding community’’ in the definition of home With regard to the Federal, state, or exemption from FICA tax for certain care services to impose geographical local government programs which family employment relationships; and restrictions. The phrase was intended to provide funds for home care services, section 3121(b)(21) regarding exemption indicate that despite the home-based the preamble to the proposed from FICA tax depending on the age of nature of health care and personal regulations provides, ‘‘In all such the service provider. Whether any of attendant care services, home care programs, intermediaries who are these rules apply in a given situation services may be provided outside of a engaged to assist beneficiaries to receive depends on whether the services are home, and was not intended to exclude and distribute funds on the ‘‘domestic services’’ and whether the services qualifying for funds under the beneficiaries’ behalf are reviewed and services are provided in the ‘‘private government program based on the approved by a state or local government home’’ of the employer. These terms are location at which the services were agency.’’ Several commenters explained in §§ 31.3121(a)(7)–1(a)(2), provided. Thus, home care services interpreted this statement as inferring 31.3306(c)(2)–1, and 31.3401(a)–3 of the under the regulations include any coordination between the IRS and the regulations. services for which an individual Centers for Medicare and Medicaid Generally, § 31.3121(a)(7)–1(a)(2) enrolled in a government program Services (CMS) regarding qualifications provides that domestic services are described in the regulations would be and contracting requirements for agents. services of a household nature eligible to receive funds. Similar to how The statement was intended to highlight performed by an employee in or about Rev. Rul. 56–109 describes a situation the currently existing oversight of the a private home of the person by whom where services that are provided outside intermediaries that serve as agents in the employee is employed. A private the employer’s house nevertheless these programs by CMS or other home is a fixed place of abode of an constitute ‘‘domestic services in the Federal, state, and local government individual or family. Sections private home of the employer,’’ services agencies. There is no anticipated IRS 31.3306(c)(2)–1 and 31.3401(a)–3 provided outside the home or local involvement in the way these agencies contain similar descriptions for FUTA community may constitute home care administer these programs, including tax and income tax withholding services. Nevertheless, to avoid the selection and monitoring of the purposes, respectively. implication of a geographical limitation intermediaries. The preamble to the proposed on what services may qualify as home Application of the proposed regulations stated that services provided care services, the phrase was removed regulations requires that a home care

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service recipient be enrolled in a will not have a significant economic or other person (‘‘agent’’), or if that program that provides Federal, state, or impact on a substantial number of small agent has the control, receipt, custody, local government funds to pay for home entities. The collection of information or disposal of (collectively ‘‘pays’’) care services, in whole or in part. One contained in these regulations is a wages or compensation, the Internal commenter asked whether an individual voluntary written application from an Revenue Service may, subject to the who pays for home care services from employer, signed by the employer and terms and conditions as it deems his or her personal bank account or with the agent, requesting the IRS approve proper, authorize that agent to perform other non-government funds can be a the appointment of an agent to perform the acts required of the employer or home care service recipient within the the acts required of the employer. The employers under those provisions of the meaning of the regulations. An application contains information Code and the regulations that apply, for individual is not a home care service generally available to taxpayers, such as purposes of the taxes imposed by the recipient within the meaning of these the name, address, and EIN of the chapter or chapters, with respect to regulations if no government funds are employer, and ultimately serves to wages or compensation paid by the used to pay for any part of the home lessen taxpayer burden by allowing the agent. If the agent is authorized by the care services performed for the employer to have an agent fulfill certain Internal Revenue Service to perform individual. However, an individual may employment tax obligations. such acts, all provisions of law be a home care service recipient if the Accordingly, a regulatory flexibility (including penalties) and of the cost of the home care services are analysis is not required. Pursuant to regulations applicable to an employer initially paid for with non-government section 7805(f) of the Internal Revenue with respect to such acts shall be funds and such cost is reimbursed in Code, the proposed regulations applicable to the agent. However, each whole or in part with government funds preceding these regulations were employer for whom the agent acts shall provided under the government submitted to the Chief Counsel for remain subject to all provisions of law program. Advocacy of the Small Business (including penalties) and of the Other commenters asked about Administration for comment on its regulations applicable to an employer procedures an agent should follow impact on small business, and no with respect to such acts. Any when an individual ceases to be a home comments were received. application to authorize an agent to care service recipient. Under § 31.3504– perform such acts, signed by the agent 1(b)(3), a participant qualifies as a home Drafting Information and the employer, shall be made on the care service recipient until the end of The principal author of these final form prescribed by the Internal Revenue the calendar year in which the regulations is Michelle R. Weigelt, Service and shall be filed with the participant ceases to be enrolled in the Office of Division Counsel/Associate Internal Revenue Service as prescribed government program; accordingly, the Chief Counsel (Tax Exempt and in the instructions to the form and other agent may act as an agent with respect Government Entities). However, applicable guidance. to the home care service recipient’s personnel from other offices of the IRS (b) Special rule for home care service FUTA tax obligations for the entire and the Treasury Department recipients. (1) In general. In the event an calendar year in which the participant participated in their development. agent is authorized pursuant to ceases to qualify as a home care service paragraph (a) of this section to perform recipient. Furthermore, the agent may List of Subjects in 26 CFR Part 31 the acts required of an employer under continue to act as an agent with respect Employment taxes, Income taxes, chapters 21 or 24 on behalf of one or to the home care service recipient’s Penalties, Pensions, Reporting and more home care service recipients, as FICA tax and income tax withholding recordkeeping requirements, Railroad defined in paragraph (b)(3) of this obligations pursuant to § 31.3504–1(a) retirement, Social security, section, the Internal Revenue Service after a participant ceases to qualify as a Unemployment compensation. may authorize that agent to perform the home care service recipient. Treasury acts as are required of employers for and the IRS do not believe a description Adoption of Amendments to the purposes of the tax imposed by chapter of any specific procedures is needed in Regulations 23 of the Code with respect to wages these regulations with regard to the Accordingly, 26 CFR part 31 is paid by the agent for home care services, cessation of home care service recipient amended as follows: as defined in paragraph (b)(2) of this status for FUTA tax purposes. However, section, rendered to the home care Revenue Procedure 2013–39, which is PART 31—EMPLOYMENT TAXES AND service recipient. If the agent is being released simultaneously with COLLECTION OF INCOME TAX AT authorized by the Internal Revenue these final regulations updates the SOURCE Service to perform such acts, all procedures to request the IRS authorize provisions of law (including penalties) a person to act as agent under section ■ Paragraph 1. The authority citation and of the regulations applicable to an 3504 and clarifies the rules for revoking for part 31 continues to read in part as employer in respect of such acts shall be authorization. follows: applicable to the agent. However, each Authority: 26 U.S.C. 7805 * * * employer for whom the agent acts shall Special Analyses ■ Par. 2. Section 31.3504–1 is revised to remain subject to all provisions of law It has been determined that this read as follows: (including penalties) and of the Treasury decision is not a significant regulations applicable to an employer regulatory action as defined in E.O. § 31.3504–1 Designation of agent by with respect to such acts. 12866. Therefore, a regulatory application. (2) Home care services. For purposes assessment is not required. It also has (a) In general. In the event wages as of this section, the term home care been determined that section 553(b) of defined in chapter 21 or 24 of the services includes health care and the Administrative Procedure Act (5 Internal Revenue Code (Code), or personal attendant care services U.S.C. chapter 5) does not apply to this compensation as defined in chapter 22 rendered to the home care service regulation. Pursuant to the Regulatory of the Code, of an employee or group of recipient. Flexibility Act (5 U.S.C. chapter 6), it is employees, employed by one or more (3) Home care service recipient. For hereby certified that these regulations employers, is paid by a fiduciary, agent, purposes of this section, the term home

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care service recipient means any assess the nature and extent of public email: [email protected], Site individual who receives home care health and environmental risks Assessment and Remedy Decisions services, as defined in paragraph (b)(2) associated with the site and to Branch, Assessment and Remediation of this section, while enrolled, and for determine what CERCLA-financed Division, Office of Superfund the remainder of the calendar year after remedial action(s), if any, may be Remediation and Technology ceasing to be enrolled, in a program appropriate. This rule adds nine sites to Innovation (Mailcode 5204P), U.S. administered by a Federal, state, or local the General Superfund section of the Environmental Protection Agency; 1200 government agency that provides NPL and changes the name of one NPL Pennsylvania Avenue NW., Washington, Federal, state, or local government site. DC 20460; or the Superfund Hotline, funds, to pay, in whole or in part, for DATES: The effective date for this phone (800) 424–9346 or (703) 412– home care services for that individual. amendment to the NCP is January 13, 9810 in the Washington, DC, (c) Effective/applicability dates. An 2014. metropolitan area. authorization under paragraph (a) in ADDRESSES: Contact information for the SUPPLEMENTARY INFORMATION: effect prior to December 12, 2013 EPA Headquarters: Table of Contents continues to be in effect after that date. • Docket Coordinator, Headquarters; Paragraph (b) of this section applies to U.S. Environmental Protection Agency; I. Background wages paid on or after January 1, 2014. CERCLA Docket Office; 1301 A. What are CERCLA and SARA? However, pursuant to section 7805(b), Constitution Avenue NW; William B. What is the NCP? taxpayers may rely on paragraph (b) of Jefferson Clinton Building West, Room C. What is the National Priorities List this section for all taxable years for 3334, Washington, DC 20004, 202–566– (NPL)? which a valid designation is in effect 0276. D. How are sites listed on the NPL? under paragraph (a) of this section. The contact information for the E. What happens to sites on the NPL? Regional Dockets is as follows: F. Does the NPL define the boundaries of Beth Tucker, • sites? Holly Inglis, Region 1 (CT, ME, MA, G. How are sites removed from the NPL? Deputy Commissioner for Services and NH, RI, VT), U.S. EPA, Superfund Enforcement. H. May the EPA delete portions of sites Records and Information Center, 5 Post Approved: September 27, 2013. from the NPL as they are cleaned up? Office Square, Suite 100, Boston, MA I. What is the Construction Completion List Mark J. Mazur, 02109–3912; 617–918–1413. (CCL)? Assistant Secretary of the Treasury (Tax • Ildefonso Acosta, Region 2 (NJ, NY, J. What is the sitewide ready for Policy). PR, VI), U.S. EPA, 290 Broadway, New anticipated use measure? [FR Doc. 2013–29664 Filed 12–11–13; 8:45 am] York, NY 10007–1866; 212–637–4344. K. What is state/tribal correspondence BILLING CODE 4830–01–P • Lorie Baker (ASRC), Region 3 (DE, concerning NPL listing? DC, MD, PA, VA, WV), U.S. EPA, II. Availability of Information to the Public A. May I review the documents relevant to Library, 1650 Arch Street, Mailcode this final rule? ENVIRONMENTAL PROTECTION 3HS12, Philadelphia, PA 19103; 215– B. What documents are available for review AGENCY 814–3355. at the headquarters docket? • Jennifer Wendel, Region 4 (AL, FL, C. What documents are available for review 40 CFR Part 300 GA, KY, MS, NC, SC, TN), U.S. EPA, 61 at the regional dockets? Forsyth Street SW., Mailcode 9T25, D. How do I access the documents? [EPA–HQ–SFUND–2008–0574; EPA–HQ– E. How may I obtain a current list of NPL SFUND–2012–0069; EPA–HQ–SFUND– Atlanta, GA 30303; 404–562–8799. • Todd Quesada, Region 5 (IL, IN, MI, sites? 2013–0196, 0197, 0198, 0201, 0202, 0203, III. Contents of This Final Rule 0204 and 0207; FRL–9903–89–OSWER] MN, OH, WI), U.S. EPA Superfund Division Librarian/SFD Records A. Additions to the NPL Manager SRC–7J, Metcalfe Federal B. What did the EPA do with the public National Priorities List, Final Rule comments it received? No. 57 Building, 77 West Jackson Boulevard, C. Site Name Change Chicago, IL 60604; 312–886–4465. • IV. Statutory and Executive Order Reviews AGENCY: Environmental Protection Brenda Cook, Region 6 (AR, LA, A. Executive Order 12866: Regulatory Agency (EPA). NM, OK, TX), U.S. EPA, 1445 Ross Planning and Review ACTION: Final rule. Avenue, Suite 1200, Mailcode 6SFTS, 1. What is Executive Order 12866? Dallas, TX 75202–2733; 214–665–7436. 2. Is this final rule subject to Executive SUMMARY: The Comprehensive • Michelle Quick, Region 7 (IA, KS, Order 12866 review? Environmental Response, MO, NE), U.S. EPA, 11201 Renner Blvd., B. Paperwork Reduction Act Compensation, and Liability Act of 1980 Mailcode SUPRERNB, Lenexa, KS 1. What is the Paperwork Reduction Act? (‘‘CERCLA’’ or ‘‘the Act’’), as amended, 66219; 913–551–7335. 2. Does the Paperwork Reduction Act requires that the National Oil and • Sabrina Forrest, Region 8 (CO, MT, apply to this final rule? C. Regulatory Flexibility Act Hazardous Substances Pollution ND, SD, UT, WY), U.S. EPA, 1595 1. What is the Regulatory Flexibility Act? Contingency Plan (‘‘NCP’’) include a list Wynkoop Street, Mailcode 8EPR–B, 2. How has the EPA complied with the of national priorities among the known Denver, CO 80202–1129; 303–312–6484. Regulatory Flexibility Act? releases or threatened releases of • Sharon Murray, Region 9 (AZ, CA, D. Unfunded Mandates Reform Act hazardous substances, pollutants or HI, NV, AS, GU, MP), U.S. EPA, 75 1. What is the Unfunded Mandates Reform contaminants throughout the United Hawthorne Street, Mailcode SFD 6–1, Act (UMRA)? States. The National Priorities List San Francisco, CA 94105; 415–947– 2. Does UMRA apply to this final rule? (‘‘NPL’’) constitutes this list. The NPL is 4250. E. Executive Order 13132: Federalism intended primarily to guide the • Ken Marcy, Region 10 (AK, ID, OR, 1. What is Executive Order 13132? WA), U.S. EPA, 1200 6th Avenue, 2. Does Executive Order 13132 apply to Environmental Protection Agency (‘‘the this final rule? EPA’’ or ‘‘the agency’’) in determining Mailcode ECL–112, Seattle, WA 98101; F. Executive Order 13175: Consultation which sites warrant further 206–463–1349. and Coordination With Indian Tribal investigation. These further FOR FURTHER INFORMATION CONTACT: Governments investigations will allow the EPA to Terry Jeng, phone: (703) 603–8852, 1. What is Executive Order 13175?

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2. Does Executive Order 13175 apply to public health or welfare. The EPA has D. How are sites listed on the NPL? this final rule? revised the NCP on several occasions. There are three mechanisms for G. Executive Order 13045: Protection of The most recent comprehensive revision Children From Environmental Health placing sites on the NPL for possible and Safety Risks was on March 8, 1990 (55 FR 8666). remedial action (see 40 CFR 300.425(c) 1. What is Executive Order 13045? As required under section of the NCP): (1) A site may be included 2. Does Executive Order 13045 apply to 105(a)(8)(A) of CERCLA, the NCP also on the NPL if it scores sufficiently high this final rule? includes ‘‘criteria for determining on the HRS, which the EPA H. Executive Order 13211: Actions That priorities among releases or threatened promulgated as appendix A of the NCP Significantly Affect Energy Supply, releases throughout the United States (40 CFR Part 300). The HRS serves as a Distribution, or Usage for the purpose of taking remedial 1. What is Executive Order 13211? screening tool to evaluate the relative 2. Does Executive Order 13211 apply to action and, to the extent practicable, potential of uncontrolled hazardous this final rule? taking into account the potential substances, pollutants or contaminants I. National Technology Transfer and urgency of such action, for the purpose to pose a threat to human health or the Advancement Act of taking removal action.’’ ‘‘Removal’’ environment. On December 14, 1990 (55 1. What is the National Technology actions are defined broadly and include FR 51532), the EPA promulgated Transfer and Advancement Act? a wide range of actions taken to study, revisions to the HRS partly in response 2. Does the National Technology Transfer clean up, prevent or otherwise address and Advancement Act apply to this final to CERCLA section 105(c), added by rule? releases and threatened releases of SARA. The revised HRS evaluates four J. Executive Order 12898: Federal Actions hazardous substances, pollutants or pathways: Ground water, surface water, To Address Environmental Justice in contaminants (42 U.S.C. 9601(23)). soil exposure and air. As a matter of Minority Populations and Low-Income C. What is the National Priorities List agency policy, those sites that score Populations 28.50 or greater on the HRS are eligible 1. What is Executive Order 12898? (NPL)? 2. Does Executive Order 12898 apply to for the NPL. (2) Pursuant to 42 U.S.C. The NPL is a list of national priorities 9605(a)(8)(B), each state may designate this final rule? among the known or threatened releases K. Congressional Review Act a single site as its top priority to be 1. Has the EPA submitted this rule to of hazardous substances, pollutants or listed on the NPL, without any HRS congress and the Government contaminants throughout the United score. This provision of CERCLA Accountability Office? States. The list, which is appendix B of requires that, to the extent practicable, 2. Could the effective date of this final rule the NCP (40 CFR Part 300), was required the NPL include one facility designated change? under section 105(a)(8)(B) of CERCLA, by each state as the greatest danger to 3. What could cause a change in the as amended. Section 105(a)(8)(B) effective date of this rule? public health, welfare or the defines the NPL as a list of ‘‘releases’’ environment among known facilities in and the highest priority ‘‘facilities’’ and I. Background the state. This mechanism for listing is requires that the NPL be revised at least set out in the NCP at 40 CFR A. What are CERCLA and SARA? annually. The NPL is intended 300.425(c)(2). (3) The third mechanism In 1980, Congress enacted the primarily to guide the EPA in for listing, included in the NCP at 40 Comprehensive Environmental determining which sites warrant further CFR 300.425(c)(3), allows certain sites Response, Compensation, and Liability investigation to assess the nature and to be listed without any HRS score, if all Act, 42 U.S.C. 9601–9675 (‘‘CERCLA’’ or extent of public health and of the following conditions are met: ‘‘the Act’’), in response to the dangers of environmental risks associated with a • The Agency for Toxic Substances uncontrolled releases or threatened release of hazardous substances, and Disease Registry (ATSDR) of the releases of hazardous substances, and pollutants or contaminants. The NPL is U.S. Public Health Service has issued a releases or substantial threats of releases of only limited significance, however, as health advisory that recommends into the environment of any pollutant or it does not assign liability to any party dissociation of individuals from the contaminant that may present an or to the owner of any specific property. release. imminent or substantial danger to the Also, placing a site on the NPL does not • The EPA determines that the release public health or welfare. CERCLA was mean that any remedial or removal poses a significant threat to public amended on October 17, 1986, by the action necessarily need be taken. health. Superfund Amendments and For purposes of listing, the NPL • The EPA anticipates that it will be Reauthorization Act (‘‘SARA’’), Public includes two sections, one of sites that more cost-effective to use its remedial Law 99–499, 100 Stat. 1613 et seq. are generally evaluated and cleaned up authority than to use its removal by the EPA (the ‘‘General Superfund authority to respond to the release. B. What is the NCP? Section’’) and one of sites that are The EPA promulgated an original NPL To implement CERCLA, the EPA owned or operated by other federal of 406 sites on September 8, 1983 (48 FR promulgated the revised National Oil agencies (the ‘‘Federal Facilities 40658) and generally has updated it at and Hazardous Substances Pollution Section’’). With respect to sites in the least annually. Contingency Plan (‘‘NCP’’), 40 CFR Part Federal Facilities Section, these sites are 300, on July 16, 1982 (47 FR 31180), generally being addressed by other E. What happens to sites on the NPL? pursuant to CERCLA section 105 and federal agencies. Under Executive Order A site may undergo remedial action Executive Order 12316 (46 FR 42237, 12580 (52 FR 2923, January 29, 1987) financed by the Trust Fund established August 20, 1981). The NCP sets and CERCLA section 120, each federal under CERCLA (commonly referred to guidelines and procedures for agency is responsible for carrying out as the ‘‘Superfund’’) only after it is responding to releases and threatened most response actions at facilities under placed on the NPL, as provided in the releases of hazardous substances, or its own jurisdiction, custody or control, NCP at 40 CFR 300.425(b)(1). releases or substantial threats of releases although the EPA is responsible for (‘‘Remedial actions’’ are those into the environment of any pollutant or preparing a Hazard Ranking System ‘‘consistent with a permanent remedy, contaminant that may present an (‘‘HRS’’) score and determining whether taken instead of or in addition to imminent or substantial danger to the the facility is placed on the NPL. removal actions. . . .’’ 42 U.S.C.

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9601(24).) However, under 40 CFR addition, the site name is merely used (iii) The remedial investigation has 300.425(b)(2), placing a site on the NPL to help identify the geographic location shown the release poses no significant ‘‘does not imply that monies will be of the contamination, and is not meant threat to public health or the expended.’’ The EPA may pursue other to constitute any determination of environment, and taking of remedial appropriate authorities to respond to the liability at a site. For example, the name measures is not appropriate. releases, including enforcement action ‘‘Jones Co. plant site,’’ does not imply H. May the EPA delete portions of sites under CERCLA and other laws. that the Jones company is responsible from the NPL as they are cleaned up? F. Does the NPL define the boundaries for the contamination located on the of sites? plant site. In November 1995, the EPA initiated EPA regulations provide that the a policy to delete portions of NPL sites The NPL does not describe releases in Remedial Investigation (‘‘RI’’) ‘‘is a where cleanup is complete (60 FR precise geographical terms; it would be process undertaken . . . to determine 55465, November 1, 1995). Total site neither feasible nor consistent with the the nature and extent of the problem cleanup may take many years, while limited purpose of the NPL (to identify presented by the release’’ as more portions of the site may have been releases that are priorities for further information is developed on site cleaned up and made available for evaluation), for it to do so. Indeed, the contamination, and which is generally productive use. precise nature and extent of the site are performed in an interactive fashion with I. What is the Construction Completion typically not known at the time of the Feasibility Study (‘‘FS’’) (40 CFR List (CCL)? listing. 300.5). During the RI/FS process, the Although a CERCLA ‘‘facility’’ is release may be found to be larger or The EPA also has developed an NPL broadly defined to include any area smaller than was originally thought, as construction completion list (‘‘CCL’’) to where a hazardous substance has ‘‘come more is learned about the source(s) and simplify its system of categorizing sites to be located’’ (CERCLA section 101(9)), the migration of the contamination. and to better communicate the the listing process itself is not intended However, the HRS inquiry focuses on an successful completion of cleanup to define or reflect the boundaries of evaluation of the threat posed and activities (58 FR 12142, March 2, 1993). such facilities or releases. Of course, therefore the boundaries of the release HRS data (if the HRS is used to list a Inclusion of a site on the CCL has no site) upon which the NPL placement need not be exactly defined. Moreover, legal significance. was based will, to some extent, describe it generally is impossible to discover the Sites qualify for the CCL when: (1) the release(s) at issue. That is, the NPL full extent of where the contamination Any necessary physical construction is site would include all releases evaluated ‘‘has come to be located’’ before all complete, whether or not final cleanup as part of that HRS analysis. necessary studies and remedial work are levels or other requirements have been When a site is listed, the approach completed at a site. Indeed, the known achieved; (2) the EPA has determined generally used to describe the relevant boundaries of the contamination can be that the response action should be release(s) is to delineate a geographical expected to change over time. Thus, in limited to measures that do not involve area (usually the area within an most cases, it may be impossible to construction (e.g., institutional installation or plant boundaries) and describe the boundaries of a release controls); or (3) the site qualifies for identify the site by reference to that with absolute certainty. deletion from the NPL. For the most up- area. However, the NPL site is not Further, as noted above, NPL listing to-date information on the CCL, see the necessarily coextensive with the does not assign liability to any party or EPA’s Internet site at http:// boundaries of the installation or plant, to the owner of any specific property. www.epa.gov/superfund/cleanup/ and the boundaries of the installation or Thus, if a party does not believe it is ccl.htm plant are not necessarily the liable for releases on discrete parcels of property, it can submit supporting J. What is the sitewide ready for ‘‘boundaries’’ of the site. Rather, the site anticipated use measure? consists of all contaminated areas information to the agency at any time within the area used to identify the site, after it receives notice it is a potentially The Sitewide Ready for Anticipated as well as any other location where that responsible party. Use measure represents important contamination has come to be located, For these reasons, the NPL need not Superfund accomplishments and the or from where that contamination came. be amended as further research reveals measure reflects the high priority the In other words, while geographic more information about the location of EPA places on considering anticipated terms are often used to designate the site the contamination or release. future land use as part of the remedy selection process. See Guidance for (e.g., the ‘‘Jones Co. plant site’’) in terms G. How are sites removed from the NPL? of the property owned by a particular Implementing the Sitewide Ready-for- party, the site, properly understood, is The EPA may delete sites from the Reuse Measure, May 24, 2006, OSWER not limited to that property (e.g., it may NPL where no further response is 9365.0–36. This measure applies to final extend beyond the property due to appropriate under Superfund, as and deleted sites where construction is contaminant migration), and conversely explained in the NCP at 40 CFR complete, all cleanup goals have been may not occupy the full extent of the 300.425(e). This section also provides achieved, and all institutional or other property (e.g., where there are that the EPA shall consult with states on controls are in place. The EPA has been uncontaminated parts of the identified proposed deletions and shall consider successful on many occasions in property, they may not be, strictly whether any of the following criteria carrying out remedial actions that speaking, part of the ‘‘site’’). The ‘‘site’’ have been met: ensure protectiveness of human health is thus neither equal to, nor confined by, (i) Responsible parties or other and the environment for current and the boundaries of any specific property persons have implemented all future land uses, in a manner that that may give the site its name, and the appropriate response actions required; allows contaminated properties to be name itself should not be read to imply (ii) All appropriate Superfund- restored to environmental and economic that this site is coextensive with the financed response has been vitality. For further information, please entire area within the property implemented and no further response go to http://www.epa.gov/superfund/ boundary of the installation or plant. In action is required; or programs/recycle/pdf/sitewide_a.pdf

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K. What is state/tribal correspondence the concerns at the site and the EPA’s II. Availability of Information to the concerning NPL listing? rationale for proceeding; (2) requests an Public explanation of how the state intends to In order to maintain close A. May I review the documents relevant address the site if placement on the NPL to this final rule? coordination with states and tribes in is not favored; and (3) emphasizes the the NPL listing decision process, the transparent nature of the process by Yes, documents relating to the EPA’s policy is to determine the informing states that information on evaluation and scoring of the sites in position of the states and tribes this final rule are contained in dockets their responses will be publicly regarding sites that the EPA is located both at the EPA Headquarters available. considering for listing. This and in the Regional offices. consultation process is outlined in two A model letter and correspondence An electronic version of the public memoranda that can be found at the from this point forward between the docket is available through following Web site: http://www.epa.gov/ EPA and states and tribes where www.regulations.gov (see table below superfund/sites/npl/hrsres/policy/ applicable, is available on the EPA’s for Docket Identification numbers). govlet.pdf The EPA is improving the Web site at http://www.epa.gov/ Although not all Docket materials may transparency of the process by which superfund/sites/query/queryhtm/ be available electronically, you may still state and tribal input is solicited. The nplstcor.htm access any of the publicly available EPA will be using the Web and where Docket materials through the Docket appropriate more structured state and facilities identified below in section tribal correspondence that (1) explains II D.

DOCKET IDENTIFICATION NUMBERS BY SITE

Site name City/county, state Docket ID No.

Rockets, Fireworks, and Flares (RFF) (formerly Rialto, CA ...... EPA–HQ–SFUND–2008–0574. known as B.F. Goodrich). Beck’s Lake ...... South Bend, IN ...... EPA–HQ–SFUND–2013–0196. Garden City Ground Water Plume ...... Garden City, IN ...... EPA–HQ–SFUND–2013–0197. Keystone Corridor Ground Water Contamination ... Indianapolis, IN ...... EPA–HQ–SFUND–2013–0198. Cristex Drum ...... Oxford, NC ...... EPA–HQ–SFUND–2013–0201. Hemphill Road TCE ...... Gastonia, NC ...... EPA–HQ–SFUND–2013–0202. Collins & Aikman Plant (Former) ...... Farmington, NH ...... EPA–HQ–SFUND–2013–0203. Jackpile-Paguate Uranium Mine ...... Laguna Pueblo, NM ...... EPA–HQ–SFUND–2012–0069. Wilcox Oil Company ...... Creek County, OK ...... EPA–HQ–SFUND–2013–0204. Makah Reservation Warmhouse Beach Dump ...... Neah Bay, WA ...... EPA–HQ–SFUND–2013–0207.

B. What documents are available for containing the data principally relied E. How may I obtain a current list of review at the headquarters docket? upon by the EPA in calculating or NPL sites? The Headquarters Docket for this rule evaluating the HRS score for the sites You may obtain a current list of NPL contains, for each site, the HRS score located in their Region. These reference sites via the Internet at http:// sheets, the Documentation Record documents are available only in the describing the information used to Regional Dockets. For sites that received www.epa.gov/superfund/sites/npl/ compute the score, pertinent comments during the comment period, index.htm or by contacting the information regarding statutory the Regional Docket also contains a Superfund Docket (see contact requirements or the EPA listing policies Support Document that includes the information in the beginning portion of that affect the site and a list of EPA’s responses to comments. this notice). documents referenced in the D. How do I access the documents? III. Contents of This Final Rule Documentation Record. For sites that received comments during the comment You may view the documents, by A. Additions to the NPL period, the Headquarters Docket also appointment only, after the publication contains a Support Document that of this rule. The hours of operation for This final rule adds the following includes the EPA’s responses to the Headquarters Docket are from 8:30 nine sites to the General Superfund comments. a.m. to 4:30 p.m., Monday through Section of the NPL. All of the sites Friday, excluding federal holidays. included in this final rulemaking are C. What documents are available for Please contact the Regional Dockets for being added to the NPL based on HRS review at the regional dockets? hours. For addresses for the scores of 28.50 or above. The sites are The Regional Dockets contain all the Headquarters and Regional Dockets, see presented in the table below: information in the Headquarters Docket, ADDRESSES section in the beginning General Superfund section: plus the actual reference documents portion of this preamble.

State Site name City/county

IN ...... Beck’s Lake ...... South Bend. IN ...... Garden City Ground Water Plume ...... Garden City. IN ...... Keystone Corridor Ground Water Contamination ...... Indianapolis. NC ...... Cristex Drum ...... Oxford. NC ...... Hemphill Road TCE ...... Gastonia. NH ...... Collins & Aikman Plant (Former) ...... Farmington.

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State Site name City/county

NM ...... Jackpile-Paguate Uranium Mine ...... Laguna Pueblo. OK ...... Wilcox Oil Company ...... Creek County. WA ...... Makah Reservation Warmhouse Beach Dump ...... Neah Bay.

B. What did the EPA do with the public City Ground Water Plume has no tribal must determine whether a regulatory comments it received? involvement. If the comment was action is ‘‘significant’’ and therefore The EPA reviewed all comments directed to the Makah Reservation subject to Office of Management and received on the sites in this rule and Warmhouse Beach Dump, as opposed to Budget (OMB) review and the responded to all relevant comments. some other regulatory docket, EPA’s requirements of the Executive Order. This rule adds nine sites to the NPL, all response is that this issue is unrelated The Order defines ‘‘significant to the General Superfund Section. to listing and thus has no bearing on regulatory action’’ as one that is likely Comments on two of the sites, Beck’s EPA’s decision to list the site. to result in a rule that may: (1) Have an Lake (South Bend, IN) and Jackpile- C. Site Name Change annual effect on the economy of $100 Paguate Uranium Mine (Laguna Pueblo, The EPA is changing the name of the million or more or adversely affect in a NM) are being addressed in response to B.F. Goodrich site in Rialto, California material way the economy, a sector of comment support documents available to Rockets, Fireworks, and Flares (RFF). the economy, productivity, competition, in the public docket concurrently with This site was added to the NPL on jobs, the environment, public health or this rule. Two generic comments, September 23, 2009 (74 FR 48412). This safety, or state, local or tribal applicable to the Jackpile-Paguate name change was proposed on May 24, governments or communities; (2) create Uranium Mine and all other sites 2013 (78 FR 31464) (docket number a serious inconsistency or otherwise proposed in March 2012, have been EPA–HQ–SFUND–2008–0574). In interfere with an action taken or previously addressed in the September response to a request by a Settling Work planned by another agency; (3) 2012 NPL final rule preamble (77 FR Party to change the site name, EPA had materially alter the budgetary impact of 57495, September 18, 2012). proposed changing the name to Locust entitlements, grants, user fees, or loan None of the other seven sites being Ave. The City of Rialto submitted programs or the rights and obligations of added to the NPL in this rule, which comments in opposition to the new recipients thereof; or (4) raise novel were proposed May 24, 2013 (78 FR proposed name. The comments stated 31464), received comments relating to legal or policy issues arising out of legal that the proposed name would mandates, the President’s priorities or the HRS score. Five sites received no stigmatize the local community and comments and are, therefore, being the principles set forth in the Executive confuse the general public about the Order. added to the NPL. They are Collins & nature of the contamination. The Aikman Plant (Former) (Farmington, comments included a unanimous 2. Is this final rule subject to Executive NH), Cristex Drum (Oxford, NC), resolution passed by the City Council Order 12866 review? Hemphill Road TCE (Gastonia, NC), and signed by the Mayor reflecting the Keystone Corridor Ground Water community’s unequivocal disapproval No. The listing of sites on the NPL Contamination (Indianapolis, IN) and of the new proposed site name. does not impose any obligations on any Wilcox Oil Company (Creek County, In response, the new site name has entities. The listing does not set OK). Although one comment was been revised to Rockets, Fireworks, and standards or a regulatory regime and submitted to the Hemphill Road TCE Flares (RFF). Since the primary purpose imposes no liability or costs. Any docket, it was directed at the Smurfit- of an NPL listing is to inform the public liability under CERCLA exists Stone Mill site, and will be addressed at that the EPA has determined that the irrespective of whether a site is listed. the time a final decision is made on that site warrants further investigation, the It has been determined that this action site. EPA attempts to select the name that is not a ‘‘significant regulatory action’’ The Makah Reservation Warmhouse clearly informs the public but, when under the terms of Executive Order Beach Dump (Neah Bay, WA) received possible, does not offend local 12866 and is therefore not subject to one comment which supported placing sensitivities. With the limited purpose OMB review. the site on the NPL. In response, the of the NPL, as stated in RSR Corp. v. Makah Reservation Warmhouse Beach EPA, 102 F.3d 1266 (D.C. Cir. 1997), B. Paperwork Reduction Act Dump has been added to the NPL. when naming a site, EPA may choose a 1. What is the Paperwork Reduction Listing makes a site eligible for remedial name that reflects ‘‘the location or action funding under CERCLA. The site nature of the problems at a site and that Act? will be further investigated during the are readily and easily associated with According to the Paperwork remedial investigation/feasibility study the site by the general public.’’ The new Reduction Act (PRA), 44 U.S.C. 3501 et (RI/FS) phase of the Superfund process name informs the public of activities to determine what response, if any, is seq., an agency may not conduct or that are believed to have contributed to sponsor, and a person is not required to appropriate to ensure protection of contamination at the site. public health and the environment. respond to, a collection of information The Garden City Ground Water Plume IV. Statutory and Executive Order that requires OMB approval under the (Garden City, IN) received one Reviews PRA, unless it has been approved by comment. The comment stated that A. Executive Order 12866: Regulatory OMB and displays a currently valid tribal governments should be required Planning and Review OMB control number. The OMB control to allow access to all records to any numbers for the EPA’s regulations, after American taxpayer who requested it. 1. What is Executive Order 12866? initial display in the preamble of the The comment must have been directed Under Executive Order 12866 (58 FR final rules, are listed in 40 CFR Part 9. to the wrong docket, since the Garden 51735 (October 4, 1993)), the agency

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2. Does the Paperwork Reduction Act 2. How has the EPA complied with the the development of the EPA regulatory apply to this final rule? Regulatory Flexibility Act? proposals with significant federal intergovernmental mandates and This action does not impose an This rule listing sites on the NPL does not impose any obligations on any informing, educating and advising small information collection burden under the group, including small entities. This governments on compliance with the provisions of the Paperwork Reduction rule also does not establish standards or regulatory requirements. Act, 44 U.S.C. 3501 et seq. the EPA has requirements that any small entity must 2. Does UMRA apply to this final rule? determined that the PRA does not apply meet, and imposes no direct costs on because this rule does not contain any any small entity. Whether an entity, This final rule does not contain a information collection requirements that small or otherwise, is liable for response federal mandate that may result in require approval of the OMB. costs for a release of hazardous expenditures of $100 million or more Burden means the total time, effort or substances depends on whether that for state, local and tribal governments, financial resources expended by persons entity is liable under CERCLA 107(a). in the aggregate, or the private sector in to generate, maintain, retain or disclose Any such liability exists regardless of any one year. Listing a site on the NPL or provide information to or for a federal whether the site is listed on the NPL does not itself impose any costs. Listing agency. This includes the time needed through this rulemaking. Thus, this rule does not mean that the EPA necessarily to review instructions; develop, acquire, does not impose any requirements on will undertake remedial action. Nor does listing require any action by a install and utilize technology and any small entities. For the foregoing reasons, I certify that this rule will not private party or determine liability for systems for the purposes of collecting, have a significant economic impact on response costs. Costs that arise out of validating and verifying information, a substantial number of small entities. site responses result from site-specific processing and maintaining information decisions regarding what actions to take, D. Unfunded Mandates Reform Act and disclosing and providing not directly from the act of placing a site information; adjust the existing ways to 1. What is the Unfunded Mandates on the NPL. Thus, this rule is not comply with any previously applicable Reform Act (UMRA)? subject to the requirements of section instructions and requirements; train Title II of the Unfunded Mandates 202 and 205 of UMRA. personnel to be able to respond to a Reform Act of 1995 (UMRA), Public This rule is also not subject to the collection of information; search data Law 104–4, establishes requirements for requirements of section 203 of UMRA sources; complete and review the federal agencies to assess the effects of because it contains no regulatory collection of information; and transmit their regulatory actions on state, local requirements that might significantly or or otherwise disclose the information. and tribal governments and the private uniquely affect small governments. As is An agency may not conduct or sector. Under section 202 of the UMRA, mentioned above, site listing does not sponsor, and a person is not required to the EPA generally must prepare a impose any costs and would not require respond to a collection of information written statement, including a cost- any action of a small government. benefit analysis, for proposed and final unless it displays a currently valid OMB E. Executive Order 13132: Federalism control number. The OMB control rules with ‘‘federal mandates’’ that may numbers for the EPA’s regulations in 40 result in expenditures by state, local and 1. What is Executive Order 13132? CFR are listed in 40 CFR Part 9. tribal governments, in the aggregate, or by the private sector, of $100 million or Executive Order 13132, entitled C. Regulatory Flexibility Act more in any one year. Before the EPA ‘‘Federalism’’ (64 FR 43255, August 10, promulgates a rule where a written 1999), requires the EPA to develop an 1. What is the Regulatory Flexibility statement is needed, section 205 of the accountable process to ensure Act? UMRA generally requires the EPA to ‘‘meaningful and timely input by state and local officials in the development of Pursuant to the Regulatory Flexibility identify and consider a reasonable regulatory policies that have federalism Act (5 U.S.C. 601 et seq., as amended by number of regulatory alternatives and implications.’’ ‘‘Policies that have the Small Business Regulatory adopt the least costly, most cost- effective, or least burdensome federalism implications’’ are defined in Enforcement Fairness Act (SBREFA) of the Executive Order to include 1996) whenever an agency is required to alternative that achieves the objectives of the rule. The provisions of section regulations that have ‘‘substantial direct publish a notice of rulemaking for any 205 do not apply when they are effects on the states, on the relationship proposed or final rule, it must prepare inconsistent with applicable law. between the national government and and make available for public comment Moreover, section 205 allows the EPA to the states, or on the distribution of a regulatory flexibility analysis that adopt an alternative other than the least power and responsibilities among the describes the effect of the rule on small costly, most cost-effective, or least various levels of government.’’ entities (i.e., small businesses, small burdensome alternative if the organizations and small governmental 2. Does Executive Order 13132 apply to Administrator publishes with the final this final rule? jurisdictions). However, no regulatory rule an explanation why that alternative flexibility analysis is required if the was not adopted. Before the EPA This final rule does not have head of an agency certifies the rule will establishes any regulatory requirements federalism implications. It will not have not have a significant economic impact that may significantly or uniquely affect substantial direct effects on the states, on a substantial number of small small governments, including tribal on the relationship between the national entities. SBREFA amended the governments, it must have developed government and the states, or on the Regulatory Flexibility Act to require under section 203 of the UMRA a small distribution of power and federal agencies to provide a statement government agency plan. The plan must responsibilities among the various of the factual basis for certifying that a provide for notifying potentially levels of government, as specified in rule will not have a significant affected small governments, enabling Executive Order 13132, because it does economic impact on a substantial officials of affected small governments not contain any requirements applicable number of small entities. to have meaningful and timely input in to states or other levels of government.

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Thus, the requirements of the Executive environmental health or safety risk that 113, section 12(d) (15 U.S.C. 272 note), Order do not apply to this final rule. the EPA has reason to believe may have directs the EPA to use voluntary The EPA believes, however, that this a disproportionate effect on children. If consensus standards in its regulatory final rule may be of significant interest the regulatory action meets both criteria, activities unless to do so would be to state governments. In the spirit of the agency must evaluate the inconsistent with applicable law or Executive Order 13132, and consistent environmental health or safety effects of otherwise impractical. Voluntary with the EPA policy to promote the planned rule on children, and consensus standards are technical communications between the EPA and explain why the planned regulation is standards (e.g., materials specifications, state and local governments, the EPA preferable to other potentially effective test methods, sampling procedures and therefore consulted with state officials and reasonably feasible alternatives business practices) that are developed or and/or representatives of state considered by the agency. adopted by voluntary consensus governments early in the process of standards bodies. The NTTAA directs 2. Does Executive Order 13045 apply to developing the rule to permit them to the EPA to provide Congress, through this final rule? have meaningful and timely input into OMB, explanations when the agency its development. All sites included in This rule is not subject to Executive decides not to use available and this final rule were referred to the EPA Order 13045 because it is not an applicable voluntary consensus by states for listing. For all sites in this economically significant rule as defined standards. rule, the EPA received letters of support by Executive Order 12866, and because either from the governor or a state the agency does not have reason to 2. Does the National Technology official who was delegated the authority believe the environmental health or Transfer and Advancement Act apply to by the governor to speak on their behalf safety risks addressed by this section this final rule? regarding NPL listing decisions. present a disproportionate risk to No. This rulemaking does not involve children. technical standards. Therefore, the EPA F. Executive Order 13175: Consultation did not consider the use of any and Coordination With Indian Tribal H. Executive Order 13211: Actions That voluntary consensus standards. Governments Significantly Affect Energy Supply, Distribution, or Use J. Executive Order 12898: Federal 1. What is Executive Order 13175? Actions To Address Environmental 1. What is Executive Order 13211? Executive Order 13175, entitled Justice in Minority Populations and ‘‘Consultation and Coordination with Executive Order 13211, ‘‘Actions Low-Income Populations Indian Tribal Governments’’ (65 FR Concerning Regulations That 67249, November 6, 2000), requires the Significantly Affect Energy Supply, 1. What is Executive Order 12898? EPA to develop an accountable process Distribution or Use’’ (66 FR 28355, May Executive Order (EO) 12898 (59 FR to ensure ‘‘meaningful and timely input 22, 2001), requires federal agencies to 7629, Feb. 16, 1994) establishes federal by tribal officials in the development of prepare a ‘‘Statement of Energy Effects’’ executive policy on environmental regulatory policies that have tribal when undertaking certain regulatory justice. Its main provision directs implications.’’ ‘‘Policies that have tribal actions. A Statement of Energy Effects federal agencies, to the greatest extent implications’’ are defined in the describes the adverse effects of a practicable and permitted by law, to Executive Order to include regulations ‘‘significant energy action’’ on energy make environmental justice part of their that have ‘‘substantial direct effects on supply, distribution, and use, mission by identifying and addressing, one or more Indian tribes, on the reasonable alternatives to the action and as appropriate, disproportionately high relationship between the federal the expected effects of the alternatives and adverse human health or government and the Indian tribes, or on on energy supply, distribution, and use. environmental effects of their programs, the distribution of power and policies and activities on minority 2. Does Executive Order 13211 apply to responsibilities between the federal populations and low-income this final rule? government and Indian tribes.’’ populations in the United States. This action is not a ‘‘significant 2. Does Executive Order 13175 apply to energy action’’ as defined in Executive 2. Does Executive Order 12898 apply to this final rule? Order 13211, because it is not likely to this final rule? This final rule does not have tribal have a significant adverse effect on the The EPA has determined that this implications, as specified in Executive supply, distribution or use of energy. final rule will not have Order 13175 (65 FR 67249, November 9, Further, the agency has concluded that disproportionately high and adverse 2000). Listing a site on the NPL does not this final rule is not likely to have any human health or environmental effects impose any costs on a tribe or require adverse energy impacts because adding on minority or low-income populations a tribe to take remedial action. Thus, a site to the NPL does not require an because it does not affect the level of Executive Order 13175 does not apply entity to conduct any action that would protection provided to human health or to this final rule. require energy use, let alone that which the environment. As this rule does not would significantly affect energy impose any enforceable duty upon state, G. Executive Order 13045: Protection of supply, distribution or usage. Thus, tribal or local governments, this rule Children From Environmental Health Executive Order 13211 does not apply will neither increase nor decrease and Safety Risks to this action. environmental protection. 1. What is Executive Order 13045? I. National Technology Transfer and K. Congressional Review Act Executive Order 13045: ‘‘Protection of Advancement Act Children from Environmental Health 1. Has the EPA submitted this rule to Risks and Safety Risks’’ (62 FR 19885, 1. What is the National Technology Congress and the Government April 23, 1997) applies to any rule that: Transfer and Advancement Act? Accountability Office? (1) Is determined to be ‘‘economically Section 12(d) of the National The Congressional Review Act, 5 significant’’ as defined under Executive Technology Transfer and Advancement U.S.C. 801 et seq., as added by the Small Order 12866, and (2) concerns an Act of 1995 (NTTAA), Public Law 104– Business Regulatory Enforcement

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Fairness Act of 1996, generally provides decisions about what actions to take, not requirements, Superfund, Water that before a rule may take effect, the directly from the act of listing itself. pollution control, Water supply. agency promulgating the rule must Section 801(a)(3) provides for a delay in Dated: November 27, 2013. the effective date of major rules after submit a rule report, which includes a Mathy Stanislaus, copy of the rule, to each House of the this report is submitted. Assistant Administrator, Office of Solid Waste Congress and to the Comptroller General 3. What could cause a change in the and Emergency Response. of the United States. The EPA has effective date of this rule? submitted a report containing this rule 40 CFR Part 300 is amended as and other required information to the Under 5 U.S.C. 801(b)(1), a rule shall follows: not take effect, or continue in effect, if U.S. Senate, the U.S. House of PART 300—NATIONAL OIL AND Representatives and the Comptroller Congress enacts (and the President signs) a joint resolution of disapproval, HAZARDOUS SUBSTANCES General of the United States prior to POLLUTION CONTINGENCY PLAN publication of the rule in the Federal described under section 802. Another statutory provision that may Register. A ‘‘major rule’’ cannot take ■ affect this rule is CERCLA section 305, 1. The authority citation for Part 300 effect until 60 days after it is published continues to read as follows: in the Federal Register. This rule is not which provides for a legislative veto of a ‘‘major rule’’ as defined by 5 U.S.C. regulations promulgated under Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. 9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, 804(2). CERCLA. Although INS v. Chadha, 462 U.S. 919,103 S. Ct. 2764 (1983), and Bd. 1991 Comp., p. 351; E.O. 12580, 52 FR 2923, 2. Could the effective date of this final of Regents of the University of 3 CFR, 1987 Comp., p. 193. rule change? Washington v. EPA, 86 F.3d 1214,1222 ■ 2. Table 1 of Appendix B to part 300 (D.C. Cir. 1996), cast the validity of the is amended by: Provisions of the Congressional legislative veto into question, the EPA ■ a. Revising the site name entry located Review Act (CRA) or section 305 of has transmitted a copy of this regulation in Rialto, California that currently CERCLA may alter the effective date of to the Secretary of the Senate and the reads’’ B.F. Goodrich’’ to read ‘‘Rockets, this regulation. Clerk of the House of Representatives. Fireworks, and Flares (RFF).’’; and The EPA has submitted a report under If action by Congress under either the ■ b. Adding entries for ‘‘Beck’s Lake, the CRA for this rule. The rule will take CRA or CERCLA section 305 calls the Garden City Ground Water Plume, effect, as provided by law, within 30 effective date of this regulation into Keystone Corridor Ground Water days of publication of this document, question, the EPA will publish a Contamination, Cristex Drum, Hemphill since it is not a major rule. NPL listing document of clarification in the Federal Road TCE, Collins & Aikman Plant is not a major rule because, by itself, Register. (Former), Jackpile-Paguate Uranium imposes no monetary costs on any List of Subjects in 40 CFR Part 300 Mine, Wilcox Oil Company, and Makah person. It establishes no enforceable Reservation Warmhouse Beach Dump’’ duties, does not establish that the EPA Environmental protection, Air in alphabetical order by state; necessarily will undertake remedial pollution control, Chemicals, Hazardous The revisions and additions read as action, nor does it require any action by substances, Hazardous waste, follows: any party or determine liability for site Intergovernmental relations, Natural response costs. Costs that arise out of resources, Oil pollution, Penalties, Appendix B to Part 300—National site responses result from site-by-site Reporting and recordkeeping Priorities List

TABLE 1—GENERAL SUPERFUND SECTION

State Site name City/county Notes (a)

******* CA ...... Rockets, Fireworks, and Flares (RFF) ...... Rialto

******* IN ...... Beck’s Lake ...... South Bend

******* IN ...... Garden City Ground Water Plume ...... Garden City

******* IN ...... Keystone Corridor Ground Water Contamination ...... Indianapolis

******* NC ...... Cristex Drum ...... Oxford

******* NC ...... Hemphill Road TCE ...... Gastonia

******* NH ...... Collins & Aikman Plant (Former) ...... Farmington

******* NM ...... Jackpile-Paguate Uranium Mine ...... Laguna Pueblo

******* OK ...... Wilcox Oil Company ...... Creek County

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TABLE 1—GENERAL SUPERFUND SECTION—Continued

State Site name City/county Notes (a)

******* WA ...... Makah Reservation Warmhouse Beach Dump ...... Neah Bay

******* (a) = Based on issuance of health advisory by Agency for Toxic Substances and Disease Registry (if scored, HRS score need not be greater than or equal to 28.50). S = State top priority (included among the 100 top priority sites regardless of score). P = Sites with partial deletion(s).

* * * * * fixed by zones. The GSA OGP is issuing equity). E.O. 13563 emphasizes the [FR Doc. 2013–29350 Filed 12–11–13; 8:45 am] a new commuted rate chart to meet the importance of quantifying both costs BILLING CODE 6560–50–P requirements of this law. and benefits, of reducing costs, of The U.S. Department of harmonizing rules, and of promoting Transportation’s Surface Transportation flexibility. This is not a significant GENERAL SERVICES Board (STB) ruled that the American regulatory action and, therefore, was not ADMINISTRATION Moving and Storage Association subject to review under Section 6(b) of (AMSA) could no longer provide a E.O. 12866, Regulatory Planning and 41 CFR Part 302–7 standard tariff for HouseHold Goods Review, dated September 30, 1993. This [FTR Amendment 2013–03; FTR Case (HHG) shipments. The effective date for rule is not a major rule under 5 U.S.C. 2013–301; Docket No. 2013–0011, this ruling was January 1, 2008. Prior to 804. Sequence No. 1] January 1, 2008, the AMSA 415–G tariff was treated by Federal agencies as the D. Regulatory Flexibility Act RIN 3090–AJ40 commuted rate; that is, when a Federal This final rule is not required to be published in the Federal Register for Federal Travel Regulation (FTR); employee moved his/her own notice and comment as per the Relocation Allowances; Commuted household goods or hired his/her own exemption specified in 5 U.S.C. Rate mover, the AMSA tariff was used by the agency as a benchmark, to help 553(a)(2); therefore, the Regulatory AGENCY: Office of Governmentwide determine whether the agency should Flexibility Act, 5 U.S.C. 601, et seq., Policy (OGP), U.S. General Services reimburse the full amount the employee does not apply. However, this final rule Administration (GSA). vouchered for. Agencies are still is being published to provide ACTION: Final rule. required to do this in accordance with transparency in the promulgation of the regulations at Federal Management Federal policies. SUMMARY: The GSA, OGP, is providing Regulation (FMR) section 102–117.225 E. Paperwork Reduction Act a workable commuted rate to be used by and Federal Travel Regulation (FTR) agencies in determining a benchmark section 302–7, subpart B. Both of these The Paperwork Reduction Act does for payment on the transportation of regulations were made obsolete by the not apply because the changes to the household goods and temporary storage STB ruling. Federal Travel Regulation do not under a ‘‘do it yourself’’ move cost Since both the FMR and FTR address impose recordkeeping or information scenario. This final rule will meet the the commuted rate, GSA is concurrently collection requirements, or the requirements set forth in the U.S. Code publishing an FMR Bulletin and an FTR collection of information from offerors, for Relocation Expenses. Bulletin on this issue. contractors, or members of the public that require the approval of the Office of DATES: Effective: This final rule is B. Changes to the Current FTR effective December 12, 2013. Management and Budget under 44 This final rule— U.S.C. 3501, et seq. FOR FURTHER INFORMATION CONTACT: • Revises section 302–7.101 to direct Contact the U.S. General Services the reader to the GSA Web site to F. Small Business Regulatory Administration, Regulatory Secretariat calculate commuted rate shipments. Enforcement Fairness Act Division (MVCB), 1800 F Street NW., • Revises section 302–7.102 to direct This final rule is also exempt from 2nd Floor Washington, DC 20405–0001, the reader to use the tariffs filed with congressional review prescribed under 5 202–501–4755, for information GSA travel management centers. U.S.C. 801 since it relates solely to pertaining to status or publication • Adds new section 302–7.110 to agency management and personnel. schedules. For clarification of content, direct the reader to the GSA Web site to contact Mr. Ed Davis, Office of calculate commuted rate shipments. List of Subjects in 41 CFR Part 302–7 Governmentwide Policy (MA), at 202– Government employees, 208–7639 or email at [email protected]. C. Executive Orders 12866 and 13563 Transportation and storage of property, Please cite FTR Amendment 2013–03, Executive Orders (E.O.s) 12866 and Travel and transportation expenses. FTR case 2013–301. 13563 direct agencies to assess all costs Dated: November 25, 2013. and benefits of available regulatory SUPPLEMENTARY INFORMATION: Dan Tangherlini, alternatives and, if regulation is A. Background necessary, to select regulatory Administrator of General Services. 5 U.S.C. 5724(c) requires that GSA approaches that maximize net benefits For the reasons set forth in the maintain a commuted rate incorporating (including potential economic, preamble, under 5 U.S.C. 5738, 5 U.S.C. all aspects of household goods shipping environmental, public health and safety 5724(c) and 20 U.S.C. 905(a), GSA is that is based on a per 100 pound rate effects, distributive impacts, and amending 41 CFR part 302–7 as follows:

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PART 302–7—TRANSPORTATION AND SUMMARY: GSA is amending the Federal amendments for the FMR and the FTR TEMPORARY STORAGE OF Management Regulation (FMR) to on this issue. update information on the commuted HOUSEHOLD GOODS, B. Changes to the Current FMR PROFESSIONAL BOOKS, PAPERS, rate schedule and correct a Web site AND EQUIPMENT, (PBP&E) AND address. Commuted rate and actual This final rule amends FMR section BAGGAGE ALLOWANCE expense are two authorized methods of 102–117.225 by: transporting and paying for the 1. Eliminating the reference to the ■ 1. The authority citation for 41 CFR movement of Household Goods (HHG), AMSA; and part 302–7 continues to read as follows: Professional Books, Paper and 2. Updating the Web site address for Equipment, and temporary storage. This the current GSA commuted rate Authority: 5 U.S.C. 5738; 20 U.S.C. 905(a); schedule. E.O. 11609, as amended, 3 CFR, 1971–1973 final rule addresses changes only to the Comp., p. 586. commuted rate method. Using the C. Executive Order 12866 and Executive ■ 2. Revise the part heading to read as commuted rate method, the individual Order 13563 set forth above. assumes responsibility for shipment and Executive Orders (E.O.s) 12866 and payment. The commuted rate schedule § 302–7.100 [Amended] 13563 direct agencies to assess all costs establishes the reimbursement rate. and benefits of available regulatory ■ 3. Amend § 302–7.100 in the fourth DATES: Effective Date: December 12, alternatives, and if regulation is sentence, by removing the words 2013. necessary, to select regulatory ‘‘Household Goods Carriers’ Mileage FOR FURTHER INFORMATION CONTACT: For approaches that maximize net benefits Guide (issued by the Household Goods clarification of content, contact Lee (including potential economic, Carriers’ Bureau, 1611 Duke Street, Gregory, Office of Governmentwide environmental, public health and safety Alexandria, VA 22314–3482)’’. effects, distributive impacts, and ■ Policy, at 202–501–1533 or by email at 4. Revise § 302–7.101 to read as [email protected]. Please cite FMR equity). E.O. 13563 emphasizes the follows: Case 2013–102–2. For information importance of quantifying both costs § 302–7.101 Where can the commuted rate pertaining to status or publication and benefits, of reducing costs, of schedules for the transportation of HHG schedules, contact the Regulatory harmonizing rules, and of promoting and temporary storage be found? Secretariat (MVCB), 1800 F Street NW., flexibility. This is not a significant The commuted rate table is published Washington, DC 20405, 202–501–4755. regulatory action, and therefore, will not at www.gsa.gov/relocationpolicy. SUPPLEMENTARY INFORMATION: be subject to review under Section 6(b) of E.O. 12866, Regulatory Planning and § 302–7.102 [Amended] A. Background Review, dated September 30, 1993. This ■ 5. Amend § 302–7.102 by removing A commuted rate in household goods final rule is not a major rule under 5 ‘‘the Household Goods Carriers’ shipping means the reimbursement rate U.S.C. 804. Standard Mileage Guide, or a standard the Federal employee receives for D. Regulatory Flexibility Act road atlas issued by The Household moving his/her own HHG or hiring his/ her own mover within the Continental These revisions are minor, and this Goods Carrier’s Bureau,’’ and adding final rule will not have a significant ‘‘you may use the tariffs filed with GSA United States excluding Alaska and Hawaii. economic impact on a substantial travel management centers’’ in its place. number of small entities within the ■ The U.S. Department of 6. Revise § 302–7.110 to read as meaning of the Regulatory Flexibility follows: Transportation’s Surface Transportation Board (STB), in decision STB Ex Parte Act, 5 U.S.C. 601, et seq. This final rule § 302–7.110 Is there a reimbursement 656, effective January 1, 2008, is also exempt from the Administrative limit? terminated approval of all outstanding Procedure Act per 5 U.S.C. 553(a)(2) Yes, reimbursement must not exceed motor carrier bureau agreements under because it applies to agency the limits in the commuted rate table 49 U.S.C. 13703(c) and the agreements management or personnel. published by GSA and found at with the National Classification E. Paperwork Reduction Act www.gsa.gov/relocationpolicy. Committee (NCC). Therefore, effective The Paperwork Reduction Act does [FR Doc. 2013–29209 Filed 12–11–13; 8:45 am] January 1, 2008, the American Moving not apply because the changes to the and Storage Association (AMSA) could BILLING CODE 6820–14–P Federal Management Regulation do not no longer provide a standard tariff for impose recordkeeping or information HHG shipments. Until the STB ruling, collection requirements, or the GENERAL SERVICES executive agencies used the AMSA collection of information from offerors, ADMINISTRATION standard tariff for HHG shipments for contractors, or members of the public commuted rate purposes. This standard that require the approval of the Office of 41 CFR Part 102–117 tariff was used by agencies as the Management and Budget under 44 benchmark to help determine whether [FMR Change 2013–02; FMR Case 2013– U.S.C. 3501, et seq. the agency should reimburse the full 102–2; Docket No. 2013–0013; Sequence F. Small Business Regulatory No. 1] amount of the employee’s voucher. Agencies currently use the commuted Enforcement Fairness Act RIN 3090–AJ38 rate based on the AMSA tariff in This final rule is also exempt from accordance with the regulations in the congressional review prescribed under 5 Federal Management Regulation Federal Management Regulation (FMR) (FMR); Shipping Household Goods U.S.C. 801 since it relates to agency part 102–117, subpart G (41 CFR 102– management or personnel. 117.220 through 102–117.245) and FTR AGENCY: Office of Governmentwide List of Subjects in 41 CFR Part 102–117 Policy (OGP), U.S. General Services part 302–7, subpart B (41 CFR part 302– Administration (GSA). 7, subpart B). Since both the FMR and Cargo, Commuted rate, Freight, FTR address the commuted rate, GSA is Household goods, Transportation, ACTION: Final rule. concurrently publishing bulletins and Travel.

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Dated: June 7, 2013. subsequent date. Also, information or acquisition of buildings in identified Dan Tangherlini, identifying the current participation SFHAs for communities not Acting Administrator of General Services. status of a community can be obtained participating in the NFIP and identified from FEMA’s Community Status Book for more than a year on FEMA’s initial For the reasons set forth in the (CSB). The CSB is available at http:// FIRM for the community as having preamble, GSA amends 41 CFR part www.fema.gov/fema/csb.shtm. flood-prone areas (section 202(a) of the 102–117 as set forth below: DATES: Effective Dates: The effective Flood Disaster Protection Act of 1973, PART 102–117—TRANSPORTATION date of each community’s scheduled 42 U.S.C. 4106(a), as amended). This MANAGEMENT suspension is the third date (‘‘Susp.’’) prohibition against certain types of listed in the third column of the Federal assistance becomes effective for ■ 1. The authority citation for part 102– following tables. the communities listed on the date 117 is revised to read as follows: FOR FURTHER INFORMATION CONTACT: If shown in the last column. The Authority: 31 U.S.C. 3726; 40 U.S.C. you want to determine whether a Administrator finds that notice and 121(c); 40 U.S.C. 501, et seq.; 46 U.S.C. particular community was suspended public comment procedures under 5 55305; 49 U.S.C. 40118. on the suspension date or for further U.S.C. 553(b), are impracticable and ■ 2. Amend § 102–117.225 by— information, contact David Stearrett, unnecessary because communities listed ■ a. Removing the last sentence in Federal Insurance and Mitigation in this final rule have been adequately paragraph (b); Administration, Federal Emergency notified. ■ b. Revising paragraph (c); and Management Agency, 500 C Street SW., Each community receives 6-month, ■ c. Removing paragraph (d). Washington, DC 20472, (202) 646–2953. 90-day, and 30-day notification letters addressed to the Chief Executive Officer The revised text reads as follows: SUPPLEMENTARY INFORMATION: The NFIP stating that the community will be § 102–117.225 What is the difference enables property owners to purchase suspended unless the required between a contract or a rate tender and a Federal flood insurance that is not floodplain management measures are commuted rate system? otherwise generally available from met prior to the effective suspension * * * * * private insurers. In return, communities date. Since these notifications were (c) Rate table information and the agree to adopt and administer local made, this final rule may take effect commuted rate schedule can be found at floodplain management measures aimed within less than 30 days. www.gsa.gov/relocationpolicy or the at protecting lives and new construction National Environmental Policy Act. appropriate office designated in your from future flooding. Section 1315 of This rule is categorically excluded from agency. the National Flood Insurance Act of the requirements of 44 CFR Part 10, 1968, as amended, 42 U.S.C. 4022, [FR Doc. 2013–29212 Filed 12–11–13; 8:45 am] Environmental Considerations. No prohibits the sale of NFIP flood BILLING CODE 6820–14–P environmental impact assessment has insurance unless an appropriate public been prepared. body adopts adequate floodplain Regulatory Flexibility Act. The management measures with effective Administrator has determined that this DEPARTMENT OF HOMELAND enforcement measures. The SECURITY rule is exempt from the requirements of communities listed in this document no the Regulatory Flexibility Act because Federal Emergency Management longer meet that statutory requirement the National Flood Insurance Act of Agency for compliance with program 1968, as amended, Section 1315, 42 regulations, 44 CFR Part 59. U.S.C. 4022, prohibits flood insurance 44 CFR Part 64 Accordingly, the communities will be coverage unless an appropriate public suspended on the effective date in the body adopts adequate floodplain [Docket ID FEMA–2013–0002; Internal third column. As of that date, flood management measures with effective Agency Docket No. FEMA–8313] insurance will no longer be available in enforcement measures. The the community. We recognize that some Suspension of Community Eligibility communities listed no longer comply of these communities may adopt and with the statutory requirements, and AGENCY: Federal Emergency submit the required documentation of after the effective date, flood insurance Management Agency, DHS. legally enforceable floodplain will no longer be available in the ACTION: Final rule. management measures after this rule is communities unless remedial action published but prior to the actual takes place. SUMMARY: This rule identifies suspension date. These communities Regulatory Classification. This final communities where the sale of flood will not be suspended and will continue rule is not a significant regulatory action insurance has been authorized under to be eligible for the sale of NFIP flood under the criteria of section 3(f) of the National Flood Insurance Program insurance. A notice withdrawing the Executive Order 12866 of September 30, (NFIP) that are scheduled for suspension of such communities will be 1993, Regulatory Planning and Review, suspension on the effective dates listed published in the Federal Register. 58 FR 51735. within this rule because of In addition, FEMA publishes a Flood Executive Order 13132, Federalism. noncompliance with the floodplain Insurance Rate Map (FIRM) that This rule involves no policies that have management requirements of the identifies the Special Flood Hazard federalism implications under Executive program. If the Federal Emergency Areas (SFHAs) in these communities. Order 13132. Management Agency (FEMA) receives The date of the FIRM, if one has been Executive Order 12988, Civil Justice documentation that the community has published, is indicated in the fourth Reform. This rule meets the applicable adopted the required floodplain column of the table. No direct Federal standards of Executive Order 12988. management measures prior to the financial assistance (except assistance Paperwork Reduction Act. This rule effective suspension date given in this pursuant to the Robert T. Stafford does not involve any collection of rule, the suspension will not occur and Disaster Relief and Emergency information for purposes of the a notice of this will be provided by Assistance Act not in connection with a Paperwork Reduction Act, 44 U.S.C. publication in the Federal Register on a flood) may be provided for construction 3501 et seq.

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List of Subjects in 44 CFR Part 64 PART 64—[AMENDED] 1978 Comp.; p. 329; E.O. 12127, 44 FR 19367, 3 CFR, 1979 Comp.; p. 376. Flood insurance, Floodplains. ■ 1. The authority citation for Part 64 § 64.6 [Amended] Accordingly, 44 CFR Part 64 is continues to read as follows: ■ 2. The tables published under the amended as follows: Authority: 42 U.S.C. 4001 et seq.; authority of § 64.6 are amended as Reorganization Plan No. 3 of 1978, 3 CFR, follows:

Date certain fed- Community Effective date authorization/cancellation of Current effective eral assistance State and location No. sale of flood insurance in community map date no longer avail- able in SFHAs

Region III Pennsylvania: Allegheny, Township of, 422529 August 5, 1981, Emerg; September 10, Jan. 16, 2014 ... Jan. 16, 2014. Venango County. 1984, Reg; January 16, 2014, Susp. Canal, Township of, Venango County 422108 May 9, 1979, Emerg; February 6, 1991, ...... do * ...... Do. Reg; January 16, 2014, Susp. Clinton, Township of, Venango County 422531 February 18, 1976, Emerg; September 10, ...... do ...... Do. 1984, Reg; January 16, 2014, Susp. Clintonville, Borough of, Venango 422532 December 17, 1976, Emerg; September ...... do ...... Do. County. 10, 1984, Reg; January 16, 2014, Susp. Cooperstown, Borough of, Venango 420835 July 7, 1975, Emerg; February 6, 1991, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Cornplanter, Township of, Venango 422533 July 7, 1975, Emerg; May 19, 1987, Reg; ...... do ...... Do. County. January 16, 2014, Susp. Emlenton, Borough of, Venango Coun- 422107 July 23, 1975, Emerg; June 30, 1976, Reg; ...... do ...... Do. ty. January 16, 2014, Susp. Franklin, City of, Venango County...... 420836 April 19, 1973, Emerg; September 29, ...... do ...... Do. 1978, Reg; January 16, 2014, Susp. French Creek, Township of, Venango 422110 February 17, 1977, Emerg; May 19, 1987, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Irwin, Township of, Venango County ... 422534 N/A, Emerg; April 29, 2009, Reg; January ...... do ...... Do. 16, 2014, Susp. Jackson, Township of, Venango Coun- 422535 March 8, 1977, Emerg; August 19, 1991, ...... do ...... Do. ty. Reg; January 16, 2014, Susp. Mineral, Township of, Venango County 422536 May 9, 1979, Emerg; January 1, 1987, ...... do ...... Do. Reg; January 16, 2014, Susp. Oakland, Township of, Venango Coun- 422111 February 28, 1977, Emerg; February 1, ...... do ...... Do. ty. 1987, Reg; January 16, 2014, Susp. Oil City, City of, Venango County ...... 420837 August 18, 1972, Emerg; July 5, 1977, ...... do ...... Do. Reg; January 16, 2014, Susp. Oil Creek, Township of, Venango 422537 March 17, 1976, Emerg. October 1, 1986, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Pinegrove, Township of Venango 422538 January 14, 1980, Emerg; September 10, ...... do ...... Do. County. 1984, Reg; January 16, 2014, Susp. Plum, Township of, Venango County... 422539 March 1, 1977, Emerg; September 10, ...... do ...... Do. 1984, Reg; January 16, 2014, Susp. Polk, Borough of, Venango County...... 420838 July 10, 1975, Emerg; January 1, 1987, ...... do ...... Do. Reg; January 16, 2014, Susp. President, Township of, Venango 422112 July 7, 1975, Emerg; February 6, 1991, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Richland, Township of, Venango Coun- 422540 February 24, 1977, Emerg; September 10, ...... do ...... Do. ty. 1984, Reg; January 16, 2014, Susp. Rockland, Township of, Venango 422113 March 3, 1977, Emerg; October 16, 1990, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Rouseville, Borough of, Venango 420839 July 11, 1975, Emerg; May 19, 1987, Reg; ...... do ...... Do. County. January 16, 2014, Susp. Sandycreek, Township of, Venango 422541 June 23, 1975, Emerg; October 16, 1990, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Scrubgrass, Township of, Venango 422542 February 24, 1977, Emerg; August 5, 1991, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Sugarcreek, Borough of, Venango 420840 July 7, 1975, Emerg; May 19, 1987, Reg; ...... do ...... Do. County. January 16, 2014, Susp. Utica, Borough of, Venango County .... 420841 February 10, 1977, Emerg; March 4, 1991, ...... do ...... Do. Reg; January 16, 2014, Susp. Victory, Township of, Venango County 422543 February 17, 1977, Emerg; September 24, ...... do ...... Do. 1984, Reg; January 16, 2014, Susp. Region IV Alabama: Brookwood, Town of, Tuscaloosa 010431 N/A, Emerg; October 21, 2008, Reg; Janu- ...... do ...... Do. County. ary 16, 2014, Susp. Coaling, Town of, Tuscaloosa County 010480 N/A, Emerg; July 8, 2008, Reg; January ...... do ...... Do. 16, 2014, Susp.

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Date certain fed- Community Effective date authorization/cancellation of Current effective eral assistance State and location No. sale of flood insurance in community map date no longer avail- able in SFHAs

Coker, Town of, Tuscaloosa County .... 010481 N/A, Emerg; August 14, 2008, Reg; Janu- ...... do ...... Do. ary 16, 2014, Susp. Lake View, Town of, Jefferson and 010483 N/A, Emerg; May 8, 2008, Reg; January ...... do ...... Do. Tuscaloosa Counties. 16, 2014, Susp. Moundville, Town of, Hale and Tusca- 010096 October 11, 1974, Emerg; July 18, 1985, ...... do ...... Do. loosa Counties. Reg; January 16, 2014, Susp. Northport, City of, Tuscaloosa County 010202 June 13, 1973, Emerg; September 5, 1979, ...... do ...... Do. Reg; January 16, 2014, Susp. Tuscaloosa, City of, Tuscaloosa Coun- 010203 April 5, 1973, Emerg; February 1, 1979, ...... do ...... Do. ty. Reg; January 16, 2014, Susp. Tuscaloosa County, Unincorporated 010201 N/A, Emerg; August 7, 2001, Reg; January ...... do ...... Do. Areas. 16, 2014, Susp. Vance, Town of, Bibb and Tuscaloosa 010428 N/A, Emerg; June 26, 2006, Reg; January ...... do ...... Do. Counties. 16, 2014, Susp. Woodstock, Town of, Bibb and Tusca- 015013 N/A, Emerg; January 30, 2008, Reg; Janu- ...... do ...... Do. loosa Counties. ary 16, 2014, Susp. South Carolina: Bowman, Town of, 450161 June 27, 1975, Emerg; July 16, 1980, Reg; ...... do ...... Do. Orangeburg County. January 16, 2014, Susp. Holly Hill, Town of, Orangeburg County 450163 August 19, 1976, Emerg; July 2, 1980, ...... do ...... Do. Reg; January 16, 2014, Susp. Norway, Town of, Orangeburg County 450213 November 11, 1975, Emerg; May 27, 1977, ...... do ...... Do. Reg; January 16, 2014, Susp. Orangeburg, City of, Orangeburg 450164 February 28, 1975, Emerg; July 16, 1980, ...... do ...... Do. County. Reg; January 16, 2014, Susp. Orangeburg County, Unincorporated 450160 November 26, 1976, Emerg; December 16, ...... do ...... Do Areas. 1980, Reg; January 16, 2014, Susp. Region V Indiana: Brookville, Town of, Franklin County ... 180069 March 13, 1975, Emerg; November 15, ...... do ...... Do. 1984, Reg; January 16, 2014, Susp. Cedar Grove, Town of, Franklin Coun- 180304 November 22, 1975, Emerg; August 5, ...... do ...... Do. ty. 1986, Reg; January 16, 2014, Susp. Laurel, Town of, Franklin County ...... 180306 May 27, 1975, Emerg; September 1, 1988, ...... do ...... Do. Reg; January 16, 2014, Susp. Region VII Kansas: Miami County, Unincorporated Areas .. 200220 November 6, 1995, Emerg; December 1, ...... do ...... Do. 2006, Reg; January 16, 2014, Susp. Osawatomie, City of, Miami County..... 200223 June 13, 1974, Emerg; September 19, ...... do ...... Do. 1984, Reg; January 16, 2014, Susp. Region VIII Wyoming: Dayton, Town of, Sheridan County ...... 560045 May 28, 1975, Emerg; August 1, 2008, ...... do ...... Do. Reg; January 16, 2014, Susp. Ranchester, Town of, Sheridan County 560046 May 8, 1978, Emerg; April 15, 1988, Reg; ...... do ...... Do. January 16, 2014, Susp. Sheridan, City of, Sheridan County ...... 560044 November 29, 1974, Emerg; September 1, ...... do ...... Do. 1978, Reg; January 16, 2014, Susp. Sheridan County, Unincorporated 560047 September 25, 1979, Emerg; August 1, ...... do ...... Do. Areas. 1986, Reg; January 16, 2014, Susp. * -do- = Ditto. Code for reading third column: Emerg.—Emergency; Reg.—Regular; Susp.—Suspension.

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Dated: November 25, 2013. appointment, during regular business manner), production, and emergency David L. Miller, hours at the above address. training operations but no construction Associate Administrator, Federal Insurance FOR FURTHER INFORMATION CONTACT: or activities of similar intensity to those and Mitigation Administration, Department Candace Nachman, Office of Protected conducted between 1999 and 2001. The of Homeland Security, Federal Emergency Resources, NMFS, (301) 427–8401. likely or possible impacts of the Management Agency. SUPPLEMENTARY INFORMATION: planned continuing operations at [FR Doc. 2013–29658 Filed 12–11–13; 8:45 am] Northstar on marine mammals involve BILLING CODE 9110–12–P Background both non-acoustic and acoustic effects. Sections 101(a)(5)(A) and (D) of the Potential non-acoustic effects could MMPA (16 U.S.C. 1361 et seq.) direct result from the physical presence of DEPARTMENT OF COMMERCE the Secretary of Commerce (Secretary) personnel, structures and equipment, to allow, upon request, the incidental, construction or maintenance activities, National Oceanic and Atmospheric but not intentional taking of marine and the occurrence of oil spills. Administration mammals by U.S. citizens who engage Petroleum development and associated in a specified activity (other than activities in marine waters introduce 50 CFR Part 217 commercial fishing) during periods of sound into the environment, produced [Docket No. 100217096–1059–02] not more than five consecutive years by island construction, maintenance, each if certain findings are made and and drilling, as well as vehicles RIN 0648–AY63 regulations are issued or, if the taking is operating on the ice, vessels, aircraft, generators, production machinery, gas Taking and Importing Marine limited to harassment, notice of a flaring, and camp operations. BP Mammals; Taking Marine Mammals proposed authorization is provided to requested authorization to take Incidental to Operation of Offshore Oil the public for review. individuals of three cetacean and three and Gas Facilities in the U.S. Beaufort Authorization shall be granted if pinniped species by Level B Sea NMFS finds that the taking will have a negligible impact on the species or Harassment. They are: bowhead, gray, AGENCY: National Marine Fisheries stock(s), will not have an unmitigable and beluga whales and ringed, bearded, Service (NMFS), National Oceanic and adverse impact on the availability of the and spotted seals. Further, BP requested Atmospheric Administration (NOAA), species or stock(s) for subsistence uses, authorization to take five individual Commerce. and if the permissible methods of taking ringed seals by injury or mortality ACTION: Final rule. and requirements pertaining to the annually over the course of the 5-year mitigation, monitoring and reporting of rule. In this final rule, NMFS has SUMMARY: NMFS, upon application from such taking are set forth. NMFS has authorized the take by Level B BP Exploration (Alaska) Inc. (BP), is defined ‘‘negligible impact’’ in 50 CFR harassment of all six species listed here issuing regulations pursuant to the 216.103 as: ‘‘. . . an impact resulting and the take by injury or mortality of Marine Mammal Protection Act from the specified activity that cannot ringed seals. (MMPA) to govern the unintentional be reasonably expected to, and is not Description of the Specified Activity taking of marine mammals incidental to reasonably likely to, adversely affect the operation of offshore oil and gas species or stock through effects on Background on the Northstar facilities in the U.S. Beaufort Sea, annual rates of recruitment or survival.’’ Development Facility Alaska, for the period January 2014– Except with respect to certain January 2019. These regulations, which activities not pertinent here, the MMPA BP is currently producing oil from an allow for the issuance of Letters of defines ‘‘harassment’’ as any act of offshore development in the Northstar Authorization (LOAs) for the incidental pursuit, torment, or annoyance which (i) Unit (see Figure 1 in BP’s application). take of marine mammals during the has the potential to injure a marine This development is the first in the described activities and specified mammal or marine mammal stock in the Beaufort Sea that makes use of a subsea timeframes, prescribe the permissible wild [Level A harassment]; or (ii) has pipeline to transport oil to shore and methods of taking and other means of the potential to disturb a marine then into the Trans-Alaska Pipeline effecting the least practicable adverse mammal or marine mammal stock in the System. The Northstar facility was built impact on marine mammal species or wild by causing disruption of behavioral in State of Alaska waters on the stocks and their habitat, as well as patterns, including, but not limited to, remnants of Seal Island approximately 6 requirements pertaining to the migration, breathing, nursing, breeding, mi (9.5 km) offshore from Point monitoring and reporting of such taking. feeding, or sheltering [Level B Storkersen, northwest of the Prudhoe DATES: Effective from January 13, 2014 harassment]. Bay industrial complex, and 3 mi (5 km) through January 14, 2019. seaward of the closest barrier island. It ADDRESSES: A copy of BP’s application Summary of Request is located approximately 54 mi (87 km) and NMFS’ Environmental Assessment On November 6, 2009, NMFS received northeast of Nuiqsut, an Inupiat (EA) and Finding of No Significant an application from BP requesting community. Impact (FONSI) may be obtained by authorization for the take of six marine The main facilities associated with writing to Michael Payne, Chief, Permits mammal species incidental to operation Northstar include a gravel island work and Conservation Division, Office of of the Northstar development in the surface for drilling and oil production Protected Resources, NMFS, 1315 East Beaufort Sea, Alaska, over the course of facilities and two pipelines connecting West Highway, Silver Spring, MD 5 years, which would necessitate the the island to the existing infrastructure 20910, calling the contact listed under promulgation of new five-year at Prudhoe Bay. One pipeline transports FOR FURTHER INFORMATION CONTACT, or regulations. Construction of Northstar crude oil to shore, and the second visiting the Internet at: http:// was completed in 2001. The proposed imports gas from Prudhoe Bay for gas www.nmfs.noaa.gov/pr/permits/ activities for 2014–2019 include a injection at Northstar. Permanent living incidental.htm. Documents cited in this continuation of drilling operations quarters and supporting oil production final rule may also be viewed, by (although likely in a very limited facilities are also located on the island.

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The construction of Northstar began the time of reception of the stimulus, as distribution, abundance, and life history in early 2000 and continued through well as the distance from the sound functions of each of the six species 2001. BP states that activities with source and the level of the sound under NMFS jurisdiction likely to be similar intensity to those that occurred relative to ambient conditions. The impacted by the proposed activities. during the construction phase between proposed rule (76 FR 39706, July 6, When reviewing the application, NMFS 2000 and 2001 are not planned or 2011) contained a detailed description determined that the species descriptions expected for any date within the 5-year of construction, operational, and provided by BP correctly characterized period that would be governed by these transportation sounds that could be the status, distribution, seasonal regulations. Well drilling began on introduced into the marine and in-air distribution, and abundance of each December 14, 2000, and oil production environments. No changes have been species. Please refer to the application commenced on October 31, 2001. made to that information. for that information (see ADDRESSES). Additional background was contained Description of Marine Mammals in the Additional information can also be in the proposed rule (76 FR 39706, July Area of the Specified Activity found in the NMFS Stock Assessment 6, 2011) and can also be found in BP’s Reports (SAR). The Alaska 2012 SAR is application (see ADDRESSES). The Beaufort Sea supports a diverse available at: http://www.nmfs.noaa.gov/ assemblage of marine mammals, pr/sars/pdf/ak2012.pdf. Expected Activities in 2014–2019 including: bowhead, gray, beluga, killer, During the 5-year period from January minke, and humpback whales; harbor Brief Background on Marine Mammal 2014–January 2019, BP intends to porpoises; ringed, ribbon, spotted, and Hearing continue production and emergency bearded seals; narwhals; polar bears; When considering the influence of training operations. As mentioned and walruses. The bowhead and various kinds of sound on the marine previously, drilling is not specifically humpback whales and polar bear are environment, it is necessary to planned for the 2014–2019 time period listed as ‘‘endangered’’ under the but may be required at some point in the Endangered Species Act (ESA) and as understand that different kinds of future. The activities described in the depleted under the MMPA. The ringed marine life are sensitive to different proposed rule could occur at any time and bearded seals are listed as frequencies of sound. Based on available during the 5-year period. Table 2 in BP’s ‘‘threatened’’ under the ESA. Certain behavioral data, audiograms have been application (see ADDRESSES) summarizes stocks or populations of gray, beluga, derived using auditory evoked the vehicles and machinery used during and killer whales and spotted seals are potentials, anatomical modeling, and BP’s Northstar activities since the listed as endangered; however, none of other data. Southall et al. (2007) development of Northstar Island. those stocks or populations occur in the designate ‘‘functional hearing groups’’ Although not all of these activities are activity area. Additionally, the ribbon for marine mammals and estimate the planned to take place during the January seal is considered a ‘‘species of lower and upper frequencies of 2014-January 2019 operational phase, concern’’ under the ESA. Both the functional hearing of the groups. The some of the equipment may be required walrus and the polar bear are managed functional groups and the associated to repair or replace existing structures or by the U.S. Fish and Wildlife Service frequencies are indicated below (though infrastructure on Northstar in the future. (USFWS) and are not considered further animals are less sensitive to sounds at A detailed overview of all potential in this final rule. the outer edge of their functional range activities, such as transportation, Of the species mentioned here, the and most sensitive to sounds of production and drilling operations, ones that are most likely to occur near frequencies within a smaller range repair and maintenance activities, and the Northstar facility include: bowhead, somewhere in the middle of their emergency and oil spill response gray, and beluga whales and ringed, functional hearing range): training, was provided in the proposed bearded, and spotted seals. Ringed seals • Low frequency cetaceans (13 rule (76 FR 39706, July 6, 2011). No are year-round residents in the Beaufort species of mysticetes): functional changes have been made to any of the Sea and are anticipated to be the most hearing is estimated to occur between proposed activities. frequently encountered species in the approximately 7 Hz and 22 kHz project area. Bowhead whales are (however, a study by Au et al. (2006) of Northstar Sound Characteristics anticipated to be the most frequently humpback whale songs indicate that the During continuing production encountered cetacean species in the range may extend to at least 24 kHz); activities at Northstar, sounds and non- project area; however, their occurrence • Mid-frequency cetaceans (32 acoustic stimuli will be generated by is not anticipated to be year-round. The species of dolphins, six species of larger vehicle traffic, vessel operations, most common time for bowheads to toothed whales, and 19 species of helicopter operations, drilling, and occur near Northstar is during the fall beaked and bottlenose whales): general operations of oil and gas migration westward through the functional hearing is estimated to occur facilities (e.g., generator sounds and gas Beaufort Sea, which typically occurs between approximately 150 Hz and 160 flaring). The sounds generated from from late August through October each kHz; transportation activities will be year. • detectable underwater and/or in air The proposed rule contains a High frequency cetaceans (eight some distance away from the area of discussion of six species that are not species of true porpoises, six species of activity. The distance will depend on considered further in the analysis river dolphins, Kogia, the franciscana, the nature of the sound source, ambient because of their rarity in the project and four species of cephalorhynchids): noise conditions, and the sensitivity of area. The ‘‘Description of Marine functional hearing is estimated to occur the receptor. Take of marine mammals Mammals in the Area of the Specified between approximately 200 Hz and 180 by Level B harassment incidental to the Activity’’ has not changed from the kHz; activities mentioned in this document proposed rule. Please refer to the • Pinnipeds in Water: functional could occur for the duration of these proposed rule (76 FR 39706, July 6, hearing is estimated to occur between regulations. The type and significance of 2011) for the complete discussion. BP’s approximately 75 Hz and 75 kHz, with the harassment is likely to depend on application contains information on the the greatest sensitivity between the species and activity of the animal at status, distribution, seasonal approximately 700 Hz and 20 kHz; and

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• Pinnipeds in Air: functional hearing Petroleum development and the overall habitat available in the is estimated to occur between associated activities in marine waters region. In the unlikely event of a large approximately 75 Hz and 30 kHz. introduce sound into the environment, or very large oil spill, marine mammal As mentioned previously in this produced by island construction, prey species could be oiled, or the document, six marine mammal species maintenance, and drilling, as well as marine mammals themselves could be (three cetacean and three pinniped vehicles operating on the ice, vessels, oiled. BP integrated several design species) are likely to occur in the aircraft, generators, production features and conducts regular Northstar facility area. Of the three machinery, gas flaring, and camp inspections and maintenance to reduce cetacean species likely to occur in BP’s operations. The potential effects of the potential for oil spills on the island project area, two are classified as low sound from the activities might include or in the marine environment. The frequency cetaceans (i.e., bowhead and one or more of the following: masking proposed rule contained a full gray whales) and one is classified as a of natural sounds; behavioral discussion of the potential impacts to mid-frequency cetacean (i.e., beluga disturbance and associated habituation marine mammal habitat and prey whales) (Southall et al., 2007). The effects; and, at least in theory, species in the project area. No changes proposed rule (76 FR 39706, July 6, temporary or permanent hearing have been made to that discussion. 2011) contains a detailed discussion impairment (Richardson et al., 1995b). Please refer to the proposed rule for the regarding available information on However, for reasons discussed in the full discussion of potential impacts to underwater audiograms and proposed rule, it is unlikely that there marine mammal habitat (76 FR 39706, vocalizations of some of the marine would be any cases of temporary, or July 6, 2011), which includes a mammals in the area. That information especially permanent, hearing discussion of common marine mammal has not changed and is not repeated impairment resulting from these prey species in the area. In conclusion, here. activities. NMFS has determined that BP’s In the ‘‘Potential Effects of Specified operation of the Northstar Development Potential Effects of the Specified Activities on Marine Mammals’’ section area is not expected to have any habitat- Activity on Marine Mammals of the proposed rule, NMFS included a related effects that could cause With respect to the MMPA, NMFS’ qualitative discussion of the different ways that activities at Northstar may significant or long-term consequences effects assessment serves four primary for individual marine mammals or on purposes: (1) To prescribe the potentially affect marine mammals, which included detailed discussions the food sources that they utilize. permissible methods of taking (i.e., regarding the potential effects of sound Level B Harassment or mortality, Mitigation and oil on cetaceans and pinnipeds. including an identification of the Marine mammals may experience In order to issue an incidental take number and types of take that could masking and behavioral disturbance. authorization (ITA) under section occur by Level B harassment or However, some of the effects are 101(a)(5)(A) of the MMPA, NMFS must, mortality) and to prescribe other means expected to be less for cetaceans, as the where applicable, set forth the of effecting the least practicable adverse higher sound levels are found close to permissible methods of taking pursuant impact on such species or stock and its shore, usually further inshore than the to such activity, and other means of habitat (i.e., mitigation); (2) to determine migration paths of cetaceans. effecting the least practicable adverse whether the specified activity will have Additionally, cetaceans are not found in impact on such species or stock and its a negligible impact on the affected the Northstar area during the ice- habitat, paying particular attention to species or stocks of marine mammals covered season; therefore, they would rookeries, mating grounds, and areas of (based on the likelihood that the activity only be potentially impacted during will adversely affect the species or stock similar significance, and on the certain times of the year. The availability of such species or stock for through effects on annual rates of information contained in the ‘‘Potential recruitment or survival); (3) to taking for subsistence uses (where Effects of Specified Activities on Marine relevant). determine whether the specified activity Mammals’’ section from the proposed As part of its application, BP will have an unmitigable adverse impact rule has not changed. Please refer to the on the availability of the species or proposed rule for the full discussion (76 proposed several mitigation measures in stock(s) for subsistence uses; and (4) to FR 39706, July 6, 2011). order to ensure the least practicable prescribe requirements pertaining to adverse impact on marine mammal monitoring and reporting. Anticipated Effects on Marine Mammal species that may occur in the project The likely or possible impacts of the Habitat area. BP proposed different mitigation planned offshore oil developments at Potential impacts to marine mammals measures for the ice-covered season and Northstar on marine mammals involve and their habitat as a result of operation for the open-water season. The proposed both non-acoustic and acoustic effects. of the Northstar facility are mainly mitigation measures are described fully Potential non-acoustic effects could associated with elevated sound levels. in BP’s application (see ADDRESSES) and result from the physical presence of These underwater sound levels will summarized here. After a review of personnel, structures and equipment, likely cause some fish and invertebrate these measures and comments from the construction or maintenance activities, species to either exhibit a behavioral peer review panel and public (see the and the occurrence of oil spills. In reaction or temporarily disperse from or ‘‘Monitoring Plan Peer Review’’ and winter, during ice road construction, avoid areas close to Northstar for a ‘‘Comments and Responses’’ sections and in spring, flooding on the sea ice limited time. There is also the potential later in this document), NMFS may displace some ringed seals along for impacts to marine mammal habitat determined that some measures should the ice road corridor. There is a small from ice road construction and an oil be modified or added in order to effect chance that a seal pup might be injured spill (should one occur). Ringed seals the least practicable adverse impact on or killed by on-ice construction or build subnivean lairs in the Beaufort the species or stock and its habitat. transportation activities. A major oil Sea in the spring months. The amount Those additions are summarized here spill is unlikely and, if it occurred, its of habitat altered by Northstar ice road and described in more detail later in effects are difficult to predict. construction is minimal compared to this document.

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Ice-Covered Season Mitigation Measures (Blackwell et al., 2004a). BP anticipates ceased for more than 1 hour. If a In order to reduce impacts to ringed that received levels for any pile driving vibratory driver is used, BP is required seal construction of birth lairs, BP must that might occur within the sheet pile to initiate sound from vibratory begin winter construction activities walls of the island in the future would hammers for 15 seconds at reduced (e.g., ice road construction) on the sea also be less than 180 dB (rms) at all energy followed by a 1-minute waiting ice as early as possible once weather locations in the water around the island. period. The procedure shall be repeated and ice conditions permit such If impact pile driving were planned in two additional times before full energy activities. Any ice road or other areas outside the sheet pile walls, it is may be achieved. If a non-diesel impact construction activities that are initiated possible that received levels underwater hammer is used, BP is required to might exceed the 180 dB re 1 mPa (rms) provide an initial set of strikes from the after March 1 in previously undisturbed level. impact hammer at reduced energy, areas in waters deeper than 10 ft (3 m) NMFS has established acoustic followed by a 1-minute waiting period, must be surveyed, using trained dogs, in thresholds that identify the received then two subsequent sets. If a diesel order to identify and avoid ringed seal sound levels above which hearing impact hammer is used, BP is required structures by a minimum of 492 ft (150 impairment or other injury could to turn on the sound attenuation device m). If dog surveys are conducted, potentially occur, which are 180 and for 15 seconds prior to initiating pile trained dogs shall search all floating sea 190 dB re 1 mPa (rms) for cetaceans and driving. ice for any ringed seal structures. Those pinnipeds, respectively (NMFS, 1995, Should any new drilling into oil- surveys shall be done prior to the new 2000). To prevent or at least minimize bearing strata be required during the proposed activity on the floating sea ice exposure to sound levels that might effective period of these regulations, the to provide information needed to cause hearing impairment, an exclusion drilling shall not take place during prevent injury or mortality of young zone shall be established and monitored either open-water or spring-time broken seals. Additionally, after March 1 of for the presence of seals and whales. ice conditions. each year, activities should avoid, to the Establishment of the exclusion zone of Oil Spill Contingency Plan greatest extent practicable, disturbance any source predicted to result in of any located seal structure. It should received levels underwater above 180 The taking by harassment, injury, or be noted that since 2001, none of BP’s dB (rms) will be analyzed using existing mortality of any marine mammal activities took place after March 1 in data collected in the waters of the species incidental to an oil spill is previously undisturbed areas, so no on- Northstar facility (see the ‘‘Monitoring prohibited. However, in the unlikely ice searches were conducted. and Reporting’’ section later in this event of an oil spill, BP expects to be Open-Water Season Mitigation document or BP’s application). able to contain oil through its oil spill Measures If observations and mitigation are response and cleanup protocols. An oil required, a protected species observer spill prevention and contingency All non-essential boat, hovercraft, stationed at an appropriate viewing response plan was developed and barge, and air traffic shall be scheduled location on the island will conduct approved by the Alaska Department of to avoid periods when whales watches commencing 30 minutes prior Environmental Conservation, U.S. (especially bowhead whales) are to the onset of impact hammering or Department of Transportation, U.S. migrating through the area. Helicopter other identified activity and will Coast Guard, and Bureau of Safety and flights to support Northstar activities continue throughout the activity and for Environmental Enforcement (BSEE; shall be limited to a corridor from Seal 30 minutes after the activity ends. The formerly MMS). The plan is reviewed Island to the mainland, and, except ‘‘Monitoring and Reporting’’ section annually and revised and updated when when limited by weather or personnel later in this document contains a changes occur. BP’s plan has been safety, shall maintain a minimum description of the observer program. If amended several times since its initial altitude of 1,000 ft (305 m), except pinnipeds are seen within the 190 dB re approval, with the last revision during takeoff and landing. 1 mPa radius (the ‘‘exclusion zone’’), occurring in March 2012. Major changes Impact hammering activities may then operations shall shut down or since 1999 include the following: occur at any time of year to repair sheet reduce SPLs sufficiently to ensure that Seasonal drilling restrictions from June pile or dock damage due to ice received SPLs do not exceed those 1 to July 20 and from October 1 until ice impingement. Impact hammering is prescribed here (i.e., power down). If becomes 18 in (46 cm) thick; changes to most likely to occur during the ice- whales are observed within the 180 dB the response planning standard for a covered season or break-up period and re 1 mPa (rms) radius (the ‘‘exclusion well blowout as a result of reductions in would not be scheduled during the fall zone’’), operations shall shut down or well production rates; and deletion of bowhead migration. However, if such reduce SPLs sufficiently to ensure that ice auguring for monitoring potential activities were to occur during the open- received SPLs do not exceed those sub-sea oil pipeline leaks during winter water or broken ice season, certain prescribed here (i.e., power down). The following demonstration of the LEOS mitigation measures described here are shutdown or reduced SPL shall be leak detection system. Many of the most required to be implemented. Based on maintained until such time as the recent changes were made in response studies by Blackwell et al. (2004a), it is observed marine mammal(s) has been to new BSEE regulations relating to predicted that only impact driving of seen to have left the applicable updated safety standards and practices. sheet piles or pipes that are in the water exclusion zone or until 15 minutes have Future changes to the response planning (i.e., those on the dock) could produce elapsed in the case of a pinniped or standards may be expected in response received levels of 190 dB re 1 mPa (rms) odontocete or 30 minutes in the case of to declines in well production rates and and then only in immediate proximity a mysticete without resighting, pipeline throughput. The proposed rule to the pile. The impact pipe driving in whichever occurs sooner. (76 FR 39706, July 6, 2011) contained a June and July 2000 did not produce In response to a recommendation summary of the plan’s components. received levels as high as 180 dB re 1 from the public, a ramp-up technique Please refer to that document. mPa (rms) at any location in the water. shall be used at the beginning of each Additionally, the March 2012 version of This was attributable to attenuation by day’s in-water pile driving activities and BP’s oil spill contingency plan can be the gravel and sheet pile walls if pile driving resumes after it has viewed on the Internet at: http://

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www.nmfs.noaa.gov/pr/permits/ been modified based on comments data of the offshore recorder can provide incidental.htm. received from the public and the peer information on the total number of calls review panel (see the ‘‘Monitoring Plan detected, the temporal pattern of calling Mitigation Conclusions Peer Review’’ and ‘‘Comments and during the recording period, possibly NMFS has carefully evaluated the Responses’’ sections later in this the bearing to calls, and call types. applicant’s proposed mitigation document). These data can be compared with measures and considered a range of BP’s monitoring focuses on ringed corresponding data from the same site other measures in the context of seals and bowhead whales, as they are in previous years. If substantially higher ensuring that NMFS prescribes the the most prevalent species found in the or lower numbers of calls are recorded means of effecting the least practicable Northstar Development area. No than were recorded at that site in adverse impact on the affected marine monitoring is proposed specifically for previous years, further analyses and mammal species and stocks and their bearded or spotted seals or for gray or additional monitoring will be habitat. Our evaluation of potential beluga whales, as their occurrence near considered in consultation with NMFS measures included consideration of the Northstar is limited. However, and North Slope Borough (NSB) following factors in relation to one opportunistic data may be collected for representatives. A second DASAR, or another: these species should they occur in the similar recorder, will be deployed at the • The manner in which, and the area (e.g., vocalizations may be recorded same location to provide a reasonable degree to which, the successful on the acoustic array). Few, if any, level of redundancy. implementation of the measure is observations of these species were made In addition to the DASAR already expected to minimize adverse impacts during the intensive monitoring from mentioned, BP will install an acoustic to marine mammals; 1999 to 2004. If sightings of these (or recorder about 1,476 ft (450 m) north of • The proven or likely efficacy of the other) species are made, those Northstar, in the same area where specific measure to minimize adverse observations will be included in the sounds have been recorded since 2001. impacts as planned; and monitoring reports (described later in This recorder will be installed for • The practicability of the measure this document) that will be prepared. approximately 30 days each September, for applicant implementation. corresponding with the deployment of Annual Monitoring Plans Based on our evaluation of the the offshore DASAR (or similar applicant’s proposed measures, as well BP will continue the long-term recorder). The near-island recorder will as other measures recommended by the observer program, conducted by island be used to record and quantify sound public, NMFS has determined that the personnel, of ringed seals during the levels emanating from Northstar. If mitigation measures described above spring and summer. This program is island sounds are found to be provide the means of effecting the least intended to assess the continued long- significantly stronger or more variable practicable adverse impact on marine term stability of ringed seal abundance than in the past, and if it is expected mammal species or stocks and their and habitat use near Northstar as that the stronger sounds will continue habitat, paying particular attention to indexed by counts obtained on a regular in subsequent years, then further rookeries, mating grounds, and areas of and long-term basis. Northstar staff will consultation with NMFS and NSB similar significance. Measures to ensure count seals at Northstar from May 15– representatives will occur to determine availability of such species or stock for July 15 each year from the 108 ft (33 m) if more analyses or changes in taking for certain subsistence uses are high process module following a monitoring strategy are appropriate. A discussed later in this document (see standardized protocol since 2005. second acoustic recorder will be ‘‘Impact on Availability of Affected Counts are made on a daily basis deployed to provide a reasonable level Species or Stock for Taking for (weather permitting), between 11:00– of redundancy. Subsistence Uses’’ section). 19:00, in an area of approximately 3,117 Based on recommendations from the ft (950 m) around the island, for a peer review panel, BP will hold an Monitoring and Reporting duration of approximately 15 minutes. annual meeting with representatives In order to issue an ITA for an Counts will only be made during from NMFS and NSB (likely in the late activity, section 101(a)(5)(A) of the periods with visibility of 0.62 mi (1 km) winter/early spring period) to discuss MMPA states that NMFS must, where or more and with a cloud ceiling of whether or not data collected in the applicable, set forth ‘‘requirements more than 295 ft (90 m). This year, BP previous year regarding seal counts and pertaining to the monitoring and will also begin to record the date of the bowhead whale call rates should trigger reporting of such taking’’. The MMPA first appearance of basking seals and the additional or revised monitoring implementing regulations at 50 CFR peak date of haul out. Also, BP will requirements. Additional information 216.104 (a)(13) indicate that requests for begin to attempt conducting seal counts regarding this meeting can be found ITAs must include the suggested means in autumn using the same general later in this document. of accomplishing the necessary approach as noted here for the May 15- monitoring and reporting that will result July 15 timeframe. However, these Contingency Monitoring Plans in increased knowledge of the species counts will be limited by the amount of If BP needs to conduct an activity and of the level of taking or impacts on available daylight. (i.e., pile driving) capable of producing populations of marine mammals that are BP will continue monitoring the pulsed underwater sound with levels expected to be present in the action bowhead migration in 2014 and ≥180 or ≥190 dB re 1 mPa (rms) at area. subsequent years for approximately 30 locations where whales or seals could The monitoring program proposed by days each September through the be exposed, BP will monitor exclusion BP in its application and described here recording of bowhead calls. BP will zones defined by those levels. [The is based on the continuation of previous deploy a Directional Autonomous exclusion zones were described in the monitoring conducted at Northstar. Seafloor Acoustic Recorder (DASAR; ‘‘Mitigation’’ section earlier in this Information on previous monitoring can Greene et al., 2004) or similar recorder document.] One or more on-island be found in the ‘‘Previous Activities and about 9.3 mi (15 km) north of Northstar, observers, as necessary to scan the area Monitoring’’ section found later in this consistent with a location used in past of concern, will be stationed at document. The monitoring program has years (as far as conditions allow). The location(s) providing an unobstructed

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view of the predicted exclusion zone. transmissions of airborne sounds with (1) Are the applicant’s stated The observer(s) will scan the exclusion expected source levels of 90 dBA or objectives the most useful for zone continuously for marine mammals greater created by on-ice activity at understanding impacts on marine for 30 minutes prior to the operation of Northstar that have not been measured mammals and otherwise accomplishing the sound source. Observations will in previous years. In addition, BP will the goals of: Documenting the effects of continue during all periods of operation conduct acoustic measurements to the activity (including acoustic) on and for 30 minutes after the activity has document sound levels, characteristics, marine mammals; documenting or ended. If whales and seals are detected and transmissions of airborne sounds estimating the actual level of take as a within the (respective) 180 or 190 dB for sources on Northstar Island with result of the activity (in this case, distances, a shutdown or other expected received levels at the water’s operation of an oil production facility); appropriate mitigation measure (as edge that exceed 90 dBA that have not increasing the knowledge of the affected described earlier in this document) shall been measured in previous years. These species; or increasing knowledge of the be implemented. The sound source will data will be collected in order to assist anticipated impacts on marine mammal be allowed to operate again when the in the development of future monitoring populations? and mitigation measures. marine mammals are observed to leave (2) Are the applicant’s stated the safety zone or until 15 minutes have Monitoring Plan Peer Review objectives able to be achieved based on elapsed in the case of a pinniped or the methods described in the plan? odontocete or 30 minutes in the case of The MMPA requires that monitoring a mysticete without resighting, plans be independently peer reviewed (3) Are there techniques not proposed whichever occurs sooner. The observer ‘‘where the proposed activity may affect by the applicant, or modifications to the will record the: (1) Species and numbers the availability of a species or stock for techniques proposed by the applicant, of marine mammals seen within the 180 taking for subsistence uses’’ (16 U.S.C. that should be considered for inclusion or 190 dB zones; (2) bearing and 1371(a)(5)(D)(ii)(III)). Regarding this in the applicant’s monitoring program to distance of the marine mammals from requirement, NMFS’ implementing better accomplish the goals stated the observation point; and (3) behavior regulations state, ‘‘Upon receipt of a above? of marine mammals and any indication complete monitoring plan, and at its (4) What is the best way for an of disturbance reactions to the discretion, [NMFS] will either submit applicant to present their data and monitored activity. the plan to members of a peer review results (formatting, metrics, graphics, panel for review or within 60 days of If BP initiates significant on-ice etc.) in the required reports that are to receipt of the proposed monitoring plan, be submitted to NMFS? activities (e.g., construction of new ice schedule a workshop to review the roads, trenching for pipeline repair, or plan’’ (50 CFR 216.108(d)). NMFS has reviewed the report and projects of similar magnitude) in NMFS convened an independent peer evaluated all recommendations made by previously undisturbed areas after review panel, comprised of experts in the panel and has determined that there March 1, trained dogs, or a comparable the fields of marine mammal ecology are several measures that BP can method, will be used to search for seal and underwater acoustics, to review incorporate into its marine mammal structures. If such activities do occur BP’s proposed monitoring plan monitoring plan to improve it. NMFS after March 1, a follow-up assessment associated with the MMPA application reviewed the panel’s recommendations must be conducted in May of that year for these regulations. The panel met on and determined that several are to determine the fate of all seal March 10, 2011, and provided their final appropriate for BP to carry out during structures located during the March report to NMFS on June 17, 2011. The the effective period of these regulations. monitoring. This monitoring must be panel’s final report can be found on the Those recommendations have been conducted by a qualified biological Internet at: http://www.nmfs.noaa.gov/ discussed with BP and are included in researcher approved in advance by pr/pdfs/permits/bp_northstar_peer_ the final rule, as appropriate. A NMFS after a review of the observer’s review.pdf. summary of the recommendations that qualifications. NMFS provided the panel with BP’s have been incorporated into BP’s BP will conduct acoustic monitoring plan and asked the panel to monitoring plan and how they are being measurements to document sound answer the following questions addressed is provided in Table 1 of this levels, characteristics, and regarding the plan: document.

TABLE 1—RECOMMENDATIONS FROM THE 2011 BP PEER REVIEW PANEL THAT WILL BE CARRIED OUT AND/OR INCORPORATED INTO BP’S MONITORING PLAN FOR THIS FINAL RULE

Panel recommendation BP Response/commitment

BP should attempt to assess the duration of deflection (i.e., the amount Because of the relatively low sound levels emanating from Northstar of time or distance before deflected whales returned to their normal into the bowhead whale migration corridor and the subtle responses migratory path) of bowheads away from Northstar Island, if possible. of the whales, detecting deflection immediately north of Northstar Other data sets (i.e., Bowhead Whale Aerial Survey Program was challenging, but statistically significant deflection was detected [BWASP], Shell acoustic data) might prove useful for addressing this in 2001–2004. Shell’s arrays west of Northstar were not in the water question. in 2001–2004, when BP documented statistically significant deflec- tion north of the island. BWASP lacks the resolution needed for meaningful assessment of deflection duration. BP has initiated a scoping project to better understand alternative methods of call tracking in the context of Northstar. If this scoping exercise yields promising results, BP will consider reanalysis of existing data from 2001–2004 with the hope of better understanding deflection duration west of Northstar.

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TABLE 1—RECOMMENDATIONS FROM THE 2011 BP PEER REVIEW PANEL THAT WILL BE CARRIED OUT AND/OR INCORPORATED INTO BP’S MONITORING PLAN FOR THIS FINAL RULE—Continued

Panel recommendation BP Response/commitment

BP should continue to use their proposed approach for counting seals. BP will continue seal monitoring. If Northstar undertakes substantial Additional data should be collected to help interpret the counts, in- work during the basking season, it might make sense to undertake a cluding: recording on-island activities and correlate them with seal behavioral study using island-based observers before, during, and numbers. (It is likely that counts of seals will be influenced mostly by after the work. BP suggests further discussions of this option during onset of spring, however, numbers should also be assessed relative annual planning meetings (described below) if substantial work is to island activity to investigate whether those activities impact the planned during the basking season. numbers of seals counted from the island.). Previously collected seal data should be analyzed for the date when BP agrees to begin reporting dates of the first appearance of basking seals are first seen and the peak date of haul out. seals and peak basking dates beginning in 2014. Counts of seals hauled out on ice in the late autumn or early winter Limited daylight will make this challenging, but BP agrees to attempt would help assess seal use of the area near Northstar at times other autumn observations for basking seals using the same general ap- than the spring and early summer. proach that is used during breakup and will include results in the 2014 annual report if these results are available before the report is finalized (otherwise, results will be reported for the 2011 autumn counts in the 2015 annual report). Counts of seals are intended as a broad measure of use of the area Due to the large range in seal counts from year to year, BP prefers not around the island. One component of the counts is to determine to set a priori thresholds but rather to formalize annual discussions whether additional monitoring is needed, yet no specific thresholds about planned monitoring. These discussions should be based not have been identified that might trigger additional monitoring. Thresh- only on specific numbers of seals observed but also on cir- olds should be established for the initiation of discussions about addi- cumstances surrounding those observations and other information. tional monitoring. These discussions would also allow for consensus building regarding design of additional monitoring. BP suggests that a formal discus- sion to specifically address monitoring requirements (for seals, whales, and acoustical measurements) should be held annually with representatives from BP, NMFS, and the North Slope Borough (NSB). Results of these discussions would be summarized in a sec- tion of the required annual report. Thresholds should also be established related to calling rates for initi- See the response to the previous recommendation. This would be part ation of discussions about additional monitoring of bowheads. of the annual monitoring discussions between BP, NMFS, and the NSB. BP should incorporate environmental factors (i.e., sea ice extent, wind, Because of the inherent difficulties in adding multiple variables to such etc.) in addition to anthropogenic activities, as a covariate in analyses analyses, BP suggests that this be discussed at the annual moni- of impacts from Northstar Island on bowheads. toring meeting between BP, NMFS, and the NSB. BP should continue to deploy one hydrophone (and one back-up unit) BP will continue this practice under this final rule. 1,476 ft (450 m) north of Northstar to monitor anthropogenic sounds from activities associated with the island. BP should continue to record the amount and type of activities at the BP will continue this practice under this final rule. Should additional island (i.e., crew boat trips, hovercraft trips, activities on the island, monitoring be warranted, this would be discussed at the annual etc.). If activity levels change substantially, discussions of additional monitoring meeting between BP, NMFS, and the NSB. monitoring might be warranted. Determine if additional monitoring (e.g., full acoustic array) might be This recommendation repeats several previous recommendations. This needed if levels and types of activities at the island increase or topic would be included in the annual discussions between BP, whether BP’s lower level of monitoring (or other data sets) suggests NMFS, and the NSB. a change in whale behavior or distribution. If any of those events occur, BP should determine through discussions with NMFS and stake holders whether the full array should be deployed or some other monitoring technique implemented. Investigate the possibility of using existing acoustic data to monitor spe- Beginning with the 2011 data set, BP can document calls from species cies other than bowhead whales. Also consider configuring hydro- other than bowheads, but many other species do not call in the vi- phones that would be deployed in the future to record at the higher cinity so the vocalizations would not be picked up by the array. BP frequencies and monitor other marine mammals in addition to will assess the possibility of recording at higher frequencies, but their bowheads. ability to do so is limited by existing hardware. Establish protocols for additional monitoring during autumn migratory Should additional monitoring be warranted, this would be discussed at seasons for bowheads when ‘‘loud’’ sounds are expected to be pro- the annual monitoring meeting between BP, NMFS, and the NSB. duced by Northstar activities. These protocols should be triggered when sounds might be produced and propagated to the migration corridor that are quieter than 180/190 dB (i.e., 160 or even 120 dB). Develop an archive of (1) library of industrial sound sources with asso- BP has provided archived data to the NSB and others in the past and ciated metadata, (2) raw acoustic recordings file, (3) summarized will continue to do so. data (i.e., call counts, call types, etc.) from recordings, and (4) other monitoring data. Archived data will be especially important in the event of a large oil spill or other major impact. This archive should probably be maintained by a university or some other institution not associated with a government agency. The panel acknowledges BP’s willingness to share data. Assess Northstar’s impacts from a cumulative perspective. Each com- Although not specifically linked to this monitoring plan, BP has under- pany’s monitoring efforts, including BP’s, should fit into a larger more taken cumulative effects methods development using an expert comprehensive monitoring program with the objective of assessing panel approach. The method is currently being ‘‘truthed’’ using data cumulative impacts. This is one of the reasons that monitoring data collected in 2008, including Northstar data. should be archived.

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TABLE 1—RECOMMENDATIONS FROM THE 2011 BP PEER REVIEW PANEL THAT WILL BE CARRIED OUT AND/OR INCORPORATED INTO BP’S MONITORING PLAN FOR THIS FINAL RULE—Continued

Panel recommendation BP Response/commitment

Develop a plan for the periodic redeployment of a full array ...... BP will discuss this possibility at the annual monitoring planning meet- ings with NMFS and the NSB.

Reporting Measures NMFS, Office of Protected Resources, Stranding Hotline so that they can come An annual report on marine mammal and NMFS, Alaska Regional Office, no and recover the animal if they choose to monitoring and mitigation will be later than 240 days prior to the do so. expiration of these regulations. This submitted to NMFS, Office of Protected Adaptive Management comprehensive technical report will Resources, and NMFS, Alaska Regional NMFS has included an adaptive Office, on June 1 of each year. The first provide full documentation of methods, results, and interpretation of all management component in the report will cover the period from the regulations governing the take of marine effective date of the LOA through monitoring during the first four and a quarter years of the LOA. Before mammals incidental to operation of the October 31, 2014. Subsequent reports Northstar facility in the U.S. Beaufort will cover activities from November 1 of acceptance by NMFS as a final comprehensive report, the draft Sea. In accordance with 50 CFR one year through October 31 of the 216.105(c), regulations for the proposed following year. Ending each annual comprehensive report will be subject to review and modification by NMFS activity must be based on the best report on October 31 coincides with the available information. As new end of the fall bowhead whale migration scientists. BP will notify NMFS within 24 hours information is developed, through westward through the Beaufort Sea. monitoring, reporting, or research, the The annual reports will provide if more than five ringed seals are killed annually as a result of the specified regulations may be modified, in whole summaries of BP’s Northstar activities. or in part, after notice and opportunity These summaries will include the activity or if any other marine mammal species is injured, seriously injured or for public review. The use of adaptive following: (1) Dates and locations of ice- management will allow NMFS to killed as a direct result of the specified road construction; (2) on-ice activities; consider new information from different activity at Northstar. Information that (3) vessel/hovercraft operations; (4) oil sources to determine if mitigation or must be contained in the incident report spills; (5) emergency training; and (6) monitoring measures should be submitted to NMFS includes: (1) Time, major repair or maintenance activities modified (including additions or date, and location (latitude/longitude) of that might alter the ambient sounds in deletions) if new data suggest that such the incident; (2) the type of equipment a way that might have detectable effects modifications are appropriate for involved in the incident; (3) description on marine mammals, principally ringed subsequent LOAs. seals and bowhead whales. The annual of the incident; (4) water depth, if The following are some of the reports will also provide details of relevant; (5) environmental conditions possible sources of applicable data: ringed seal and bowhead whale (e.g., wind speed and direction, Beaufort • Results from BP’s monitoring from monitoring, the monitoring of Northstar sea state, cloud cover, and visibility); (6) the previous year; sound via the nearshore DASAR (or species identification or description of • Results from general marine similar recording device), descriptions the animal(s) involved; (7) the fate of the mammal and sound research; or of any observed reactions, and animal(s); and (8) photographs or video • Any information which reveals that documentation concerning any apparent footage of the animal (if equipment is marine mammals may have been taken effects on accessibility of marine available). Activities shall not resume in a manner, extent or number not mammals to subsistence hunters. Based until NMFS is able to review the authorized by these regulations or on a recommendation from the peer circumstances of the prohibited take. subsequent LOAs. review panel, the annual reports should NMFS shall work with BP to determine In addition, LOAs shall be withdrawn also include recorded calls of species what is necessary to minimize the or suspended if, after notice and other than bowhead whales (e.g., gray likelihood of further prohibited take and opportunity for public comment, the whales, bearded seals, etc.). ensure MMPA compliance. BP may not Assistant Administrator finds, among If specific mitigation and monitoring resume their activities until notified by other things, the regulations are not are required for activities on the sea ice NMFS via letter, email, or telephone. being substantially complied with or the initiated after March 1 (requiring In the event that BP discovers a dead taking allowed is having more than a searches with dogs for lairs), during the or injured marine mammal and it is negligible impact on the species or stock operation of strong sound sources determined that the cause of the injury or an unmitigable adverse impact on the (requiring visual observations and or death is either unknown or unrelated availability of marine mammal species shutdown procedures), or for the use of to the specified activities at Northstar, or stocks for taking for subsistence uses, new sound sources that have not BP will provide documentation as noted as allowed for in 50 CFR 216.106(e). previously been measured, then a in the previous paragraph to NMFS That is, should monitoring and preliminary summary of the activity, within 24 hours of the discovery. In reporting show that operation of the method of monitoring, and preliminary these two instances, BP may continue to Northstar facility is having more than a results will be submitted within 90 days operate while NMFS reviews the negligible impact on marine mammals after the cessation of that activity. The circumstances of the incident. In or an unmitigable adverse impact on the complete description of methods, addition to notifying the NMFS Office of availability of marine mammal species results, and discussion will be Protected Resources and NMFS Alaska or stocks for taking for subsistence uses, submitted as part of the annual report. Regional Office, BP will also be required then NMFS reserves the right to modify In addition to annual reports, BP will to contact the Alaska Regional Stranding the regulations and/or withdraw or submit a draft comprehensive report to Coordinators or the NMFS Alaska suspend an LOA after public review.

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Previous Activities and Monitoring impacts on marine mammals and on the occurred far offshore of the Northstar The ‘‘Background on the Northstar availability of marine mammals for development and that only 20% (and Development Facility’’ section earlier in subsistence uses from the activity fell likely less) of the beluga population this document and in the proposed rule within the nature and scope of those migrated closer into shore. The (76 FR 39706, July 6, 2011) discussed anticipated and authorized in the proposed rule used the 1992 estimate of activities that have occurred at previous authorization (supporting the the Beaufort Sea stock of beluga whales Northstar since construction began in analysis in the current authorization). of 39,258 individuals. However, it is estimated that the stock has been the winter of 1999/2000. Activities that Comments and Responses occurred at Northstar since 2006 increasing at a maximum annual rate of On July 6, 2011 (76 FR 39706), NMFS 4% (Hill and DeMaster, 1998; Angliss include transportation (e.g., helicopter, published a proposed rule in response hovercraft, tracked vehicles, and and Allen, 2011). Assuming a continued to BP’s request to take marine mammals 4% annual growth rate, the population vessels), production activities (e.g., incidental to operation of offshore oil size could be approximately 89,457 power generation, pipe driving, etc.), and gas facilities in the U.S. Beaufort beluga whales in 2013. This estimate is construction and maintenance activities, Sea, Alaska, and requested comments, a maximum value and does not include and monitoring programs. information, and suggestions concerning Under previous MMPA ITAs, BP has loss of animals due to subsistence the request. During the 30-day public harvest or natural mortality factors. been conducting marine mammal comment period, NMFS received monitoring within the action area to Angliss and Allen (2011) consider the comments from one private individual current annual rate of increase to be satisfy monitoring requirements set and the Marine Mammal Commission unknown, and thus, the population size forth in those authorizations. The (MMC). NMFS has responded to these in 2013 may be less than the estimated monitoring programs have focused comments here. value. Therefore, the 1992 population mainly on bowhead whales and ringed Comment 1: The private citizen letter estimate was used to derive the take seals, as they are the two most common supported issuance of the authorization. estimate. marine mammal species found in the Response: NMFS has issued the Because some of the assumptions Northstar Development area. Monitoring requested authorization. about percentage of individuals likely to conducted by BP includes: (1) Comment 2: Regarding the estimated be present in the area were not based on Underwater and in-air noise take of beluga whales, the MMC notes peer-reviewed literature and instead measurements; (2) monitoring of ringed that some of the assumptions used to were based on scientific conjecture, it seal lairs; (3) monitoring of hauled out estimate take were based on data from has been determined that it is more ringed seals in the spring and summer peer-reviewed literature while other reasonable to estimate take of beluga months; and (4) acoustic monitoring of assumptions had no reasoned whales based on the aerial survey data the bowhead whale migration. explanation. As such, the MMC does not regarding sightings of belugas in the Additionally, although it was not a believe that the information used to area. BWASP data from 2006–2009 note requirement of the regulations or calculate the estimated number of takes very few sightings of belugas in the associated LOAs, BP has also of beluga whales was explained survey block that encompasses incorporated work done by Michael sufficiently or was scientifically sound. Northstar (Clarke et al., 2011a,b). Only Galginaitis. Since 2001, Galginaitis has Additionally, the estimated number of six individuals were sighted in Block 1 observed and characterized the fall takes of beluga whales included in in 2006, and groups of 1–20 individuals bowhead whale hunts at Cross Island. Table 4 of the proposed rule preamble were sighted closer to shore in As required by the regulations and is inconsistent with the number in September 2007 with sightings in Block annual LOAs, BP has submitted annual section 217.142 of the proposed rule. To 1 occurring east of Northstar (Clarke et reports, which describe the activities address both of these concerns, the al., 2011a). In 2010 and 2011, there were and monitoring that occurred at MMC recommends that NMFS require no sightings of belugas in the survey Northstar. BP also submitted a BP to provide a reasoned justification block closest to Northstar (Block 1; comprehensive report, covering the for the requested number of takes of Clarke et al., 2011c, 2012). However, period 2005–2009. The comprehensive beluga whales during the open-water some sightings occurred in Block 2, report concentrates on BP’s Northstar season and ensure that the resulting take which is the next block offshore from activities and associated marine estimate is reflected accurately in Northstar. The 2012 ASAMM report mammal and acoustic monitoring section 217.142 of the regulations. indicates a small number of beluga projects from 2005–2009. However, Response: In developing the estimated whale sightings in Block 1 (maximum of monitoring work prior to 2004 is take of beluga whales, BP used three individuals in one sighting) with summarized in that report, and monitoring data collected before more sightings occurring in Block 2 activities in 2010 at Northstar were construction of Northstar commenced. (Clarke et al., 2013). Based on this described as well. The annual and BP used Bowhead Whale Aerial Survey information, the sighting rates noted comprehensive reports are available on Program (BWASP, now referred to as the prior to Northstar construction, and the Internet at: http:// Aerial Surveys of Arctic Marine average group size, it is estimated that www.nmfs.noaa.gov/pr/permits/ Mammals Project [ASAMM]) aerial 20 beluga whales would be taken by incidental.htm#applications. A survey data from 1979–2000 and LGL Level B harassment annually during the summary of the monitoring was Limited aerial survey data from 1996– open-water season. The inconsistency in provided in the ‘‘Previous Activities and 2000. Data from these two aerial survey take estimates between the preamble Monitoring’’ section of the proposed programs note sightings throughout the and regulatory text has been corrected. rule (76 FR 39706, July 6, 2011). That Beaufort Sea. Therefore, assumptions Comment 3: The MMC notes that BP’s information has not changed and is not needed to be made based on how many application did not specify Level A and repeated here. NMFS has determined beluga whales might occur within the B harassment zones for each of its that BP complied with the mitigation Level B harassment ensonified area proposed activities. Instead, it indicated and monitoring requirements set forth around Northstar. Using data from that it would (1) shut down activities if in regulations and annual LOAs. In BWASP and LGL surveys, it was noted a marine mammal was within the addition, NMFS has determined that the that the majority of the beluga migration respective in-water Level A harassment

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zone for impulsive sources and (2) cause injury at SPLs at or above 149 dB do not exceed those prescribed SPL conduct acoustic measurements for any re 20 mPa (rms). Table 5 in BP’s intensities at the affected marine novel sound sources that produce in-air application identifies sound levels of mammal’’) may have led to some sounds of 90 dB re 20 mPa (rms) or several commonly used devices on confusion about whether or not a greater. The MMC notes their Northstar Island. In-air broadband power-down would be required. This appreciation for BP’s measurements of sounds were found to be between language was meant to convey the same in-water and in-air sound sources to approximately 65 and 81 dB re 20 mPa. requirement included in other date. However, it is not clear that all Southall et al. (2007) reference authorizations that require an operator sound sources have been identified and Blackwell et al. (2004b) where reactions to reduce the sound output from a that BP has in place reasonable plans to of ringed seals to pipe-driving were source to ensure that a marine mammal monitor their impacts. To ensure that noted. The authors noted that there would not enter into the exclusion zone. sound propagation from all important were no observable responses or brief If a power-down is insufficient to sources is measured and appropriate orientation responses to in-air received reduce the SPL to a level where the harassment zones are established, the levels of 60–80 dB re 20 mPa. Based on animal would not be ensonified to those MMC recommends that NMFS: (1) this information, only minor Level B levels, then a full shutdown is required. require BP to identify all untested or behavioral harassment responses are Per the MMC’s recommendation, novel impulsive and continuous sound anticipated from any of the in-air NMFS has added the requirement for a sources; (2) work with BP to determine sounds produced on the island. ramp-up technique in the case of impact activity- and site-specific in-air and in- For more than a decade, BP has hammering activities to this final rule. water Level A and B harassment zones implemented an extensive acoustic A ramp-up technique shall be used at for all those sources (including using monitoring program to measure sounds the beginning of each day’s in-water pile the 120-dB re 1 mPa (rms) threshold for produced by the island’s activities and driving activities and if pile driving continuous sources); and (3) require BP to record calls of bowhead whales resumes after it has ceased for more to monitor those zones during all migrating westward through the than 1 hour. If a vibratory driver is used, operations of the various sound sources Beaufort Sea in the fall. In-water sound BP is required to initiate sound from and report its findings. levels from continuous sources often fell vibratory hammers for 15 seconds at Response: As noted earlier in this to 120–140 dB re 1 mPa (rms) within reduced energy followed by a 1-minute document, activities anticipated to 1.2–2.5 mi (2–4 km) of the island. waiting period. The procedure shall be occur during the period of this final rule Because most cetaceans migrate farther repeated two additional times before (i.e., January 2014–January 2019) are a offshore, many of them will occur full energy may be achieved. If a non- continuation of activities that have been outside the area ensonified to Level B diesel impact hammer is used, BP is occurring for several years. Therefore, harassment thresholds. BP will continue required to provide an initial set of acoustic measurements have been made to conduct an acoustic monitoring strikes from the impact hammer at for the majority of sound sources to be program under these final regulations, reduced energy, followed by a 1-minute used during activities occurring under as well as its summer visual monitoring waiting period, then two subsequent these regulations. In its MMPA program of hauled out seals. In the case sets. If a diesel impact hammer is used, authorization request, BP noted all of activities that will introduce BP is required to turn on the sound sound sources that are reasonably likely impulsive sounds into the marine attenuation device for 15 seconds prior to be used during the course of the next environment above 180 dB re 1 mPa to initiating pile driving. 5 years of operation. However, there (rms), BP is required to employ trained None of BP’s activities would require could be an unforeseen repair that may biological visual observers to watch for implementation of ramp-up, shutdown, require use of a device not previously marine mammals. NMFS has or power-down procedures based on in- anticipated. At such time that the sound determined that the protocols BP air thresholds; therefore, none are source is identified, BP is required (by currently has in place and as required required in the final rule. these regulations) to conduct acoustic by these final regulations are sufficient Comment 5: The MMC recommends measurements on that source. to accurately record sounds produced that NMFS require BP to conduct NMFS has established in-water by island activities and for monitoring for 30 minutes before, acoustic thresholds that identify the implementing appropriate mitigation during, and after all in-water activities received sound levels above which and monitoring procedures. that use impulsive or continuous hearing impairment or other injury Comment 4: The MMC recommends sources (e.g., pile driving, pile removal, could potentially occur, which are 180 that NMFS require BP to use ramp-up, drilling, etc.). Such monitoring should and 190 dB re 1 mPa (rms) for cetaceans shutdown, and power-down procedures contribute to a dataset that can be used and pinnipeds, respectively (NMFS, with all activities that require to inform decisions regarding similar 1995, 2000). As identified in BP’s establishment of harassment zones activities in the future. monitoring plan and required in these based on either impulsive or continuous Response: As noted in the MMC final regulations, to prevent or at least noise, whether in-air or in-water. letter, monitoring for 30 minutes prior minimize exposure to sound levels that Response: Currently, the only types of to initiation of the activity and during might cause hearing impairment, activities that would likely require the the activity was contained in BP’s exclusion zones will be established and establishment of 180– and 190–dB re 1 application and the proposed rule. This monitored for the presence of seals and mPa (rms) exclusion zones are impact protocol is contained in this final rule. whales for activities that will produce hammering activities. BP proposed in However, there was no mention of impulsive sounds above these levels. their application (and NMFS has monitoring for up to 30 minutes after NMFS has not established in-air required in these final regulations) the the cessation of such activities in BP’s acoustic thresholds identifying received implementation of shutdown and application or the proposed rule. NMFS sound levels above which hearing power-down procedures if marine has added such a requirement to the impairment or other injury could mammals enter into the respective final rule. Therefore, under this final potentially occur. Southall et al. (2007) exclusion zones. The wording in the rule, BP is required to conduct propose that devices producing single or proposed rule (i.e., ‘‘. . . reduce its SPL monitoring for 30 minutes before, multiple pulse or nonpulse sounds may sufficiently to ensure that received SPLs during, and after all in-water activities

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that use impulsive or continuous be used to provide far-field monitoring. Northstar pipeline itself, flow through sources (e.g., pile driving, pile removal, The MMC believes that those the line can be stopped, thus reducing drilling, etc.). The data collected by BP technologies offer feasible monitoring the amount of oil that would be spilled during these monitoring efforts will be techniques for future industry activities, into the marine environment, thus used by NMFS to inform future but that legal constraints on using them making the situation different from the decisions regarding similar activities. (e.g., Federal Aviation Administration April 2010 incident in the Gulf of Comment 6: The MMC commends BP [FAA] requirements) have yet to be Mexico. NMFS’ EA for this action also for its commitment to conducting addressed. To further improve contains an analysis of the potential nearshore and offshore passive acoustic mitigation and monitoring methods, the effects of an oil spill on marine monitoring to assess bowhead whale MMC recommends that NMFS work mammals, their habitats, and calls during migration and recommends with BP and other industry operators to: subsistence activities. that NMFS work with BP to continue its (1) evaluate the potential for using new BP has produced oil from Northstar monitoring, analysis, and reporting of technologies for mitigation and since October 2001. There have been no the acoustic data BP collects on the monitoring purposes; and (2) when and major oil spills at Northstar or in the occurrence, abundance, distribution, as appropriate, consult with the FAA marine environment since production and movement of bowhead whales for and other responsible agencies to (a) began. BP’s annual reports note all spills periods before, during, and after all of clarify existing constraints on the use of that occur on a yearly basis as a result the proposed activities (especially the such technology and (b) devise methods of conducting oil production operations. use of vibratory or impact hammers and to implement the new technologies Only small spill events have been noted. transiting of the vessels). The MMC also within those constraints. While spills of basic materials, such as encourages BP to report data collected Response: NMFS concurs that hydraulic fluids and motor oil, occur from any other vocalizing cetacean. monitoring techniques are constantly annually, NMFS has no reason to Response: As noted in BP’s evolving, especially in the Arctic. As believe that there will be a major spill application and in the proposed rule, BP appropriate, NMFS will work with BP from the Northstar facility. For example, attempts to limit repairs requiring the and other industry operators to evaluate the five reports noting activity and use of vibratory or impact hammers the potential for using new technologies incidents at the facility from November during the ice-covered season or break- for mitigation and monitoring purposes. 1, 2005, through October 31, 2010, all up period when cetaceans are not If after those discussions it is indicate that there were 91 reportable present in the area. Acoustic recorders determined that certain techniques small spills (such as 0.25 gallons of are only deployed for approximately 30 should be pursued further, NMFS will hydraulic fluid, 3 gallons of power days each year during the fall bowhead consult with the FAA and other steering fluid, or other relatively small whale migration westward through the responsible agencies to clarify existing amounts of sewage, motor oil, hydraulic Beaufort Sea. It is logistically constraints on the use of such oil, sulfuric acid, etc.), three of which impracticable to deploy acoustic technology and devise methods to reached Beaufort water or ice. All recorders during the ice-covered season. implement the new technologies within material (for example, 0.03 gallons of Therefore, the recorders are deployed at those constraints. hydraulic fluid) from these three spills times when cetaceans most commonly Comment 8: The MMC states that BP was completely recovered, with no occur in the area, which is during the and NMFS are too dismissive of the resulting impacts to marine mammals, open-water season and sometimes probability of a major oil spill occurring their habitats, or subsistence uses of during the break-up period. If vibratory and the risks to marine mammals. The marine mammals. Based on BP’s ability or impact hammering activities or vessel MMC notes that the risk of an oil spill to clean up past material spills, NMFS transits occur during this time period, is not simply a function of its believes that any future material spills then the acoustic monitoring will be in probability of occurrence; it also must will be quickly contained and cleaned place. BP has agreed to begin reporting take into account the consequences if up completely. recorded vocalizations of other cetacean such a spill occurs. Those consequences Comment 9: The MMC states that BP’s species (see Table 1 in the ‘‘Monitoring are, in part, a function of the spill’s current Oil Discharge Prevention and Plan Peer Review’’ section earlier in this characteristics and the ability of the Contingency Plan (ODPCP) outlines document). However, it is unlikely that industry and government to mount an several measures for preventing and many gray or beluga whale calls will be effective response. The MMC states: responding to a spill, as summarized in detected. Gray whales are infrequent ‘‘The assertion that BP would be able to the application. As a result of the Gulf callers and are not commonly respond adequately to any kind of major of Mexico Deepwater Horizon oil spill, encountered near Northstar. Belugas spill is simply unsupported by all the the Bureau of Ocean Energy tend to occur well to the north of available evidence.’’ Management (BOEM) recently issued Northstar and call at frequencies that are Response: The proposed rule (76 FR revised requirements for new or unlikely to carry to the location of the 39706, July 6, 2011) described design previously submitted development and array or to be detectable within the features, as well as routine inspections production plans. In accordance with current recording bandwidth of BP’s and maintenance conducted by BP to those revised requirements, operators recorders. BP will assess the possibility minimize the likelihood of a major oil must demonstrate adequate planning of recording at higher frequencies, but spill occurring at Northstar Island. and preparation to ensure that oil and their ability to do so is limited by Additionally, emergency and oil spill gas activity on the Outer Continental existing hardware. response training occurs at various Shelf conforms with all applicable Comment 7: The peer-review panel at times throughout the year at Northstar. federal laws and regulations, is safe, the 2011 Open-Water meeting suggested The proposed rule also contained an conforms to sound conservation that the oil and gas industry investigate extensive discussion on the potential practices and does not cause undue or methods of far-field monitoring that do effects of oil to cetaceans and pinnipeds serious harm or damage to the human, not require visual observers (i.e., in the area and their habitat (see 76 FR marine or coastal environment (30 CFR unmanned aircraft). The panel also 39722–39726 and 39728–39730, July 6, 250.202). It also requires operators to noted that other new technologies (i.e., 2011). That discussion noted that in the revise blowout and worst-case discharge unmanned underwater vehicles) could unlikely event of an oil spill from the scenarios (Notice to Lessees NTL 2010–

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N06) and to obtain additional resources Department of the Interior’s BSEE is Comment 10: The MMC recommends and capabilities to help them avoid a the Federal agency with jurisdiction that NMFS condition the final rule to major oil spill or respond if such a spill over determining the sufficiency of require BP to suspend its activities if occurs. To clarify its existing response pollution prevention measures relating more than five ringed seals are killed in capabilities, BP should provide a to offshore oil and gas operations. BSEE any year, or any other marine mammal realistic review and demonstration of its reviews the plan to ensure that is seriously injured or killed and the response capabilities (e.g., in-situ identified measures are in keeping with injury or death could have been caused burning and mechanical recovery) and applicable Federal regulations found in by those activities (e.g., a fresh carcass update its response plans based on 30 CFR 250 Subpart C and industry is found). NMFS should investigate any lessons learned from the Deepwater standards. Federal agencies are able to such incident to assess the cause and Horizon oil spill and the conditions provide input regarding mitigation full impact (e.g., the types of injuries, likely to be encountered in the Beaufort measures through updates of the North the number of animals involved) and to Sea. Slope Subarea Contingency Plan, which determine what modifications in BP’s The MMC understands that BP has is part of the Alaska Federal/State activities are needed to avoid additional submitted a revised ODPCP to the Preparedness Plan for Response to Oil injuries or deaths. This will require that BOEM and that it has yet to be and Hazardous Substance Discharges/ the appropriate investigators have approved. For such purposes, NMFS Releases (May 2012). By regulation, timely access to the carcass(es), which should work closely with BOEM to industry is required to comply with the will require that BP take steps to ensure that oil and gas operations are applicable standards established in provide such access (e.g., by securing safe. Given that BOEM, the state of these Area Contingency Plans. As a the carcass(es) and providing transport Alaska, and the U.S. Coast Guard have member of the Alaska Regional for investigators to the site). Full yet to approve the plan, it is not clear Response Team, NMFS was given a full investigation of such incidents is how NMFS can decide that the plan is opportunity to submit input to this necessary to provide information adequate. For that reason, the MMC document establishing requirements for regarding the potential impact of recommends that NMFS review BP’s mitigation for all offshore operators. BP Northstar’s activities on marine revised ODPCP to determine whether has revised their plans to incorporate mammals and to devise the means for the plan is adequate for preventing and the lessons learned from the Deep Water avoiding such occurrences in the future. responding to a major oil spill, convey Horizon event as well as the Response: NMFS has added language the findings of this determination to requirements contained in the relevant to § 217.146 of this final rule requiring BOEM, include a full description of Notices to Lessees for calculating the BP to notify NMFS within 24 hours if response capabilities in the final rule, worst-case discharge volume for the and incorporate sufficient mitigation more than five ringed seals are killed Northstar facility. BP’s plan was also annually as a result of the specified measures into that rule to address revised recently to respond to BSEE response capabilities, thereby activity or if any other marine mammal regulations relating to updated safety species is injured, seriously injured or minimizing the likelihood of spill- standards and practices. The Northstar related serious injury to or mortality of killed as a direct result of the specified ODPCP was made available for public activity at Northstar. The specific marine mammals and other wildlife and and government comment during the prevent serious degradation of the activity that resulted in the injury or State of Alaska renewal process which death of the marine mammal will be marine environment. resulted in an approved plan by the Response: At the proposed rule stage, halted until NMFS can review the State on February 10, 2012. BSEE’s Oil staff from NOAA’s Office of Response circumstance of the incident and work Spill Response Division is in the and Restoration reviewed BP’s oil spill with BP to modify operations, if it is prevention and response measures and process of completing its review of this deemed necessary. Information that capabilities and determined that the plan and will ensure that all applicable must be contained in the incident report likelihood of a major uncontrolled well regulations have been followed. submitted to NMFS includes: (1) time, blow-out incident is small. Moreover, As noted earlier in this response to date, and location (latitude/longitude) of that review indicated that BP continues comment, experts in NOAA’s Office of the incident; (2) the type of equipment to implement appropriate prevention Response and Restoration reviewed the involved in the incident; (3) description protocols and utilize the best available updated ODPCP. NOAA’s comments of the incident; (4) water depth, if technology in the event of a major well and suggestions were shared with BSEE, relevant; (5) environmental conditions blow-out incident. BP’s revised plan as requested by the MMC. Those (e.g., wind speed and direction, Beaufort was again submitted to NOAA’s Office comments were considered by BSEE in sea state, cloud cover, and visibility); (6) of Response and Restoration. Based on its review of BP’s ODPCP. BP’s response species identification or description of that review, Office of Response and capabilities were summarized in the the animal(s) involved; (7) the fate of the Restoration staff determined that BP proposed rule (76 FR 39706, July 6, animal(s); and (8) photographs or video understands and addresses the 2011) and are described in greater detail footage of the animal (if equipment is complexity involved in responding to in the ODPCP (available on the Internet available). Activities shall not resume potential oil spills at Northstar and that at: http://www.nmfs.noaa.gov/pr/ until NMFS is able to review the BP has adequately accounted for permits/incidental.htm). NMFS assessed circumstances causing the exceedance different scenarios in order to deal whether additional mitigation measures of the authorized take. NMFS will work successfully with the various types of addressing response capabilities should with BP to identify additional measures spills that could occur. While the be added to this final rule and to minimize the likelihood that more review revealed some areas of the determined that none were appropriate. than five ringed seals will not be killed application that would warrant revised Moreover, BP will conduct any needed each year (or other marine mammal trajectory analysis, the reviewers oil spill response activities that occur in species that may have been injured, determined that BP’s ODPCP the vicinity of marine mammals in seriously injured, or killed) from BP’s sufficiently and accurately analyzes the accordance with NOAA’s Marine activities. BP may not resume their scope and oil spill response strategies Mammal Oil Spill Response Guidelines, activities until notified by NMFS via for the Northstar oil production facility. to the extent practicable. letter, email, or telephone.

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In the event that BP discovers a dead by injury or mortality of ringed seals occur near a development like Northstar or injured marine mammal and it is from ice road construction activities. was defined as the physically affected determined that the cause of the injury Because of the slow speed of hovercraft area plus a 328 ft (100 m) buffer zone. or death is either unknown or unrelated and vessels used for Northstar A study from a drill site in the Canadian to the specified activities at Northstar, operations, it is highly unlikely that Beaufort Sea provided similar results BP will provide documentation as noted there would be any take from these (Harwood et al., 2007). The Northstar in the previous paragraph to NMFS activities. ice road is typically flooded and within 24 hours of the discovery. In Because BP operates the Northstar thickened and/or cleared of snow. The these two instances, BP may continue to facility year-round, take of marine physically affected ice road area is about operate while NMFS reviews the mammals could occur at any time of 1,312 ft (400 m) wide, and this is circumstances of the incident. In year. However, take of all marine extended with 328 ft (100 m) on either addition to notifying the NMFS Office of mammal species that could potentially side to a total width of 1,969 ft (600 m) Protected Resources and NMFS Alaska occur in the area is not anticipated to derive the zone of displacement. This Regional Office, BP will also be required during all seasons. This is because of zone of displacement (or impact zone) to contact the Alaska Regional Stranding the distribution and habitat preferences around physically affected areas such as Coordinators or the NMFS Alaska of certain species during certain times of the ice road, work areas on the ice, and Stranding Hotline so that they can come the year. BP provided a full description Northstar Island itself, is used to and recover the animal if they choose to of the methodology used to estimate calculate the number of seals potentially do so. takes in its application (see ADDRESSES), affected (Richardson et al., 2008b). which is also provided in the proposed Estimated Take of Marine Mammals rule (76 FR 39706, July 6, 2011). Please (1) Bearded Seal One of the main purposes of NMFS’ refer to those documents for the full The few bearded seals that remain in effects assessments is to identify the explanation, as only a short summary is the area during winter and spring are permissible methods of taking, which provided here. As noted earlier in this generally found north of Northstar in involves an assessment of the following document, there was a slight change to association with the pack ice or the edge criteria: the nature of the take (e.g., the method for calculating the take of of the landfast ice. Based on available resulting from anthropogenic noise vs. beluga whales during the open-water data, and the ecology of bearded seals, from ice road construction, etc.); the season. That is explained further in this it is unlikely that more than a few regulatory level of take (i.e., mortality section. bearded seals (and most likely none) vs. Level A or Level B harassment); and will be present in close proximity (<328 the amount of take. In the ‘‘Potential Estimated Takes in the Ice-Covered ft [100 m]) to the ice road and Northstar Effects of the Specified Activity on Season itself during the ice-covered season. The Marine Mammals’’ section of the Potential sources of disturbance to most probable number of bearded seals proposed rule (76 FR 39706, July 6, marine mammals from the Northstar predicted to be potentially impacted by 2011), NMFS identified the different project during the ice-covered period Northstar activities during the ice- types of effects that could potentially consist primarily of vehicle traffic along covered season in any one year is zero. result from activities at BP’s Northstar the ice-road, helicopter traffic, and the However, to allow for unexpected facility. ongoing production and drilling circumstances that might lead to take of Except with respect to certain operations on the island. During the ice- bearded seals when they are present, BP activities not pertinent here, the MMPA covered season, the ringed seal is the requested take of two bearded seals per defines ‘‘harassment’’ as: ‘‘any act of only marine mammal that occurs year during the ice-covered period by pursuit, torment, or annoyance which (i) regularly in the area of landfast ice Level B harassment. has the potential to injure a marine surrounding Northstar. Spotted seals do mammal or marine mammal stock in the not occur in the Beaufort Sea in the ice- (2) Ringed Seal wild [Level A harassment]; or (ii) has covered season. Small numbers of Individual ringed seals in the the potential to disturb a marine bearded seals occur occasionally in the Northstar area during the ice-covered mammal or marine mammal stock in the landfast ice in some years. Bowhead and season may be displaced a short wild by causing disruption of behavioral beluga whales are absent from the distance away from the ice road patterns, including, but not limited to, Beaufort Sea in winter (or at least from corridors connecting the production migration, breathing, nursing, breeding, the landfast ice portions of the Beaufort islands to the mainland. Seal feeding, or sheltering [Level B Sea), and in spring their eastward monitoring each spring since 2005, harassment].’’ Take by Level B migrations are through offshore areas based on visual observations from the harassment is anticipated from north of the landfast ice, which Northstar module in the May 15–July 15 operational sounds extending into the excludes whales from areas close to period, has shown continued open-water migration paths of cetaceans Northstar. Gray whales are also absent occurrence of ringed seals near and open-water areas where pinnipeds from this part of the Beaufort Sea during Northstar facilities, though with large might be present, from the physical the ice-covered season. Therefore, takes variations within and between years presence of personnel on the island, of marine mammals during the ice- (Aerts, 2009). During most of the year, vehicle traffic, and by helicopter covered season were only estimated for all age and sex classes, except for overflights. Take of hauled out ringed and bearded seals. newborn pups, could occur in the pinnipeds, by harassment, could also Potential displacement of ringed seals Northstar area. Ringed seals give birth in occur as a result of in-air sound sources. was more closely related to physical late March and April; therefore, at that Certain species may have a behavioral alteration of sea ice by industry than to time of year young pups may also be reaction to the sound emitted during the exposure to detectable levels of low- encountered. activities; however, hearing impairment frequency industrial sound during Detailed monitoring of ringed seals as a result of these activities is not winter and spring (Williams et al., 2006; near Northstar was done during spring anticipated because of the low source Richardson et al., 2008b; Moulton et al., and (in some years) winter of 1997 to levels for much of the equipment that is MS). The distance within which 2002, including three years of Northstar used. There is also a potential for take displacement of ringed seals might construction and initial oil production

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(2000–2002). BP estimated annual takes taken during both periods, NMFS has population (Nelson et al., n.d.), and that of ringed seal based on data collected authorized the take of eight ringed seals younger animals tend to occur closer to from the intensive aerial monitoring per year by Level B harassment during shore. Therefore, although all age and program conducted in 1997–2002, using the break-up period. sex classes could be encountered, a series of steps outlined in BP’s MMPA bearded seals encountered in the Estimated Takes in the Open-Water application and the proposed rule. Northstar project area during the open- Season Those results indicate that 3–8 seals water period are likely to be young, non- could be present in the potential impact Potential sources of disturbance to reproductive animals. Bearded seals, if zone (Table 3 in BP’s application). To marine mammals from the Northstar present, may be exposed to noise and allow for unexpected circumstances that project during the open-water period other stimuli from production activities might lead to take of ringed seals, BP consist primarily of hovercraft and ACS and vessel and aircraft traffic on and requested take of eight ringed seals per vessels used for transfers of crew and around the island. To allow for year during the ice-covered period by supplies, barge and tugboat traffic, unexpected circumstances, BP Level B harassment. In the unlikely helicopter traffic, and the ongoing requested the take of one bearded seal event that a ringed seal lair is crushed production and drilling operations on per year during the open-water period. or flooded, BP also requested take of up the island. During the open-water (3) Ringed Seal to five ringed seals (including pups) by season, all six species can potentially be injury or mortality per year. present in the Northstar area. Estimated Because ringed seals are resident in annual numbers of potential open-water the Beaufort Sea, they are the most Estimated Takes in the Break-up Season takes for each of these six species are abundant and most frequently Potential sources of disturbance to summarized next. encountered seal species in the marine mammals from the Northstar Northstar area. During the open-water (1) Spotted Seal project during the break-up period period, all sex and age classes (except consist primarily of hovercraft and Pupping and mating occur in the neonates) could potentially be helicopter traffic, as well as the ongoing spring when spotted seals are not in the encountered. BP used a series of steps production and drilling operations on Beaufort Sea. Hence, young pups would and assumptions to estimate the number the island. Spotted seals and bowhead, not be encountered in the Northstar of seals that potentially might be gray, and beluga whales are expected to Development area. All other sex and age harassed by noise from Northstar be absent from the Northstar project area classes may be encountered in small production activities or from vessel and during the break-up period. Therefore, numbers during late summer/autumn. aircraft traffic, which is explained in take of those species during the break- Spotted seals are most often found in BP’s MMPA application and the up period was not estimated. waters adjacent to river deltas during proposed rule. Based on those Similar to the ice-covered season, BP the open-water season in the Beaufort assumptions, BP estimated that 15 predicts that only very few bearded Sea, and major haul-out concentrations ringed seals might be present and seals (and most likely none) could be are absent close to the project area. A potentially affected during the open- present within the potential impact small number of spotted seal haul-outs water season. zone around the ice road and Northstar are (or were) located in the central facilities during the break-up period. Beaufort Sea in the deltas of the Colville (4) Bowhead Whale The most probable number of bearded River (which is more than 50 mi [80 km] Bowhead whales are not resident in seals predicted to be potentially from Northstar) and, previously, the the region of activity. During the open- impacted by Northstar activities during Sagavanirktok River. No spotted seals water season, relatively few westward break-up in any one year is zero. were positively identified during BP’s migrating bowheads occur within 6.2 mi However, to account for the possible Northstar marine mammal monitoring (10 km) of Northstar during most years. presence of low numbers of bearded activities, although a few spotted seals However, in some years (especially seals during this time, NMFS has might have been present. A total of 12 years with relatively low ice cover) a authorized the take of two bearded seals spotted seals were positively identified larger percentage of the bowhead per year during the break-up season. near the source vessel during open- population migrates within 6.2–9.3 mi Impacts to ringed seals from Northstar water seismic programs in the central (10–15 km) of Northstar (Treacy, 1998; activities during the break-up period are Alaskan Beaufort Sea generally near Blackwell et al., 2007, 2009). The anticipated to be similar to those Northstar from 1996 to 2001 (Moulton bowhead whale population in the predicted during the ice-covered period. and Lawson, 2002). Numbers seen per Bering-Chukchi-Beaufort area was Additionally, the number of ringed seals year ranged from zero (in 1998 and estimated to include approximately present within the potential impact 2000) to four (in 1999). To account for 10,545 animals (CV=0.128) in 2001. To zone during the break-up period is the possibility that spotted seals could estimate the 2013 population size for expected to be similar to the number occur in small numbers in the proximity purposes of calculating potential present during the ice-covered season. It of Northstar, NMFS has authorized the ‘‘takes’’, the annual rate of increase was is possible that some of these seals are take of five spotted seals per year during assumed to be steady at 3.4% (George et the same individuals already counted as the open-water period by Level B al., 2004). Based on these figures, the present during the latter stages of the harassment. 2013 population size could be ice-covered season (B. Kelly, pers. approximately 15,750 bowhead whales. comm.). Thus, if any seals were affected (2) Bearded Seal There are few data on the age and sex during break-up, it is probable that some During the open-water season, composition of bowhead whales that of these would be the same individuals. bearded seals are widely and sparsely have been sighted near the Prudhoe Bay BP states that the requested Level B take distributed in areas of pack ice and open area. The little available data from the of eight ringed seals per year during the water, including some individuals in area and more extensive data from more ice-covered periods of 2014–2019 is relatively shallow water as far south as easterly parts of the Alaskan Beaufort expected to also cover potentially Northstar. Studies indicate that pups Sea in late summer/autumn (Koski and affected seals during break-up. and other young bearded seals up to 3 Johnson, 1987; Koski and Miller, 2002, However, in case the same seals are years of age comprise 40–45% of the 2009) suggest that almost all age and sex

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categories of bowheads could be et al., 2007). The broadband received The few animals involved could encountered, i.e., males, non-pregnant level approximately 1,476 ft (450 m) include all age and sex classes. Most of females, pregnant females, and calves seaward from Northstar did not the few belugas that could be (mostly 3–6 months old). Newly born exceeded 120 dB 1 mPa in the encountered would be engaged in calves (<1 month old) are not likely to operational period 2004–2008 (95th migration, so it is unlikely that a given be encountered during the fall (Nerini et percentiles), except when a vessel was beluga would be repeatedly ‘‘taken by al., 1984; Koski et al., 1993). The passing close to Northstar or the harassment’’. potential take of bowhead whales from acoustic recorders (maximum levels). To As noted in the response to comments Northstar activities would be limited to account for the possibility that a low found earlier in this document Level B harassment (including number of gray whales could occur near (Comment 2), take of beluga whales has avoidance reactions and other Northstar, BP requested take of two gray not been estimated the same way it was behavioral changes). Most bowheads whales per year during the open-water in the proposed rule. The new that could be encountered would be period by Level B harassment. explanation is provided here. BWASP migrating, so it is unlikely that an (6) Beluga Whale data from 2006–2009 note very few individual bowhead would be harassed The Beaufort Sea beluga population sightings of belugas in the survey block more than once. that encompasses Northstar (Clarke et Based on the amount of time bowhead was estimated at 39,258 individuals in al., 2011a,b). Only six individuals were whales are expected to be present in the 1992, with a maximum annual rate of sighted in Block 1 in 2006, and groups general vicinity of the Northstar increase of 4% (Hill and DeMaster, of 1–20 individuals were sighted closer Development area and the fact that most 1998; Angliss and Allen, 2009). to shore in September 2007 with of the whales migrate past the area Assuming a continued 4% annual sightings in Block 1 occurring east of beyond the 120-dB sound isopleths growth rate, the population size could Northstar (Clarke et al., 2011a). In 2010 (NMFS’ threshold for Level B be approximately 89,457 beluga whales and 2011, there were no sightings of harassment from continuous sound in 2013. However, the 4% estimate is a belugas in the survey block closest to sources), which typically extend out maximum value and does not include Northstar (Block 1; Clarke et al., 2011c, less than 1.24–2.5 mi (2–4 km) from the loss of animals due to subsistence 2012). However, some sightings island, it is estimated that only a small harvest or natural mortality factors. occurred in Block 2, which is the next number of bowhead whales will be Angliss and Allen (2009) consider the block offshore from Northstar. The 2012 taken by harassment each year as a current annual rate of increase to be ASAMM report indicates a small result of BP’s activities. Therefore, BP unknown. Thus, the population size in number of beluga whale sightings in requested take of 15 bowhead whales 2013 may be less than the estimated Block 1 (maximum of three individuals per year during the open-water season value. Additionally, the southern edge in one sighting) with more sightings by Level B harassment. of the main fall migration corridor is approximately 62 mi (100 km) north of occurring in Block 2 (Clarke et al., (5) Gray Whale the Northstar region. A few migrating 2013). Based on this information, the Gray whales are uncommon in the belugas were observed in nearshore sighting rates noted prior to Northstar Prudhoe Bay area, with no more than a waters of the central Alaskan Beaufort construction, and average group size, it few sightings in summer or early Sea by aerial and vessel-based surveyors is estimated that 20 beluga whales autumn in any one year, and usually no during seismic monitoring programs would be taken by Level B harassment sightings (Miller et al., 1999; Treacy, from 1996–2001 (LGL and Greeneridge, annually during the open-water season. 2000, 2002a,b). Small numbers of gray 1996a; Miller et al., 1997, 1998b, 1999). Summary of Authorized Take whales were sighted on several Results from aerial surveys conducted occasions in the central Alaskan in 2006–2008 during seismic and BP requested and NMFS has Beaufort, e.g., in the Harrison Bay area shallow hazard surveys in the Harrison authorized the take of six marine (Miller et al., 1999; Treacy, 2000), in the Bay and Camden Bay area also show mammal species incidental to Camden Bay area (Christie et al., 2009) that the majority of belugas occur along operational activities at the Northstar and one single sighting near Northstar the shelf break, although there were facility. However, because some of these production island (Williams and some observations in nearshore areas species only occur in the Beaufort Sea Coltrane, 2002). Several single gray (Christie et al., 2009). Vessel-based on a seasonal basis, take of all six whales have been seen farther east in surveyors observed a group of three species has not been authorized for an the Canadian Beaufort Sea (Rugh and belugas in Foggy Island Bay in July entire year. BP broke out its take Fraker, 1981; LGL Ltd., unpubl. data), 2008, during BP’s Liberty seismic requests into three seasons: ice-covered indicating that small numbers must survey (Aerts et al., 2008) and small season; break-up period; and open-water travel through the Alaskan Beaufort groups of westward traveling belugas season. Ringed and bearded seals are the during some summers. No specific data have occasionally been sighted around only species for which take was on age or sex composition are available Northstar and Endicott, mostly in late requested (and has been authorized) in for the few gray whales that move east July to early/mid-August (John K. all three seasons. Take of all six species into the Beaufort Sea. All sex and age Dorsett, Todd Winkel, BP, pers. comm.). was only requested and authorized for classes (including pregnant females) Any potential take of these beluga the open-water season. With the could be found, with the exception of whales in nearshore waters is expected exception of the request for five ringed calves less than 6 months of age. to be limited to Level B harassment. seal (including pups) takes by injury or Gray whales typically do not show Belugas from the Chukchi stock occur in mortality per year, all requested takes avoidance of sources of continuous the Alaskan Beaufort Sea in summer but are by Level B harassment. Table 2 in industrial sound unless the received are even less likely than the Beaufort this document summarizes the broadband level exceeds approximately stock to be encountered in the nearshore abundance, take estimates, and percent 120 dB re 1 mPa (Malme et al., 1984, areas where sounds from Northstar will of population for the six species for 1988; Richardson et al., 1995b; Southall be audible. which NMFS has authorized take.

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TABLE 2—POPULATION ABUNDANCE ESTIMATES, TOTAL ANNUAL AUTHORIZED TAKE (WHEN COMBINING TAKES FROM THE ICE-COVERED, BREAK-UP, AND OPEN-WATER SEASONS), AND PERCENTAGE OF POPULATION THAT MAY BE TAKEN FOR THE POTENTIALLY AFFECTED SPECIES

Total annual Total annual authorized Percentage of Species Abundance authorized injury or stock or Level B take mortality population take

Ringed Seal ...... 1∼250,000 31 5 0.01 Bearded Seal ...... 1 155,000 5 0 <0.01 Spotted Seal ...... 1 141,479 5 0 <0.01 Bowhead Whale ...... 2 15,750 15 0 0 .1 Beluga Whale ...... 1 39,258 20 0 0.05 Gray Whale ...... 1 19,126 2 0 0 .01 1 Abundance estimates in NMFS 2011 Alaska SAR (Allen and Angliss, 2012). 2 Estimate from George et al. (2004) with an annual growth rate of 3.4%.

Because Prudhoe Bay (and the U.S. whales. There is the potential for a which is more than 50 mi (80 km) west Beaufort Sea as a whole) represents only small number of injuries or mortalities of the Northstar Development area, than a small fraction of the Arctic basin to ringed seals (no more than five per in the waters surrounding Northstar. where these animals occur, NMFS has year) as a result of ice road construction Ringed and bearded seals could be determined that only small numbers of activities during the ice-covered season. found in the area year-round. However, the marine mammal species or stocks in These injuries or mortalities could occur many of them remain far enough from the area would be potentially affected if a ringed seal lair is crushed or the facility, outside of areas where by operation of the Northstar facility. flooded. Additionally, animals in the harassment is possible. Additionally, The take estimates presented here do area are not anticipated to incur any ringed seals have been observed in the not take into consideration the hearing impairment (i.e., TTS, a Level B area every year since the beginning of mitigation and monitoring measures harassment, or permanent threshold construction and into the subsequent contained in the regulations and shift, a Level A [injury] harassment), as operational years. required in subsequent LOAs. acoustic measurements indicate source Many animals perform vital functions, levels below 180 dB and 190 dB, which such as feeding, resting, traveling, and Negligible Impact and Small Numbers are the thresholds used by NMFS for socializing, on a diel cycle (24-hr cycle). Analysis and Determination acoustic injury to marine mammals. All Behavioral reactions to noise exposure NMFS typically includes our other takes are anticipated to be by (such as disruption of critical life negligible impact and small numbers Level B behavioral harassment only. functions, displacement, or avoidance of analyses and determinations under the Certain species may have a behavioral important habitat) are more likely to be same section heading of our Federal reaction (e.g., increased swim speed, significant if they last more than one Register notices. Despite co-locating avoidance of the area, etc.) to the sound diel cycle or recur on subsequent days these terms, we acknowledge that emitted during the operational (Southall et al., 2007). Consequently, a negligible impact and small numbers are activities. Table 2 in this document behavioral response lasting less than distinct standards under the MMPA and outlines the number of takes that are one day and not recurring on treat them as such. The analyses anticipated as a result of BP’s activities. subsequent days is not considered presented below do not conflate the two These takes are anticipated to be of low particularly severe unless it could standards; instead, each standard has intensity due to the low level of sound directly affect reproduction or survival been considered independently and we emitted by the majority of the activities (Southall et al., 2007). Even though have applied the relevant factors to themselves. Activities occur at Northstar activities occur on successive days at inform our negligible impact and small year-round, but the majority of these Northstar, none of the cetacean species numbers determinations. activities produce low-level continuous (i.e., beluga, bowhead, and gray whales) NMFS has defined ‘‘negligible sounds. Only on rare occasions are more are anticipated to incur impacts on impact’’ in 50 CFR 216.103 as ‘‘. . . an high-intensity pulsed sounds emitted successive days. In the vicinity of impact resulting from the specified into the surrounding environment. The Northstar, bowheads and belugas are activity that cannot be reasonably ringed seal (and possibly the bearded migrating through the area. Therefore, it expected to, and is not reasonably likely seal) are the only species that occur in is unlikely that the same animals are to, adversely affect the species or stock the area year-round. impacted on successive days. Acoustic through effects on annual rates of Even though activities occur data that have been collected off recruitment or survival.’’ In making a throughout the year, none of the Northstar Island for more than a decade negligible impact determination, NMFS cetacean species occur near Northstar do not indicate that operations at the considers a variety of factors, including all year. Cetaceans are most likely to island are affecting the bowhead whale but not limited to: (1) the number of occur in the late summer and autumn migrations through the Beaufort Sea. anticipated mortalities; (2) the number seasons. However, even during that Although bowhead whales have been and nature of anticipated injuries; (3) time, much of the populations of those observed feeding in several locations the number, nature, intensity, and species migrate past the area farther throughout the central Beaufort Sea, duration of Level B harassment; and (4) offshore than the area where Northstar most sightings have occurred more than the context in which the takes occur. sounds can be heard. Spotted seals also 62 mi (100 km) from Northstar. Belugas No injuries or mortalities are tend to only be present in the open- that migrate through the U.S. Beaufort anticipated for bearded and spotted water season. Moreover, they are more Sea typically do so farther offshore seals or for bowhead, beluga, and gray common in the Colville River Delta area, (more than 37 mi [60 km]) and in deeper

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waters (more than 656 ft [200 m]) than earlier in this document. For reasons a bowhead hunt in spring. Residents of where Northstar activities occur. Gray described earlier in this document, the all three communities hunt seals. Other whales are rarely sighted this far east in maximum calculated number of subsistence activities include fishing, the U.S. Beaufort Sea. Additionally, individual marine mammals for each waterfowl and seaduck harvests, and there are no known feeding grounds for species that could potentially be taken hunting for walrus, beluga whales, polar gray whales in the Prudhoe Bay area. annually is small relative to the overall bears, caribou, and moose. Relevant The most northern feeding sites known population sizes (less than 1% of each harvest data are summarized in Tables for this species are located in the of the six populations or stocks). 8 and 9 in BP’s application (see Chukchi Sea near Hanna Shoal and Based on the analysis contained ADDRESSES). Point Barrow. Based on these factors, herein of the likely effects of the Nuiqsut is the community closest to exposures of gray whales to industrial specified activity on marine mammals the Northstar development sounds are not expected to last for and their habitat, and taking into (approximately 54 mi [87 km] southwest prolonged periods (i.e., several days or consideration the implementation of the from Northstar). Nuiqsut hunters weeks) since they are not known to mitigation and monitoring measures, harvest bowhead whales only during the remain in the area for extended periods NMFS has determined that operation of fall whaling season (Long, 1996). In of time. the BP Northstar facility will result in recent years, Nuiqsut whalers have The same individual bearded and the incidental take of small numbers of typically landed three or four whales spotted seals are also not likely to occur marine mammals and that the total per year (see Table 9 in BP’s in the project area on successive days. taking from BP’s activities will have a application). Nuiqsut whalers Individual ringed seals may occur in the negligible impact on the affected species concentrate their efforts on areas north project area on successive days. Ringed or stocks. and east of Cross Island, generally in seals construct lairs for pupping in the water depths greater than 66 ft (20 m; Beaufort Sea in late winter/early spring Impact on Availability of Affected Galginaitis, 2009). Cross Island is the on the landfast ice. As noted earlier in Species or Stock for Taking for principal base for Nuiqsut whalers this document, BP is required to Subsistence Uses while they are hunting bowheads (Long, implement mitigation measures to avoid Relevant Subsistence Uses 1996). Cross Island is located disturbing lairs and potentially crushing approximately 16.8 mi (27 km) east of lairs occupied by ringed seals. Bearded The disturbance and potential Northstar. seals breed in the Bering and Chukchi displacement of marine mammals by Kaktovik whalers search for whales Seas, as the Beaufort Sea provides less sounds from island production activities east, north, and occasionally west of suitable habitat for the species. Spotted are the principal concerns related to Kaktovik. Kaktovik is located seals are even less common in the subsistence use of the area. However, approximately 124 mi (200 km) east of Prudhoe Bay area, and the species does contamination of animals and Northstar Island. The western most not breed in the Beaufort Sea. traditional hunting areas by oil (in the reported harvest location was about 13 Monitoring results (which were unlikely event that a major oil spill did mi (21 km) west of Kaktovik, near 70ß10’ discussed in the proposed rule) indicate occur) is also a concern. Subsistence N., 144ß11’ W. (Kaleak, 1996). That site that operation of the Northstar facility remains the basis for Alaska Native is about 112 mi (180 km) east of has not affected activities such as ice culture and community. Marine Northstar Island. seal resting and pupping in the area. mammals are legally hunted in Alaskan Barrow whalers search for whales Additionally, pinnipeds appear to be waters by coastal Alaska Natives. In much farther from the Northstar area— more tolerant of anthropogenic sound, rural Alaska, subsistence activities are about 155+ mi (250+ km) to the west. especially at lower received levels, than often central to many aspects of human However, given the westward migration other marine mammals, such as existence, including patterns of family of bowheads in autumn, Barrow (unlike mysticetes. life, artistic expression, and community Kaktovik) is ‘‘downstream’’ from the Of the six marine mammal species for religious and celebratory activities. Northstar region during that season. which take is authorized, one is listed Additionally, the animals taken for Barrow hunters have expressed concern as endangered under the ESA—the subsistence provide a significant portion about the possibility that bowheads bowhead whale—and two are listed as of the food that will last the community might be deflected offshore by Northstar threatened—ringed and bearded seals. throughout the year. The main species and then remain offshore as they pass All three species are also considered that are hunted include bowhead and Barrow. depleted under the MMPA. As stated beluga whales, ringed, spotted, and Beluga whales are not a prevailing previously in this document, the bearded seals, walruses, and polar bears. subsistence resource in the communities affected bowhead whale stock has been (As mentioned previously in this of Kaktovik and Nuiqsut. Kaktovik increasing at a rate of 3.4% per year document, both the walrus and the hunters may harvest one beluga whale since 2001 (Allen and Angliss, 2012). polar bear are under the USFWS’ in conjunction with the bowhead hunt; There are currently no reliable data on jurisdiction.) The importance of each of however, it appears that most trends of the ringed and bearded seal these species varies among the households obtain beluga through stocks in Alaska. Certain stocks or communities and is largely based on exchanges with other communities. populations of gray and beluga whales availability. Although Nuiqsut hunters have not and spotted seals are listed as Residents of the village of Nuiqsut are hunted belugas for many years while on endangered or are proposed for listing the primary subsistence users in the Cross Island for the fall hunt, this does under the ESA; however, none of those project area. The communities of not mean that they may not return to stocks or populations occur in the Barrow and Kaktovik also harvest this practice in the future. Data activity area. There is currently no resources that pass through the area of presented by Braund and Kruse (2009) established critical habitat in the project interest but do not hunt in or near the indicate that only one percent of area for any of these six species. Northstar area. Subsistence hunters Barrow’s total harvest between 1962 and The population estimates for the from all three communities conduct an 1982 was of beluga whales and that it species that may potentially be taken as annual hunt for autumn-migrating did not account for any of the harvested a result of BP’s activities were presented bowhead whales. Barrow also conducts animals between 1987 and 1989.

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Ringed seals are available to normal migratory path by several reconnaissance and cleanup activities subsistence users in the Beaufort Sea kilometers. Helicopter activity also has could affect whales and thus year-round, but they are primarily the potential to disturb cetaceans and accessibility of whales to hunters. In the hunted in the winter or spring due to pinnipeds by causing them to vacate the very unlikely event that a major spill the rich availability of other mammals area. Additionally, general vessel incident occurred during the relatively in the summer. Bearded seals are presence in the vicinity of traditional short fall whaling season, it is possible primarily hunted during July in the hunting areas could negatively impact a that hunting would be affected Beaufort Sea; however, in 2007, bearded hunt. Native knowledge indicates that significantly. seals were harvested in the months of bowhead whales become increasingly Ringed seals are more likely than August and September at the mouth of ‘‘skittish’’ in the presence of seismic bowheads to be affected by spill the Colville River Delta, which is more noise. Whales are more wary around the incidents because they occur in the than 50 mi (80 km) from Northstar. hunters and tend to expose a much development areas throughout the year However, this sealing area can reach as smaller portion of their back when and are more likely than whales to far east as Pingok Island, which is surfacing (which makes harvesting more occur close to Northstar. Small numbers approximately 17 mi (27 km) west of difficult). Additionally, natives report of bearded seals could also be affected, Northstar. An annual bearded seal that bowheads exhibit angry behaviors especially by a spill during the open- harvest occurs in the vicinity of Thetis in the presence of seismic, such as tail- water season. Potential effects on Island (which is a considerable distance slapping, which translate to danger for subsistence use of seals will still be from Northstar) in July through August. nearby subsistence harvesters. relatively low, as the areas most likely Approximately 20 bearded seals are In the case of subsistence hunts for to be affected are not areas heavily used harvested annually through this hunt. bowhead whales in the Beaufort Sea, for seal hunting. However, wind and Spotted seals are harvested by some of there could be an adverse impact on the currents could carry spilled oil west the villages in the summer months. hunt if the whales were deflected from Northstar to areas where seal Nuiqsut hunters typically hunt spotted seaward (further from shore) in hunting occurs. It is possible that oil- seals in the nearshore waters off the traditional hunting areas. The impact contaminated seals could be harvested. Colville River Delta. The majority of the would be that whaling crews would Oil spill cleanup activity could more established seal hunts that occur have to travel greater distances to exacerbate and increase disturbance in the Beaufort Sea, such as the Colville intercept westward migrating whales, effects on subsistence species, cause delta area hunts, are located a thereby creating a safety hazard for localized displacement of subsistence significant distance (in some instances whaling crews and/or limiting chances species, and alter or reduce access to 50 mi [80 km] or more) from the project of successfully striking and landing those species by hunters. On the other area. bowheads. hand, the displacement of marine Oil spills might affect the hunt for mammals away from oil-contaminated Potential Impacts to Subsistence Uses bowhead whales. The harvest period for areas by cleanup activities would NMFS has defined ‘‘unmitigable bowhead whales is probably the time of reduce the likelihood of direct contact adverse impact’’ in 50 CFR 216.103 as: greatest risk that a relatively large-scale with oil and thus reduce the likelihood ‘‘. . . an impact resulting from the spill would reduce the availability of of tainting or other impacts on the specified activity: (1) That is likely to bowhead whales for subsistence uses. mammals. reduce the availability of the species to Pipeline spills are possible for the total One of the most persistent effects of a level insufficient for a harvest to meet production period of Northstar. Spills the Exxon Valdez oil spill (EVOS) was subsistence needs by: (i) Causing the could occur at any time of the year. the reduced harvest and consumption of marine mammals to abandon or avoid However, spills at most times of year subsistence resources due to the local hunting areas; (ii) Directly displacing would not affect bowheads, as perception that they had been tainted by subsistence users; or (iii) Placing bowheads are present near Northstar for oil (Fall and Utermohle, 1995). The physical barriers between the marine only several weeks during late summer concentrations of petroleum-related mammals and the subsistence hunters; and early autumn. Bowheads travel aromatic compound (AC) metabolites in and (2) That cannot be sufficiently along migration corridors that are far the bile of harbor seals were greatly mitigated by other measures to increase offshore of the planned production elevated from oiled areas of Prince the availability of marine mammals to islands and pipelines during spring and William Sound (PWS). Mean allow subsistence needs to be met.’’ somewhat offshore of those facilities concentrations of phenanthrene Noise and general activity during BP’s during autumn. Under the prevailing equivalents for oiled seals from PWS Northstar operations have the potential east-wind conditions, oil spills from were over 70 times greater than for to impact marine mammals hunted by Northstar would not move directly into control areas and over 20 times higher Native Alaskans. Additionally, if a the main hunting area east and north of than for presumably unoiled areas of major oil spill occurred (even though it Cross Island. However, large oil spills PWS (Frost et al., 1994b). is unlikely), there could be impacts to could extend into the hunting area Concentrations of hydrocarbons in marine mammals hunted by Native under certain wind and current regimes harbor seal tissues collected in PWS 1 Alaskans and to the hunts themselves. (Anderson et al., 1999). Small spills of year after EVOS were not significantly Although small spills happen annually, items such as hydraulic fluid or diesel different from seals collected in non- those spills are typically contained to fuel are typically relegated to the island oiled areas; however, average the island and do not reach Beaufort Sea or ice roads and are successfully concentrations of AC metabolites in bile ice or water, thus there are no impacts cleaned up before the material reaches were still significantly higher than those to marine mammals or marine mammal areas where marine mammals could be observed in un-oiled areas (Frost et al., hunts. In the case of cetaceans, the most present. 1994b). The pattern of reduced common reaction to anthropogenic Even in the case of a major spill, it is consumption of marine subsistence sounds (as noted in the proposed rule) unlikely that more than a small minority resources by the local population is avoidance of the ensonified area. In of the bowheads encountered by hunters persisted for at least 1 year. Most the case of bowhead whales, this often would be contaminated by oil. However, affected communities had returned to means that the animals divert from their disturbance associated with documented pre-spill harvest levels by

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the third year after the spill. Even then, convened by NMFS have been held at hunt to Northstar). Vessel and air traffic some households in these communities least annually from 1998 to the present will be kept to a minimum during the still reported that subsistence resources to discuss proposed monitoring and bowhead hunt in order to keep from had not recovered to pre-spill levels. mitigation plans, and results of harassing the animals, which could Harvest levels of subsistence resources completed monitoring and mitigation. possibly make them more difficult to for the three communities most affected Those meetings have included hunt. To minimize the potential for by the spill still were below pre-spill representatives of the concerned conflicts with subsistence users, marine averages even after 3 years. By then, the communities, the AEWC, the NSB, vessels transiting between Prudhoe Bay concern was mainly about smaller Federal, state, and university biologists, or West Dock and Northstar Island numbers of animals rather than the MMC, and other interested parties. travel shoreward of the barrier islands contamination. However, contamination One function of those meetings has been as much as possible and avoid the Cross remained an important concern for to coordinate planned construction and Island area during the bowhead hunting some households (Fall and Utermohle, operational activities with subsistence season in autumn. The fall hunt at 1995). As an example, an elder stopped whaling activity. The agreements have Kaktovik occurs well to the east of eating local salmon after the spill, even and likely will address the following: Northstar (approximately 124 mi [200 though salmon is the most important operational agreement and km] away), so there should be no subsistence resource, and he ate it every communications procedures; when/ impacts to hunters within that day up to that point. Similar effects where agreement becomes effective; community, since the whales will reach could be expected after a spill on the general communications scheme, by Kaktovik well before they enter areas North Slope, with the extent of the season; Northstar Island operations, by that may be ensonified by activities at decline in harvest and use, and the season; conflict avoidance; seasonally Northstar. Barrow is more than 155 mi temporal duration of the effect, sensitive areas; vessel navigation; air (250 km) west of Northstar. Even though dependent upon the size and location of navigation; marine mammal and the whales will have to pass by the spill. This analysis reflects the local acoustic monitoring activities; measures Northstar before reaching Barrow for the perception that oil spills pose the to avoid impacts to marine mammals; fall hunt, the community is well beyond greatest potential danger associated with measures to avoid impacts in areas of the range of detectable noise from offshore oil production. active whaling; emergency assistance; Northstar. In the spring, the whales will and dispute resolution process. reach Barrow before Northstar. Plan of Cooperation (POC) Most vessel and helicopter traffic will Therefore, no impacts are anticipated on Regulations at 50 CFR 216.104(a)(12) occur inshore of the bowhead migration the spring bowhead whale hunt for the require MMPA authorization applicants corridor. BP does not often approach Barrow community. for activities that take place in Arctic bowhead whales with these vessels or Beluga whales are not a primary target waters to provide a POC or information aircraft. Insofar as possible, BP will of subsistence hunts by the Beaufort Sea that identifies what measures have been ensure that vessel traffic near areas of communities. However, Nuiqsut taken and/or will be taken to minimize particular concern for whaling will be whalers at Cross Island have been adverse effects on the availability of completed before the end of August, as known to take a beluga in conjunction marine mammals for subsistence the fall bowhead hunts in Kaktovik and with the fall bowhead whale hunt. The purposes. BP and the Alaska Eskimo Cross Island (Nuiqsut) typically begin reasons stated previously regarding no Whaling Commission (AEWC) around September 1 each year. unmitigable adverse impact to bowhead established a conflict avoidance Additionally, any approaches of hunting at Cross Island are also agreement to mitigate the noise and/or bowhead whales by vessels or applicable to beluga hunts. traffic impacts of offshore oil and gas helicopters will not occur within the Additionally, should Kaktovik or production related activities on area where Nuiqsut hunters typically Barrow conduct a beluga hunt, the subsistence whaling. In addition, the search for bowheads. Essential traffic to distance from Northstar of these two NSB and residents from Barrow, and from Northstar has been and will communities would ensure no Nuiqsut, and Kaktovik participated in continue to be closely coordinated with unmitigable adverse impact to those the development of the Final the NSB and AEWC to avoid disruptions hunts. Environmental Impact Statement (FEIS) of subsistence activities. Unless limited Subsistence hunts of ice seals can for the Northstar project. Local residents by weather conditions, BP maintains a occur year-round in the Beaufort Sea. provided traditional knowledge of the minimum flight altitude of 1,000 ft (305 However, hunts do not typically occur physical, biological, and human m), except during takeoffs, landings, in the direct vicinity of Northstar. Some environment, which was incorporated and emergency situations, and all of the more established seal hunts occur into the Northstar FEIS. Also included helicopter transits occur in a specified in areas more than 20–30 mi (32–48 km) in the Northstar FEIS is information corridor from the mainland. from Northstar. It is not anticipated that gathered from the 1996 community data there would be any impacts to the seals collection, along with relevant Unmitigable Adverse Impact Analysis themselves that would make them testimony during past public hearings in and Determination unavailable to Native Alaskans. the communities of Barrow, Nuiqsut, NMFS has determined that BP’s Additionally, no adverse effects to the and Kaktovik. This data collection has operation of the Northstar facility will hunters are anticipated to occur due to helped ensure that the concerns of NSB not have an unmitigable adverse impact conflicts with them in traditional residents about marine mammals and on the availability of marine mammal hunting grounds. subsistence are taken into account in the species or stocks for taking for In the unlikely event of a major oil development of the project designs, subsistence uses. This determination is spill that spread into Beaufort Sea ice or permit stipulations, monitoring supported by the fact that BP works water, there could be major impacts on programs, and mitigation measures. closely with the NSB, AEWC, and the availability of marine mammals for BP meets annually with communities hunters of Nuiqsut to ensure that subsistence uses. As discussed earlier in on the North Slope to discuss the impacts are avoided or minimized this document, the probability of a Northstar Development project. during the annual fall bowhead whale major oil spill occurring over the life of Stakeholder and peer review meetings hunt at Cross Island (the closest whale the project is low (S.L. Ross

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Environmental Research Ltd., 1998). bowhead whale, the Arctic sub-species Notwithstanding any other provision Additionally, BP developed an oil spill of ringed seal, or the Beringia distinct of law, no person is required to respond prevention and contingency response population segment of bearded seal. No to nor shall a person be subject to a plan, which has been amended several critical habitat has been designated for penalty for failure to comply with a times. The most recent revision has these species, therefore none will be collection of information subject to the been approved by the State of Alaska affected. requirements of the Paperwork and is pending approval by BSEE. BP National Environmental Policy Act Reduction Act (PRA) unless that also conducts routine inspections of and (NEPA) collection of information displays a maintenance on the pipeline (as On February 5, 1999 (64 FR 5789), the currently valid OMB control number. described in the proposed rule) to help This final rule contains collection-of- reduce the likelihood of a major oil Environmental Protection Agency noted information requirements subject to the spill. To help with preparedness in the the availability for public review and event of a major oil spill, BP conducts comment of a FEIS prepared by the U.S. provisions of the PRA. These emergency and oil spill response Army Corps of Engineers under NEPA requirements have been approved by training activities at various times on Beaufort Sea oil and gas OMB under control number 0648–0151 throughout the year. Equipment and development at Northstar. Based upon a and include applications for regulations, techniques used during oil spill review of the FEIS and comments subsequent LOAs, and reports. received on the Draft and Final EIS, response exercises are continually List of Subjects in 50 CFR Part 217 updated. NMFS adopted the FEIS on May 18, Based on the measures described in 2000. Because of the age of the FEIS and Exports, Fish, Imports, Indians, BP’s POC, the required mitigation and the availability of new scientific Labeling, Marine mammals, Penalties, monitoring measures (described earlier information, NMFS conducted a new Reporting and recordkeeping in this document), and the project analysis, pursuant to NEPA, regarding requirements, Seafood, Transportation. design itself, NMFS has determined that the issuance of MMPA rulemaking and there will not be an unmitigable adverse subsequent LOA(s) to BP for its Dated: December 5, 2013. impact on subsistence uses from BP’s operation of Northstar. In June 2012, Alan D. Risenhoover, operation of the Northstar facility. Even NMFS released an EA and issued a Director, Office of Sustainable Fisheries, though there could be unmitigable FONSI for this action. NMFS performing the functions and duties of the adverse impacts on subsistence uses determined that issuance of these Deputy Assistant Administrator for from a major oil spill, because of the regulations and subsequent LOAs would Regulatory Programs, National Marine low probability of such an event not significantly impact the quality of Fisheries Service. occurring and the measures that BP the human environment; therefore, implements to reduce the likelihood of preparation of an Environmental Impact For reasons set forth in the preamble, a major oil spill, NMFS has determined Statement was not required for this 50 CFR part 217 is amended as follows: that there will not be an unmitigable action. PART 217—REGULATIONS adverse impact to subsistence uses from Classification an oil spill at Northstar. GOVERNING THE TAKE OF MARINE The Office of Management and Budget MAMMALS INCIDENTAL TO Endangered Species Act (ESA) (OMB) has determined that this final SPECIFIED ACTIVITIES On March 4, 1999, NMFS concluded rule is not significant for purposes of consultation with the U.S. Army Corps Executive Order 12866. ■ 1. The authority citation for part 217 of Engineers on permitting the At the proposed rule stage, the Chief continues to read as follows: construction and operation of the Counsel for Regulation of the Authority: 16 U.S.C. 1361 et seq. Northstar site. The finding of that Department of Commerce certified to consultation was that construction and the Chief Counsel for Advocacy of the ■ 2. Subpart O is added to part 217 to operation at Northstar is not likely to Small Business Administration that this read as follows: jeopardize the continued existence of rule, if adopted, would not have a the bowhead whale. Since no critical significant economic impact on a Subpart O—Taking of Marine Mammals habitat has been established for that substantial number of small entities. BP Incidental to Operation of Offshore Oil and species, the consultation also concluded Exploration (Alaska) Inc. is the only Gas Facilities in the U.S. Beaufort Sea that none would be affected. entity that would be subject to the Sec. Within the project area, the bowhead requirements in these proposed 217.140 Specified activity and specified whale is listed as endangered and the regulations. BP Exploration (Alaska) Inc. geographical region. ringed and bearded seals are listed as is an upstream strategic performance 217.141 Effective dates. threatened under the ESA. Therefore, unit of the BP Group. Globally, BP ranks 217.142 Permissible methods of taking. the NMFS Permits and Conservation among the 10 largest oil companies. BP 217.143 Prohibitions. Division conducted consultation with Exploration (Alaska) Inc. is one of 217.144 Mitigation. the NMFS Endangered Species Division Alaska’s largest employers with nearly 217.145 Measures to ensure availability of on the issuance of regulations and 2,000 employees, and, as of December species for subsistence uses. subsequent LOAs under section 31, 2011, BP Group had more than 217.146 Requirements for monitoring and 101(a)(5)(A) of the MMPA for this 83,000 employees worldwide. reporting. activity. In May, 2012, NMFS finished Therefore, it is not a small governmental 217.147 Applications for Letters of conducting its section 7 consultation jurisdiction, small organization, or small Authorization. and issued a Biological Opinion, and business, as defined by the Regulatory 217.148 Letters of Authorization. concluded that the issuance of Flexibility Act. No comments were 217.149 Renewal of Letters of Authorization regulations and subsequent LOAs received on the certification. and adaptive management. associated with BP’s operation of Accordingly, a regulatory flexibility 217.150 Modifications of Letters of Northstar is not likely to jeopardize the analysis is not required and none has Authorization. continued existence of the endangered been prepared.

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Subpart O—Taking of Marine Mammals (2) Level A Harassment and Mortality: (ii) BP will establish and monitor, Incidental to Operation of Offshore Oil Ringed seal—25 (an average of 5 during all daylight hours, a 180 dB re and Gas Facilities in the U.S. Beaufort annually) 1 mPa (rms) exclusion zone for cetaceans Sea around the island for all activities with § 217.143 Prohibitions. SPLs that are expected to exceed that § 217.140 Specified activity and specified Notwithstanding takings level in waters beyond the Northstar geographical region. contemplated in § 217.140 and facility at Seal Island. (a) Regulations in this subpart apply authorized by a Letter of Authorization (iii) If any marine mammals are only to BP Exploration (Alaska) Inc. issued under §§ 216.106 and 217.148 of observed within the relevant exclusion (BP) and those persons it authorizes to this chapter, no person in connection zone, described in § 217.144(a)(2)(i) or conduct activities on its behalf for the with the activities described in (a)(2)(ii), the activity creating the noise taking of marine mammals that occurs § 217.140 may: will shutdown or reduce its SPL (a) Take any marine mammal not in the area outlined in paragraph (b) of sufficiently (i.e., power down) to ensure specified in § 217.142(c); this section and that occurs incidental that received SPLs do not exceed those to operation of offshore oil and gas (b) Take any marine mammal specified in § 217.142(c) other than by prescribed SPL intensities at the facilities in the U.S. Beaufort Sea, affected marine mammal. The shutdown Alaska, in the Northstar Development incidental take as specified in § 217.142(c)(1) and (c)(2); or reduced SPL shall be maintained Area. until such time as the observed marine (b) The taking of marine mammals by (c) Take a marine mammal specified in § 217.172(c) if such taking results in mammal(s) has been seen to have left BP may be authorized in a Letter of the applicable exclusion zone or until Authorization only if it occurs in the more than a negligible impact on the species or stocks of such marine 15 minutes have elapsed in the case of geographic region that encompasses the a pinniped or odontocete or 30 minutes Northstar Oil and Gas Development area mammal; (d) Take a marine mammal specified in the case of a mysticete without within state and/or Federal waters in resighting, whichever occurs sooner. the U.S. Beaufort Sea. in § 217.172(c) if such taking results in an unmitigable adverse impact on the (iv) The entire exclusion zones § 217.141 Effective dates. species or stock for taking for prescribed in § 217.144(a)(2)(i) or Regulations in this subpart are subsistence uses; or (a)(2)(ii) must be visible during the effective from January 13, 2014 through (e) Violate, or fail to comply with, the entire 30-minute pre-activity monitoring January 14, 2019. terms, conditions, and requirements of time period in order for the activity to this subpart or a Letter of Authorization begin. § 217.142 Permissible methods of taking. issued under §§ 216.106 and 217.148 of (v) BP shall employ a ramp-up (a) Under Letters of Authorization this chapter. technique at the beginning of each day’s issued pursuant to §§ 216.106 and in-water pile driving activities and if § 217.144 Mitigation. 217.148 of this chapter, the Holder of pile driving resumes after it has ceased the Letter of Authorization (hereinafter (a) When conducting the activities for more than 1 hour. ‘‘BP’’) may incidentally, but not identified in § 217.140(a), the mitigation (A) If a vibratory driver is used, BP is intentionally, take marine mammals measures contained in the Letter of required to initiate sound from vibratory within the area described in Authorization issued under §§ 216.106 hammers for 15 seconds at reduced § 217.140(b), provided the activity is in and 217.148 of this chapter must be energy followed by a 1-minute waiting compliance with all terms, conditions, implemented. These mitigation period. The procedure shall be repeated and requirements of the regulations in measures include but are not limited to: two additional times before full energy (1) Ice-covered Season: this subpart and the appropriate Letter (i) In order to reduce the taking of may be achieved. of Authorization. ringed seals to the lowest level (B) If a non-diesel impact hammer is (b) The activities identified in practicable, BP must begin winter used, BP is required to provide an initial § 217.140(a) must be conducted in a construction activities, principally ice set of strikes from the impact hammer manner that minimizes, to the greatest roads, as soon as possible once weather at reduced energy, followed by a 1- extent practicable, any adverse impacts and ice conditions permit such activity. minute waiting period, then two on marine mammals and their habitat. (ii) Any ice roads or other subsequent sets. (c) The incidental take of marine construction activities that are initiated (C) If a diesel impact hammer is used, mammals under the activities identified after March 1, in previously undisturbed BP is required to turn on the sound in § 217.140(a) is limited to the areas in waters deeper than 10 ft (3 m), attenuation device for 15 seconds prior following species and by the indicated must be surveyed, using trained dogs in to initiating pile driving. method and amount of take: (vi) New drilling into oil-bearing (1) Level B Harassment: order to identify and avoid ringed seal structures by a minimum of 492 ft (150 strata shall not take place during either (i) Cetaceans: open-water or spring-time broken ice (A) Bowhead whale (Balaena m). conditions. mysticetus)—75 (an average of 15 (iii) After March 1 of each year, (vii) All non-essential boats, barge, annually) activities should avoid, to the greatest (B) Gray whale (Eschrichtius extent practicable, disturbance of any and air traffic will be scheduled to avoid robustus)—10 (an average of 2 annually) located seal structure. periods when bowhead whales are (C) Beluga whale (Delphinapterus (2) Open-water Season: migrating through the area where they leucas)—100 (an average of 20 annually) (i) BP will establish and monitor, may be affected by noise from these (ii) Pinnipeds: during all daylight hours, a 190 dB re activities. (A) Ringed seal (Phoca hispida)—155 1 mPa (rms) exclusion zone for seals (3) Helicopter flights to support (an average of 31 annually) around the island for all activities with Northstar activities must be limited to a (B) Bearded seal (Erignathus sound pressure levels (SPLs) that are corridor from Seal Island to the barbatus)—25 (an average of 5 annually) expected to exceed that level in waters mainland, and, except when limited by (C) Spotted seal (Phoca largha)—25 beyond the Northstar facility on Seal weather or personnel safety, must (an average of 5 annually) Island. maintain a minimum altitude of 1,000 ft

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(305 m), except during takeoff and (3) BP shall conduct acoustic described in paragraph (f) of this landing. measurements to document sound section. (4) Additional mitigation measures as levels, characteristics, and (h) BP shall submit a draft contained in a Letter of Authorization transmissions of airborne sounds with comprehensive report to NMFS, Office issued under §§ 216.106 and 217.148 of expected source levels of 90 dBA or of Protected Resources, and NMFS, this chapter. greater created by on-ice activity at Alaska Regional Office (specific contact (b) [Reserved] Northstar that have not been measured information to be provided in Letter of in previous years. In addition, BP shall Authorization), no later than 240 days § 217.145 Measures to ensure availability conduct acoustic measurements to prior to the expiration of the regulations of species for subsistence uses. document sound levels, characteristics, in this subpart. This comprehensive When applying for a Letter of and transmissions of airborne sounds technical report shall provide full Authorization pursuant to § 217.147 or for sources on Northstar Island with documentation of methods, results, and a renewal of a Letter of Authorization expected received levels at the water’s interpretation of all monitoring during pursuant to § 217.149, BP must submit edge that exceed 90 dBA that have not the first four and a quarter years of the a Plan of Cooperation that identifies been measured in previous years. LOA. Before acceptance by NMFS as a what measures have been taken and/or (d) Monitoring measures during the final comprehensive report, the draft will be taken to minimize any adverse open-water season shall include, but are comprehensive report shall be subject to effects on the availability of marine not limited to, the following: review and modification by NMFS mammal species or stocks for taking for (1) Acoustic monitoring of the scientists. subsistence uses. A plan shall include bowhead whale migration. (i)(1) In the unanticipated event that the following: (2) BP shall monitor the exclusion Northstar operations clearly causes the (a) A statement that the applicant has zones of activities capable of producing death of more than five ringed seals notified and met with the affected pulsed underwater sound with levels annually or the take of a marine subsistence communities to discuss ≥180 or ≥190 dB re 1 mPa (rms) at mammal in a manner prohibited by this proposed activities and to resolve locations where cetaceans or seals could final rule, such as an injury (Level A potential conflicts regarding timing and be exposed. At least one on-island harassment), serious injury or mortality methods of operation; observer shall be stationed at a location (e.g., ship-strike, gear interaction), BP (b) A description of what measures BP providing an unobstructed view of the shall immediately take steps to cease the has taken and/or will take to ensure that predicted exclusion zone. The operations that caused the unauthorized the proposed activities will not interfere observer(s) shall scan the exclusion take and report the incident as soon as with subsistence whaling or sealing; and zone continuously for marine mammals practicable and no later than 24 hours (c) What plans BP has to continue to for 30 minutes prior to the operation of after the incident to the Chief of the meet with the affected communities to the sound source. Observations shall Permits and Conservation Division, notify the communities of any changes continue during all periods of operation Office of Protected Resources, NMFS, or in operation. and for 30 minutes after the cessation of his designee, the Alaska Regional Office, § 217.146 Requirements for monitoring the activity. The observer shall record and the Alaska Regional Stranding and reporting. the: species and numbers of marine Coordinators (specific contact (a) BP must notify the Alaska Regional mammals seen within the 180 or 190 dB information to be provided in Letter of Office, NMFS, within 48 hours of zones; bearing and distance of the Authorization). The report must include starting ice road construction, cessation marine mammals from the observation the following information: (i) Time, date, and location (latitude/ of ice road usage, and the point; and behavior of marine mammals and any indication of disturbance longitude) of the incident; commencement of icebreaking activities (ii) The type of equipment involved in for the Northstar facility. reactions to the monitored activity. (e) BP shall conduct any additional the incident; (b) BP must designate qualified, on- (iii) Description of the incident; site individuals, approved in advance monitoring measures contained in a (iv) Water depth, if relevant; by NMFS, to conduct the mitigation, Letter of Authorization issued under (v) Environmental conditions (e.g., monitoring, and reporting activities §§ 216.106 and 217.148 of this chapter. wind speed and direction, Beaufort sea specified in the Letter of Authorization (f) BP shall submit an annual report state, cloud cover, and visibility); issued under §§ 216.106 and 217.148 of to NMFS within the time period (vi) Species identification or this chapter. specified in a Letter of Authorization description of the animal(s) involved; (c) Monitoring measures during the issued under §§ 216.106 and 217.148 of (vii) The fate of the animal(s); and ice-covered season shall include, but are this chapter. (viii) Photographs or video footage of not limited to, the following: (g) If specific mitigation and the animal (if equipment is available). (1) After March 1, trained dogs must monitoring are required for activities on (2) Activities shall not resume until be used to detect seal lairs in previously the sea ice initiated after March 1 NMFS is able to review the undisturbed areas that may be (requiring searches with dogs for lairs), circumstances causing the exceedance potentially affected by on-ice during the operation of strong sound of the authorized take. NMFS will work construction activity, if any. Surveys for sources (requiring visual observations with BP to identify additional measures seal structures should be conducted to and shutdown procedures), or for the to minimize the likelihood that more a minimum distance of 492 ft (150 m) use of new sound sources that have not than five ringed seals will not be killed from the outer edges of any disturbance. previously been measured, then a each year (or other marine mammal (2) If ice road construction occurs preliminary summary of the activity, species that may have been injured, after March 1, conduct a follow-up method of monitoring, and preliminary seriously injured, or killed) from BP’s assessment in May of that year of the results shall be submitted to NMFS activities. BP may not resume their fate of all seal structures located during within 90 days after the cessation of that activities until notified by NMFS via monitoring conducted under paragraph activity. The complete description of letter, email, or telephone. (c)(1) of this section near the physically methods, results, and discussion shall (3) In the event that BP discovers an disturbed areas. be submitted as part of the annual report injured or dead marine mammal, and it

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is determined that the cause of the (1) Permissible methods of incidental (1) New cited information and data injury or death is unknown and the taking; indicating that the determinations made death is relatively recent (i.e., in less (2) Means of effecting the least in this document are in need of than a moderate state of decomposition practicable adverse impact on the reconsideration, and as described in the next paragraph), BP species, its habitat, and on the (2) Proposed substantive changes to will report the incident/discovery as availability of the species for the mitigation and monitoring soon as practicable and no later than 24 subsistence uses (i.e., mitigation); and requirements contained in these hours after the incident/discovery to the (3) Requirements for mitigation, regulations or in the current Letter of Chief of the Permits and Conservation monitoring and reporting. Authorization. Division, Office of Protected Resources, (c) Issuance and renewal of the Letter (c) A notice of issuance or denial of NMFS, by phone or email, the Alaska of Authorization shall be based on a a renewal of a Letter of Authorization Regional Office, and the NMFS Alaska determination that the total number of will be published in the Federal Stranding Hotline and/or by email to the marine mammals taken by the activity Register. Alaska Regional Stranding Coordinators as a whole will have no more than a (d) Adaptive management—NMFS (specific contact information to be negligible impact on the affected species may modify or augment the existing provided in Letter of Authorization). or stock of marine mammal(s) and will mitigation or monitoring measures (after The report must include the same not have an unmitigable adverse impact consulting with BP regarding the information identified in § 217.146(i)(1). on the availability of species or stocks practicability of the modifications) if Activities may continue while NMFS of marine mammals for taking for doing so creates a reasonable likelihood reviews the circumstances of the subsistence uses. of more effectively accomplishing the goals of mitigation and monitoring set incident. NMFS will work with BP to § 217.149 Renewal of Letters of determine whether modifications in the forth in the preamble of these Authorization and adaptive management. regulations. Below are some of the activities are appropriate. (a) A Letter of Authorization issued (4) In the event that BP discovers an possible sources of new data that could under § 216.106 and § 217.148 of this injured or dead marine mammal, and it contribute to the decision to modify the chapter for the activity identified in is determined that the injury or death is mitigation or monitoring measures: § 217.140(a) shall be renewed upon not associated with or related to the (1) Results from BP’s monitoring from request by the applicant or activities authorized in this final rule the previous year; determination by NMFS and the (2) Results from general marine (e.g., previously wounded animal, applicant that modifications are mammal and sound research; or carcass with moderate to advanced appropriate pursuant to the adaptive (3) Any information which reveals decomposition, or scavenger damage), management component of these that marine mammals may have been BP shall report the incident to the Chief regulations, provided that: taken in a manner, extent or number not of the Permits and Conservation (1) NMFS is notified that the activity authorized by these regulations or Division, Office of Protected Resources, described in the application submitted subsequent LOAs. NMFS, by phone or email and the under § 217.147 will be undertaken and NMFS Alaska Stranding Hotline and/or that there will not be a substantial § 217.150 Modifications of Letters of Authorization. by email to the Alaska Regional modification to the described work, Stranding Coordinators (specific contact mitigation or monitoring undertaken (a) Except as provided in paragraph information to be provided in Letter of during the upcoming 12 months; (b) of this section, no substantive Authorization), as soon as practicable (2) NMFS receives the monitoring modification (including withdrawal or and no later than 24 hours after the reports required under § 217.146(f) and suspension) to the Letter of discovery. BP shall provide photographs (g); and Authorization issued by NMFS, or video footage (if available) or other (3) NMFS determines that the pursuant to §§ 216.106 and 217.148 of documentation of the stranded animal mitigation, monitoring and reporting this chapter and subject to the sighting to NMFS and the Marine measures required under §§ 217.144 and provisions of this subpart, shall be made Mammal Stranding Network. Activities 217.146 and the Letter of Authorization until after notification and an may continue while NMFS reviews the issued under §§ 216.106 and 217.148 of opportunity for public comment has circumstances of the incident. this chapter were undertaken and will been provided. For purposes of this paragraph, a renewal of a Letter of § 217.147 Applications for Letters of be undertaken during the upcoming Authorization. period of validity of a renewed Letter of Authorization under § 217.149, without Authorization. modification (except for the period of (a) To incidentally take marine validity), is not considered a substantive mammals pursuant to these regulations, (b) If either a request for a renewal of a Letter of Authorization issued under modification. the U.S. Citizen (as defined by § 216.103 (b) If the Assistant Administrator of this chapter) conducting the activity §§ 216.106 and 217.149 of this chapter or a determination by NMFS and the determines that an emergency exists identified in § 217.140(a) (i.e., BP) must that poses a significant risk to the well- apply for and obtain either an initial applicant that modifications are appropriate pursuant to the adaptive being of the species or stocks of marine Letter of Authorization in accordance mammals specified in § 217.142(c), a with § 217.148 or a renewal under management component of these regulations indicates that a substantial Letter of Authorization issued pursuant § 217.149. to §§ 216.106 and 217.148 of this (b) [Reserved] modification, as determined by NMFS, to the described work, mitigation or chapter may be substantively modified § 217.148 Letters of Authorization. monitoring undertaken during the without prior notification and an (a) A Letter of Authorization, unless upcoming season will occur, NMFS will opportunity for public comment. suspended or revoked, shall be valid for provide the public a period of 30 days Notification will be published in the a period of time not to exceed the period for review and comment on the request. Federal Register within 30 days of validity of this subpart. Review and comment on renewals of subsequent to the action. (b) The Letter of Authorization shall Letters of Authorization are restricted [FR Doc. 2013–29553 Filed 12–11–13; 8:45 am] set forth: to: BILLING CODE 3510–22–P

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Proposed Rules Federal Register Vol. 78, No. 239

Thursday, December 12, 2013

This section of the FEDERAL REGISTER Ground Floor at 1200 New Jersey BD–500–1A11 series airplanes (hereafter contains notices to the public of the proposed Avenue SE., Washington, DC, between 9 collectively referred to as ‘‘C-series.’’ issuance of rules and regulations. The a.m. and 5 p.m., Monday through The C-series airplanes are swept-wing purpose of these notices is to give interested Friday, except federal holidays. monoplanes with a pressurized cabin. persons an opportunity to participate in the • Fax: Fax comments to Docket They share an identical supplier base rule making prior to the adoption of the final rules. Operations at 202–493–2251. and significant common design Privacy: The FAA will post all elements. The fuselage is aluminum comments it receives, without change, alloy material, blended double-bubble DEPARTMENT OF TRANSPORTATION to http://www.regulations.gov/, fuselage, sized for nominal 5-abreast including any personal information the seating. Each airplane’s powerplant Federal Aviation Administration commenter provides. Using the search consists of two under wing Pratt and function of the docket Web site, anyone Whitney PW1524G ultra-high bypass, 14 CFR Part 25 can find and read the electronic form of geared turbofan engines. Flight controls all comments received into any FAA are fly-by-wire flight with two passive/ [Docket No.FAA–2013–1041; Notice No. 25– uncoupled side sticks. Avionics 13–40–SC] docket, including the name of the individual sending the comment (or includes five landscape primary cockpit Special Conditions: Bombardier Inc., signing the comment for an association, displays. The dimension of the Models BD–500–1A10 and BD–500– business, labor union, etc.). DOT’s airplanes encompass a wingspan of 115 1A11 Series Airplanes; Electronic complete Privacy Act Statement can be feet; a height of 37.75 feet; and a length Flight Control System: Control Surface found in the Federal Register published of 114.75 feet for the Model BD–500– Awareness and Mode Annunciation on April 11, 2000 (65 FR 19477–19478), 1A10 and a length of 127 feet for the as well as at Model BD–500–1A11. Passenger AGENCY: Federal Aviation http://DocketsInfo.dot.gov/. capacity is designated as 110 for the Administration (FAA), DOT. Docket: Background documents or Model BD–500–1A10 and 125 for the ACTION: Notice of proposed special comments received may be read at Model BD–500–1A11. Maximum takeoff conditions. http://www.regulations.gov/ at any time. weight is 131,000 pounds for the Model Follow the online instructions for BD–500–1A10 and 144,000 pounds for SUMMARY: This action proposes special accessing the docket or go to the Docket the Model BD–500–1A11. Maximum conditions for the Bombardier Inc. Operations in Room W12–140 of the takeoff thrust is 21,000 pounds for the Models BD–500–1A10 and BD–500– West Building Ground Floor at 1200 Model BD–500–1A10 and 23,300 1A11 series airplanes. These airplanes New Jersey Avenue SE., Washington, pounds for the Model BD–500–1A11. will have a novel or unusual design DC, between 9 a.m. and 5 p.m., Monday Range is 3,394 miles (5,463 kilometers) feature associated with control surface through Friday, except federal holidays. for both models of airplanes. Maximum awareness and mode annunciation of operating altitude is 41,000 feet for both FOR FURTHER INFORMATION CONTACT: Joe the electronic flight control system. The Jacobsen, FAA, Airplane and Flightcrew model airplanes. applicable airworthiness regulations do Interface Branch, ANM–111, Transport Type Certification Basis not contain adequate or appropriate Airplane Directorate, Aircraft safety standards for this design feature. Under the provisions of Title 14, Code Certification Service, 1601 Lind Avenue of Federal Regulations (CFR) 21.17, These proposed special conditions SW., Renton, Washington 98057–3356; contain the additional safety standards Bombardier Inc. must show that the C- telephone 425–227–2011; facsimile series airplanes meet the applicable that the Administrator considers 425–227–1149. necessary to establish a level of safety provisions of 14 CFR part 25 as equivalent to that established by the SUPPLEMENTARY INFORMATION: amended by Amendments 25–1 through existing airworthiness standards. Comments Invited 25–129 thereto. If the Administrator finds that the DATES: Send your comments on or We invite interested people to take applicable airworthiness regulations before January 27, 2014. part in this rulemaking by sending (i.e., 14 CFR part 25) do not contain ADDRESSES: Send comments identified written comments, data, or views. The adequate or appropriate safety standards by docket number FAA–2013–1041 most helpful comments reference a for the C-series airplanes because of a using any of the following methods: specific portion of the special novel or unusual design feature, special • Federal eRegulations Portal: Go to conditions, explain the reason for any conditions are prescribed under the http://www.regulations.gov/ and follow recommended change, and include provisions of § 21.16. the online instructions for sending your supporting data. Special conditions are initially comments electronically. We will consider all comments we applicable to the model for which they • Mail: Send comments to Docket receive on or before the closing date for are issued. Should the type certificate Operations, M–30, U.S. Department of comments. We may change these special for that model be amended later to Transportation (DOT), 1200 New Jersey conditions based on the comments we include any other model that Avenue SE., Room W12–140, West receive. incorporates the same or similar novel Building Ground Floor, Washington, DC or unusual design feature, the special Background 20590–0001. conditions would also apply to the other • Hand Delivery or Courier: Take On December 10, 2009, Bombardier model under § 21.101. comments to Docket Operations in Inc. applied for a type certificate for In addition to the applicable Room W12–140 of the West Building their new Models BD–500–1A10 and airworthiness regulations and special

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conditions, the C-series airplanes must certificate to include another model DEPARTMENT OF TRANSPORTATION comply with the fuel vent and exhaust incorporating the same novel or unusual emission requirements of 14 CFR part design feature, the special conditions Federal Aviation Administration 34 and the noise certification would apply to that model as well. requirements of 14 CFR part 36, and the 14 CFR Part 39 Conclusion FAA must issue a finding of regulatory [Docket No. FAA–2013–1027; Directorate adequacy under section 611 of Public This action affects only certain novel Identifier 2013–NM–121–AD] Law 92–574, the ‘‘Noise Control Act of or unusual design features on two 1972.’’ RIN 2120–AA64 The FAA issues special conditions, as model series of airplanes. It is not a rule Airworthiness Directives; The Boeing defined in 14 CFR 11.19, in accordance of general applicability. Company Airplanes with § 11.38, and they become part of List of Subjects in 14 CFR Part 25 the type-certification basis under AGENCY: Federal Aviation § 21.17(a)(2). Aircraft, Aviation safety, Reporting Administration (FAA), DOT. and recordkeeping requirements. Novel or Unusual Design Features ACTION: Notice of proposed rulemaking (NPRM). The C-series airplanes will The authority citation for these special conditions is as follows: incorporate the following novel or SUMMARY: We propose to adopt a new unusual design features: A fly-by-wire Authority: 49 U.S.C. 106(g), 40113, 44701, airworthiness directive (AD) for certain electronic flight control system (EFCS) 44702, 44704. The Boeing Company Model 737–600, and no direct coupling from the –700, 700C, –800, –900, and –900ER The Proposed Special Conditions flightdeck controller to the control series airplanes. This proposed AD was surface. As a result, the pilot is not Accordingly, the Federal Aviation prompted by a report of installation of aware of the actual control surface Administration (FAA) proposes the incorrect wire support clamps within position as envisioned under current following special conditions as part of the left and right Environmental Control airworthiness standards. the type certification basis for the Systems (ECS) bay area during Discussion Bombardier Inc. Models BD–500–1A10 production, which is a flammable and BD–500–1A11 series airplanes. leakage zone. Use of incorrect wire These special conditions propose that support clamps that are not fully the flightcrew receive a suitable flight 1. Electronic Flight Control System: cushioned could allow electrical power control position annunciation when a Control Surface Awareness and Mode wiring to come in contact with the flight condition exists in which nearly Annunciation. In addition to the exposed metal of the improper clamp, full surface authority (not crew- requirements of §§ 25.143, 25.671, and causing a short circuit and subsequent commanded) is being used. Suitability 25.672, the following requirements electrical arcing. This proposed AD of such a display must take into account apply: would require inspecting to identify the that some pilot-demanded maneuvers part number of the wire support clamp, (e.g., rapid roll) are necessarily a. The system design must ensure that the flightcrew is made suitably aware and related investigative and corrective associated with intended full actions if necessary. We are proposing performance, which may saturate the whenever the primary control means nears the limit of control authority. this AD to prevent electrical arcing and surface. Therefore, simple alerting a potential ignition source, which, in systems function in both intended and Note: The term ‘‘suitably aware’’ combination with flammable fuel unexpected control-limiting situations. indicates annunciations provided to the vapors, could result in a fuel tank As a result, they must be properly flightcrew are appropriately balanced explosion, and consequent loss of the balanced between providing necessary between nuisance and that necessary for airplane. crew awareness and being a potential crew awareness. nuisance to the flightcrew. A monitoring DATES: We must receive comments on b. If the design of the flight control system that compares airplane motion this proposed AD by January 27, 2014. and surface deflection with the demand system has multiple modes of operation, ADDRESSES: You may send comments, of the pilot side stick controller could a means must be provided to indicate to using the procedures found in 14 CFR help reduce nuisance alerting. the flightcrew any mode that 11.43 and 11.45, by any of the following These special conditions also address significantly changes or degrades the methods: flight control system mode normal handling or operational • Federal eRulemaking Portal: Go to annunciation. It proposes suitable mode characteristics of the airplane. http://www.regulations.gov. Follow the annunciation be provided to the instructions for submitting comments. Issued in Renton, Washington, on • flightcrew for events that significantly November 27, 2013. Fax: 202–493–2251. • Mail: U.S. Department of change the operating mode of the John Piccola, system but do not merit the classic Transportation, Docket Operations, M– ‘‘failure warning.’’ Acting Manager, Transport Airplane 30, West Building Ground Floor, Room These special conditions establish a Directorate, Aircraft Certification Service. W12–140, 1200 New Jersey Avenue SE., level of safety equivalent to that [FR Doc. 2013–29685 Filed 12–11–13; 8:45 am] Washington, DC 20590. provided by a conventional flight BILLING CODE 4910–13–P • Hand Delivery: Deliver to Mail control system and existing regulations. address above between 9 a.m. and 5 p.m., Monday through Friday, except Applicability Federal holidays. As discussed above, these special For service information identified in conditions are applicable to the Models this proposed AD, contact Boeing BD–500–1A10 and BD–500–1A11 series Commercial Airplanes, Attention: Data airplanes. Should Bombardier Inc. apply & Services Management, P.O. Box 3707, at a later date for a change to the type MC 2H–65, Seattle, Washington 98124–

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2207; telephone 206–544–5000, Discussion cracking and a detailed inspection of the extension 1; fax 206–766–5680; Internet We received a report of the bolt forward of the wing front spar https://www.myboeingfleet.com. You installation of incorrect wire support upper chord for cracking or missing may view this referenced service clamps within the left and right bolts. The corrective actions include information at the FAA, Transport Environmental Control Systems (ECS) repairing cracking and replacing bolts Airplane Directorate, 1601 Lind Avenue bay area during production, which is a with new bolts. SW., Renton, Washington. For flammable leakage zone. Use of FAA’s Determination information on the availability of this incorrect wire support clamps that are material at the FAA, call 425–227–1221. not fully cushioned could allow We are proposing this AD because we Examining the AD Docket electrical power wiring to come in evaluated all the relevant information contact with the exposed metal of the and determined the unsafe condition You may examine the AD docket on improper clamp, causing a short circuit described previously is likely to exist or the Internet at http:// and subsequent electrical arcing. We are develop in other products of the same www.regulations.gov; or in person at the proposing this AD to prevent electrical type design. Docket Management Facility between 9 arcing and a potential ignition source, a.m. and 5 p.m., Monday through Proposed AD Requirements which, in combination with flammable Friday, except Federal holidays. The AD fuel vapors, could result in a fuel tank This proposed AD would require docket contains this proposed AD, the explosion, and consequent loss of the accomplishing the actions specified in regulatory evaluation, any comments airplane. the service information described received, and other information. The previously. The phrase ‘‘related street address for the Docket Office Related Rulemaking investigative actions’’ is used in this (phone: 800–647–5527) is in the On November 18, 2010, we issued AD proposed AD. ‘‘Related investigative ADDRESSES section. Comments will be 2010–24–11, Amendment 39–16530 (75 actions’’ are those actions that are available in the AD docket shortly after FR 74616, December 1, 2010) for certain identified as follow-on actions that are: receipt. The Boeing Company Model 737–600, (1) Related to the primary action, and (2) FOR FURTHER INFORMATION CONTACT: –700, –800, and –900 series airplanes. are on-condition actions that further Georgios Roussos, Aerospace Engineer, That AD required sealing the fasteners investigate the nature of any condition Systems and Equipment Branch, ANM– on the front end rear spars inside the found. Related investigative actions 130S, FAA, Seattle Aircraft Certification main fuel tank and on the lower panel could include, for example, inspections. Office, 1601 Lind Avenue SW., Renton, of the center fuel tank, inspecting the In addition, the phrase ‘‘corrective WA 98057–3356; phone: 425–917–6482; wire bundle support installation in the actions’’ is used in this proposed AD. fax: 425–917–6590; email: equipment cooling system bays to ‘‘Corrective actions’’ are those actions [email protected]. identify the type of clamp installed, and that are on-condition actions that SUPPLEMENTARY INFORMATION: determine whether the Teflon sleeve correct or address any condition found. was installed, and doing related Comments Invited Corrective actions could include, for corrective actions if necessary. example, repairs, removal and We invite you to send any written On February 20, 2013, we issued AD replacement, and modifications. relevant data, views, or arguments about 2013–04–11, Amendment 39–17369 (78 this proposal. Send your comments to FR 14644, March 7, 2013) for certain Clarification of Applicability in an address listed under the ADDRESSES The Boeing Company Model 737–600, Paragraph (c) of This Proposed AD section. Include ‘‘Docket No. FAA– –700, –800, and –900ER series The NOTE specified in Paragraph 2013–1027; Directorate Identifier 2013– airplanes. That AD required inspections 1.A., ‘‘Effectivity,’’ of Boeing Special NM–121–AD’’ at the beginning of your to identify the part number of the wire Attention Service Bulletin 737–28– comments. We specifically invite support clamp, related investigative 1312, dated April 19, 2013, is in error. comments on the overall regulatory, actions, and corrective actions if It does not impact the Variable Number economic, environmental, and energy necessary. aspects of this proposed AD. We will list in paragraph 1.A.1. of that section. consider all comments received by the Relevant Service Information Therefore, for the applicability of this closing date and may amend this We reviewed Boeing Special proposed AD, we have referred to the proposed AD because of those Attention Service Bulletin 737–28– Variable Number list in paragraph comments. 1312, dated April 19, 2013. For 1.A.1., ‘‘Effectivity,’’ in paragraph (c) of We will post all comments we information on the procedures and this proposed AD. receive, without change, to http://www. compliance times, see this service Costs of Compliance regulations.gov, including any personal information at http://www.regulations. information you provide. We will also gov by searching for Docket No. FAA– We estimate that this proposed AD post a report summarizing each 2013–1027. The related investigative affects 519 airplanes of U.S. registry. substantive verbal contact we receive actions include an eddy current We estimate the following costs to about this proposed AD. inspection of the wing front spar for comply with this proposed AD:

ESTIMATED COSTS

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

Inspection ...... 6 work-hours × $85 per hour = $510 ...... $0 $510 $264,690

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We estimate the following costs to do required based on the results of the determining the number of aircraft that any necessary related investigative and proposed inspection. We have no way of might need these actions. corrective actions that would be

ON-CONDITION COSTS

Cost per Action Labor cost Parts cost product

Related investigative and corrective ac- 1 work-hour × $85 per hour = $85 ...... $3 $88 tions.

According to the manufacturer, some Procedures (44 FR 11034, February 26, Control Systems (ECS) bay area during of the costs of this proposed AD may be 1979), production, which is a flammable leakage covered under warranty, thereby (3) Will not affect intrastate aviation zone. Use of incorrect wire support clamps reducing the cost impact on affected in Alaska, and that are not fully cushioned could allow individuals. We do not control warranty (4) Will not have a significant electrical power wiring to come in contact economic impact, positive or negative, with the exposed metal of the improper coverage for affected individuals. As a clamp, causing a short circuit and subsequent result, we have included all costs in our on a substantial number of small entities electrical arcing. We are issuing this AD to cost estimate. under the criteria of the Regulatory prevent electrical arcing and a potential We have received no definitive data Flexibility Act. ignition source, which, in combination with that would enable us to provide cost List of Subjects in 14 CFR Part 39 flammable fuel vapors, could result in a fuel estimates for the on-condition repair of tank explosion, and consequent loss of the chafed or damaged wiring specified in Air transportation, Aircraft, Aviation airplane. this proposed AD. safety, Incorporation by reference, Safety. (f) Compliance Authority for This Rulemaking Comply with this AD within the The Proposed Amendment compliance times specified, unless already Title 49 of the United States Code done. specifies the FAA’s authority to issue Accordingly, under the authority rules on aviation safety. Subtitle I, delegated to me by the Administrator, (g) Inspection and Related Investigative and section 106, describes the authority of the FAA proposes to amend 14 CFR part Corrective Actions the FAA Administrator. Subtitle VII: 39 as follows: Within 60 months after the effective date Aviation Programs, describes in more of this AD: Do a detailed inspection to PART 39—AIRWORTHINESS determine if a wire support clamp having detail the scope of the Agency’s DIRECTIVES authority. part number (P/N) TA0930034–10, TA0930034–10P, TA0930034–11, or We are issuing this rulemaking under ■ 1. The authority citation for part 39 TA0930034–12P is installed, and do all the authority described in Subtitle VII, continues to read as follows: applicable related investigative and Part A, Subpart III, Section 44701: Authority: 49 U.S.C. 106(g), 40113, 44701. corrective actions before further flight, in ‘‘General requirements.’’ Under that accordance with the Accomplishment section, Congress charges the FAA with § 39.13 [Amended] Instructions of Boeing Special Attention promoting safe flight of civil aircraft in ■ 2. The FAA amends § 39.13 by adding Service Bulletin 737–28–1312, dated April air commerce by prescribing regulations the following new airworthiness 19, 2013. for practices, methods, and procedures directive (AD): (h) Parts Installation Prohibition the Administrator finds necessary for The Boeing Company: Docket No. FAA– As of the effective date of this AD, no safety in air commerce. This regulation 2013–1027; Directorate Identifier 2013– person may install a wire support clamp on is within the scope of that authority NM–121–AD. any airplane within the ECS area defined in because it addresses an unsafe condition (a) Comments Due Date the Accomplishment Instructions of Boeing that is likely to exist or develop on Special Attention Service Bulletin 737–28– products identified in this rulemaking We must receive comments by January 27, 1312, dated April 19, 2013, unless the clamp action. 2014. has P/N TA0930034–10, TA0930034–10P, (b) Affected ADs TA0930034–11, or TA0930034–12P. Regulatory Findings None. (i) Alternative Methods of Compliance We determined that this proposed AD (AMOCs) would not have federalism implications (c) Applicability (1) The Manager, Seattle Aircraft under Executive Order 13132. This This AD applies to The Boeing Company Model 737–600, –700, 700C, –800, –900, and Certification Office (ACO), FAA, has the proposed AD would not have a authority to approve AMOCs for this AD, if substantial direct effect on the States, on –900ER series airplanes; certificated in any category; having a Variable Number requested using the procedures found in 14 the relationship between the national identified in paragraph 1.A.1., Effectivity, of CFR 39.19. In accordance with 14 CFR 39.19, Government and the States, or on the Boeing Special Attention Service Bulletin send your request to your principal inspector distribution of power and 737–28–1312, dated April 19, 2013. or local Flight Standards District Office, as responsibilities among the various appropriate. If sending information directly levels of government. (d) Subject to the manager of the ACO, send it to the For the reasons discussed above, I Air Transport Association (ATA) of attention of the person identified in America Code 28, Fuel System. paragraph (j)(1) of this AD. Information may certify this proposed regulation: be emailed to: 9-ANM-Seattle-ACO-AMOC- (1) Is not a ‘‘significant regulatory (e) Unsafe Condition [email protected]. action’’ under Executive Order 12866, This AD was prompted by a report of (2) Before using any approved AMOC, (2) Is not a ‘‘significant rule’’ under installation of incorrect wire support clamps notify your appropriate principal inspector, the DOT Regulatory Policies and within the left and right Environmental or lacking a principal inspector, the manager

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of the local flight standards district office/ ADDRESSES: You may submit comments, D. Increased Flexibility for Food Animal certificate holding district office. identified by Docket No. FDA–2010–N– Producers Purchasing VFD Feeds 0155, by any of the following methods, E. Lower Recordkeeping Burden for All (j) Related Information Involved Parties (1) For more information about this AD, except that comments on information III. Proposed Regulations contact Georgios Roussos, Aerospace collection issues under the PRA must be A. Conforming Changes (Proposed Engineer, Systems and Equipment Branch, submitted to the Office of Information § 514.1(b)(9) ANM–130S, FAA, Seattle Aircraft and Regulatory Affairs, Office of B. Definitions (Proposed § 558.3(b)) Certification Office, 1601 Lind Avenue SW., Management and Budget (OMB) (see the C. General Requirements Related to VFD Renton, WA 98057–3356; phone: 425–917– ‘‘Paperwork Reduction Act of 1995’’ Drugs (Proposed § 558.6(a)) 6482; fax: 425–917–6590; email: section). D. Responsibilities of the Veterinarian [email protected]. Issuing the VFD (Proposed § 558.6(b)) (2) For service information identified in Electronic Submissions E. Responsibilities of the Medicated Feed Distributor (Proposed § 558.6(c)) this AD, contact Boeing Commercial Submit electronic comments in the Airplanes, Attention: Data & Services IV. Legal Authority following way V. Preliminary Regulatory Impact Analysis Management, P.O. Box 3707, MC 2H–65, • Seattle, Washington 98124–2207; telephone Federal eRulemaking Portal: http:// VI. Paperwork Reduction Act of 1995 206–544–5000, extension 1; fax 206–766– www.regulations.gov. Follow the VII. Environmental Impact 5680; Internet https:// instructions for submitting comments. VIII. Federalism IX. Comments www.myboeingfleet.com. You may view this Written Submissions referenced service information at the FAA, Transport Airplane Directorate, 1601 Lind Submit written submissions in the Executive Summary Avenue SW., Renton, Washington. For following way: Purpose of Proposed Rule information on the availability of this • Mail/Hand delivery/Courier (for material at the FAA, call 425–227–1221. paper or CD–ROM submissions): The purpose of this rulemaking is to Issued in Renton, Washington, on Division of Dockets Management (HFA– revise FDA’s VFD regulations to December 4, 2013. 305), Food and Drug Administration, improve the efficiency of the VFD John P. Piccola, 5630 Fishers Lane, rm. 1061, Rockville, program. In 1996, Congress enacted the Animal Acting Manager, Transport Airplane MD 20852. Directorate, Aircraft Certification Service. Instructions: All submissions received Drug Availability Act (ADAA) (Pub. L. must include the Agency name and 104–250) to facilitate the approval and [FR Doc. 2013–29593 Filed 12–11–13; 8:45 am] marketing of new animal drugs and BILLING CODE 4910–13–P Docket No. FDA–2010–N–0155 for this rulemaking. All comments received may medicated feeds. In passing the ADAA, be posted without change to http:// Congress created a new regulatory www.regulations.gov, including any category for certain animal drugs used DEPARTMENT OF HEALTH AND personal information provided. For in animal feed called veterinary feed HUMAN SERVICES additional information on submitting directive drugs or VFD drugs. VFD drugs are new animal drugs intended for Food and Drug Administration comments, see the ‘‘Comments’’ heading of the SUPPLEMENTARY INFORMATION use in or on animal feed which are limited to use under the professional 21 CFR Parts 514 and 558 section. Docket: For access to the docket to supervision of a licensed veterinarian in the course of the veterinarian’s [Docket No. FDA–2010–N–0155] read background documents or comments received, go to http:// professional practice. FDA published RIN 0910–AG95 www.regulations.gov and insert the final regulations implementing the VFD- docket number, found in brackets in the related provisions of the ADAA in 2000 Veterinary Feed Directive heading of this document, into the (see § 558.6 (21 CFR 558.6)). In the ‘‘Search’’ box and follow the prompts decade since those regulations were AGENCY: Food and Drug Administration, issued, stakeholders informed FDA that HHS. and/or go to the Division of Dockets Management, 5630 Fishers Lane, rm. the VFD process is overly burdensome. ACTION: Proposed rule. 1061, Rockville, MD 20852. In response to those concerns, FDA published an advance notice of FOR FURTHER INFORMATION CONTACT: SUMMARY: The Food and Drug proposed rulemaking in March 2010, Sharon Benz, Center for Veterinary Administration (FDA) is proposing to and a draft proposed regulation in April Medicine (HFV–220), Food and Drug amend its animal drug regulations 2012. regarding veterinary feed directive Administration, 7519 Standish Pl., As FDA begins to implement the (VFD) drugs. FDA’s VFD regulation, Rockville, MD 20855, 240–453–6864, judicious use principles for medically which became effective on January 8, email: [email protected]. important antimicrobial new animal 2001, established requirements relating SUPPLEMENTARY INFORMATION: drugs approved for use in food- to the distribution and use of VFD drugs Table of Contents producing animals, based on the and animal feeds containing such drugs. framework set forth in Guidance for This proposed amendment is intended I. Background Industry (GFI) #209 (published April 13, to improve the efficiency of FDA’s VFD A. History 2012), it is critical that the Agency program. B. Judicious Use Policy for Medically makes the VFD program as efficient as DATES: Submit either electronic or Important Antimicrobials possible for stakeholders while written comments on the proposed rule II. Highlights of the Proposed Rule maintaining adequate protection for by March 12, 2014. Submit comments A. User-Friendly Reorganization of the human and animal health. The VFD Regulation on information collection issues under B. Increased Flexibility for Licensed provisions included in this proposed the Paperwork Reduction Act of 1995 Veterinarians Issuing VFDs rule are based on stakeholder input (the PRA) by January 13, 2014, (see the C. Continued Access to Category I Type A received in response to multiple ‘‘Paperwork Reduction Act of 1995’’ Medicated Articles by Unlicensed Feed opportunities for public comment, section). Mills including an advance notice of

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proposed rulemaking (ANPRM) (75 FR because these facilities are technically associated paperwork burden. 15387, March 29, 2010) and draft text of better suited to handle these drugs in a Therefore, FDA is proposing to reduce proposed amendments to the current concentrated form. However, existing the recordkeeping requirement for VFD regulations (77 FR 22247, April 13, regulations include a provision that says copies of VFDs for all involved parties, 2012). FDA proposes that if this rule is all VFD drugs, regardless of their and for manufacturing receipt and finalized, it will become effective 60 potential to create unsafe drug residues, distribution records for VFD days after publication of the final rule are Category II drugs. Thus, under distributors, from 2 years to 1 year. in the Federal Register. current regulations, if an over-the- Costs and Benefits Summary of Major Provisions counter (OTC) Category I drug changes to VFD status, it automatically becomes The estimated one-time costs to The proposed rule, if finalized, will a Category II drug, which, in turn, limits industry from this proposed rule, if make several major changes to the its availability only to licensed feed finalized, are $920,000, most of which current VFD regulations in 21 CFR part mills. FDA is concerned that the are costs to review the rule and prepare 558: a compliance plan. This equates to • automatic recategorization of drugs from In order to provide increased Category I to Category II once they annualized costs of about $131,000 at a flexibility for licensed veterinarians switch to VFD status is likely to cause 7 percent discount rate over 10 years. issuing VFDs, FDA is proposing to a supply chain obstruction for VFD We estimate that the total government revise the definition of the term feeds once the Agency’s policy costs associated with reviewing the VFD ‘‘Veterinary Feed Directive’’ in § 558.3 regarding the judicious use of medically drug labeling supplements that are (21 CFR 558.3) which currently includes important antimicrobial drugs in food- expected to be submitted by all four a relatively prescriptive, federally producing animals is fully VFD drug sponsors to be $1,200. defined, code of veterinary professional implemented. To avoid this outcome, The expected benefit of this proposal conduct known as the veterinarian- FDA proposes to revise the definition of is a general improvement in the client-patient relationship (VCPR). Category II to eliminate the automatic efficiency of the VFD process. FDA Specifically, the Agency proposes to classification of VFD drugs into estimates the annualized cost savings remove the explicit VCPR provision and Category II. This would permit those associated with the reduced replace it with the requirement that medically important antimicrobials requirements of the VFD process to be veterinarians ordering the use of VFD used in animal feed that are currently $19,000 over 10 years at a 7 percent drugs must do so ‘‘in compliance with Category I drugs to become VFD drugs discount rate (annualized at $16,000 all applicable veterinary licensing and consistent with FDA’s judicious use over 10 years at a 3 percent discount practice requirements.’’ The purpose of policy. At the same time, products rate). Additionally, the reduction in this revision is to provide greater veterinarian labor costs due to this rule flexibility for veterinarians by deferring containing these drugs would remain available through the current feed mill is expected to result in a cost savings of to the veterinary profession and about $5.55 million annually. individual states for the specific criteria distribution system. for acceptable veterinary professional • In order to lower the recordkeeping I. Background burden associated with the use of VFD conduct, rather than relying on a more A. History rigid, one-size-fits-all, Federal standard. drugs, FDA is proposing to align the From a practical standpoint, this recordkeeping requirements for VFD Before 1996, FDA had only two enables the veterinary profession and drugs with the current Good options for regulating the distribution of individual states to adjust the specific Manufacturing Practices (cGMP) animal drugs: (1) OTC and (2) criteria for a VCPR to appropriately recordkeeping requirements for prescription (Rx). Drugs used in animal align with current veterinary practice medicated feeds, thus reducing the feeds were generally approved as OTC standards, technological and medical recordingkeeping burden for VFD drugs drugs. Although the Federal Food, Drug, advances, and other regional from 2 years to 1 year. Under current and Cosmetic Act (the FD&C Act) did considerations. For example, greater § 558.6, all involved parties (the not prohibit the approval of prescription flexibility could allow veterinarians to veterinarian, the distributor, and the drugs for use in animal feed, such more effectively provide services to food client) must keep their copy of the VFD approvals have historically been animal producers in remote on file and available for FDA inspection impractical because many states have geographical areas where veterinary for 2 years. In addition, VFD feed laws prohibiting feed manufacturers professional resources are limited and distributors must also keep receipt and from dispensing prescription drugs. As distances are great. distribution records of the VFD feeds newer animal drugs were developed, • In order to prevent potential they manufacture and make them FDA determined that the existing shortages of antimicrobial drugs needed available for FDA inspection for 2 years. regulatory options—OTC and Rx—did by food animal producers for judicious However, the cGMP regulations for not provide the needed flexibility and therapeutic uses on their farms and medicated feed manufacturing in 21 safety for these drugs to be prescribed or ranches, FDA is proposing to revise the CFR part 225 require that such records administered through medicated feed. definition of ‘‘Category II’’ drugs in be kept for only 1 year. Feed mill FDA believed that such drugs should be § 558.3. Under current regulations, all operators have told FDA that this subject to greater control than provided animal drugs approved for use in or on discrepancy is difficult to manage and by OTC status, particularly certain animal feed are assigned to one of two that they would like to see all feed antimicrobial drugs. This control is categories, depending on their potential manufacturing record retention critical to reducing unnecessary use of to create unsafe drug residues in edible requirements kept the same at 1 year. such drugs in animals and to slowing or tissues—Category I drugs having the Based on our experience, FDA does not preventing any potential for the lowest potential and Category II drugs believe the extra 1 year of recordkeeping development of bacterial resistance to having the highest potential. In order to for VFD drugs is warranted for any of antimicrobial drugs. reduce the potential of creating unsafe the involved parties. The value added After considerable deliberation drug residues, access to Category II by the second year of record retention between FDA and the animal agriculture drugs is restricted to licensed feed mills has not been shown to justify the industry, and with the support of State

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regulatory Agencies, in 1996 Congress to the VFD regulations. Subsequent to channels of commercial feed enacted the ADAA to facilitate the this, FDA published draft text of a distribution. approval and marketing of new animal proposed VFD regulation (hereinafter, II. Highlights of the Proposed Rule drugs and medicated feeds. As part of ‘‘draft proposed regulation’’) in the the ADAA, Congress determined that Federal Register of April 13, 2012 (77 The primary purpose of this certain new animal drugs should be FR 22247), based on the considerable rulemaking is to improve the efficiency approved for use in animal feed but public input provided to the ANPRM of the VFD program, while still ensuring only if these medicated feeds were docket, and requested comment on this that VFD drugs are used in a manner administered under a veterinarian’s draft text. The provisions included in that affords adequate protection for order and professional supervision. this proposed rule reflect the public human and animal health. The key Therefore, the ADAA created a new input FDA received. FDA proposes that changes in this proposal include: • category of products called veterinary if this rule is finalized, it will become User-friendly reorganization of the feed directive drugs (or VFD drugs). VFD regulation; effective 60 days after publication of the • VFD drugs are new animal drugs final rule in the Federal Register. increased flexibility for licensed intended for use in or on animal feed, veterinarians issuing VFDs; • which are limited to use under the B. Judicious Use Policy for Medically continued access to Category I Type professional supervision of a licensed Important Antimicrobials A medicated articles by unlicensed feed mills; veterinarian in the course of the On April 13, 2012, FDA finalized a • veterinarian’s professional practice. For increased flexibility for animal guidance document entitled ‘‘The producers purchasing VFD feeds; and animal feed containing a VFD drug to be Judicious Use of Medically Important • used in animals, a licensed veterinarian lower recordkeeping burden for all Antimicrobial Drugs in Food-Producing involved parties. must first issue an order, called a Animals’’ (GFI #209). This final veterinary feed directive (or VFD), guidance represents the Agency’s A. User-Friendly Reorganization of the providing for such use. In the Federal current thinking regarding antimicrobial VFD Regulation Register of December 8, 2000 (65 FR drugs that are medically important in The proposed rule, if finalized, will 76924), FDA issued a final rule human medicine and used in food- revise and reorganize the existing VFD amending the new animal drug producing animals. Specifically, GFI regulation at § 558.6 to make it more regulations to implement the VFD- #209 discusses FDA’s concerns user-friendly. Proposed § 558.6 includes related provisions of the ADAA. In that regarding the development of only three subsections, (a), (b), and (c), final rule, FDA stated that because antimicrobial resistance in human and in contrast to the existing regulation, veterinarian oversight is so important animal bacterial pathogens when which has six subsections. In addition, for assuring the safe and appropriate use medically important antimicrobial drugs for ease in identifying what is expected of certain new animal drugs, the Agency are used in food-producing animals in from each party involved in the VFD should approve such drugs for use in an injudicious manner. In addition, GFI process, the proposed rule organizes the animal feed only if these medicated #209 provides two recommended provisions by affected party or feeds are administered under a principles regarding the appropriate or stakeholder group. Subsection (a) veterinarian’s order and professional judicious use of medically important supervision. As an example, the final contains general provisions that are antimicrobial drugs: (1) Limit medically common to all affected parties, rule noted that safety concerns relating important antimicrobial drugs to uses in to the difficulty of disease diagnosis, including veterinarians, distributors, animals that are considered necessary and clients (including clients that are drug toxicity, drug residues, for assuring animal health and (2) limit antimicrobial resistance, or other on-farm mixers handling VFD drugs and medically important antimicrobial drugs reasons may dictate that the use of a feeds for use in their own animals). to uses in animals that include medicated feed be limited to use by Subsection (b) contains specific veterinary oversight or consultation. order and under the supervision of a provisions for veterinarians and licensed veterinarian. Implementation of these judicious use subsection (c) contains specific It has been over a decade since FDA principles, particularly the second provisions for animal feed distributers. began implementing the final rule principle, reinforces the need for FDA to Consistent with public comments we relating to VFDs. Although currently reconsider the current VFD program and received on the ANPRM and draft there are few approved VFD drugs, FDA how best to make the program more regulation, these revisions are intended has received comments from efficient and less burdensome for to make it clearer what is expected from stakeholders characterizing the current stakeholders while maintaining each of these parties. Important aspects VFD process as being overly adequate protection for human and of subsection (b) include that the burdensome. When veterinary oversight animal health. Currently, the vast veterinarian issuing the VFD must be of a medicated feed is determined to be majority of the antimicrobial animal licensed and must assure that the VFD necessary, it is essential that such drug products that are the focus of GFI is complete and accurate before it is oversight be facilitated through an #209 are feed-use drugs—that is, they issued. The veterinarian must also efficient VFD process. are products approved for use in or on assure that the terms of the VFD are in In response to these concerns, the animal feed. All but a few of these compliance with the conditions for use Agency began exploring ways to products are currently available OTC approved, conditionally approved, or improve the VFD program’s efficiency. without veterinary oversight or indexed for the VFD drug. Important To that end, FDA initiated the consultation and would be affected by aspects of subsection (c) include that the rulemaking process through the the recommendation to switch to VFD VFD feed distributor is responsible for publication of an ANPRM in the Federal status. It is critical, therefore, that the assuring that the VFD is complete before Register of March 29, 2010 (75 FR VFD process be as efficient as possible filling the order. The VFD feed 15387). The ANPRM requested public when FDA’s judicious use policy is distributor must also assure that the comment on whether efficiency fully implemented because an overly medicated feed is manufactured and improvements are needed and, if so, burdensome VFD process could lead to labeled in accordance with the VFD and what specific revisions should be made unanticipated disruptions in the current in conformity with the approved,

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conditionally approved, or indexed § 558.3(b)(7) to explicitly incorporate animal feed, including VFD drugs, FDA conditions of use. See section III for a the concept of veterinary ‘‘supervision does not believe that the explicit VCPR more detailed description of these or oversight.’’ Section 504(a)(1) of the requirement as defined in § 530.3(i) is provisions. FD&C Act (21 U.S.C. 354(a)(1)) states necessary in the context of VFD drug that a veterinary feed directive drug is use. B. Increased Flexibility for Licensed a drug intended for use in or on animal Furthermore, since extralabel use is Veterinarians Issuing VFDs feed which is limited to use under the not an option for medicated feeds, FDA proposes to modify provisions in professional ‘‘supervision’’ of a licensed including medicated feeds containing the existing regulation at 21 CFR part veterinarian. In addition, the second VFD drugs, the final use and labeling of 558 relating to professional conduct by judicious use principle of GFI #209 such feeds must also conform to an veterinarians issuing orders for VFD recommends veterinary ‘‘oversight’’ FDA-approved, or conditionally drugs in several important ways. First, when using medically important approved, new animal drug application in order to provide greater flexibility for antimicrobial drugs in food-producing or index listing (see section 512(a)(2) of veterinarians, FDA is proposing to animals. Therefore, to better align the the FD&C Act). In other words, the revise the definition of the term VFD regulations with the statute and terms of the VFD, such as intended use ‘‘Veterinary Feed Directive’’ in with the judicious use principles or dosage regimen, are constrained by § 558.3(b)(7) which currently includes a outlined in GFI #209, we propose to the conditions of use found in an relatively prescriptive, federally- incorporate the phrase ‘‘supervision or approved application, conditionally defined, code of veterinary professional oversight’’ in the revised definition of approved application, or index listing. conduct known as the VCPR. VFD. Thus, the proposed revised Therefore, when completing the VFD Specifically, the Agency proposes to definition for VFD would require that a order, the veterinarian needs to make remove the explicit VCPR provision and veterinarian may only issue a VFD for sure the VFD is consistent with the replace it with the requirement that the use of VFD drugs in animals that are conditions of use in the approved veterinarians ordering the use of VFD under his or her ‘‘supervision or application, conditionally approved drugs must be ‘‘in compliance with all oversight.’’ application, or index listing; similarly, applicable veterinary licensing and Third, the current definition of when filling a valid VFD, the medicated practice requirements.’’ The purpose of ‘‘Veterinary Feed Directive’’ in feed manufacturer must assure that the this revision is to provide greater § 558.3(b)(7) includes another final medicated feed is manufactured flexibility for veterinarians by deferring requirement for professional veterinary and labeled in conformity with both the to the veterinary profession and conduct, which also is derived from the VFD and the approved, conditionally individual states for the specific criteria VFD provisions in section 504 of the approved, or indexed conditions for use. for acceptable veterinary professional FD&C Act. This requirement is found in If the conditions of use specified on a conduct, rather than relying on a more the phrase ‘‘. . . licensed veterinarian VFD are not in conformity with an rigid, one-size-fits-all, Federal standard. in the course of the veterinarian’s approved new animal drug application, As discussed further below, the professional practice . . .’’ which also conditionally approved application, or veterinary profession and individual appears in the first sentence of the index listing, the VFD is considered state veterinary medical licensing current definition in § 558.3(b)(7). (See invalid and the medicated feed boards already embrace the concept of section 504(a)(1) of the FD&C Act.) FDA described on the VFD may not be a VCPR as an element of veterinary proposes to retain this provision in the manufactured or distributed. licensing and practice requirements. revised definition of the term ‘‘VFD.’’ This proposed revision is not From a practical standpoint, this By combining these three elements, intended to lower the standard for proposal would enable the veterinary the proposed revised requirement for professional conduct by veterinarians. profession and individual states to veterinarians issuing orders for the use Instead of continuing to impose explicit, adjust the specific criteria for a VCPR to of VFD drugs found in this rule, as federally defined VCPR requirements on appropriately align with current derived from the proposed revised veterinarians using VFD drugs in their practice standards, technological and definition of the term ‘‘VFD,’’ would professional practice, these proposed medical advances, and other regional include language stating that a licensed revisions would, consistent with the considerations. For example, providing veterinarian may only issue a VFD for approach to regulating veterinary for this greater degree of flexibility is of the use of VFD drugs in animals ‘‘under professional conduct in the context of particular importance for those his or her supervision or oversight in prescription animal drug use, recognize veterinarians providing services to the course of his or her professional and appropriately defer to existing producers in remote geographical areas practice, and in compliance with all regulatory oversight standards for where veterinary professional resources applicable veterinary licensing and veterinary professional conduct. This are limited and distances are great. practice requirements.’’ includes VCPR standards that have been Further, this proposal provides greater It is important to remember that this established by the veterinary profession flexibility for veterinarians working in provision would only apply to on-label and individual state veterinary medical consultation with other animal health animal drug use. The statutory licensing boards. The Agency believes professionals, such as poultry provision for an explicit, federally that state veterinary medical licensing pathologists and fish health biologists. defined VCPR, which was introduced boards are well suited for this role The need for greater flexibility in a with the Animal Medicinal Use because of their unique perspective on veterinarian’s professional relationship Clarification Act of 1994 (AMDUCA) factors such as the local availability of with his or her clients and patients will (Pub. L. 103–396) (see section professional veterinary medical become increasingly important as FDA’s 512(a)(4)(A)(i) of the FD&C Act (U.S.C. resources and the needs of their judicious use policy for medically 360b(a)(4)(A)(i))) and defined by individual agricultural communities. important antimicrobial dugs is regulation (see § 530.3(i)), continues to However, while each state’s veterinary implemented. apply in circumstances involving medical practice code may be somewhat Second, FDA is proposing to further extralabel animal drug use. However, different, the practice of veterinary revise the definition of the term because AMDUCA specifically prohibits medicine in the United States is, to a ‘‘Veterinary Feed Directive’’ in extralabel use of animal drugs in or on great extent, guided by the American

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Veterinary Medical Association (AVMA) unsafe levels of drug residues in edible facilities, which currently number fewer and its Principles of Veterinary Medical animal tissues. Under current than 1,000. This limited number of Ethics,1 which acts as a unifying regulations, all animal drugs approved licensed facilities would have great standard for all veterinarians. AVMA’s for use in or on animal feed are assigned difficulty meeting the demands of the Principles of Veterinary Medical Ethics to one of two categories, depending on tens of thousands of unlicensed include an explicit VCPR provision. their potential to create unsafe facilities in the United States. FDA As noted earlier, the Agency intends residues—Category I drugs having the believes this would result in shortages to provide for greater flexibility by lowest potential and Category II drugs of antimicrobial drugs needed by food deferring to the veterinary profession having the highest potential. FDA animal producers for judicious and individual states for the specific regulations at § 558.3(b)(1)(i) (21 CFR therapeutic uses on their farms and criteria for complying with the concept 558.3(b)(1)(i)) define Category I as those ranches, thus compromising animal of a VCPR as an element of veterinary drugs that require no withdrawal period health. To avoid this outcome, FDA licensing and practice requirements. at the lowest use level in each species proposes to revise the definition of This would allow the specific criteria for which they are approved. Section Category II in § 558.3(b)(1)(ii) by for a VCPR to be adjusted as appropriate 558.3(b)(1)(ii) (21 CFR 558.3(b)(1)(ii)) removing the final clause that currently to align with the most recent practice defines Category II, in part, as those reads ‘‘. . . or are a veterinary feed standards, technological and medical drugs that require a withdrawal period directive drug,’’ thereby eliminating the advances, and practical considerations at the lowest use level for at least one automatic classification of VFD drugs to in particular regions of the country. species for which they are approved, or Category II. This would permit those C. Continued Access to Category I Type are regulated on a ‘‘no-residue’’ basis or medically important antimicrobials A 2 Medicated Articles by Unlicensed with a zero tolerance because of a used in animal feed that are already Feed Mills carcinogenic concern regardless of Category I drugs to become VFD drugs whether a withdrawal period is consistent with FDA’s judicious use Under the current VFD regulations, all required. In order to reduce the policy, but remain available through the medicated feed distributors, licensed or potential of creating unsafe drug current feed mill distribution system. unlicensed, are able to manufacture and residues, access to Category II Type A Furthermore, FDA has reconsidered sell medicated feeds containing VFD medicated articles is restricted to its previous position that all VFD drugs drugs. The only difference is that licensed feed mills (see § 558.4(a)) should be classified as Category II drugs licensed facilities are able to start the because these facilities are technically (see final rule of December 8, 2000 (65 manufacturing process with a VFD Type better suited to handle these drugs in FR 76924 at 76926)). Based on our A medicated article and unlicensed this concentrated form. Unlicensed experience with VFD drugs (e.g., facilities must start with a VFD Type B 3 facilities can safely handle Category II investigating animal drug residue or Type C 4 medicated feed. In other violations, cGMP inspections), the words, unlicensed feed mills are not drugs after they have been diluted to a Type B or Type C feed, as well as Agency no longer believes that the allowed access to any VFD Type A enhanced inspection requirements for medicated articles under current Category I Type A medicated articles. But the current definition of Category II licensed feed mills are necessary to regulations. FDA proposes to amend the assure the safe and effective use of VFD VFD regulations to allow unlicensed drugs also includes a provision that says all VFD drugs, regardless of their drugs that would otherwise be classified feed mills to have continued access to as Category I drugs. This is because (as potential to create unsafe residues, are the Type A medicated articles they noted in section II.E) feed-use drugs, in Category II drugs. Thus, under current currently use when these drugs change general, have a very safe record of use regulations, if an OTC Category I drug from OTC to VFD status. and Category I feed-use drugs, because changes to VFD status, it automatically For many years, FDA has restricted of their extremely safe pharmacological becomes a Category II drug which, in access to certain Type A medicated and toxicological profile, have the turn, limits the availability of its Type articles in an effort to avoid creating lowest potential of creating unsafe drug A medicated article to licensed feed residues at their approved dose levels. 1 https://www.avma.org/KB/Policies/Pages/ mills. Principles-of-Veterinary-Medical-Ethics-of-the- FDA is concerned that the automatic D. Increased Flexibility for Food Animal AVMA.aspx. recategorization of drugs to Category II Producers Purchasing VFD Feeds 2 A ‘‘Type A medicated article’’ is intended solely for use in the manufacture of another Type A once they switch to VFD status is likely A number of stakeholders responding medicated article or a Type B or Type C medicated to cause a supply chain obstruction for to the ANPRM and draft proposed feed. It consists of a new animal drug(s), with or VFD feeds once the Agency’s judicious regulation requested that FDA remove without carrier (e.g., calcium carbonate, rice hull, use policy regarding medically the requirement for veterinarians to corn, gluten) with or without inactive ingredients. important antimicrobial drugs is fully include the amount of medicated feed to 3 A ‘‘Type B medicated feed’’ is intended solely for the manufacture of other medicated feeds (Type implemented. This is because the be dispensed on the VFD, as is currently B or Type C). It contains a substantial quantity of majority of the OTC feed-use required in § 558.6(a)(4)(vi). Although nutrients including vitamins and/or minerals and/ antimicrobials that are the focus of GFI this request was voiced by respondents or other nutritional ingredients in an amount not #209 are currently Category I drugs, from several different food animal less than 25 percent of the weight. It is manufactured by diluting a Type A medicated making their Type A medicated articles production industries, each of them article or another Type B medicated feed. readily available to tens of thousands of based their request on the difficulty of 4 A ‘‘Type C medicated feed’’ is intended as the unlicensed feed mills, including on- predicting, prior to feeding, exactly how complete feed for the animal or may be fed ‘‘top farm mixers, located throughout the much medicated feed a particular flock, dressed’’ on (added on top of usual ration) or offered ‘‘free-choice’’ (e.g., supplement) in United States. Therefore, if all of these herd, pen, house, or tank of animals will conjunction with other animal feed. It contains a drugs were to switch dispensing status actually consume during a specific substantial quantity of nutrients including vitamins, from OTC to VFD, and automatically period of drug administration. Feed minerals, and/or other nutritional ingredients. It is become Category II drugs, these consumption rates can vary significantly manufactured by diluting a Type A medicated depending on several factors, including article or a Type B medicated feed. A Type C unlicensed facilities will now be forced medicated feed may be further diluted to produce to purchase VFD drugs as Type B or environmental conditions. However, the another Type C medicated feed. Type C medicated feeds from licensed most important sources of variability lie

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in the animals’ health status at the Register on July 2, 1999 (64 FR 35966), As discussed earlier in section II.C, beginning of drug administration and the usual and customary manufacturing FDA proposes to revise the definition of how quickly these animals respond to records kept by distributors to comply Category II in § 558.3(b)(1)(ii) by treatment. Regardless of species, healthy with the cGMP regulations in 21 CFR removing the final clause that currently animals generally eat more than sick part 225 satisfies the VFD receipt and reads ‘‘. . . or are a veterinary feed animals. It is difficult to predict how distribution recordkeeping requirement directive drug.’’ quickly animals will respond to as well (see 21 CFR part 225, subpart E The definition of ‘‘veterinary feed treatment and how quickly they will (licensed feed mill distributors) and directive (VFD) drug’’ in proposed return to their normal feed consumption subpart I (unlicensed feed mill § 558.3(b)(6) would be revised to rate. In an effort to purchase or distributors)). However, the cGMP include animal drugs that have been manufacture the right amount of regulations in part 225 only require that conditionally approved under section medicated feed, food animal producers such records be kept for 1 year, in 571 of the FD&C Act (U.S.C. 360ccc), often monitor feed consumption rates contrast to the 2-year requirement for and to clarify that the use of a VFD drug during the treatment period and later VFD feeds in § 558.6(e). Feed mill in or on animal feed must be authorized make adjustments in feed orders operators have told us that this by a valid veterinary feed directive. accordingly. discrepancy is difficult to manage and FDA also proposes to revise the As noted by several stakeholders, if that they would like to see all feed definition of ‘‘veterinary feed directive’’ the veterinarian is required to specify on manufacturing record retention in proposed § 558.3(b)(7) to include the VFD the amount of medicated feed requirements kept the same at 1 year, animal drugs that have been to be dispensed, he or she may thus eliminating the need for two conditionally approved under section overestimate that amount in order to separate filing systems: One for non- 571 of the FD&C Act and to replace the make sure the food animal producer VFD feed records (1-year record current federally defined VCPR does not run out of feed before the end retention) and one for VFD feed records requirement with a more broadly of the treatment period. Unfortunately, (2-year record retention). defined standard for veterinary this will often times result in leftover Based on our experience, FDA does professional conduct, as discussed in medicated feed on the farm. not believe the extra 1 year of section II.B. The revised definition Alternatively, if the amount of recordkeeping for VFD drugs is would also clarify that VFDs must be medicated feed listed on the VFD is too warranted for any of the involved written, meaning nonverbal, and that little, the food animal producer may parties. The value added by the second they may be issued in hardcopy or need to get another VFD to complete the year of record retention has not been through electronic media. course of treatment. FDA acknowledges shown to justify the associated stakeholders’ concerns about the paperwork burden. FDA compliance Additionally, several stakeholders variability of feed consumption rates investigations regarding violative drug responding to the ANPRM and draft and therefore, in response to these residues in edible animal tissues are proposed regulation were unclear about concerns, proposes to eliminate the normally completed within the first year what is a medicated feed distributor. requirement for veterinarians to specify of their detection and nearly all of these The term ‘‘distributor’’ as used in part the amount of medicated feed to be are associated with dosage form drugs 558 is defined in § 558.3(b)(9). We are dispensed on the VFD. FDA believes (i.e., non-feed use drugs). Therefore, proposing revisions to that definition for that the proposed new requirements for FDA is proposing to reduce the improved clarity. Please note that on- veterinarians to specify on the VFD the recordkeeping requirement for copies of farm mixers that only manufacture duration of use and the approximate VFDs for all involved parties, and for medicated feeds for use in their own number of animals to be fed the manufacturing receipt and distribution animals are not distributors. medicated feed, along with the current records for VFD distributors, from 2 Proposed § 558.3(b)(11) would revise requirement to include the level of VFD years to 1 year. Because the usual and the definition of ‘‘acknowledgement drug in the feed, should provide customary records of purchase and sales letter’’ for clarity. Under current adequate control over the total amount kept by distributors to comply with the regulations, acknowledgement letters of medicated feed authorized by the cGMP regulations in part 225 must include three affirmation VFD. adequately support the VFD inspection statements and this proposal would E. Lower Recordkeeping Burden for All program, we have not included the VFD require the same three affirmations. Involved Parties receipt and distribution recordkeeping However, two of these three affirmation Another commonly heard suggestion requirement found in current § 558.6(e) statement provisions are currently from stakeholders responding to the in this proposed rule. found in § 558.3(b)(11) and one affirmation statement provision is ANPRM and draft proposed regulation III. Proposed Regulations is the need to reduce the VFD currently found in § 558.6(d)(2). This recordkeeping burden from 2 years to 1 A. Conforming Changes (Proposed proposal would simply put all three year. Under the current VFD regulation, § 514.1(b)(9) provisions together in the definition of all involved parties (the veterinarian, The CFR citation noted in the new ‘‘acknowledgement letter’’ for clarity. the distributor, and the client) must animal drug application regulations at The revised definition would also keep their copy of the VFD on file and 21 CFR 514.1(b)(9) would be revised to clarify that acknowledgement letters available for FDA inspection for 2 years reflect the new VFD format provision must be written, meaning nonverbal, (see current § 558.6(c)). In addition, VFD found in proposed § 558.6(b)(3). and that they may be sent in hardcopy feed distributors must also keep receipt or through electronic media. B. Definitions (Proposed § 558.3(b)) and distribution records of the VFD Proposed § 558.3(b)(12) includes the feeds they manufacture and make them The definitions of terms used in the new term ‘‘combination veterinary feed available for FDA inspection for 2 years medicated feed regulations of part 558, directive (VFD) drug’’ to account for (see current § 558.6(e)). including the VFD drug regulations in combination animal drugs used in or on As noted in FDA’s proposed VFD rule § 558.6, can be found in § 558.3(b). FDA animal feed that include one or more that was published in the Federal proposes to amend § 558.3(b) as follows: VFD drugs.

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C. General Requirements Related to VFD veterinarian would be required to specifically cited on the VFD; or (3) Drugs (Proposed § 558.6(a)) provide on the VFD. § 558.6(b)(6)(iii): The VFD may be used Proposed § 558.6(b)(3)(v) includes a As noted in section II.A, proposed for any approved combination VFD new provision that, in cases where the § 558.6(a) contains general provisions drug. expiration date is not specified in the In all cases, the VFD may be used to that are common to all involved parties approval, conditional approval, or index authorize the distribution and use of (the veterinarian, the distributor, and listing, the expiration date of the VFD medicated feed containing the VFD drug the client). This includes clients that are cannot exceed 6 months after the date alone. also on-farm mixers that only of issuance. Proposed § 558.6(b)(4) would allow manufacture VFD feeds for use in their Proposed § 558.6(b)(3)(vii) would the veterinarian, at his or her discretion, own animals. require animal identification to include to enter additional information on the Proposed § 558.6(a)(1) establishes that species and production class. VFD to more specifically identify the a VFD may only be issued by a licensed Proposed § 558.6(b)(3)(viii) would animals authorized to be treated with or veterinarian for the use of VFD drugs in revise the current requirement for the fed the medicated feed. animals under his or her supervision or number of animals to be treated to mean Proposed § 558.6(b)(5) would add a oversight in the course of his or her an approximate number of animals to be new provision for combination VFD professional practice, and in compliance fed the medicated feed prior to the drugs that include more than one VFD with all applicable veterinary licensing expiration date on the VFD, due to the drug component. No such combinations and practice requirements. difficulty in determining the exact have yet been approved, conditionally Proposed § 558.6(a)(3) reminds number of animals to be treated during approved, or indexed, but in the event stakeholders that the extralabel use the duration of the valid VFD. that such combination VFD drug is (ELU) of any medicated feed, including Proposed § 558.6(b)(3)(x) would approved, conditionally approved, or medicated feeds containing VFD drugs, remove the existing requirement for indexed in the future, the veterinarian is not permitted under Federal law. (See veterinarians to specify the amount of would need to include in the VFD section 512(a)(4)(A) of the FD&C Act.) feed to be fed to the animals listed on certain drug-specific information for Several stakeholders responding to the the VFD, as discussed in section II.D. each component VFD drug in the ANPRM and draft regulation requested Veterinarians would instead be required combination. that FDA allow ELU for VFD feeds. to include the duration of drug use on The proposal would no longer AMDUCA legalized, for the first time, the VFD in addition to the level of drug specifically require that VFDs be ELU of approved drugs in animals. in the feed, as is currently required. produced in triplicate but all three However, AMDUCA specifically The proposal would remove the involved parties (the veterinarian, the prohibits ELU of such drugs in or on current requirement in § 558.6(a)(4)(xi) distributor, and the client) would still animal feed. (See Pub. L. 103–396.) for veterinarians to include their license be required to receive and keep a copy Proposed § 558.6(a)(4) establishes that number and name of the issuing state on of the VFD, either electronically or in all involved parties (the veterinarian, the VFD. This information is not needed hardcopy. If the VFD is transmitted the distributor, and the client) must by VFD recipients (clients and electronically, the veterinarian would retain their copy of the VFD for 1 year. distributors) to assure the safe and no longer be required to send a This proposal would lower the current effective use of VFD drugs and is not hardcopy to the distributor. 2-year recordkeeping requirement, as customarily used by FDA or state Proposed § 558.6(b)(9) would clarify discussed in section II.E. inspectors in compliance investigations. that veterinarians may not issue a VFD Proposed § 558.6(a)(6) revises the Proposed § 558.6(b)(3)(xiii) would verbally, including verbal transmission required cautionary labeling statement revise the statement required to be by telephone. However, transmission of for all VFD drugs and feeds. included in each VFD indicating that a written (nonverbal) VFD by telephones extralabel use is not permitted. D. Responsibilities of the Veterinarian that are capable of this function (i.e. Proposed § 558.6(b)(3)(xiv) is a new smartphones) is allowed. Issuing the VFD (Proposed § 558.6(b)) provision that would require a Proposed § 558.6(b)(1) reiterates that a veterinarian who issues a VFD for the E. Responsibilities of the Medicated VFD may only be issued by a licensed use of medicated feed containing a VFD Feed Distributor (Proposed § 558.6(c)) veterinarian for the use of VFD drugs in drug that is also one of the component Proposed § 558.6(c)(1) would require animals under his or her supervision or drugs in an approved combination VFD medicated feed distributors who handle oversight in the course of his or her drug to include one of three VFD drugs to make sure all VFDs are professional practice, and in compliance ‘‘affirmation of intent’’ statements on completely filled out before with all applicable veterinary licensing the VFD. Each of the three statements, manufacturing the specified VFD feed. and practice requirements. This would found in proposed § 558.6(b)(6), VFDs that do not include all the replace the current federally defined provides a different option for information required by proposed VCPR provision that cites § 530.3(i), as veterinarians regarding their § 558.6(b)(3) are incomplete and discussed in section II.B. authorization for the use of a VFD drug considered invalid. Proposed § 558.6(b)(2) clarifies that, as a component of an approved Proposed § 558.6(c)(2) reminds when issuing a VFD, the veterinarian combination VFD drug. The definition medicated feed distributors that they must issue a VFD that is in compliance of ‘‘combination VFD drug’’ can be may only distribute an animal feed with the conditions for use approved, found in proposed § 558.3(b)(12). The containing a VFD drug or combination conditionally approved, or indexed for three options are as follows: (1) VFD drug that is in compliance with the the VFD drug. In other words, a VFD § 558.6(b)(6)(i): The VFD cannot be used terms of a valid VFD and is that is written for an extralabel use fails to authorize any combination VFD drug manufactured and labeled in conformity to comply with Federal law and is (i.e., only medicated feed containing the with the approved, conditionally invalid. (See section 504(a)(2)(B) of the VFD drug alone can be distributed using approved, or indexed conditions of use FD&C Act.) the VFD); or (2) § 558.6(b)(6)(ii): The for such drug. This dual responsibility Proposed § 558.6(b)(3) includes a VFD may be used for any of the is not new but is a very important revised list of information that the approved combination VFD drugs concept that all VFD distributors must

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understand. VFDs that are not in impact analysis (PRIA) that presents the drugs intended for use in or on animal compliance with the conditions of use benefits and costs of this proposed rule feed, which are limited to use under the approved, conditionally approved, or to stakeholders and the government. professional supervision of a licensed indexed for the VFD drug are invalid The summary analysis of benefits and veterinarian in the course of the and may not be used to authorize the costs included in the Executive veterinarian’s professional practice. distribution of a medicated feed Summary of this document is drawn Currently, there are few approved containing a VFD drug. from the detailed PRIA, which is VFD drugs. However, FDA has received Proposed § 558.6(c)(3) reminds available at http://www.regulations.gov feedback from stakeholders distributors that, in addition to other (enter Docket No. FDA–2010–N–0155), characterizing the current VFD process applicable recordkeeping requirements and is also available on FDA’s Web site as being overly burdensome. In response found in this section, they must also at http://www.fda.gov/AboutFDA/ to these concerns, FDA began exploring keep VFD feed manufacturing records 1 ReportsManualsForms/Reports/ ways to improve the VFD program’s year in accordance with part 225 of this EconomicAnalyses/default.htm. efficiency. To this end, FDA published chapter. Such records must be made VI. Paperwork Reduction Act of 1995 an ANPRM inviting public comment on available for inspection and copying by possible VFD program efficiency FDA upon request. This proposed rule contains improvements in March 2010. Based on Proposed §§ 558.6(c)(4), (5), and (6) information collection provisions that the considerable public input received relate to the statutory requirement for are subject to review by OMB under the in response to the ANPRM, in April one-time notification by distributors of Paperwork Reduction Act of 1995 (44 2012 FDA issued for public comment their intent to distribute medicated feed U.S.C. 3501–3520). A description of draft text for proposed revisions to the containing VFD drugs. These provisions these provisions is given in the current VFD regulation. are very similar to those found at Description section that follows with section 558.6(d)(1) of the current estimates of the annual reporting, Current and Proposed Information regulation. recordkeeping, and third-party Collection Requirements Proposed § 558.6(c)(7) retains the disclosure burden. Included in each The current veterinary feed directive statutory requirement for medicated burden estimate is the time for regulation, § 558.6, has information feed distributors that consign VFD drug- reviewing instructions, searching collection provisions contained at OMB containing feeds to another distributor existing data sources, gathering and control number 0910–0363 (expiration to receive an acknowledgement letter maintaining the data needed, and date December, 31, 2014). Many of these from that person. This section completing and reviewing each provisions will be unaffected by the references a revised definition of collection of information. proposed rule, if finalized; therefore, FDA invites comments on these ‘‘acknowledgement letter’’ found in this Paperwork Reduction Act section topics: (1) Whether the proposed proposed § 558.3(b)(11). Proposed will concentrate on the changes being collection of information is necessary § 558.6(c)(7) also includes an explicit 1- proposed in this rulemaking and will for the proper performance of FDA’s year recordkeeping requirement for describe how the paperwork reduction functions, including whether the acknowledgment letters. implications will be affected. information will have practical utility; IV. Legal Authority (2) the accuracy of FDA’s estimate of the Proposed Reporting Requirements FDA’s authority for issuing this burden of the proposed collection of Description of Respondents: VFD proposed rule is provided by section information, including the validity of Feed Distributors. 504 of the FD&C Act. In addition, the methodology and assumptions used; section 701(a) of the FD&C Act (21 (3) ways to enhance the quality, utility, Currently, under § 558.6(d)(1) (and U.S.C. 371(a)) gives FDA general and clarity of the information to be proposed § 558.6(c)(4)) a distributor of rulemaking authority to issue collected; and (4) ways to minimize the animal feed containing VFD drugs must regulations for the efficient enforcement burden of the collection of information notify FDA prior to the first time it of the FD&C Act. on respondents, including through the distributes such animal feed and this use of automated collection techniques, notification is required one time per V. Preliminary Regulatory Impact when appropriate, and other forms of distributor. Therefore, all active Analysis information technology. distributors of animal feed must have FDA has examined the impacts of the Title: Veterinary Feed Directives. already made notification to FDA of proposed rule under Executive Order Description: The proposed rule would their intention to distribute animal feed 12866, Executive Order 13563, the revise existing OMB control number containing VFD drugs in order to be in Regulatory Flexibility Act (5 U.S.C. 0910–0363 (expiration date December compliance with the current regulation. 601–612), and the Unfunded Mandates 31, 2014) for veterinary feed directives In addition, a distributor must provide Reform Act of 1995 (Pub. L. 104–4). by lowering the recordkeeping burden updated information to FDA within 30 Executive Orders 12866 and 13563 without compromising human or animal days of a change in ownership, business direct Agencies to assess all costs and safety, providing greater deference and name, or business address. benefits of available regulatory flexibility to the veterinary profession Because the reporting requirements alternatives and, when regulation is for licensing and veterinary practice for distributors under proposed necessary, to select regulatory requirements, and ensuring continued § 558.6(c)(4) are the same as the current approaches that maximize net benefits access to Category I Type A medicated requirements under § 558.6(d)(1), there (including potential economic, articles by unlicensed feed mills. is no new reporting burden. FDA environmental, public health and safety, In 1996, the ADAA was enacted to understands that VFD feed distributors and other advantages; distributive facilitate the approval and marketing of must review the rule in order to impacts; and equity). The Agency new animal drugs and medicated feeds. determine what actions are necessary to believes that this proposed rule is not a Among other things, the ADAA created comply with the new regulation. For significant regulatory action as defined a new category of new animal drugs VFD feed distributors we estimate by Executive Order 12866. We have called veterinary feed directive drugs (or administrative review of the rule will developed a preliminary regulatory VFD drugs). VFD drugs are new animal take 4 hours to complete.

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TABLE 1—ESTIMATED ONE-TIME REPORTING BURDEN 1

Number of Average Number of responses Total burden per 21 CFR 558.6/activity respondents per responses respondent Total hours Total costs respondent in hours

Administrative Review of the Rule (VFD Feed Distributors)...... 1,366 1 1,366 4 5,464 2 $387,000 1 There are no operating and maintenance costs associated with this collection of information. 2 A total of 1,366 VFD feed distributors times approximately $71 per hour times 4 hours of one-time review equals approximately $387,000. Es- timate rounded to be in accordance with the PRIA.

Number of Respondents multiplied by Assuming that currently all VFDs are We anticipate that computer storage Number of Responses per Respondent issued and stored in hardcopy, we will eliminate the need for large equals Total Responses. Total Responses estimate it takes 300 large file cabinets amounts of physical space devoted to multiplied by Average Burden per to currently store these paper copy file cabinets. If, as we expect, one-half Response equals Total Hours. VFDs for 2 years, assuming 15,000 of the VFD recordkeepers (veterinarians, distributors, and clients) use electronic Proposed Recordkeeping Requirements copies can be stored in a large file cabinet (see 64 FR 35966 at 35970). We recordkeeping, this would result in a Description of Respondents: VFD estimate the average cost of a new file cost savings of $19,575 annually ($21.75 Feed Distributors, Food Animal cabinet to be $600. Thus, we estimate per square foot per year rental cost of Veterinarians, and Clients (Food Animal that the current capital outlay for space times 6 square feet per file cabinet Producers). industry to store hardcopy VFDs for the times 150 filing cabinets equals $19,575 Under current § 558.6(f) and proposed required 2 years is $180,000 ($600 times annual savings for switching to § 558.6(a)(1), an animal feed containing 300 equals $180,000). computer storage) (Thorpe, K., Edwards, a VFD drug or a combination VFD drug J., and Bondarenko, E. Cassidy Turley In response to public comment to the may be fed to animals only by or upon Commercial Real Estate Services. ‘‘U.S. ANPRM, FDA is proposing to reduce the a lawful VFD issued by a licensed Office Trends Report—2nd Quarter recordkeeping requirement for copies of veterinarian. Veterinarians issue three 2013.’’ Page 10. http:// VFDs for all involved parties (proposed copies of the VFD: One for their own www.cassidyturley.com/Research/ § 558.6(a)(4)) from 2 years to 1 year. records, one for their client, and one to MarketReports/Report.aspx?topic=U_S_ Additionally, as included in proposed the client’s VFD feed distributor Office_Trends_ § 558.6(b)(7), the veterinarian would (current § 558.6(b)(1–3) and proposed Report&action=download, 2nd Quarter § 558.6(a)(4) and proposed § 558.6(b)(7– also no longer be required to assure that 2013). 8)). Under current § 558.6(b)(4), if the a paper copy is received by the In addition, the proposed reduction in veterinarian sends the VFD to the client distributor within 5 days of writing the the amount of time records would be or distributor by electronic means, he or VFD if the original was faxed or required to be kept from 2 years to 1 she must assure that the distributor otherwise transmitted electronically. year would further reduce the need for receives the original, signed VFD within This hardcopy requirement has become physical space and file cabinets. The 5 working days. Also, under current outdated by modern electronic recordkeepers still filing hardcopy VFDs § 558.6(c), all involved parties (the communication and presents an would save $9,788 annually ($21.75 per veterinarian, the distributor, and the unnecessary burden on the industry. square foot per year rental cost of space client) must retain a copy of the VFD for This proposed provision would further times 6 square feet per file cabinet times 2 years. In addition, VFD feed reduce the number of paper copies 75 filing cabinets equals $9,788 annual distributors must also keep receipt and requiring physical recordkeeping space. savings for reducing recordkeeping from distribution records of VFD feeds they We anticipate approximately one-half 2 years to 1 year). manufacture and make them available of the food animal industry will use In summary, we anticipate that the for FDA inspection for 2 years (see electronic VFD generation and capital costs for recordkeeping will be current § 558.6(e)). recordkeeping during the next 3 years of reduced from $180,000 (storing all VFD Veterinarians and clients must review the information collection. As the use of copies in file cabinets for 2 years) to the rule to ensure compliance with their computers for electronic storage of $45,000 (storing hardcopy VFD files in respective new requirements. In table 2 records has increased substantially 75 file cabinets for 1 year), and an we estimate the hourly burden of this since 2000 and is expected to continue annual total cost savings of $29,363 for administrative review for both groups. to do so regardless of this proposed rule, one-half of the industry filing VFDs (Administrative review of the rule by the only marginal cost that would offset electronically for 1 year ($19,575 VFD feed distributors is accounted for some of the reduction in file cabinet savings for filing electronically plus in table 1.) storage space costs would be the $9,788 for reducing recordkeeping to 1 Recordkeeping costs are calculated as additional computer storage space that year). follows: 750,000 VFDs (an average of may be needed for electronic VFD As stated previously, both the current 375,000 VFDs issued per VFD drug) forms. Because the cost of electronic and proposed requirements state that issued in triplicate equals 2,250,000 storage capacity on computers has the veterinarian, the distributor, and the VFDs issued and stored in files per client must keep a copy of the VFD. 5 become extremely low, FDA regards this year. as a negligible cost and has not Whether a paper copy is filed or estimated it. whether the VFD is filed electronically, 5 Distributors may receive an acknowledgment we calculate that the time spent to file letter in lieu of a VFD when consigning VFD feed to another distributor. Such letters, like VFDs, recordkeeping burden for acknowledgment letters is the VFD is the same at 0.167 hours. would also be subject to a 1-year record retention included as a subset of the VFD recordkeeping Therefore, no revision to the paperwork requirement (see proposed § 558.6(c)(7)). Thus, the burden. burden for filing the VFD is needed.

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TABLE 2—ESTIMATED ONE-TIME RECORDKEEPING BURDEN 1

Average Number of Number of burden per 21 CFR 558.6/activity recordkeepers records per Total records recordkeeper Total hours Total costs recordkeeper in hours

Administrative Review of the Rule (Food Animal Veterinarians) ...... 3,050 1 3,050 1 3,050 2 $180,000 Administrative Review of the Rule (Cli- ents) ...... 10,000 1 10,000 0.5 5,000 3 154,000 Recordkeeping by Electronic Storage for 1 Year ...... 4 45,000

Total ...... 8,050 379,000 1 There are no operating and maintenance costs associated with this collection of information. 2 A total of 3,050 veterinarians times approximately $59 per hour times 1 hour of one-time review equals approximately $180,000. Estimate rounded to be in accordance with the PRIA (see PRIA). 3 A total of 10,000 clients times approximately $31 per hour times 0.5 hours one-time review equals approximately $154,000. Estimate rounded to be in accordance with the PRIA (see PRIA). 4 We estimate that the capital costs for recordkeeping will be reduced from $180,000 (storing paper copies of all VFDs in file cabinets for 2 years) to $45,000 (one-half of VFDs stored as paper copies in 75 file cabinets for 1 year), and an annual cost savings of $29,363 for one-half of the industry filing VFDs electronically for 1 year ($19,575 savings for filing electronically plus $9,788 for reducing recordkeeping to 1 year).

Number of Recordkeepers multiplied § 558.6(b)(3)(xiii): ‘‘Extralabel use (i.e., Proposed § 558.6(b)(3) includes by Number of Records per Recordkeeper use of this VFD feed in a manner other various changes to the information that equals Total Records. Total Records than as directed on the labeling) is not would need to be included on the VFD multiplied by Average Burden per permitted.’’ This verbatim statement is form that is filled out by the Recordkeeper equals Total Hours. also exempt from burden under the veterinarian in order for the VFD to be PRA. Proposed Third-Party Disclosure valid, including but not limited to, Requirements The veterinarian may restrict VFD deleting the requirement that the authorization to only include the VFD veterinarian must include the amount of Description of Respondents: VFD drug(s) cited on the VFD or such feed needed to treat the animals. Drug Sponsors, Food Animal authorization may be expanded to allow Proposed § 558.6(b)(7) would allow Veterinarians, VFD Feed Distributors, the use of the cited VFD drug(s) along veterinarians to send VFDs to the client and Clients (Food Animal Producers) with one or more OTC animal drugs in or distributor via fax or other electronic VFD drug sponsors manufacture and an approved, conditionally approved, or means (as is currently permitted under label VFD drugs for use in medicated indexed combination VFD drug. The § 558.6(b)(4)). However, if a VFD is animal feed. FDA understands that veterinarian must affirm his or her transmitted electronically, the sponsors must review the rule to ensure intent regarding combination VFD drugs veterinarian would no longer be compliance with their disclosure by including one of the following required to assure that the original, requirements. In table 3 we estimate the statements on the VFD: signed VFD is given to the distributor hourly burden of this administrative (i) ‘‘The VFD drug(s) cited in this within 5 days. FDA estimates that a review. (Administrative review of the order may not be used in combination veterinarian currently requires about rule by VFD feed distributors is with any other animal drugs.’’ accounted for in table 1 and by 0.25 hours to issue a VFD (i.e., research, veterinarians and clients in table 2.) (ii) ‘‘The VFD drug(s) cited in this fill out, and deliver all copies, including All labeling and advertising for VFD order may be used in combination with the original, signed VFD to the drugs, combination VFD drugs, and the following OTC animal drugs to distributor). At a compensation rate of feeds containing VFD drugs or manufacture an FDA-approved, about $59 (veterinarian wage rate, see combination VFD drugs must conditionally approved, or indexed PRIA), the labor cost of currently issuing prominently and conspicuously display combination medicated feed.’’ [List OTC VFDs is estimated at $11.09 million (the the following cautionary statement: drugs immediately following this estimated average of 750,000 VFDs ‘‘Caution: Federal law restricts statement.] issued annually times 0.25 hours to medicated feed containing this VFD (iii) ‘‘The VFD drug(s) cited in this issue each VFD times $59 per hour drug to use by or on the order of a order may be used in combination with equals approximately $11.09 million licensed veterinarian’’ (proposed any OTC animal drugs to manufacture (rounded to be in accordance with the § 558.6(a)(6)). This verbatim statement is an FDA-approved, conditionally PRIA)). FDA estimates that the effect of exempt from burden under the PRA approved, or indexed combination this rule would be to reduce the average because the Federal Government has medicated feed’’ (proposed time to issue a VFD by 50 percent, or provided the exact language for the § 558.6(b)(6)). about 0.125 hours per VFD. This would cautionary statement. Therefore, the These verbatim statements are also result in a cost of about $5.55 million hourly and cost burdens for label exempt from burden under the PRA. annually (the estimated average of supplement changes to the new The hourly and cost burdens to include 750,000 VFDs issued annually times specimen labeling for the Type A these statements on the VFD as part of 0.125 hours to issue each VFD times $59 medicated article and the representative the rule are considered de minimis, per hour equals approximately $5.55 label for use by the feed manufacturer however, as there are several other million (rounded to be in accordance will not be counted. changes to the VFD form itself that will with the PRIA)), a cost savings of about The VFD must also include the occur as the result of this proposed $5.55 million ($11.09 million ¥ $5.55 following statement (proposed rulemaking, if finalized. million = approximately $5.55 million.

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Currently, a distributor may only Proposed § 558.6(c)(7), also includes as § 558.6(d)(2) (65 FR 76928).6 FDA consign a VFD feed to another an explicit recordkeeping requirement continues to believe, as we did in 2000, distributor if the originating distributor for acknowledgment letters. While the that medicated feed distributors (consignor) first obtains a written VFD final rule issued in December 2000 customarily retain both acknowledgement letter from the did not explicitly require distributors to acknowledgment letters and VFDs as a receiving distributor (consignee) before retain acknowledgment letters for any normal business practice. The purpose the feed is shipped (§ 558.6(d)(2)). specified period of time, a 2-year of this provision is to clarify that Because this current requirement is the recordkeeping burden was accounted acknowledgment letters, like VFDs, same as that being proposed in for in the PRA section of the final rule must be retained only for 1 year. § 558.6(c)(7), there is no new reporting for this function as part of the VFD burden. recordkeeping burden in Table 2, noted

TABLE 3—ESTIMATED ANNUAL THIRD-PARTY DISCLOSURE BURDEN 1

Number of Average 21 U.S.C. 343m 21 CFR Section Number of disclosures Total annual burden per (Labeling Activity) respondents per disclosures disclosure in Total hours Total costs respondent hours

Administrative Review of the Rule, Cur- rent VFD Drug Sponsors (General and Operations Managers) 2 ...... 2 1 2 6 12 2 $1,200 558.6(b)(3) Changes to VFD Form by Drug Sponsors 3 ...... 2 2 4 16 64 3 5,308 Veterinarian issues VFD 4 ...... 3,050 245.9 750,000 0.125 93,750 5,550,000 Total ...... 93,826 5,556,508 1 There are no operating and maintenance costs associated with this collection of information. 2 Two current drug sponsors times $102 per hour times 6 hours of one-time review time equals approximately $1,200. Estimate rounded to be in accordance with the PRIA. 3 Two drug sponsors times two VFD forms per respondent equals four changes to the VFD form. With 16 hours per respondent to make form changes and correct Web site, equals 64 total hours to change the VFD forms. NOTE: The hourly and cost burdens to include the revised ver- batim statements noted in this document (on the VFD form itself) are exempt under the PRA. We are unable to measure these hours and costs separately, but consider them to be de minimus. The cost to change the VFD form is considered to include these statement changes. Changes to the VFD form for the four approved VFD forms (there are separate VFD forms for each of the two indications per VFD drug) are four VFD forms times $1,327 cost per form equals $5,308. 4 A total of 3,050 veterinarians times 245.9 VFDs issued per year (on average) times 0.125 hours per form equals 93,750 hours per year times $59 per hour equals approximately $5,550,000. Estimate rounded to be in accordance with the PRIA.

Number of Respondents multiplied by contained under OMB control number VII. Environmental Impact Number of Disclosures per Respondent 0910–0363. equals Total Annual Disclosures. Total The Agency has determined under 21 Interested persons are requested to CFR 25.30(h) that this action is of a type Annual Disclosures multiplied by send comments regarding information Average Burden per Disclosure equals that does not individually or collection by January 13, 2014 to the cumulatively have a significant effect on Total Hours. Office of Information and Regulatory Additionally, as the usual and the human environment. Therefore, Affairs, OMB. To ensure that comments customary records of purchase and sales neither an environmental assessment on information collection are received, kept by distributors to comply with the nor an environmental impact statement OMB recommends that written cGMP regulations adequately supports is required. comments be faxed to the Office of the VFD inspection program, we have VIII. Federalism eliminated the VFD manufacturing Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, FAX: FDA has analyzed this proposed rule recordkeeping requirement currently _ found in § 558.6(e) and instead refer to 202–395–6974, or emailed to oira in accordance with the principles set the 1-year manufacturing receipt and [email protected]. All forth in Executive Order 13132. FDA distribution recordkeeping requirement comments should be identified with the has determined that the proposed rule, for medicated feed manufacturers in title, ‘‘Veterinary Feed Directives, if finalized, would not contain policies part 225 (proposed § 558.6(c)(3)). These Reporting, Recordkeeping and Third that would have substantial direct record requirements are currently found Party Disclosure.’’ effects on the States, on the relationship at OMB control number 0910–0152. In compliance with the PRA (44 between the National Government and Paperwork approval of new animal U.S.C. 3407(d)), the Agency has the States, or on the distribution of drug applications is contained under submitted the information collection power and responsibilities among the OMB control number 0910–0032, for provisions of this proposed rule to OMB various levels of government. Indexing of Legally Marketed for review. These requirements will not Accordingly, the Agency tentatively Unapproved New Animal Drugs for be effective until FDA obtains OMB concludes that the proposed rule does Minor Species under OMB control approval. FDA will publish a notice not contain policies that have number 0910–0620, and for veterinary concerning OMB approval of these federalism implications as defined in feed directives, OMB approval is requirements in the Federal Register. the Executive order and, consequently,

6 The recordkeeping burdens for VFDs and recordkeeping burden, estimated at 18,788 hours in person who distributes medicated feed containing acknowledgement letters were combined because the 2000 final rule, is still cited in Table 2 of the VFD drugs must file with [FDA] a one-time distributors may receive an acknowledgement letter currently approved Information Collection Request notification letter of intent to distribute, and retain in lieu of a VFD before distributing a medicated (ICR) for § 558.6 (0910–0363). As noted in the PRA a copy of each VFD serviced or each consignee’s feed containing a VFD drug. This combined section of the December 2000 final rule, ‘‘[a]ny acknowledgment letter for 2 years.’’ (65 FR 76928).

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a federalism summary impact statement § 558.3 Definitions and general animal production facility that does not is not required. considerations applicable to this part. have a VFD, * * * * * (ii) That the consignee will not ship IX. Comments (b) * * * such feed to another distributor without Interested persons may submit either (1) * * * receiving a similar written electronic comments regarding this (ii) Category II—These drugs require a acknowledgment letter, and document to http://www.regulations.gov withdrawal period at the lowest use (iii) That the consignee has complied or written comments to the Division of level for at least one species for which with the distributor notification Dockets Management (see ADDRESSES). It they are approved, or are regulated on requirements of § 558.6(c)(4) of this is only necessary to send one set of a ‘‘no-residue’’ basis or with a zero chapter. comments. Identify comments with the tolerance because of a carcinogenic (12) A ‘‘combination veterinary feed docket number found in brackets in the concern regardless of whether a directive (VFD) drug’’ is a combination heading of this document. Received withdrawal period is required. new animal drug (as defined in comments may be seen in the Division § 514.4(c)(1)(i) of this chapter) approved * * * * * under section 512(c) of the Federal of Dockets Management between 9 a.m. (6) A ‘‘veterinary feed directive (VFD) and 4 p.m., Monday through Friday, and Food, Drug, and Cosmetic Act (the drug’’ is a new animal drug approved FD&C Act), conditionally approved will be posted to the docket at http:// under section 512(c) of the Federal www.regulations.gov. under section 571 of the FD&C Act, or Food, Drug, and Cosmetic Act (the listed in the index under section 572 of List of Subjects FD&C Act), conditionally approved the act, for use in or on animal feed, and under section 571 of the FD&C Act, or 21 CFR Part 514 at least one of the component new listed in the index under section 572 of animal drugs is a VFD drug. Use of a Administrative practice and the FD&C Act, for use in or on animal combination VFD drug in or on animal procedure, Animal drugs, Confidential feed. Use of a VFD drug in or on animal feed must be authorized by a valid business information, Reporting and feed must be authorized by a valid veterinary feed directive. recordkeeping requirements. veterinary feed directive. ■ 5. Revise § 558.6 to read as follows: (7) A ‘‘veterinary feed directive’’ is a 21 CFR Part 558 written (nonverbal) statement issued by § 558.6 Veterinary feed directive drugs. Animal drugs, Animal feeds. a licensed veterinarian that orders the (a) General requirements related to veterinary feed directive (VFD) drugs: Therefore, under the Federal Food, use of a VFD drug or combination VFD (1) A feed containing a VFD drug or Drug, and Cosmetic Act and under drug in or on an animal feed. This a combination VFD drug (a VFD feed or authority delegated to the Commissioner statement authorizes the client (the combination VFD feed) shall be fed to of Food and Drugs, it is proposed that owner of the animal or animals or other animals only by or upon a lawful VFD 21 CFR parts 514 and 558 be amended caretaker) to obtain and use the VFD issued by a licensed veterinarian. A as follows: drug or combination VFD drug in or on an animal feed to treat the client’s veterinarian may only issue a VFD for PART 514—NEW ANIMAL DRUG animals only in accordance with the the use of VFD drugs in animals under APPLICATIONS conditions for use approved, his or her supervision or oversight in conditionally approved, or indexed by the course of his or her professional ■ 1. The authority citation for 21 CFR the Food and Drug Administration practice, and in compliance with all part 514 is revised to read as follows: (FDA). A veterinarian may only issue a applicable veterinary licensing and VFD for the use of VFD drugs in animals practice requirements. Authority: 21 U.S.C. 321, 331, 351, 352, (2) VFDs may not be filled after the 354, 356a, 360b, 371, 379e, 381. under his or her supervision or oversight in the course of his or her expiration date on the VFD. ■ 2. Amend § 514.1 by revising professional practice, and in compliance (3) Use and labeling of a VFD drug or paragraph (b)(9) to read as follows: with all applicable veterinary licensing a combination VFD drug in feed is limited to the approved, conditionally § 514.1 Applications. and practice requirements. A veterinary feed directive may be issued in approved, or indexed conditions of use. * * * * * hardcopy or through electronic media. Extralabel use (i.e., actual or intended (b) * * * * * * * * use other than as directed on the (9) Veterinary feed directive. Three labeling) is not permitted. (9) For the purposes of this part, a (4) All involved parties (the copies of a veterinary feed directive ‘‘distributor’’ means any person who (VFD) must be submitted in the format veterinarian, the distributor, and the consigns a medicated feed containing a client) must retain a copy of the VFD for described under § 558.6(b)(3) of this VFD drug to another person. Such other chapter. 1 year. person may be another distributor or the (5) All involved parties must make the * * * * * client-recipient of a VFD. VFD and any other records specified in * * * * * PART 558—NEW ANIMAL DRUGS FOR this section available for inspection and USE IN ANIMAL FEEDS (11) An ‘‘acknowledgment letter’’ is a copying by FDA. written (nonverbal) communication sent (6) All labeling and advertising for ■ 3. The authority citation for 21 CFR to a distributor (consignor) from another VFD drugs, combination VFD drugs, and part 558 is revised to read as follows: distributor (consignee) who is not the feeds containing VFD drugs or ultimate user of the medicated feed combination VFD drugs must Authority: 21 U.S.C. 354, 360b, 360ccc, containing a VFD drug. An 360ccc–1, 371. prominently and conspicuously display acknowledgment letter may be sent in the following cautionary statement: ■ 4. Amend § 558.3 by revising hardcopy or through electronic media ‘‘Caution: Federal law restricts paragraphs (b)(1)(ii), (b)(6), (b)(7), (b)(9), and must affirm: medicated feed containing this VFD and (b)(11) and by adding new (i) That the consignee will not ship drug to use by or on the order of a paragraph (b)(12) to read as follows: such medicated animal feed to an licensed veterinarian.’’

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(b) Responsibilities of the veterinarian (i) A more specific description of the (2) The distributor may only issuing the VFD: location of animals (e.g., by site, pen, distribute an animal feed containing a (1) The veterinarian must be licensed barn, stall, tank, or other descriptor that VFD drug or combination VFD drug that to practice veterinary medicine and may the veterinarian deems appropriate); complies with the terms of the VFD and only issue a VFD for the use of VFD (ii) The approximate age range of the is manufactured and labeled in drugs in animals under his or her animals; conformity with the approved, supervision or oversight in the course of (iii) The approximate weight range of conditionally approved, or indexed his or her professional practice, and in the animals; and conditions of use for such drug. compliance with all applicable (iv) Any other information the (3) In addition to other applicable veterinary licensing and practice veterinarian deems appropriate to requirements. identify the animals specified in the recordkeeping requirements found in (2) The veterinarian must only issue VFD. this section, the distributor must also a VFD that is in compliance with the (5) For VFDs intended to authorize keep VFD feed manufacturing records conditions for use approved, the use of an approved, conditionally for 1 year in accordance with part 225 conditionally approved, or indexed for approved, or indexed combination VFD of this chapter. Such records must be the VFD drug. drug that includes more than one VFD made available for inspection and (3) The veterinarian must assure that drug, the veterinarian must include the copying by FDA upon request. the following information is fully and drug-specific information required in accurately included on the VFD: (4) A distributor of animal feed paragraphs (b)(2)(vi), (ix), (x),and (xi) for (i) The veterinarian’s name, address, containing VFD drugs must notify FDA and telephone number; each component VFD drug in the prior to the first time it distributes (ii) The client’s name, telephone combination. animal feed containing VFD drugs. The number, and business or home address; (6) The veterinarian may restrict VFD notification is required one time per (iii) The premises at which the authorization to only include the VFD distributor and must include the animals specified in the VFD are drug(s) cited on the VFD or such following information: authorization may be expanded to allow located; (i) The distributor’s complete name (iv) The date of VFD issuance; the use of the cited VFD drug(s) along (v) The expiration date of the VFD. with one or more over-the-counter and business address; This date cannot extend beyond the (OTC) animal drugs in an approved, (ii) The distributor’s signature or the expiration date specified in the conditionally approved, or indexed signature of the distributor’s authorized approval, conditional approval, or index combination VFD drug. The veterinarian agent; and listing, if such date is specified. In cases must affirm his or her intent regarding (iii) The date the notification was combination VFD drugs by including where the expiration date is not signed; specified in the approval, conditional one of the following statements on the approval, or index listing, the expiration VFD: (5) A distributor must also notify FDA date of the VFD cannot exceed 6 months (i) ‘‘The VFD drug(s) cited in this within 30 days of any change in after the date of issuance; order may not be used in combination ownership, business name, or business (vi) The name of the animal drug; with any other animal drugs.’’ address. (vii) The species and production class (ii) ‘‘The VFD drug(s) cited in this (6) The notifications cited in of animals to be fed the medicated feed; order may be used in combination with paragraphs (c)(4) and (c)(5) of this (viii) The approximate number of the following OTC animal drugs to animals to be fed the medicated feed section must be submitted to the Food manufacture an FDA-approved, and Drug Administration, Center for prior to the expiration date on the VFD; conditionally approved, or indexed (ix) The indication for which the VFD Veterinary Medicine, Division of combination medicated feed.’’ [List OTC Animal Feeds (HFV–220), 7519 is issued; drugs immediately following this (x) The level of drug in the feed and Standish Pl., Rockville, MD 20855. FAX: statement.] duration of use; 240–453–6882. (iii) ‘‘The VFD drug(s) cited in this (xi) The withdrawal time, special order may be used in combination with (7) A distributor may only consign a instructions, and cautionary statements any OTC animal drugs to manufacture VFD feed to another distributor if the necessary for use of the drug in an FDA-approved, conditionally originating distributor (consignor) first conformance with the approval; obtains a written (nonverbal) (xii) The number of reorders (refills) approved, or indexed combination authorized, if permitted by the drug medicated feed.’’ acknowledgment letter, as defined in approval, conditional approval, or index (7) The veterinarian must send the § 558.3(b)(11), from the receiving listing; VFD to the feed distributor via distributor (consignee) before the feed is (xiii) The statement: ‘‘Extralabel use hardcopy, fax, or electronically. If in shipped. Consignor distributors must (i.e., use of this VFD feed in a manner hardcopy, the veterinarian may send the retain a copy of each consignee other than as directed on the labeling) VFD to the distributor either directly or distributor’s acknowledgment letter for is not permitted’’; through the client. 1 year. (8) The veterinarian must provide a (xiv) An affirmation of intent for Dated: December 9, 2013. combination VFD drugs as described in copy of the VFD to the client. Leslie Kux, paragraph (6); and (9) The veterinarian may not issue a (xv) The veterinarian’s electronic or VFD verbally. Assistant Commissioner for Policy. written signature. (c) Responsibilities of any person who [FR Doc. 2013–29696 Filed 12–11–13; 8:45 am] (4) The veterinarian may, at his or her distributes an animal feed containing a BILLING CODE 4160–01–P discretion, enter the following VFD drug or a combination VFD drug: information on the VFD to more (1) The distributor may only fill a specifically identify the animals VFD if the VFD contains all the authorized to be treated/fed the information required in paragraph (b)(3) medicated feed: of this section.

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DEPARTMENT OF THE TREASURY You can download this proposed rule (RDFIs) handle Receivers’ claims of at the following Web site: http:// unauthorized debits. Specifically, the Fiscal Service www.fms.treas.gov/ach. You may also amendment (1) clarified the inspect and copy this proposed rule at: requirements for authorization of ACH 31 CFR Part 210 Treasury Department Library, Freedom entries, adopting the language of of Information Act (FOIA) Collection, Regulation E that an authorization must RIN 1510–AB32 Room 1428, Main Treasury Building, be ‘‘clear and readily understandable;’’ Federal Government Participation in 1500 Pennsylvania Avenue NW., (2) clarified that a purported the Automated Clearing House Washington, DC 20220. Before visiting, authorization that is not clear and you must call (202) 622–0990 for an readily understandable is not AGENCY: Bureau of the Fiscal Service, appointment. considered a valid authorization; (3) Treasury. In accordance with the U.S. eliminated the requirement that ACTION: Notice of proposed rulemaking government’s eRulemaking Initiative, Receiver’s written statement regarding with request for comment. the Service publishes rulemaking an unauthorized debit be made under information on www.regulations.gov. penalty of perjury; (4) established SUMMARY: The Department of the Regulations.gov offers the public the minimum information requirements for Treasury, Bureau of the Fiscal Service ability to comment on, search, and view and revised timing requirements related (Service) is proposing to amend its publicly available rulemaking materials, to the written statement; and (5) regulation governing the use of the including comments received on rules. expanded the use of R39 (Improper Automated Clearing House (ACH) FOR FURTHER INFORMATION CONTACT: Ian Source Document) for duplicate check/ system by Federal agencies. Our Macoy, Supervisory Financial Program check conversion payments. We are regulation adopts, with some Specialist, at (202) 874–6835 or proposing to accept this amendment. exceptions, the NACHA Operating Rules [email protected]; or Natalie H. 2. Stop Payments and Regulation E developed by NACHA—The Electronic Diana, Senior Counsel, at (202) 874– This amendment revised specific Payments Association (NACHA) as the 6680 or [email protected]. rules governing the use of the ACH language within the NACHA Operating Network by Federal agencies. We are SUPPLEMENTARY INFORMATION: Rules regarding the application and issuing this proposed rule to address I. Background expiration of a stop payment order so as changes that NACHA has made to the to re-align the NACHA Operating Rules Title 31 CFR part 210 (Part 210) NACHA Operating Rules since the with the requirements of Regulation E. governs the use of the ACH Network by publication of NACHA’s 2009 ACH The amendment (1) eliminated the six- Federal agencies. The ACH Network is Rules book. These changes include month time period after which a stop a nationwide electronic fund transfer amendments set forth in NACHA’s payment order placed by a consumer (EFT) system that provides for the inter- 2010, 2011, 2012 and 2013 Operating lapses; (2) provided that, where the stop bank clearing of electronic credit and Rules books. payment order applies to more than one debit transactions and for the exchange debit entry, the order remains in effect DATES: Comments on the proposed rule of payment related information among must be received by February 10, 2014. until all such entries have been stopped; participating financial institutions. Part (3) provided that RDFIs may require, in ADDRESSES: Comments on this rule, 210 incorporates the NACHA Operating cases where the Receiver desires to identified by docket FISCAL–FMS– Rules, with certain exceptions. From block all future payments related to a 2013–0002, should only be submitted time to time we amend Part 210 in order specific authorization/Originator, that using the following methods: to address changes that NACHA • the Receiver confirm in writing that the Federal eRulemaking Portal: periodically makes to the NACHA Receiver revoked the authorization; and www.regulations.gov. Follow the Operating Rules or to revise the (4) simplified the description of Return instructions on the Web site for regulation as otherwise appropriate. Reason Code R08 (Payment Stopped). submitting comments. Currently, Part 210 incorporates the • We are proposing to accept this Mail: Ian Macoy, Bureau of the NACHA Operating Rules as set forth in amendment. Fiscal Service, 401 14th Street SW., the 2009 NACHA Operating Rules book. Room 400B, Washington, DC 20227. NACHA has adopted a number of 3. Direct Access Registration The fax and email methods of changes to the NACHA Operating Rules This amendment modified the submitting comments on rules to the since the publication of the 2009 NACHA Operating Rules to require Service have been decommissioned. NACHA Operating Rules book. We are Originating Depository Financial Instructions: All submissions received proposing to incorporate in Part 210 Institutions (ODFIs) to register their must include the agency name (Bureau most, but not all, of these changes. Direct Access status with NACHA, and of the Fiscal Service) and docket We are requesting public comment on imposed certain requirements in number FISCAL–FMS–2013–0002 for all the proposed amendments to Part connection with registration of Direct this rulemaking. In general, comments 210. Access status. We are proposing to received will be published on accept this amendment. Regulations.gov without change, II. Summary of Proposed Rule Changes including any business or personal A. 2010 NACHA Operating Rules Book 4. Risk Management and Assessment information provided. Comments Changes This amendment updated the NACHA received, including attachments and Operating Rules to codify additional other supporting materials, are part of 1. Authorization and Returns risk management, due diligence and the public record and subject to public This NACHA Operating Rules monitoring practices that ODFIs must disclosure. Do not disclose any amendment revised the requirements for follow with respect to Originators and information in your comment or obtaining a Receiver’s authorization for Third-Party Senders. We are proposing supporting materials that you consider an ACH payment and modified the not to incorporate this amendment in confidential or inappropriate for public processes by which Receiving Part 210, since the Federal government’s disclosure. Depository Financial Institutions origination of entries through the ACH

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Network does not involve the damaged checks that cannot be imaged, We are proposing to accept, except as to conventional roles of Originator/ODFI or for other check images that cannot be tax payments, all of these changes, and does not present the risks that this processed. The expanded scope allows which include the following: amendment seeks to address. use of XCK for (1) a check that is • Minimum Description Standards for missing part of the MICR line but that B. 2011 NACHA Operating Rules Book IAT Entries Changes can be sufficiently repaired to create an ACH debit; (2) a check that, in whole or Under the original IAT rule, the RDFI 1. Mobile ACH Payments in part, is unreadable, obscured or of an inbound IAT Entry to a consumer This rule established a framework for mutilated in a manner that prevents account was required to provide the mobile-initiated ACH debit entries. It automated check processing or creating consumer with certain descriptive expanded the definition of Internet- of an image that may be used to produce information in accordance with the Initiated Entries (WEB) to include ACH a ‘‘substitute check’’ under the Check 21 requirements of the NACHA Operating debits authorized or initiated via Act, but has an intact MICR line; and (3) Rules and Regulation E. With the wireless networks. In addition, it a check that does not pass standard implementation of IAT, however, the applied all the provisions of the WEB quality tests for creation of an image minimum description standards within SEC Code to mobile debit entries. The that may be used to produce a substitute the NACHA Operating Rules were not purpose of the rule was to provide clear check under Check 21. We are modified to explicitly state that IAT information on how the NACHA proposing to accept this rule change. Entries also contain information related to terminal city, terminal state, terminal Operating Rules apply to mobile 5. Recurring TEL payments and to create a more stable identification code/location, and check environment within which to develop This amendment revised the serial number for certain types of payment products and services. We are definition of, and the general rule for, payments, and that, when such proposing to accept this rule. TEL Entries to allow both one-time information is present in an IAT Entry, (Single Entry) and recurring debit it must be included on the consumer’s 2. Elimination of the Opt Out Entries authorized orally via the bank statement. This amendment Requirements of ARC and BOC Entries telephone. Prior to the amendment, only codified these expectations regarding This amendment eliminated the Single Entries were permitted to be IAT statement requirements within the requirement that Originators of authorized via the telephone. The NACHA Operating Rules. Accounts Receivable Entries (ARC) and amendment expanded the specific • Gateway Notification of Rejected Back Office Conversion Entries (BOC) authorization language to address Inbound International Payment establish and maintain procedures to authorization requirements for recurring enable Receivers to opt out of check TEL Entries in conformance to the This amendment established a conversion activity. The amendment requirements of Regulation E. Under the requirement that a Gateway notify the reflected the fact that opt out rates were amendment, authorizations for recurring intended RDFI when an inbound generally 0.1 percent or lower, TEL Entries must meet the writing and international payment has been blocked indicating that consumer concern about signature requirements of Regulation E and/or rejected because the origination check conversion either did not exist or for preauthorized transfers, which can of an IAT Entry for such a transaction had dissipated over time. We are be done by conforming to the e-Sign would violate U.S. law. The amendment proposing to accept this amendment. Act. We are proposing to accept this requires a Gateway that rejects an rule change. inbound payment transaction to provide 3. Collection of Return Fees the intended RDFI with the names and This rule amendment established a C. 2012 NACHA Operating Rules Book complete addresses of both the Return Fee Entry as a specific type of Changes Originator and the Receiver, the date of ACH entry, to be used only for the 1. IAT Modifications and Refinements the payment transaction, and the dollar purpose of collecting return fees for amount of the intended payment. The certain ACH debits to consumer Effective September 18, 2009, the Gateway must provide such information accounts that are returned for NACHA Operating Rules were amended to the RDFI within five Banking Days of insufficient funds or other qualifying to require ODFIs and Gateway Operators blocking or rejecting the payment. to identify all international payment checks that are returned NSF/UCF. The • rule allows Originators to obtain transactions transmitted via the ACH Transaction Type Code To Identify authorization for a Return Fee Entry by Network for any portion of the money Remittances providing the Receiver/check writer trail as International ACH Transactions This amendment expanded the list of with notice that conforms to the using a new Standard Entry Class Code code values for use within the requirements of Regulation E. (IAT). IAT transactions must include the Transaction Type Code field in the First Part 210 currently provides that specific data elements defined within IAT Addenda Record to identify agencies with authority to collected the Bank Secrecy Act’s (BSA) ‘‘Travel international payments originated by a returned item services fees may do so by Rule’’ so that all parties to the natural person through a remittance originating an ACH debit entry transaction have the information product or service. The amendment following notice to the Receiver. We are necessary to comply with U.S. law, added a new code for remittances proposing to accept this rule change, including the laws administered by initiated by a natural person to facilitate which will enable agencies with OFAC. We accepted the IAT rule for the identification and tracking of such authority to collect returned item fees Federal payments, except that we payments. by utilizing the Return Fee Entry. delayed the effective date for certain • government transactions and excluded IAT Entries and the Effect of Illegality 4. Expanded Use of the XCK tax payments from the IAT rule. This amendment clarified that a Application Since that time, NACHA has made a Participating Depository Financial This amendment expanded the scope number of changes clarify and enhance Institution (DFI) must process each IAT of the Destroyed Check Entry (XCK) the Rules where appropriate to support Entry in accordance with all application to permit its use for certain more efficient processing of IAT Entries. requirements of the NACHA Operating

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Rules. A DFI is excused from its correct payment information to its • Clarification of Originator obligation to comply with specific contact in the foreign country (i.e., the Identification Field requirements under the NACHA Foreign Gateway or the Originator in the This amendment revised the Operating Rules only when the foreign country). Unlike the domestic description of the Originator processing of an IAT Entry would cause NOC process, the Gateway (as ODFI) Identification Field to address how the the DFI to be in violation of U.S. law. would have no obligation to ensure that field must be populated in various The DFI must, therefore, comply with future Inbound IAT Entries bear the circumstances. Three specific its obligations under the NACHA corrected information. conditions addressed by this change are: Operating Rules unless it identifies an Originators Not Established Under the IAT as a suspect transaction. For • Required Gateway Agreements and Laws of a State or the United States: The domestic RDFIs that receive inbound Authorizations for Outbound IAT NACHA Operating Rules require the IATs, these obligations include the Entries Originator Identification field to contain timely provision of funds and the timely an identification number defined by transmission of returns. This amendment requires a Gateway to have an agreement in place with Section 326 of the USA PATRIOT Act • Clarification of Rules Exceptions for either the ODFI or its own customer for any Originator that is not a natural IAT Entries (i.e., its own account holder or another person and is not established or This amendment clarified the party) before transmitting Outbound organized under the laws of a State or conditions and circumstances under IAT Entries internationally. Similarly, the United States. However, the U.S. which specific provisions of the this amendment also requires the Treasury has not defined such a NACHA Operating Rules do not apply Gateway to obtain authorization from numbering scheme, leaving a gap within to certain IAT Entries. These changes either the ODFI or its own customer the Rules as to how to identify a foreign were not substantive in nature, but (whichever has the agreement with the Originator within the ACH record. To rather more accurately reflect the Gateway) to (i) transmit outbound IAT close this gap, this amendment application of the provisions to actual Entries, (ii) arrange for settlement of established the same methodology used IAT processing. such Entries with the Foreign Gateway, in the wire transfer system, which Exceptions for Outbound IAT Entries: and (iii) arrange for further transmission defines the DDA account number at the This amendment revised, as of such Entries to the foreign receiving foreign financial institution as the appropriate, the list of provisions that financial institution and settlement of Originator Identification Number. do not apply to Outbound IAT Entries such payments to the foreign Receiver’s Use of Leading Characters as Part of and clarified that certain functional account. The rule also expands the the Originator Identification Number: processes (e.g., Prenotifications, NOCs, scope of Return Reason Code R81 (Non- This change explicitly permits Originators and ODFIs to include a one- reversals, etc.) apply to Outbound IAT Participant in IAT Program) to facilitate digit alphameric code in the first Entries only to the extent that they are the return of an IAT Entry where these supported by the laws and payment position of the Originator Identification required agreements/authorizations are system rules of the foreign receiving Field to allow for further identification not in place. country. and handling of the payment by the This amendment also incorporated Prior to this amendment, the ODFI. clearer Originator/ODFI obligations with requirements for these specific Identification of Third-Party Senders respect to authorization requirements agreements and authorizations by a in IAT Entries: This amendment for the origination of Outbound IAT Gateway did not address alternative broadened the definition of the Entries, noting that, while such international payments models in which Originator Identification Field to permit payments must be authorized under the the Gateway’s own account holder or inclusion of the tax identification Rules, the form and content of such an customer (rather than the ODFI) has number of either the Originator or the authorization are governed by the laws established an arrangement and entered Third-Party Sender when the ODFI has and payment system rules of the foreign into an agreement with the Gateway to the contractual relationship with the receiving country. The amendment also move funds out of the U.S. for further Third-Party Sender rather than the clarified that the Gateway for an credit to a foreign account. Originator of the Entry. Outbound IAT Entry assumes specific • • responsibilities and warranties of an Return of Outbound IAT Entry by Return Reason Codes R80–R84: RDFI, but that the Rules do not govern Foreign Gateway—Transmission of ACH Clarification of Use for Outbound IAT the Gateway’s rights and obligations Return by Gateway to ODFI Entries Only with respect to the foreign Receiver of This amendment revised the This amendment clarified the the Outbound IAT Entry. descriptions of Return Reason Codes timeframe for a Gateway to transmit an Exceptions for Inbound IAT Entries: R80–R84 (which are used solely by a ACH Return Entry for any Outbound This amendment incorporated a new Gateway) to clarify that these codes are IAT Entry that was properly returned to subsection that identifies exceptions to applicable only to Outbound IAT it by a Foreign Gateway. the NACHA Operating Rules for Entries. Inbound IAT Entries, listing NOCs as • Identification of the Foreign Funding • applicable to Inbound IAT Entries only Expansion of Return Reason Code R84 Financial Institution Within an IAT (Entry Not Processed by Gateway to the extent that NOCs are supported Entry by the laws and payment system rules Operator) of the foreign originating country. This amendment revised the This amendment broadened the scope However, because accurate payment descriptions of several fields in the of Return Reason Code R84 (Entry Not information is critical to the successful Fourth IAT Addenda Record to clarify Processed by Gateway) to accommodate processing of any ACH Entry (including that this information, when contained in a Gateway’s return of an Outbound IAT any IAT Entry), this amendment also an Inbound IAT Entry, must identify the Entry when it is unable to process the requires a Gateway that receives an NOC foreign financial institution that transaction because the payment system related to an Inbound IAT to pass the provides the funding for the transaction. in the foreign receiving country does not

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support a particular rule or function • Use of Return Reason Code R16 to Specifically, Originators will no longer defined as part of the domestic ACH Identify OFAC-Related Returns be required to make changes requested Network. This amendment expanded the title within Notifications of Change identified as Single Entry items. We are 2. Minor Impact Issues and description of Return Reason Code R16 (Account Frozen) to accommodate proposing to accept this amendment. These NACHA Operating Rules this code’s use for an RDFI’s return of 4. Health Care Payments Via ACH changes include editorial changes to an Entry based on an instruction from grammar, clarifications of intent, OFAC. Effective September 20, 2013, the changes that involve minor software NACHA Operating Rules will be • Return Reason Code and Change Code modifications and so forth, including amended to support health plans’ and for Gateway Use With Incorrectly-Coded the following: health care providers’ use of the ACH International Payments Network by adopting processing • Modification of the Definition of This amendment established two new enhancements that address requests XCK Ineligible Items codes—one Return Reason Code and made by the health care industry, as • Clarification of Recurring TEL one Change Code—for use by Gateways well as specific transaction Authorization Retention Requirements to advise ODFIs and Originators that identification and formatting • Correction to payment Type Code funds related to a domestically-coded requirements for health care claim for TEL Entries Entry (i.e., PPD, CCD, etc.) are being payments. The amendments operate in moved out of the country and that the combination with health care industry • Correction to Definition of Improper Entry should have been formatted as an operating rules for electronic funds ARC and BOC Debit Entries IAT Entry. LIST NEW CODES The new transfers (EFT) and electronic We are proposing to accept all the codes enable the Gateway to process or remittance advice (ERA) developed by foregoing minor impact changes. return the payment, depending on its the Council on Affordable Quality 3. Risk Management Enhancements risk tolerance, while conveying critical Healthcare (CAQH) Committee on payment information back to the ODFI. Operating Rules for Information This amendment extended the Exchange (CORE), in collaboration with • Corrected Data for IAT Entries—NOC deadline by which an audit of NACHA, and the designation by the Code Descriptions compliance with the NACHA Operating Department of Health and Human Rules must be completed. We are This amendment corrected the Services (HHS) of the CCD entry as the proposing not to accept this amendment descriptions of Change Codes C04 health care EFT standard transaction. because the compliance and audit (Incorrect Individual Name/Receiving Taken together, these sets of rules requirements of the NACHA Operating Company Name) and C09 (Incorrect provide for the efficient and Rules are not incorporated in Part 210. Individual Identification Number) as standardized electronic payment of they relate to IAT Entries. health care claims, and the reassociation 4. Pain Points in the Rules—Phase Two • ODFI Warranties—Compliance With of the payments with health care • Elimination of WEB Exposure Foreign Payment System Rules remittance information Limits. This amendment removed the (‘‘reassociation’’), resulting in This amendment narrowed the scope administrative simplification by health requirement that ODFIs establish of the ODFI warranty of compliance separate WEB exposure limits for plans and health care providers. with foreign payment system rules for The NACHA Rule amendments will Originators and Third-Party Senders. outbound IAT entries to focus only on This amendment does not affect Federal enable financial institutions to be ready authorization of the entry when such to send and receive health care CCD agencies because the WEB exposure authorization is required by the laws or limits are not incorporated in Part 210. entries for health plans and health care payment system rules of the receiving providers, which in turn will be • Modification of Accounts country. working toward implementation of Receivable (ARC) Entries to Permit the HHS’ January IFC and August IFC by Conversion of Checks Tendered in 2. Stop Payments their January 1, 2014 compliance Person for the Payment of a Bill at a Effective September 20, 2013, the deadline. Originators and ODFIs could Manned Location. This amendment NACHA Operating Rules will be begin using the transaction modified the scope of the ARC amended to incorporate two additional identification and formatting standards application to permit the conversion of conditions under which a stop order within this Rules earlier than the checks tendered in person for the relating to a debit entry to a non- effective date; use of the standards will payment of a bill at a manned location. Consumer account would lapse. Under not cause any processing problems for The rule also requires Originators the amendment, a stop order would RDFIs and Receivers. Similarly, RDFIs accepting bill payments in this in- expire if withdrawn by the Receiver or that do not do so already could begin person environment to provide a copy if the debit entry to which the order offering an electronic option for the of the authorization notice to the relates is returned. The amendment, delivery or provision of payment related Receiver at the time of the transaction. which we are proposing to accept, information as soon as they are ready. We are proposing to accept this rule incorporates current industry practice change. into the NACHA Operating Rules. The five major components of the Health Care EFT rule changes are as D. 2013 NACHA Operating Rules Book 3. Originator Obligations With Respect follows: Changes to Notifications of Change for Single • Unique Identification of Health Entries 1. IAT Modifications Care EFTs Effective September 20, 2013, the • Additional Formatting Several amendments to the IAT rule NACHA Operating Rules will be Requirements for Health Care EFT were enacted in the 2013 NACHA amended to make optional the Transactions Operating Rules book. We are proposing Originator’s response to Notifications of • Delivery of Payment Related to adopt all the amendments, as follows: Change for Single Entry payments. Information (Reassociation Number)

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• Addition of New EDI Data Segment initiating debit Entries that are not (2) The exclusion from the definition Terminator covered by the original authorization. of Section 2.2, which generally requires • Health Care Terminology within the We are proposing to accept this ODFIs to enter into agreements with NACHA Operating Rules amendment. Originators and Third-Party Senders We are proposing to accept all of the and perform certain due diligence with 7. ODFI Return Rate Reporting (Risk NACHA Operating Rules changes respect to those entities; and related to Health Care EFTs. Management) (3) The elimination of a temporary This amendment reduced the ODFI exclusion from the IAT rules for debit 5. ACH Security Framework Return Rate Reporting period from 60 entries originated by agencies and for This amendment to the NACHA days to 30 days for reducing return rates certain entries delivered to Mexico, Operating Rules created a Security below the return rate threshold before Canada and Panama through the Framework aimed at protecting the initiation of a NACHA Operating Rules FedGlobal SM ACH Payment Service. security and integrity of certain ACH enforcement proceeding. This Those references have been deleted data throughout its lifecycle. The amendment does not affect Federal because the temporary exclusion has Security Framework establishes agencies because Part 210 does not now expired. minimum data security obligations for incorporate the NACHA Operating We are proposing to amend the ACH Network participants to protect Rules enforcement provisions. definition of ‘‘Service’’ at § 210.2(p) to ACH data within their purview by: reflect the renaming of the Financial 8. Incomplete Transactions (Risk • Requiring non-consumer Management Service to the Bureau of Management) Originators, Participating DFIs, Third the Fiscal Service. Party Service Providers, and Third-Party This amendment allows the return of Senders to establish, implement, and, as a debit Entry to a Consumer Account Sec. 210.3(b) appropriate, update security policies, within 60 days of the Settlement Date We are proposing to amend § 210.3(b) procedures, and systems related to the for an ‘‘Incomplete Transaction,’’ which by replacing the references to the ACH initiation, processing, and storage of is defined as a transaction for which a Rules as published in the 2009 Rules Entries. These policies, procedures, and Third Party Sender debits a consumer’s book with references to the ACH Rules systems must: account to collect funds, but does not as published in the 2013 NACHA Æ Protect the confidentiality and complete the corresponding payment to Operating Rules and Guidelines book. integrity of Protected Information; the party to which payment is owed. We Sec. 210.6 Æ Protect against anticipated threats are proposing to accept this amendment. or hazards to the security or integrity of References to ACH Rules 2.2.3, 2.4.5, Protected information; and III. Section-by-Section Analysis 2.5.2, 4.2 and 8.7.2 have been replaced Æ Protect against unauthorized use of In order to incorporate in Part 210 the by references to Subsections 2.4.4, 2.8.4, Protected Information that could result NACHA Rule changes that we are 4.3.5, 2.92, 3.2.2, and 3.13.3 to reflect re- in substantial harm to a natural person accepting, we are replacing references to numbering of the NACHA Operating • Requiring each Participating DFI, the 2009 ACH Rules book with Rules. Third-Party Service Provider, and references to the 2013 NACHA In subsection (g), references to ACH Third-Party Sender to verify, as part of Operating Rules and Guidelines book. Rules 2.1.2 and 3.12 have been replaced its annual ACH Rules Compliance For those NACHA Rule changes that we by references to Subsections 2.3.2.2 and Audit, that it has established, are not incorporating (specifically, 2.5.10.1 to reflect re-numbering of the implemented, and updated the data amendments to the rules enforcement NACHA Operating Rules. security policies, procedures, and provisions), Part 210 already provides Subsection (h), which addressed systems required by the Security that the rules enforcement provisions of return item service fees, has been Requirements rules. Appendix 11 of the NACHA Operating revised. This subsection currently • Requiring ODFIs to use a Rules do not apply to Federal agency provides that an agency that had commercially reasonable method to ACH transactions. See § 210.2(d)(3) The authority to collect returned item establish the identity of each non- reference to Appendix 11 is being service fees can do so by originating an Consumer Originator or Third-Party replaced with a reference to Appendix ACH debit entry to collect a one-time Sender with which the ODFI enters into 10 to reflect numbering changes to the service fee in connection with an ARC, an Origination Agreement. rule. POP or BOC entry that is returned due We are proposing not to accept the to insufficient funds, provided a notice Security Framework requirements in Sec. 210.2 was given to the receiver. Prior to 2011, Part 210 because Part 210 does not We are proposing to amend the the NACHA Operating Rules did not incorporate the rules compliance and definition of ‘‘applicable ACH Rules’’ at permit return item fees to be collected audit requirements that the Security § 210.2(d) to reference the rules without the receiver’s written Framework expands. Federal agencies published in NACHA’s 2013 Rules book authorization. In 2011, the NACHA are subject to various Federal rather than the rules published in Operating Rules were amended to requirements governing data and NACHA’s 2009 Rules book. The include a new Entry type, Return Fee systems security and the protection of definition has been updated to reflect Entry, that may be used to collect return sensitive information, such that the reorganization and renumbering of fees for certain ACH debits and additional NACHA Operating Rules the NACHA Operating Rules. The qualifying checks that are returned NSF, requirements would be unduly changes to the definition are not subject to the provision of notice to the burdensome and unnecessary. substantive except: Receiver [ACH Rule 2.14]. Subsection (1) The deletion of the reference to (h) is revised to reflect this change. 6. Data Passing (Risk Management) ACH Rule 2.11.2.3, which required This amendment prohibited sharing ODFIs to establish exposure limits for Sec. 210.8 of certain customer information by Originators of Internet-initiated debit The references to ACH Rules 2.2.3, Originators, Third-Party Service entries. That requirement has been 2.4.5, 2.5.2, 4.2, and 8.7.2 have been Providers and ODFIs for the purpose of eliminated by NACHA; replaced with references to ACH Rules

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Subsections 2.4.4, 2.8.4, 4.8.5, 2.9.2, private sector, of $100 million or more (p) Service means the Bureau of the 3.2.2, and 3.13.3 to reflect re-numbering in any one year. Accordingly, we have Fiscal Service, Department of the of the ACH Rules. In addition, the not prepared a budgetary impact Treasury. regulatory citation to Regulation E has statement or specifically addressed any * * * * * been updated to reflect its re- regulatory alternatives. ■ 3. Revise § 210.3, paragraph (b) to read codification at 12 CFR Part 1005. List of Subjects in 31 CFR Part 210 as follows: IV. Procedural Analysis Automated Clearing House, Electronic § 210.3 Governing law. Request for Comment on Plain Language funds transfer, Financial institutions, * * * * * Executive Order 12866 requires each Fraud, and Incorporation by reference. (b) Incorporation by reference— agency in the Executive branch to write applicable ACH Rules. Words of Issuance (1) This part incorporates by reference regulations that are simple and easy to For the reasons set out in the understand. We invite comment on how the applicable ACH Rules, including preamble, we propose to amend 31 CFR to make the proposed rule clearer. For rule changes with an effective date on part 210 as follows: example, you may wish to discuss: (1) or before September 21, 2013, as published in the ‘‘2013 NACHA Whether we have organized the material PART 210—FEDERAL GOVERNMENT to suit your needs; (2) whether the Operating Rules and Guidelines: A PARTICIPATION IN THE AUTOMATED Complete Guide to Rules Governing the requirements of the rule are clear; or (3) CLEARING HOUSE whether there is something else we ACH Network,’’ and supplements thereto. The Director of the Federal could do to make these rule easier to ■ 1. The authority citation for part 210 Register approves this incorporation by understand. continues to read as follows: reference in accordance with 5 U.S.C. Regulatory Planning and Review Authority: 5 U.S.C. 5525; 12 U.S.C. 391; 31 552(a) and 1 CFR part 51. Copies of the The proposed rule does not meet the U.S.C. 321, 3301, 3302, 3321, 3332, 3335, and ‘‘2013 NACHA Operating Rules and 3720. criteria for a ‘‘significant regulatory Guidelines’’ are available from ■ action’’ as defined in Executive Order 2. Revise § 210.2, paragraph (d) to NACHA—The Electronic Payments 12866. Therefore, the regulatory review read as follows: Association, 13450 Sunrise Valley procedures contained therein do not § 210.2 Definitions. Drive, Suite 100, Herndon, Virginia 20171. Copies also are available for apply. * * * * * public inspection at the Office of the (d) Applicable ACH Rules means the Regulatory Flexibility Act Analysis Federal Register, 800 North Capitol ACH Rules with an effective date on or It is hereby certified that the proposed Street NW., Suite 700, Washington, DC before September 21, 2013, as published rule will not have a significant 20002; and the Bureau of the Fiscal in ‘‘2013 NACHA Operating Rules and economic impact on a substantial Service, 401 14th Street SW., Room Guidelines: A Complete Guide to Rules number of small entities. The proposed 400A, Washington, DC 20227. rule imposes on the Federal government Governing the ACH Network’’ and (2) Any amendment to the applicable a number of changes that NACHA, The supplements thereto, except: ACH Rules that is approved by (1) Subsections 1.2.2, 1.2.3, 1.2.4, Electronic Payments Association, has NACHA—The Electronic Payments 1.2.5 and 1.2.6; Appendix Seven; already adopted and imposed on private Association after September 21, 2013 Appendix Eight; Appendix Nine and sector entities that utilize the ACH. The shall not apply to Government entries Appendix Ten (governing the proposed rule does not impose any unless the Service expressly accepts enforcement of the ACH Rules, additional burdens, costs or impacts on such amendment by publishing notice including self-audit requirements, and any private sector entities, including of acceptance of the amendment to this claims for compensation); any small entities. Accordingly, a part in the Federal Register. An (2) Section 2.10 and Section 3.6 regulatory flexibility analysis under the amendment to the ACH Rules that is (governing the reclamation of benefit Regulatory Flexibility Act (5 U.S.C. 601 accepted by the Service shall apply to et seq) is not required. payments); (3) The requirement in Appendix Government entries on the effective date Unfunded Mandates Act of 1995 Three that the Effective Entry Date of a of the rulemaking specified by the Service in the Federal Register notice Section 202 of the Unfunded credit entry be no more than two Banking Days following the date of expressly accepting such amendment. Mandates Reform Act of 1995, 2 U.S.C. ■ 4. Revise § 210.6 to read as follows: 1532 (Unfunded Mandates Act), processing by the Originating ACH requires that the agency prepare a Operator (see definition of ‘‘Effective § 210.6 Agencies. budgetary impact statement before Entry Date’’ in Appendix Three); Notwithstanding any provision of the promulgating any rule likely to result in (4) Section 2.2 (setting forth ODFI ACH Rules, including Subsections 2.4.4, a Federal mandate that may result in the obligations to enter into agreements 2.8.4, 4.3.5, 2.92, 3.2.2, and 3.13.3, expenditure by State, local, and tribal with, and perform risk management agencies shall be subject to the governments, in the aggregate, or by the relating to, Originators and Third-Party obligations and liabilities set forth in private sector, of $100 million or more Senders) and Section 1.6 (Security this section in connection with in any one year. If a budgetary impact Requirements); Government entries. statement is required, section 205 of the (5) Section 2.17 (requiring reporting (a) Receiving entries. An agency may Unfunded Mandates Act also requires and reduction of high rates of entries receive ACH debit or credit entries only the agency to identify and consider a returned as unauthorized); and with the prior written authorization of reasonable number of regulatory (6) The requirements of ACH Rule the Service. alternatives before promulgating the 2.11 (International ACH Transactions) (b) Liability to a recipient. An agency rule. We have determined that the shall not apply to entries representing will be liable to the recipient for any proposed rule will not result in the payment of a Federal tax obligation loss sustained by the recipient as a expenditures by State, local, and tribal by a taxpayer. result of the agency’s failure to originate governments, in the aggregate, or by the * * * * * a credit or debit entry in accordance

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with this part. The agency’s liability Purchase (POP) entry using a check ENVIRONMENTAL PROTECTION shall be limited to the amount of the drawn on a consumer or business AGENCY entry(ies). account and presented at a point-of- (c) Liability to an originator. An purchase. The requirements of ACH 40 CFR Part 300 agency will be liable to an originator or Rules Subsections 2.3.2.2 and 2.5.10.1 [EPA–HQ–SFUND–2013–0200, 0630, 0632, an ODFI for any loss sustained by the shall be met for such an entry if the originator or ODFI as a result of the 0633, 0634, 0635, 0637, 0638, and 0639; Receiver presents the check at a location FRL–9903–90–OSWER] agency’s failure to credit an ACH entry where the agency has posted the notice to the agency’s account in accordance required by the ACH Rules and has National Priorities List, Proposed Rule with this part. The agency’s liability provided the Receiver with a copy of the No. 59 shall be limited to the amount of the entry(ies). notice. AGENCY: Environmental Protection (d) Liability to an RDFI or ACH (h) Return Fee Entry. An agency that Agency (EPA). association. Except as otherwise has authority to collect returned item ACTION: Proposed rule. provided in this part, an agency will be service fees may do so by originating a liable to an RDFI for losses sustained in Return Fee Entry if the agency provides SUMMARY: The Comprehensive processing duplicate or erroneous credit notice to the Receiver in accordance Environmental Response, and debit entries originated by the with the ACH Rules.’’ Compensation, and Liability Act agency. An agency’s liability shall be ■ (‘‘CERCLA’’ or ‘‘the Act’’), as amended, limited to the amount of the entry(ies), 5. Amend § 210.8 by revising requires that the National Oil and and shall be reduced by the amount of paragraphs (a) and (b) to read as follows: Hazardous Substances Pollution the loss resulting from the failure of the § 210.8 Financial institutions. Contingency Plan (‘‘NCP’’) include a list RDFI to exercise due diligence and of national priorities among the known follow standard commercial practices in (a) Status as a Treasury depositary. releases or threatened releases of processing the entry(ies). This section The origination or receipt of an entry hazardous substances, pollutants or does not apply to credits received by an subject to this part does not render a contaminants throughout the United RDFI after the death or legal incapacity financial institution a Treasury States. The National Priorities List of a recipient of benefit payments or the depositary. A financial institution shall (‘‘NPL’’) constitutes this list. The NPL is death of a beneficiary as governed by not advertise itself as a Treasury intended primarily to guide the subpart B of this part. An agency shall depositary on such basis. Environmental Protection Agency not be liable to any ACH association. (b) Liability. Notwithstanding ACH (‘‘EPA’’ or ‘‘the agency’’) in determining (e) Acquittance of the agency. The which sites warrant further final crediting of the amount of an entry Rules Subsections 2.4.4, 2.8.4, 4.8.5, 2.9.2, 3.2.2, and 3.13.3, if the Federal investigation. These further to a recipient’s account shall constitute investigations will allow the EPA to Government sustains a loss as a result full acquittance of the Federal assess the nature and extent of public of a financial institution’s failure to Government. health and environmental risks (f) Reversals. An agency may reverse handle an entry in accordance with this associated with the site and to any duplicate or erroneous entry, and part, the financial institution shall be determine what CERCLA-financed the Federal Government may reverse liable to the Federal Government for the remedial action(s), if any, may be any duplicate or erroneous file. In loss, up to the amount of the entry, appropriate. This rule proposes to add initiating a reversal, an agency shall except as otherwise provided in this eight sites to the NPL, all to the General certify to the Service that the reversal section. A financial institution shall not Superfund Section. This proposed rule complies with applicable law related to be liable to any third party for any loss also solicits additional comments on the the recovery of the underlying payment. or damage resulting directly or Smurfit-Stone Mill site based on An agency that reverses an entry shall indirectly from an agency’s error or additional references to the site’s indemnify the RDFI as provided in the omission in originating an entry. Hazard Ranking System (HRS) applicable ACH Rules, but the agency’s Nothing in this section shall affect any documentation record being made liability shall be limited to the amount obligation or liability of a financial available to the public. of the entry. If the Federal Government institution under Regulation E, 12 CFR DATES: Comments regarding any of these reverses a file, the Federal Government part 1005, or the Electronic Funds proposed listings must be submitted shall indemnify the RDFI as provided in Transfer Act, 12 U.S.C. 1693 et seq. (postmarked) on or before February 10, the applicable ACH Rules, but the 2014. extent of such liability shall be limited * * * * * Comments regarding the additional to the amount of the entries comprising Dated: December 3, 2013. Smurfit-Stone Mill reference material the duplicate or erroneous file. Richard L. Gregg, available for review must be submitted Reversals under this section shall Fiscal Assistant Secretary. (postmarked) on or before January 13, comply with the time limitations set [FR Doc. 2013–29202 Filed 12–11–13; 8:45 am] 2014. forth in the applicable ACH Rules. (g) Point-of-purchase debit entries. An BILLING CODE P ADDRESSES: Identify the appropriate agency may originate a Point-of- Docket Number from the table below.

DOCKET IDENTIFICATION NUMBERS BY SITE

Site name City/county, state Docket ID No.

Macmillan Ring Free Oil ...... Norphlet, AR ...... EPA–HQ–SFUND–2013–0630 Keddy Mill ...... Windham, ME ...... EPA–HQ–SFUND–2013–0632 Smurfit-Stone Mill ...... Missoula, MT ...... EPA–HQ–SFUND–2013–0200 PCE Southeast Contamination ...... York, NE ...... EPA–HQ–SFUND–2013–0633

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DOCKET IDENTIFICATION NUMBERS BY SITE—Continued

Site name City/county, state Docket ID No.

PCE/TCE Northeast Contamination ...... York, NE ...... EPA–HQ–SFUND–2013–0634 Troy Chem Corp Inc ...... Newark, NJ ...... EPA–HQ–SFUND–2013–0635 Unimatic Manufacturing Corporation ...... Fairfield, NJ ...... EPA–HQ–SFUND–2013–0637 Wolff-Alport Chemical Company ...... Ridgewood, NY ...... EPA–HQ–SFUND–2013–0638 Walker Machine Products, Inc ...... Collierville, TN ...... EPA–HQ–SFUND–2013–0639

Submit your comments, identified by you submit. If the EPA cannot read your H. May I submit comments after the public the appropriate Docket number, by one comment due to technical difficulties comment period is over? of the following methods: and cannot contact you for clarification, I. May I view public comments submitted • www.regulations.gov: Follow the the EPA may not be able to consider by others? online instructions for submitting J. May I submit comments regarding sites your comment. Electronic files should not currently proposed to the NPL? comments. avoid the use of special characters, any III. Contents of This Proposed Rule • Email: [email protected]. form of encryption, and be free of any • A. Proposed Additions to the NPL Mail: Mail comments (no facsimiles defects or viruses. For additional Docket B. Additional Comments Being Accepted or tapes) to Docket Coordinator, addresses and further details on their on the Smurfit-Stone Mill Site Based on Headquarters; U.S. Environmental contents, see section II, ‘‘Public Review/ New References Added to the HRS Protection Agency; CERCLA Docket Public Comment,’’ of the Documentation Record Office; (Mailcode 5305T); 1200 SUPPLEMENTARY INFORMATION portion of IV. Statutory and Executive Order Reviews Pennsylvania Avenue NW., Washington, this preamble. A. Executive Order 12866: Regulatory DC 20460. Planning and Review • Hand Delivery or Express Mail: FOR FURTHER INFORMATION CONTACT: 1. What is Executive Order 12866? Send comments (no facsimiles or tapes) Terry Jeng, phone: (703) 603–8852, 2. Is this proposed rule subject to Executive Order 12866 Review? to Docket Coordinator, Headquarters; email: [email protected], Site Assessment and Remedy Decisions B. Paperwork Reduction Act U.S. Environmental Protection Agency; 1. What is the Paperwork Reduction Act? CERCLA Docket Office; 1301 Branch, Assessment and Remediation Division, Office of Superfund 2. Does the Paperwork Reduction Act Constitution Avenue NW., William apply to this proposed rule? Jefferson Clinton Building West, Room Remediation and Technology C. Regulatory Flexibility Act 3334, Washington, DC 20004. Such Innovation (Mailcode 5204P), U.S. 1. What is the Regulatory Flexibility Act? deliveries are accepted only during the Environmental Protection Agency, 1200 2. How has the EPA complied with the Docket’s normal hours of operation Pennsylvania Avenue NW., Washington, Regulatory Flexibility Act? (8:30 a.m. to 4:30 p.m., Monday through DC 20460; or the Superfund Hotline, D. Unfunded Mandates Reform Act phone (800) 424–9346 or (703) 412– 1. What is the Unfunded Mandates Reform Friday, excluding federal holidays). Act (UMRA)? Instructions: Direct your comments to 9810 in the Washington, DC, metropolitan area. 2. Does UMRA apply to this proposed rule? the appropriate Docket number (see E. Executive Order 13132: Federalism table above). The EPA’s policy is that all SUPPLEMENTARY INFORMATION: 1. What is Executive Order 13132? comments received will be included in Table of Contents 2. Does Executive Order 13132 apply to the public Docket without change and this proposed rule? may be made available online at I. Background F. Executive Order 13175: Consultation www.regulations.gov, including any A. What are CERCLA and SARA? and Coordination With Indian Tribal personal information provided, unless B. What is the NCP? Governments the comment includes information C. What is the National Priorities List 1. What is Executive Order 13175? (NPL)? 2. Does Executive Order 13175 apply to claimed to be Confidential Business D. How are sites listed on the NPL? this proposed rule? Information (CBI) or other information E. What happens to sites on the NPL? G. Executive Order 13045: Protection of whose disclosure is restricted by statute. F. Does the NPL define the boundaries of Children From Environmental Health Do not submit information that you sites? and Safety Risks consider to be CBI or otherwise G. How are sites removed from the NPL? 1. What is Executive Order 13045? protected through www.regulations.gov H. May the EPA delete portions of sites 2. Does Executive Order 13045 apply to or email. The www.regulations.gov Web from the NPL as they are cleaned up? this proposed rule? site is an ‘‘anonymous access’’ system; I. What is the Construction Completion List H. Executive Order 13211: Actions That that means the EPA will not know your (CCL)? Significantly Affect Energy Supply, J. What is the sitewide ready for Distribution, or Use identity or contact information unless anticipated use measure? 1. What is Executive Order 13211? you provide it in the body of your K. What is state/tribal correspondence 2. Does Executive Order 13211 apply to comment. If you send an email concerning NPL listing? this proposed rule? comment directly to the EPA without II. Public Review/Public Comment I. National Technology Transfer and going through www.regulations.gov, A. May I review the documents relevant to Advancement Act your email address will be this proposed rule? 1. What is the National Technology automatically captured and included as B. How do I access the documents? Transfer and Advancement Act? part of the comment that is placed in the C. What documents are available for public 2. Does the National Technology Transfer public Docket and made available on review at the headquarters docket? and Advancement Act apply to this D. What documents are available for public proposed rule? the Internet. If you submit an electronic review at the regional dockets? J. Executive Order 12898: Federal Actions comment, the EPA recommends that E. How do I submit my comments? to Address Environmental Justice in you include your name and other F. What happens to my comments? Minority Populations and Low-Income contact information in the body of your G. What should I consider when preparing Populations comment and with any disk or CD–ROM my comments? 1. What is Executive Order 12898?

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2. Does Executive Order 12898 apply to defines the NPL as a list of ‘‘releases’’ environment among known facilities in this proposed rule? and the highest priority ‘‘facilities’’ and the state. This mechanism for listing is I. Background requires that the NPL be revised at least set out in the NCP at 40 CFR annually. The NPL is intended 300.425(c)(2). (3) The third mechanism A. What are CERCLA and SARA? primarily to guide the EPA in for listing, included in the NCP at 40 In 1980, Congress enacted the determining which sites warrant further CFR 300.425(c)(3), allows certain sites Comprehensive Environmental investigation to assess the nature and to be listed without any HRS score, if all Response, Compensation, and Liability extent of public health and of the following conditions are met: Act, 42 U.S.C. 9601–9675 (‘‘CERCLA’’ or environmental risks associated with a • The Agency for Toxic Substances ‘‘the Act’’), in response to the dangers of release of hazardous substances, and Disease Registry (ATSDR) of the uncontrolled releases or threatened pollutants or contaminants. The NPL is U.S. Public Health Service has issued a releases of hazardous substances, and only of limited significance, however, as health advisory that recommends releases or substantial threats of releases it does not assign liability to any party dissociation of individuals from the into the environment of any pollutant or or to the owner of any specific property. release. contaminant that may present an Also, placing a site on the NPL does not • The EPA determines that the release imminent or substantial danger to the mean that any remedial or removal poses a significant threat to public public health or welfare. CERCLA was action necessarily need be taken. health. amended on October 17, 1986, by the For purposes of listing, the NPL • The EPA anticipates that it will be Superfund Amendments and includes two sections, one of sites that more cost-effective to use its remedial Reauthorization Act (‘‘SARA’’), Public are generally evaluated and cleaned up authority than to use its removal Law 99–499, 100 Stat. 1613 et seq. by the EPA (the ‘‘General Superfund authority to respond to the release. Section’’), and one of sites that are The EPA promulgated an original NPL B. What is the NCP? owned or operated by other federal of 406 sites on September 8, 1983 (48 FR To implement CERCLA, the EPA agencies (the ‘‘Federal Facilities 40658) and generally has updated it at promulgated the revised National Oil Section’’). With respect to sites in the least annually. and Hazardous Substances Pollution Federal Facilities Section, these sites are E. What happens to sites on the NPL? Contingency Plan (‘‘NCP’’), 40 CFR Part generally being addressed by other 300, on July 16, 1982 (47 FR 31180), federal agencies. Under Executive Order A site may undergo remedial action pursuant to CERCLA section 105 and 12580 (52 FR 2923, January 29, 1987) financed by the Trust Fund established Executive Order 12316 (46 FR 42237, and CERCLA section 120, each federal under CERCLA (commonly referred to August 20, 1981). The NCP sets agency is responsible for carrying out as the ‘‘Superfund’’) only after it is guidelines and procedures for most response actions at facilities under placed on the NPL, as provided in the responding to releases and threatened its own jurisdiction, custody or control, NCP at 40 CFR 300.425(b)(1). releases of hazardous substances or although the EPA is responsible for (‘‘Remedial actions’’ are those releases or substantial threats of releases preparing a Hazard Ranking System ‘‘consistent with permanent remedy, into the environment of any pollutant or (‘‘HRS’’) score and determining whether taken instead of or in addition to contaminant that may present an the facility is placed on the NPL. removal actions. . . .’’ 42 U.S.C. imminent or substantial danger to the 9601(24).) However, under 40 CFR D. How are sites listed on the NPL? public health or welfare. The EPA has 300.425(b)(2) placing a site on the NPL revised the NCP on several occasions. There are three mechanisms for ‘‘does not imply that monies will be The most recent comprehensive revision placing sites on the NPL for possible expended.’’ The EPA may pursue other was on March 8, 1990 (55 FR 8666). remedial action (see 40 CFR 300.425(c) appropriate authorities to respond to the As required under section of the NCP): (1) A site may be included releases, including enforcement action 105(a)(8)(A) of CERCLA, the NCP also on the NPL if it scores sufficiently high under CERCLA and other laws. includes ‘‘criteria for determining on the HRS, which the EPA F. Does the NPL define the boundaries priorities among releases or threatened promulgated as appendix A of the NCP of sites? releases throughout the United States (40 CFR Part 300). The HRS serves as a for the purpose of taking remedial screening tool to evaluate the relative The NPL does not describe releases in action and, to the extent practicable potential of uncontrolled hazardous precise geographical terms; it would be taking into account the potential substances, pollutants or contaminants neither feasible nor consistent with the urgency of such action, for the purpose to pose a threat to human health or the limited purpose of the NPL (to identify of taking removal action.’’ ‘‘Removal’’ environment. On December 14, 1990 (55 releases that are priorities for further actions are defined broadly and include FR 51532), the EPA promulgated evaluation), for it to do so. Indeed, the a wide range of actions taken to study, revisions to the HRS partly in response precise nature and extent of the site are clean up, prevent or otherwise address to CERCLA section 105(c), added by typically not known at the time of releases and threatened releases of SARA. The revised HRS evaluates four listing. hazardous substances, pollutants or pathways: ground water, surface water, Although a CERCLA ‘‘facility’’ is contaminants (42 U.S.C. 9601(23)). soil exposure and air. As a matter of broadly defined to include any area agency policy, those sites that score where a hazardous substance has ‘‘come C. What is the National Priorities List 28.50 or greater on the HRS are eligible to be located’’ (CERCLA section 101(9)), (NPL)? for the NPL. (2) Pursuant to 42 U.S.C. the listing process itself is not intended The NPL is a list of national priorities 9605(a)(8)(B), each state may designate to define or reflect the boundaries of among the known or threatened releases a single site as its top priority to be such facilities or releases. Of course, of hazardous substances, pollutants or listed on the NPL, without any HRS HRS data (if the HRS is used to list a contaminants throughout the United score. This provision of CERCLA site) upon which the NPL placement States. The list, which is appendix B of requires that, to the extent practicable, was based will, to some extent, describe the NCP (40 CFR Part 300), was required the NPL include one facility designated the release(s) at issue. That is, the NPL under section 105(a)(8)(B) of CERCLA, by each state as the greatest danger to site would include all releases evaluated as amended. Section 105(a)(8)(B) public health, welfare or the as part of that HRS analysis.

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When a site is listed, the approach boundaries of the contamination can be limited to measures that do not involve generally used to describe the relevant expected to change over time. Thus, in construction (e.g., institutional release(s) is to delineate a geographical most cases, it may be impossible to controls); or (3) the site qualifies for area (usually the area within an describe the boundaries of a release deletion from the NPL. For the most up- installation or plant boundaries) and with absolute certainty. to-date information on the CCL, see the identify the site by reference to that Further, as noted above, NPL listing EPA’s Internet site at http:// area. However, the NPL site is not does not assign liability to any party or www.epa.gov/superfund/cleanup/ necessarily coextensive with the to the owner of any specific property. ccl.htm. boundaries of the installation or plant, Thus, if a party does not believe it is J. What is the sitewide ready for and the boundaries of the installation or liable for releases on discrete parcels of anticipated use measure? plant are not necessarily the property, it can submit supporting ‘‘boundaries’’ of the site. Rather, the site information to the agency at any time The Sitewide Ready for Anticipated consists of all contaminated areas after it receives notice it is a potentially Use measure (formerly called Sitewide within the area used to identify the site, responsible party. Ready-for-Reuse) represents important as well as any other location where that For these reasons, the NPL need not Superfund accomplishments and the contamination has come to be located, be amended as further research reveals measure reflects the high priority the or from where that contamination came. more information about the location of EPA places on considering anticipated In other words, while geographic the contamination or release. future land use as part of the remedy terms are often used to designate the site selection process. See Guidance for (e.g., the ‘‘Jones Co. plant site’’) in terms G. How are sites removed from the NPL? Implementing the Sitewide Ready-for- of the property owned by a particular The EPA may delete sites from the Reuse Measure, May 24, 2006, OSWER party, the site, properly understood, is NPL where no further response is 9365.0–36. This measure applies to final not limited to that property (e.g., it may appropriate under Superfund, as and deleted sites where construction is extend beyond the property due to explained in the NCP at 40 CFR complete, all cleanup goals have been contaminant migration), and conversely 300.425(e). This section also provides achieved, and all institutional or other may not occupy the full extent of the that the EPA shall consult with states on controls are in place. The EPA has been property (e.g., where there are proposed deletions and shall consider successful on many occasions in uncontaminated parts of the identified whether any of the following criteria carrying out remedial actions that property, they may not be, strictly have been met: ensure protectiveness of human health speaking, part of the ‘‘site’’). The ‘‘site’’ (i) Responsible parties or other and the environment for current and is thus neither equal to, nor confined by, persons have implemented all future land uses, in a manner that the boundaries of any specific property appropriate response actions required; allows contaminated properties to be that may give the site its name, and the (ii) All appropriate Superfund- restored to environmental and economic name itself should not be read to imply financed response has been vitality. For further information, please that this site is coextensive with the implemented and no further response go to http://www.epa.gov/superfund/ entire area within the property action is required; or programs/recycle/pdf/sitewide_a.pdf. boundary of the installation or plant. In (iii) The remedial investigation has K. What is state/tribal correspondence addition, the site name is merely used shown the release poses no significant concerning NPL Listing? to help identify the geographic location threat to public health or the of the contamination, and is not meant environment, and taking of remedial In order to maintain close to constitute any determination of measures is not appropriate. coordination with states and tribes in liability at a site. For example, the name the NPL listing decision process, the H. May the EPA delete portions of sites ‘‘Jones Co. plant site,’’ does not imply EPA’s policy is to determine the from the NPL as they are cleaned up? that the Jones Company is responsible position of the states and tribes for the contamination located on the In November 1995, the EPA initiated regarding sites that the EPA is plant site. a policy to delete portions of NPL sites considering for listing. This The EPA regulations provide that the where cleanup is complete (60 FR consultation process is outlined in two Remedial Investigation (‘‘RI’’) ‘‘is a 55465, November 1, 1995). Total site memoranda that can be found at the process undertaken . . . to determine cleanup may take many years, while following Web site: http://www.epa.gov/ the nature and extent of the problem portions of the site may have been superfund/sites/npl/hrsres/policy/ presented by the release’’ as more cleaned up and made available for govlet.pdf. The EPA is improving the information is developed on site productive use. transparency of the process by which contamination, and which is generally state and tribal input is solicited. The performed in an interactive fashion with I. What is the Construction Completion EPA will be using the Web and where the Feasibility Study (‘‘FS’’) (40 CFR List (CCL)? appropriate more structured state and 300.5). During the RI/FS process, the The EPA also has developed an NPL tribal correspondence that (1) Explains release may be found to be larger or construction completion list (‘‘CCL’’) to the concerns at the site and the EPA’s smaller than was originally thought, as simplify its system of categorizing sites rationale for proceeding; (2) requests an more is learned about the source(s) and and to better communicate the explanation of how the state intends to the migration of the contamination. successful completion of cleanup address the site if placement on the NPL However, the HRS inquiry focuses on an activities (58 FR 12142, March 2, 1993). is not favored; and (3) emphasizes the evaluation of the threat posed and Inclusion of a site on the CCL has no transparent nature of the process by therefore the boundaries of the release legal significance. informing states that information on need not be exactly defined. Moreover, Sites qualify for the CCL when: (1) their responses will be publicly it generally is impossible to discover the Any necessary physical construction is available. full extent of where the contamination complete, whether or not final cleanup A model letter and correspondence ‘‘has come to be located’’ before all levels or other requirements have been from this point forward between the necessary studies and remedial work are achieved; (2) the EPA has determined EPA and states and tribes where completed at a site. Indeed, the known that the response action should be applicable, is available on the EPA’s

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Web site at http://www.epa.gov/ Avenue, Suite 1200, Mailcode 6SFTS, E. How do I submit my comments? superfund/sites/query/queryhtm/ Dallas, TX 75202–2733; 214/665–7436. • Comments must be submitted to the nplstcor.htm. Michelle Quick, Region 7 (IA, KS, EPA Headquarters as detailed at the MO, NE), U.S. EPA, 11201 Renner Blvd., II. Public Review/Public Comment beginning of this preamble in the Mailcode SUPRERNB, Lenexa, KS ADDRESSES section. Please note that the A. May I review the documents relevant 66219; 913/551–7335. • mailing addresses differ according to to this proposed rule? Sabrina Forrest, Region 8 (CO, MT, method of delivery. There are two ND, SD, UT, WY), U.S. EPA, 1595 different addresses that depend on Yes, documents that form the basis for Wynkoop Street, Mailcode 8EPR–B, the EPA’s evaluation and scoring of the whether comments are sent by express Denver, CO 80202–1129; 303/312–6484. mail or by postal mail. sites in this proposed rule are contained • Sharon Murray, Region 9 (AZ, CA, in public Dockets located both at the HI, NV, AS, GU, MP), U.S. EPA, 75 F. What happens to my comments? EPA Headquarters in Washington, DC, Hawthorne Street, Mailcode SFD 6–1, and in the Regional offices. These The EPA considers all comments San Francisco, CA 94105; 415/947– received during the comment period. documents are also available by 4250. electronic access at www.regulations.gov • Significant comments are typically Ken Marcy, Region 10 (AK, ID, OR, addressed in a support document that (see instructions in the ADDRESSES WA), U.S. EPA, 1200 6th Avenue, section above). the EPA will publish concurrently with Mailcode ECL–112, Seattle, WA 98101; the Federal Register document if, and B. How do I access the documents? 206/463–1349. when, the site is listed on the NPL. You may also request copies from the You may view the documents, by EPA Headquarters or the Regional G. What should I consider when appointment only, in the Headquarters Dockets. An informal request, rather preparing my comments? or the Regional Dockets after the than a formal written request under the Comments that include complex or publication of this proposed rule. The Freedom of Information Act, should be voluminous reports, or materials hours of operation for the Headquarters the ordinary procedure for obtaining prepared for purposes other than HRS Docket are from 8:30 a.m. to 4:30 p.m., copies of any of these documents. Please scoring, should point out the specific Monday through Friday excluding note that due to the difficulty of information that the EPA should federal holidays. Please contact the reproducing oversized maps, oversized consider and how it affects individual Regional Dockets for hours. maps may be viewed only in-person; HRS factor values or other listing The following is the contact since the EPA dockets are not equipped criteria (Northside Sanitary Landfill v. information for the EPA Headquarters to either copy and mail out such maps Thomas, 849 F.2d 1516 (D.C. Cir. Docket: Docket Coordinator, or scan them and send them out 1988)). The EPA will not address Headquarters, U.S. Environmental electronically. voluminous comments that are not Protection Agency, CERCLA Docket You may use the Docket at referenced to the HRS or other listing Office, 1301 Constitution Avenue NW., www.regulations.gov to access criteria. The EPA will not address William Jefferson Clinton Building documents in the Headquarters Docket comments unless they indicate which West, Room 3334, Washington, DC (see instructions included in the component of the HRS documentation 20004; 202/566–0276. (Please note this ADDRESSES section above). Please note record or what particular point in the is a visiting address only. Mail that there are differences between the EPA’s stated eligibility criteria is at comments to the EPA Headquarters as Headquarters Docket and the Regional issue. detailed at the beginning of this Dockets and those differences are preamble.) outlined below. H. May I submit comments after the The contact information for the public comment period is over? Regional Dockets is as follows: C. What documents are available for Generally, the EPA will not respond • Holly Inglis, Region 1 (CT, ME, MA, public review at the headquarters to late comments. The EPA can NH, RI, VT), U.S. EPA, Superfund docket? guarantee only that it will consider Records and Information Center, 5 Post The Headquarters Docket for this those comments postmarked by the Office Square, Suite 100, Boston, MA proposed rule contains the following for close of the formal comment period. The 02109–3912; 617/918–1413. the sites proposed in this rule: HRS EPA has a policy of generally not • Ildefonso Acosta, Region 2 (NJ, NY, score sheets; Documentation Records delaying a final listing decision solely to PR, VI), U.S. EPA, 290 Broadway, New describing the information used to accommodate consideration of late York, NY 10007–1866; 212/637–4344. compute the score; information for any comments. • Lorie Baker (ASRC), Region 3 (DE, sites affected by particular statutory DC, MD, PA, VA, WV), U.S. EPA, requirements or the EPA listing policies; I. May I view public comments Library, 1650 Arch Street, Mailcode and a list of documents referenced in submitted by others? 3HS12, Philadelphia, PA 19103; 215/ the Documentation Record. During the comment period, 814–3355. comments are placed in the • Jennifer Wendel, Region 4 (AL, FL, D. What documents are available for Headquarters Docket and are available GA, KY, MS, NC, SC, TN), U.S. EPA, 61 public review at the regional dockets? to the public on an ‘‘as received’’ basis. Forsyth Street, SW., Mailcode 9T25, The Regional Dockets for this A complete set of comments will be Atlanta, GA 30303; 404/562–8799. proposed rule contain all of the available for viewing in the Regional • Todd Quesada, Region 5 (IL, IN, MI, information in the Headquarters Docket Dockets approximately one week after MN, OH, WI), U.S. EPA Superfund plus the actual reference documents the formal comment period closes. Division Librarian/SFD Records containing the data principally relied All public comments, whether Manager SRC–7J, Metcalfe Federal upon and cited by the EPA in submitted electronically or in paper Building, 77 West Jackson Boulevard, calculating or evaluating the HRS score form, will be made available for public Chicago, IL 60604; 312/886–4465. for the sites. These reference documents viewing in the electronic public Docket • Brenda Cook, Region 6 (AR, LA, are available only in the Regional at www.regulations.gov http://www/epa/ NM, OK, TX), U.S. EPA, 1445 Ross Dockets. goc/edocket as the EPA receives them

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and without change, unless the that were not at that time proposed to III. Contents of This Proposed Rule comment contains copyrighted material, the NPL. If those sites are later proposed A. Proposed Additions to the NPL Confidential Business Information (CBI) to the NPL, parties should review their or other information whose disclosure is earlier concerns and, if still appropriate, In today’s proposed rule, the EPA is restricted by statute. Once in the public resubmit those concerns for proposing to add eight sites to the NPL, Dockets system, select ‘‘search,’’ then consideration during the formal all to the General Superfund section. All key in the appropriate Docket ID comment period. Site-specific of the sites in this proposed rulemaking number. correspondence received prior to the are being proposed based on HRS scores J. May I submit comments regarding period of formal proposal and comment of 28.50 or above. sites not currently proposed to the NPL? will not generally be included in the The sites are presented in the table In certain instances, interested parties Docket. below. have written to the EPA concerning sites General Superfund section:

State Site name City/county

AR ...... Macmillan Ring Free Oil ...... Norphlet. ME ...... Keddy Mill ...... Windham. NE ...... PCE Southeast Contamination ...... York. NE ...... PCE/TCE Northeast Contamination ...... York. NJ ...... Troy Chem Corp Inc ...... Newark. NJ ...... Unimatic Manufacturing Corporation ...... Fairfield. NY ...... Wolff-Alport Chemical Company ...... Ridgewood. TN ...... Walker Machine Products, Inc...... Collierville.

B. Additional Comments Being The EPA is providing these three requirements of the Executive Order. Accepted on the Smurfit-Stone Mill Site additional references for public review The Order defines ‘‘significant Based on New References Added to the and comment. They are available at the regulatory action’’ as one that is likely HRS Documentation Record regional office in Denver. Anyone to result in a rule that may: (1) Have an For the Smurfit-Stone Mill site, wishing to comment on information in annual effect on the economy of $100 proposed May 24, 2013 (78 FR 31464), these references and the impact this has million or more or adversely affect in a one commenter claimed several on the HRS score for the proposed material way the economy, a sector of documents not available for review in Smurfit-Stone Mill site should do so the economy, productivity, competition, the docket during the public comment within the next 30 calendar days (see jobs, the environment, public health or period should have been available. DATES section at the beginning of this safety or state, local or tribal Specifically, the commenter noted that notice). Additional comments will not governments or communities; (2) create the Analytical Results Report (ARR) be accepted on other HRS scoring issues a serious inconsistency or otherwise includes the statement that ‘‘[t]his ARR which could have appropriately been interfere with an action taken or is intended to be read in conjunction raised during the original comment planned by another agency; (3) with the Smurfit-Stone Mill Preliminary period and are not based on information materially alter the budgetary impact of Assessment (PA) (UOS 2011a), the provided in these additional references. entitlements, grants, user fees or loan Smurfit-Stone Mill Field Sampling Plan Please contact Sabrina Forrest at (303) programs or the rights and obligations of (FSP) (UOS 2011b), and the Smurfit- 312–6484 if you are interested in either recipients thereof; or (4) raise novel Stone Mill Sampling Activities Report arranging a time to review these legal or policy issues arising out of legal (SAR) (UOS 2011c).’’ The ARR additional documents or receiving mandates, the President’s priorities or (Reference 5 to the HRS documentation electronic copies of the documents. the principles set forth in the Executive record at proposal) is the report of a Comments should be submitted Order. large sampling investigation (the pursuant to instructions in the 2. Is this proposed rule subject to combined Site Inspection/Remedial ADDRESSEES section of this preamble; Executive Order 12866 review? Investigation or SI/RA) encompassing they may be submitted electronically, by the site and vicinity; it serves as the mail or by express mail. The docket No. The listing of sites on the NPL primary source of site and analytical number for this site is EPA–HQ– does not impose any obligations on any data supporting the HRS scoring, SFUND–2013–0200 and should be entities. The listing does not set equivalent to an Expanded Site identified in any correspondence/ standards or a regulatory regime and Investigation. The commenter also electronic submission. imposes no liability or costs. Any stated that ‘‘the laboratory analytical liability under CERCLA exists IV. Statutory and Executive Order irrespective of whether a site is listed. reports associated with the ARR were Reviews not available for review . . .’’ It has been determined that this action The EPA has examined this issue and A. Executive Order 12866: Regulatory is not a ‘‘significant regulatory action’’ decided to make several documents Planning and Review under the terms of Executive Order 12866 and is therefore not subject to available as references to the HRS 1. What is Executive Order 12866? documentation record. These additional OMB review. references are the FSP for the Combined Under Executive Order 12866 (58 FR B. Paperwork Reduction Act SI/RA, the SAR, and the laboratory 51735 (October 4, 1993)), the agency analytical reports. The PA was available must determine whether a regulatory 1. What is the Paperwork Reduction for review during the comment period; action is ‘‘significant’’ and therefore Act? it is reference 48 to the documentation subject to Office of Management and According to the Paperwork record at proposal Budget (OMB) review and the Reduction Act (PRA), 44 U.S.C. 3501 et

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seq., an agency may not conduct or entities. SBREFA amended the was not adopted. Before the EPA sponsor, and a person is not required to Regulatory Flexibility Act to require establishes any regulatory requirements respond to a collection of information federal agencies to provide a statement that may significantly or uniquely affect that requires OMB approval under the of the factual basis for certifying that a small governments, including tribal PRA, unless it has been approved by rule will not have a significant governments, it must have developed OMB and displays a currently valid economic impact on a substantial under section 203 of the UMRA a small OMB control number. The OMB control number of small entities. government agency plan. The plan must numbers for the EPA’s regulations, after 2. How has the EPA complied with the provide for notifying potentially initial display in the preamble of the regulatory flexibility act? affected small governments, enabling final rules, are listed in 40 CFR Part 9. officials of affected small governments This proposed rule listing sites on the to have meaningful and timely input in 2. Does the Paperwork Reduction Act NPL, if promulgated, would not impose apply to this proposed rule? the development of EPA regulatory any obligations on any group, including proposals with significant federal This action does not impose an small entities. This proposed rule, if intergovernmental mandates and information collection burden under the promulgated, also would establish no informing, educating and advising small provisions of the Paperwork Reduction standards or requirements that any governments on compliance with the Act, 44 U.S.C. 3501 et seq. The EPA has small entity must meet, and would regulatory requirements. determined that the PRA does not apply impose no direct costs on any small because this rule does not contain any entity. Whether an entity, small or 2. Does UMRA apply to this proposed information collection requirements that otherwise, is liable for response costs for rule? require approval of the OMB. a release of hazardous substances Burden means the total time, effort or depends on whether that entity is liable This proposed rule does not contain financial resources expended by persons under CERCLA 107(a). Any such a federal mandate that may result in to generate, maintain, retain or disclose liability exists regardless of whether the expenditures of $100 million or more or provide information to or for a federal site is listed on the NPL through this for state, local and tribal governments, agency. This includes the time needed rulemaking. Thus, this proposed rule, if in the aggregate, or the private sector in to review instructions; develop, acquire, promulgated, would not impose any any one year. Proposing a site on the install and utilize technology and requirements on any small entities. For NPL does not itself impose any costs. systems for the purposes of collecting, the foregoing reasons, I certify that this Proposal does not mean that the EPA validating and verifying information, proposed rule, if promulgated, will not necessarily will undertake remedial processing and maintaining information have a significant economic impact on action. Nor does proposal require any and disclosing and providing a substantial number of small entities. action by a private party or determine information; adjust the existing ways to liability for response costs. Costs that D. Unfunded Mandates Reform Act comply with any previously applicable arise out of site responses result from instructions and requirements; train 1. What is the Unfunded Mandates site-specific decisions regarding what personnel to be able to respond to a Reform Act (UMRA)? actions to take, not directly from the act of proposing a site to be placed on the collection of information; search data Title II of the Unfunded Mandates NPL. Thus, this rule is not subject to the sources; complete and review the Reform Act of 1995 (UMRA), Public collection of information; and transmit Law 104–4, establishes requirements for requirements of section 202 and 205 of or otherwise disclose the information. federal agencies to assess the effects of UMRA. An agency may not conduct or their regulatory actions on state, local This rule is also not subject to the sponsor, and a person is not required to and tribal governments and the private requirements of section 203 of UMRA respond to, a collection of information sector. Under section 202 of the UMRA, because it contains no regulatory unless it displays a currently valid OMB the EPA generally must prepare a requirements that might significantly or control number. The OMB control written statement, including a cost- uniquely affect small governments. As is numbers for the EPA’s regulations in 40 benefit analysis, for proposed and final mentioned above, site proposal does not CFR are listed in 40 CFR Part 9. rules with ‘‘federal mandates’’ that may impose any costs and would not require C. Regulatory Flexibility Act result in expenditures by state, local and any action of a small government. tribal governments, in the aggregate, or E. Executive Order 13132: Federalism 1. What is the Regulatory Flexibility by the private sector, of $100 million or Act? more in any one year. Before the EPA 1. What is Executive Order 13132? Pursuant to the Regulatory Flexibility promulgates a rule where a written Act (5 U.S.C. 601 et seq., as amended by statement is needed, section 205 of the Executive Order 13132, entitled the Small Business Regulatory UMRA generally requires the EPA to ‘‘Federalism’’ (64 FR 43255, August 10, Enforcement Fairness Act (SBREFA) of identify and consider a reasonable 1999), requires the EPA to develop an 1996) whenever an agency is required to number of regulatory alternatives and accountable process to ensure publish a notice of rulemaking for any adopt the least costly, most cost- ‘‘meaningful and timely input by state proposed or final rule, it must prepare effective, or least burdensome and local officials in the development of and make available for public comment alternative that achieves the objectives regulatory policies that have federalism a regulatory flexibility analysis that of the rule. The provisions of section implications.’’ ‘‘Policies that have describes the effect of the rule on small 205 do not apply when they are federalism implications’’ are defined in entities (i.e., small businesses, small inconsistent with applicable law. the Executive Order to include organizations and small governmental Moreover, section 205 allows the EPA to regulations that have ‘‘substantial direct jurisdictions). However, no regulatory adopt an alternative other than the least effects on the states, on the relationship flexibility analysis is required if the costly, most cost-effective or least between the national government and head of an agency certifies the rule will burdensome alternative if the the states, or on the distribution of not have a significant economic impact Administrator publishes with the final power and responsibilities among the on a substantial number of small rule an explanation why that alternative various levels of government.’’

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2. Does Executive Order 13132 apply to action. Thus, Executive Order 13175 require an entity to conduct any action this proposed rule? does not apply to this proposed rule. that would require energy use, let alone that which would significantly affect This proposed rule does not have G. Executive Order 13045: Protection of energy supply, distribution or usage. federalism implications. It will not have Children From Environmental Health Thus, Executive Order 13211 does not substantial direct effects on the states, and Safety Risks on the relationship between the national apply to this action. 1. What is Executive Order 13045? government and the states, or on the I. National Technology Transfer and distribution of power and Executive Order 13045: ‘‘Protection of Advancement Act responsibilities among the various Children From Environmental Health levels of government, as specified in Risks and Safety Risks’’ (62 FR 19885, 1. What is the National Technology Executive Order 13132, because it does April 23, 1997) applies to any rule that: Transfer and Advancement Act? not contain any requirements applicable (1) Is determined to be ‘‘economically Section 12(d) of the National to states or other levels of government. significant’’ as defined under Executive Technology Transfer and Advancement Thus, the requirements of the Executive Order 12866, and (2) concerns an Act of 1995 (NTTAA), Public Law 104– Order do not apply to this proposed environmental health or safety risk that 113, section 12(d) (15 U.S.C. 272 note), rule. the EPA has reason to believe may have directs the EPA to use voluntary The EPA believes, however, that this a disproportionate effect on children. If consensus standards in its regulatory proposed rule may be of significant the regulatory action meets both criteria, activities unless to do so would be interest to state governments. In the the agency must evaluate the inconsistent with applicable law or spirit of Executive Order 13132, and environmental health or safety effects of otherwise impractical. Voluntary consistent with the EPA policy to the planned rule on children, and consensus standards are technical promote communications between the explain why the planned regulation is standards (e.g., materials specifications, EPA and state and local governments, preferable to other potentially effective test methods, sampling procedures and the EPA therefore consulted with state and reasonably feasible alternatives business practices) that are developed or officials and/or representatives of state considered by the agency. adopted by voluntary consensus governments early in the process of standards bodies. The NTTAA directs 2. Does Executive Order 13045 apply to developing the rule to permit them to the EPA to provide Congress, through this proposed rule? have meaningful and timely input into OMB, explanations when the agency its development. All sites included in This proposed rule is not subject to decides not to use available and this proposed rule were referred to the Executive Order 13045 because it is not applicable voluntary consensus EPA by states for listing. For all sites in an economically significant rule as standards. this rule, the EPA received letters of defined by Executive Order 12866, and support either from the governor or a because the agency does not have reason 2. Does the National Technology state official who was delegated the to believe the environmental health or Transfer and Advancement Act apply to authority by the governor to speak on safety risks addressed by this proposed this proposed rule? their behalf regarding NPL listing rule present a disproportionate risk to No. This proposed rulemaking does decisions. children. not involve technical standards. Therefore, the EPA did not consider the F. Executive Order 13175: Consultation H. Executive Order 13211: Actions That use of any voluntary consensus and Coordination With Indian Tribal Significantly Affect Energy Supply, standards. Governments Distribution, or Use J. Executive Order 12898: Federal 1. What is Executive Order 13175? 1. What is Executive Order 13211? Actions To Address Environmental Executive Order 13175, entitled Executive Order 13211, ‘‘Actions Justice in Minority Populations and ‘‘Consultation and Coordination with Concerning Regulations That Low-Income Populations Indian Tribal Governments’’ (65 FR Significantly Affect Energy Supply, 67249, November 6, 2000), requires the Distribution, or Use,’’ (66 FR 28355, 1. What is Executive Order 12898? EPA to develop an accountable process May 22, 2001) requires federal agencies Executive Order (EO) 12898 (59 FR to ensure ‘‘meaningful and timely input to prepare a ‘‘Statement of Energy 7629, Feb. 16, 1994) establishes federal by tribal officials in the development of Effects’’ when undertaking certain executive policy on environmental regulatory policies that have tribal regulatory actions. A Statement of justice. Its main provision directs implications.’’ ‘‘Policies that have tribal Energy Effects describes the adverse federal agencies, to the greatest extent implications’’ are defined in the effects of a ‘‘significant energy action’’ practicable and permitted by law, to Executive Order to include regulations on energy supply, distribution and use, make environmental justice part of their that have ‘‘substantial direct effects on reasonable alternatives to the action and mission by identifying and addressing, one or more Indian tribes, on the the expected effects of the alternatives as appropriate, disproportionately high relationship between the federal on energy supply, distribution and use. and adverse human health or government and the Indian tribes, or on environmental effects of their programs, 2. Does Executive Order 13211 apply to the distribution of power and policies and activities on minority this proposed rule? responsibilities between the federal populations and low-income government and Indian tribes.’’ This action is not a ‘‘significant populations in the United States. energy action’’ as defined in Executive 2. Does Executive Order 13175 apply to Order 13211, because it is not likely to 2. Does Executive Order 12898 apply to this proposed rule? have a significant adverse effect on the this proposed rule? This action does not have tribal supply, distribution or use of energy. The EPA has determined that this implications, as specified in Executive Further, the agency has concluded that proposed rule will not have Order 13175. Proposing a site to the this rule is not likely to have any disproportionately high and adverse NPL does not impose any costs on a adverse energy impacts because human health or environmental effects tribe or require a tribe to take remedial proposing a site to the NPL does not on minority or low-income populations

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because it does not affect the level of DEPARTMENT OF HOMELAND FOR FURTHER INFORMATION CONTACT: Luis protection provided to human health or SECURITY Rodriguez, Chief, Engineering the environment. As this rule does not Management Branch, Federal Insurance impose any enforceable duty upon state, Federal Emergency Management and Mitigation Administration, Federal tribal or local governments, this rule Agency Emergency Management Agency, 500 C will neither increase nor decrease Street SW., Washington, DC 20472, environmental protection. 44 CFR Part 67 (202) 646–4064, or (email) [Docket ID FEMA–2013–0002; Internal [email protected]. List of Subjects in 40 CFR Part 300 Agency Docket No. FEMA–B–1147] SUPPLEMENTARY INFORMATION: On Environmental protection, Air October 5, 2010, FEMA published a Proposed Flood Elevation pollution control, Chemicals, Hazardous proposed rulemaking at 75 FR 61377, Determinations for Fayette County, proposing flood elevation substances, Hazardous waste, Pennsylvania (All Jurisdictions) Intergovernmental relations, Natural determinations along one or more flooding sources in Fayette County, resources, Oil pollution, Penalties, AGENCY: Federal Emergency Pennsylvania. Because FEMA has or Reporting and recordkeeping Management Agency, DHS. will be issuing a Revised Preliminary requirements, Superfund, Water ACTION: Proposed rule; withdrawal. Flood Insurance Rate Map, and if pollution control, Water supply. SUMMARY: The Federal Emergency necessary a Flood Insurance Study Authority: 33 U.S.C. 1321(c)(2); 42 U.S.C. Management Agency (FEMA) is report, featuring updated flood hazard 9601–9657; E.O. 12777, 56 FR 54757, 3 CFR, withdrawing its proposed rule information, the proposed rulemaking is 1991 Comp., p. 351; E.O. 12580, 52 FR 2923, concerning proposed flood elevation being withdrawn. A Notice of Proposed 3 CFR, 1987 Comp., p. 193. determinations for Fayette County, Flood Hazard Determinations will be Dated: November 27, 2013. Pennsylvania (All Jurisdictions). published in the Federal Register and in the affected community’s local Mathy Stanislaus, DATES: This withdrawal is effective on newspaper. Assistant Administrator, Office of Solid Waste December 12, 2013. Authority: 42 U.S.C. 4104; 44 CFR 67.4. and Emergency Response. ADDRESSES: You may submit comments, [FR Doc. 2013–29349 Filed 12–11–13; 8:45 am] identified by Docket No. FEMA–B–1147 Dated: November 20, 2013. BILLING CODE 6560–50–P to Luis Rodriguez, Chief, Engineering Roy E. Wright, Management Branch, Federal Insurance Deputy Associate Administrator for and Mitigation Administration, Federal Mitigation, Department of Homeland Emergency Management Agency, 500 C Security, Federal Emergency Management Street SW., Washington, DC 20472, Agency. (202) 646–4064, or (email) [FR Doc. 2013–29660 Filed 12–11–13; 8:45 am] [email protected]. BILLING CODE 9110–12–P

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Notices Federal Register Vol. 78, No. 239

Thursday, December 12, 2013

This section of the FEDERAL REGISTER their purse seine net(s) or vessel(s). International Trade Administration, contains documents other than rules or With the exception of an entanglement, Department of Commerce. proposed rules that are applicable to the which will be initially reported as FOR FURTHER INFORMATION CONTACT: public. Notices of hearings and investigations, described above, all other observations David Goldberger, Enforcement and committee meetings, agency decisions and must be reported within 20 days to the rulings, delegations of authority, filing of Compliance, International Trade petitions and applications and agency Regional Administrator. Administration, U.S. Department of statements of organization and functions are When contacting NMFS after an Commerce, 14th Street and Constitution examples of documents appearing in this interaction, fishermen are required to Avenue NW., Washington, DC 20230; section. provide information regarding the telephone: (202) 482–4136. location, specifically latitude and SUPPLEMENTARY INFORMATION: longitude, of the interaction and a DEPARTMENT OF COMMERCE description of the interaction itself. Background Descriptive information of the On September 2, 2011, the Submission for OMB Review; interaction should include: Whether or Department of Commerce (the Comment Request not the otters were seen inside or Department) published in the Federal The Department of Commerce will outside the net; if inside the net, had the Register a notice of ‘‘Opportunity to submit to the Office of Management and net been completely encircled; did Request Administrative Review’’ of the Budget (OMB) for clearance the contact occur with net or vessel; the antidumping duty order on certain following proposal for collection of number of otters present; duration of magnesia carbon bricks from Mexico for information under the provisions of the interaction; otter’s behavior during the period of review (POR) of September Paperwork Reduction Act (44 U.S.C. interaction; and measures taken to avoid 1, 2012, through August 31, 2013. See Chapter 35). interaction. Antidumping or Countervailing Duty Agency: National Oceanic and Affected Public: Business or other for- Order, Finding, or Suspended Atmospheric Administration (NOAA). profit organizations. Investigation; Opportunity To Request Title: Reporting Requirements for Sea Frequency: On occasion. Administrative Review, 78 FR 54235 Respondent’s Obligation: Mandatory. (September 3, 2013). Otter Interactions with the Pacific _ Sardine Fishery; Coastal Pelagic Species OMB Desk Officer: OIRA On September 30, 2011, in accordance Fishery Management Plan. [email protected]. with section 751(a) of the Tariff Act of OMB Control Number: 0648–0566. Copies of the above information 1930, as amended (the Act), and 19 CFR Form Number(s): NA. collection proposal can be obtained by 351.213(b), the Department received a Type of Request: Regular submission calling or writing Jennifer Jessup, timely request from Resco Products, (extension of a current information Departmental Paperwork Clearance Inc., the petitioner and a domestic collection). Officer, (202) 482–0336, Department of interested party, to conduct an Number of Respondents: 2. Commerce, Room 6616, 14th and administrative review of the sales of Average Hours per Response: 30 Constitution Avenue NW., Washington, RHI-Refmex S.A. de C.V, Trafinsa S.A. minutes. DC 20230 (or via the Internet at JJessup@ de C.V., Vesuvius Mexico S.A. de C.V., Burden Hours: 1. doc.gov). and RHI GLAS GmbH. Resco Products, Needs and Uses: This request is for Written comments and Inc. was the only party to request this extension of a current information recommendations for the proposed administrative review. collection. information collection should be sent On November 8, 2013, the Department On May 30, 2007, the National Marine within 30 days of publication of this published in the Federal Register a Fisheries Service (NMFS) published a notice to OIRA_Submission@ notice of initiation of an administrative final rule (72 FR 29891) implementing omb.eop.gov. review of the antidumping duty order a requirement under the Coastal Pelagic Dated: December 6, 2013. on certain magnesia carbon bricks from Species (CPS) Fishery Management Plan Gwellnar Banks, Mexico with respect to RHI-Refmex S.A. to report any interactions that may Management Analyst, Office of the Chief de C.V, Trafinsa S.A. de C.V., Vesuvius occur between a CPS vessel and/or Information Officer. Mexico S.A. de C.V., and RHI GLAS fishing gear and sea otters. [FR Doc. 2013–29626 Filed 12–11–13; 8:45 am] GmbH. See Initiation of Antidumping Specifically, these reporting BILLING CODE 3510–22–P and Countervailing Duty Administrative requirements are: Reviews and Request for Revocation in 1. If a southern sea otter is entangled Part, 78 FR 67104 (November 8, 2013). in a net, regardless of whether the DEPARTMENT OF COMMERCE On November 18, 2013, Resco animal is injured or killed, such an Products, Inc. timely withdrew its occurrence must be reported within 24 International Trade Administration request for a review of RHI-Refmex S.A. hours to the Regional Administrator, de C.V, Trafinsa S.A. de C.V., Vesuvius [A–201–837] NMFS Southwest Region. Mexico S.A. de C.V., and RHI GLAS 2. While fishing for CPS, vessel Certain Magnesia Carbon Bricks From GmbH. operators must record all observations Mexico: Rescission of Antidumping Rescission of Administrative Review of otter interactions (defined as otters Duty Administrative Review within encircled nets or coming into Pursuant to 19 CFR 351.213(d)(1), the contact with nets or vessels, including AGENCY: Enforcement and Compliance, Department will rescind an but not limited to entanglement) with formerly Import Administration, administrative review, in whole or in

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part, if the parties that requested a Dated: December 6, 2013. carbon steel is defined as steel that review withdraw the request within 90 Christian Marsh, contains 0.6 percent or more of carbon days of the date of publication of notice Deputy Assistant Secretary for Antidumping by weight. of initiation of the requested review. and Countervailing Duty Operations. PC tie wire is classified under the Resco Products, Inc. withdrew its [FR Doc. 2013–29689 Filed 12–11–13; 8:45 am] Harmonized Tariff Schedule of the request for review before the 90-day BILLING CODE 3510–DS–P United States (‘‘HTSUS’’) subheading deadline, and no other party requested 7217.10.8045, but may also be classified an administrative review of the under subheadings 7217.10.7000, antidumping duty order on certain DEPARTMENT OF COMMERCE 7217.10.8025, 7217.10.8030, magnesia carbon bricks from Mexico for 7217.10.8090, 7217.10.9000, the POR. Therefore, in response to International Trade Administration 7229.90.1000, 7229.90.5016, Resco Products, Inc.’s withdrawal of its [A–201–843] 7229.90.5031, 7229.90.5051, request for review, and pursuant to 19 7229.90.9000, and 7312.10.3012. CFR 351.213(d)(1), the Department is Prestressed Concrete Steel Rail Tie Although the HTSUS subheadings are rescinding in whole the administrative Wire From Mexico: Preliminary provided for convenience and customs review of the antidumping duty order Determination of Sales at Less Than purposes, the written description of the on certain magnesia carbon bricks for Fair Value and Postponement of Final scope of the investigation is the period September 1, 2012, through Determination dispositive.1 August 31, 2013. AGENCY: Enforcement and Compliance, Methodology Assessment formerly Import Administration, The Department has conducted this The Department will instruct U.S. International Trade Administration, investigation in accordance with section Customs and Border Protection (CBP) to Department of Commerce. 731 of the Act. Constructed export assess antidumping duties on all SUMMARY: The Department of Commerce prices (‘‘CEPs’’) have been calculated in appropriate entries. Antidumping duties (‘‘Department’’) preliminarily accordance with section 772 of the Act. shall be assessed at rates equal to the determines that prestressed concrete Normal value (‘‘NV’’) has been cash deposit of estimated antidumping steel rail tie wire (‘‘PC tie wire’’) from calculated in accordance with section duties required at the time of entry, or Mexico is being, or is likely to be, sold 773 of the Act. withdrawal from warehouse, for in the United States at less than fair For a full description of the consumption, in accordance with 19 value (‘‘LTFV’’), as provided in section methodology underlying our CFR 351.212(c)(1)(i). The Department 733(b) of the Tariff Act of 1930, as conclusions, see the ‘‘Decision intends to issue appropriate assessment amended (‘‘the Act’’). The period of Memorandum for the Preliminary instructions directly to CBP 15 days investigation (‘‘POI’’) is April 1, 2012, Determination in the Antidumping Duty after the date of publication of this through March 31, 2013. The estimated Investigation of Prestressed Concrete notice in the Federal Register. weighted-average dumping margins of Steel Rail Tie Wire from Mexico,’’ sales at LTFV are shown in the (‘‘Preliminary Decision Memorandum’’) Notification to Importers ‘‘Preliminary Determination’’ section of from Christian Marsh, Deputy Assistant This notice serves as the only this notice. The final determination will Secretary for Antidumping and reminder to importers of their be issued 135 days after publication of Countervailing Duty Operations, to Paul responsibility, under 19 CFR this preliminary determination in the Piquado, Assistant Secretary for 351.402(f)(2), to file a certificate Federal Register. Enforcement and Compliance, dated concurrently with this determination regarding the reimbursement of DATES: Effective Date: December 12, and hereby adopted by this notice. The antidumping duties prior to liquidation 2013. of the relevant entries during this Preliminary Decision Memorandum is a review period. Failure to comply with FOR FURTHER INFORMATION CONTACT: public document and is made available this requirement could result in the Brandon Custard or Rebecca Trainor, to the public via Enforcement and Secretary’s presumption that AD/CVD Operations, Office II, Compliance’s Antidumping and reimbursement of antidumping duties Enforcement and Compliance, Countervailing Duty Centralized occurred and the subsequent assessment International Trade Administration, Electronic Service System (‘‘IA of double antidumping duties. U.S. Department of Commerce, 14th ACCESS’’). IA ACCESS is available to Street and Constitution Avenue NW., registered users at https:// Notification Regarding Administrative Washington, DC 20230; telephone: (202) iaaccess.trade.gov, and is available to all Protective Order 482–1823 or (202) 482–4007, parties in the Department’s Central This notice serves as the only respectively. Records Unit, located at room 7046 of reminder to parties subject to SUPPLEMENTARY INFORMATION: the main Department of Commerce administrative protective order (APO) of building. In addition, a complete their responsibility concerning the Scope of the Investigation version of the Preliminary Decision disposition of proprietary information The product covered by this Memorandum can be found at http:// disclosed under APO in accordance investigation is high carbon steel wire; enforcement.trade.gov/frn/. The signed with 19 CFR 351.305(a)(3). Timely stress relieved or low relaxation; and the electronic versions of the written notification of return/ indented or otherwise deformed; destruction of APO materials or meeting at a minimum the physical, 1 Since the initiation of this investigation, based mechanical, and chemical requirements on interested party comments, we modified the conversion to judicial protective order is scope to add language to and clarify the meaning hereby requested. Failure to comply of the American Society of Testing of the phrase ‘‘meeting at a minimum the American with the regulations and the terms of an Materials (‘‘ASTM’’) A881/A881M Society for Testing Materials (‘‘ASTM’’) A881/ APO is a sanctionable violation. specification; regardless of shape, size A881M specification,’’ and to include two additional HTSUS numbers. For further discussion, This notice is published in or alloy element levels; suitable for use see the memorandum entitled ‘‘Scope Modification accordance with section 777(i)(1) of the as prestressed tendons in concrete Requests,’’ dated concurrently with this Act, and 19 CFR 351.213(d)(4). railroad ties (‘‘PC tie wire’’). High determination.

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Preliminary Decision Memorandum are using IA ACCESS. An electronically days after our final determination identical in content. filed request must be received whether these imports are materially successfully in its entirety by IA injuring, or threaten material injury to, Preliminary Determination 2 ACCESS by 5:00 p.m. Eastern Standard the U.S. industry. The Department preliminarily Time, within 30 days after the date of This determination is issued and determines that the following weighted- publication of this notice.5 Requests published in accordance with sections average dumping margins exist: should contain the party’s name, 733(f) and 777(i)(1) of the Act and 19 address, and telephone number, the CFR 351.205(c). Weighted- number of participants, and a list of the average Dated: December 5, 2013. Exporter/manufacturer dumping issues to be discussed. If a request for Paul Piquado, a hearing is made, the Department margin Assistant Secretary for Enforcement and (percent) intends to hold the hearing at the U.S. Compliance. Department of Commerce, 14th Street Aceros Camesa S.A. de C.V...... 27.88 and Constitution Avenue NW., List of Topics Discussed in the All Others ...... 27.88 Washington, DC 20230, at a time and Preliminary Decision Memorandum The ‘‘All Others’’ rate is based on the date to be determined. Parties should 1. Differential Pricing Analysis weighted-average dumping margin confirm by telephone the date, time, and 2. Results of the Differential Pricing Analysis calculated for Aceros Camesa S.A. de location of the hearing two days before 3. Fair Value Comparisons C.V., the only company for which the the scheduled date. 4. Product Comparisons 3 5. Constructed Export Price Department calculated a rate. Postponement of Final Determination 6. Normal Value Disclosure and Public Comment and Extension of Provisional Measures a. Home Market Viability b. Level of Trade We will disclose the calculations Pursuant to a request from the respondent in this investigation, we are c. Calculation of Normal Value Based on performed to parties in this proceeding Constructed Value within five days of the date of postponing the final determination and 7. Currency Conversion publication of this notice in accordance extending the provisional measures 8. Verification from a four-month period to a period with 19 CFR 351.224(b). [FR Doc. 2013–29693 Filed 12–11–13; 8:45 am] not greater than six months. Case briefs or other written comments BILLING CODE 3510–DS–P may be submitted to the Assistant Accordingly, we will make our final Secretary for Enforcement and determination no later than 135 days Compliance no later than seven days after the date of publication of this DEPARTMENT OF COMMERCE after the date on which the final preliminary determination, pursuant to verification report is issued in this section 735(a)(2) of the Act.6 International Trade Administration proceeding and rebuttal briefs, limited Suspension of Liquidation [A–570–990] to issues raised in case briefs, may be In accordance with section 733(d)(2) submitted no later than five days after Prestressed Concrete Steel Rail Tie of the Act, we are directing U.S. the deadline date for case briefs.4 Wire From the People’s Republic of Customs and Border Protection (‘‘CBP’’) Pursuant to 19 CFR 351.309(c)(2) and China: Preliminary Determination of to suspend liquidation of all entries of (d)(2), parties who submit case briefs or Sales at Less Than Fair Value and PC tie wire from Mexico, as described rebuttal briefs in this proceeding are Postponement of Final Determination encouraged to submit with each in the scope of the investigation section argument: (1) A statement of the issue; of this notice, which are entered, or AGENCY: Enforcement and Compliance, (2) a brief summary of the argument; withdrawn from warehouse, for formerly Import Administration, and (3) a table of authorities. consumption on or after the date of International Trade Administration, Pursuant to 19 CFR 351.310(c), publication of this notice in the Federal Department of Commerce. interested parties who wish to request a Register. SUMMARY: The Department of Commerce hearing, or to participate if one is We will instruct CBP to require a cash (‘‘Department’’) preliminarily 7 requested, must submit a written deposit equal to the weighted-average determines that prestressed concrete request to the Assistant Secretary for amount by which the NV exceeds CEP, steel rail tie wire (‘‘PC tie wire’’) from Enforcement and Compliance, U.S. as indicated in the chart above. These the People’s Republic of China (‘‘PRC’’) Department of Commerce. All suspension of liquidation instructions is being, or is likely to be, sold in the documents must be filed electronically will remain in effect until further notice. United States at less than fair value International Trade Commission (‘‘LTFV’’), as provided in section 733(b) 2 As explained in the memorandum from the (‘‘ITC’’) Notification of the Tariff Act of 1930, as amended Assistant Secretary for Enforcement and (‘‘the Act’’). The period of investigation Compliance, the Department has exercised its In accordance with section 733(f) of (‘‘POI’’) is October 1, 2012, through discretion to toll deadlines for the duration of the the Act, we have notified the ITC of our closure of the Federal Government from October 1, March 31, 2013. The weighted-average preliminary affirmative determination of through October 16, 2013. See Memorandum for the dumping margins are shown in the sales at LTFV. If our final determination Record from Paul Piquado, Assistant Secretary for ‘‘Preliminary Determination’’ section of Enforcement and Compliance, ‘‘Deadlines Affected is affirmative, the ITC will determine this notice. The final determination will by the Shutdown of the Federal Government’’ before the later of 120 days after the date (October 18, 2013). Therefore, all deadlines in this be issued 135 days after the publication of this preliminary determination or 45 segment of the proceeding have been extended by date of this preliminary determination 16 days. If the new deadline falls on a non-business in the Federal Register. day, in accordance with the Department’s practice, 5 See 19 CFR 351.310(c). the deadline will become the next business day. 6 See also 19 CFR 351.210(e). DATES: Effective Date: December 12, The revised deadline for the preliminary 7 See Modification of Regulations Regarding the 2013. determination in this investigation is now Practice of Accepting Bonds During the Provisional FOR FURTHER INFORMATION CONTACT: December 5, 2013. Measures Period in Antidumping and 3 See section 735(c)(5)(A) of the Act. Countervailing Duty Investigations, 76 FR 61042 Brian Smith or Stephanie Arthur, AD/ 4 See 19 CFR 351.309. (October 3, 2011). CVD Operations, Office II, Enforcement

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and Compliance, International Trade purposes, the written description of the Secretary for Enforcement and Administration, U.S. Department of scope of the investigation is Compliance, dated concurrently with Commerce, 14th Street and Constitution dispositive.1 this notice (‘‘Preliminary Decision Avenue NW., Washington, DC 20230; Memorandum’’) and hereby adopted by Methodology telephone: (202) 482–1766 and (202) this notice. The Preliminary Decision 482–2181, respectively. The Department has conducted this Memorandum is a public document and antidumping duty investigation in SUPPLEMENTARY INFORMATION: is on file electronically via Enforcement accordance with section 731 of the Act. and Compliance’s Antidumping and Scope of the Investigation Export prices (‘‘EPs’’) have been Countervailing Duty Centralized calculated in accordance with section Electronic Service System (‘‘IA The product covered by this 772 of the Act. Because the PRC is a investigation is high carbon steel wire; ACCESS’’). IA ACCESS is available to non-market economy within the registered users at http:// stress relieved or low relaxation; meaning of section 771(18) of the Act, indented or otherwise deformed; iaaccess.trade.gov, and is available to all normal value has been calculated in parties in the Central Records Unit, meeting at a minimum the physical, accordance with section 773(c) of the mechanical, and chemical requirements room 7046 of the main Department of Act. Specifically, unless specified Commerce building. In addition, a of the American Society of Testing otherwise, the factors of production Materials (‘‘ASTM’’) A881/A881M complete version of the Preliminary (‘‘FOPs’’) for the respondent, Silvery Decision Memorandum can be accessed specification; regardless of shape, size Dragon Group Technology and Trading or alloy element levels; suitable for use directly at http://enforcement.trade.gov/ Co., Ltd. Tianjin (‘‘Silvery Dragon frn. The signed and electronic versions as prestressed tendons in concrete Tech’’) have been valued using data railroad ties (‘‘PC tie wire’’). High of the Preliminary Decision from the primary surrogate country, Memorandum are identical in content. carbon steel is defined as steel that Thailand, a country comparable contains 0.6 percent or more of carbon economically to the PRC and a Combination Rates by weight. significant producer of comparable PC tie wire is classified under the merchandise. In the Initiation Notice, the Harmonized Tariff Schedule of the For a full description of the Department stated that it would United States (‘‘HTSUS’’) subheading methodology underlying our calculate combination rates for the 7217.10.8045, but may also be classified conclusions, see ‘‘Decision respondents that are eligible for a under subheadings 7217.10.7000, Memorandum for the Preliminary separate rate in this investigation.2 This 7217.10.8025, 7217.10.8030, Determination in the Antidumping Duty practice is described in Policy Bulletin 7217.10.8090, 7217.10.9000, Investigation of Prestressed Concrete 05.1.3 7229.90.1000, 7229.90.5016, Steel Rail Tie Wire from the People’s Preliminary Determination 4 7229.90.5031, 7229.90.5051, Republic of China,’’ from Christian 7229.90.9000, and 7312.10.3012. Marsh, Deputy Assistant Secretary for The Department preliminarily Although the HTSUS subheadings are Antidumping and Countervailing Duty determines that the following weighted- provided for convenience and customs Operations, to Paul Piquado, Assistant average dumping margins exist:

Weighted- average Exporter Producer dumping margin (percent)

Silvery Dragon Group Technology and Trading Co., Ltd. Tianjin Silvery Dragon Prestressed Materials Co., Ltd. Tianjin ...... 14.64 PRC-wide Entity* ...... 18.02 * The PRC-wide entity includes Wuxi Jinyang Metal Products Co., Ltd. and Shanxi New-Mile International Trade Co., Ltd.

Disclosure and Public Comment submitted to the Assistant Secretary for to 19 CFR 351.309(c)(2) and (d)(2), Enforcement and Compliance via IA parties who submit case briefs or The Department intends to disclose ACCESS no later than seven days after rebuttal briefs in this proceeding are calculations performed for this the date on which the verification report encouraged to submit with each preliminary determination to the parties is issued in this proceeding, and argument: (1)A statement of the issue; within five days after the date of rebuttal briefs, limited to issues raised (2) a brief summary of the argument; publication of this notice in accordance in case briefs, must be submitted via IA and (3) a table of authorities. with 19 CFR 351.224(b). Case briefs or ACCESS no later than five days after the Pursuant to 19 CFR 351.310(c), other written comments may be deadline for filing case briefs.5 Pursuant interested parties who wish to request a

1 Since the initiation of this investigation, based Investigations, 78 FR 29325, 29330 (May 20, 2013) through October 16, 2013. See Memorandum for the on interested party comments, we modified the (‘‘Initiation Notice’’). Record from Paul Piquado, Assistant Secretary for scope to add language to, and clarify the meaning 3 See Policy Bulletin No. 05.1, regarding Enforcement and Compliance, ‘‘Deadlines Affected of, the phrase ‘‘meeting at a minimum the American ‘‘Separate-Rates Practice and Application of by the Shutdown of the Federal Government’’ Society for Testing Materials (‘‘ASTM’’) A881/ Combination Rates in Antidumping Investigations (October 18, 2013). Therefore, all deadlines in this A881M specification,’’ and to include two involving Non-Market Economy Countries’’ (April segment of the proceeding have been extended by additional HTSUS numbers. For further discussion, 5, 2005) (‘‘Policy Bulletin 05.1’’), available at 16 days. If the new deadline falls on a non-business see the memorandum entitled ‘‘Scope Modification http://enforcement.trade.gov/policy/bull05-1.pdf. day, in accordance with the Department’s practice, Requests,’’ dated concurrently with this 4 As explained in the memorandum from the the deadline will become the next business day. determination. Assistant Secretary for Enforcement and The revised deadline for the preliminary 2 See Prestressed Concrete Steel Rail Tie Wire Compliance, the Department has exercised its determination in this investigation is now From Mexico, The People’s Republic of China, and discretion to toll deadlines for the duration of the December 5, 2013. Thailand: Initiation of Antidumping Duty closure of the Federal Government from October 1, 5 See 19 CFR 351.309.

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hearing, or to participate in a hearing if preliminary affirmative determination of DATES: Effective Date: December 12, one is requested, must submit a written sales at LTFV. If our final determination 2013. request to the Assistant Secretary for is affirmative, the ITC will determine FOR FURTHER INFORMATION CONTACT: Enforcement and Compliance. An before the later of 120 days after the date Katherine Johnson or Terre Keaton electronically filed request must be of this preliminary determination or 45 Stefanova, AD/CVD Operations, Office received successfully in its entirety by days after our final determination II, Enforcement and Compliance, IA ACCESS by 5:00 p.m. Eastern whether these imports are materially International Trade Administration, Standard Time, within 30 days after the injuring, or threaten material injury to, U.S. Department of Commerce, 14th date of publication of this notice.6 the U.S. industry. Street and Constitution Avenue NW., Hearing requests should contain: (1) The This determination is issued and Washington, DC 20230; telephone: (202) party’s name, address, and telephone published in accordance with sections 482–4929 or (202) 482–1280, number; (2) the number of participants 733(f) and 777(i)(1) of the Act and 19 respectively. in the hearing; and (3) a list of the issues CFR 351.205(c). SUPPLEMENTARY INFORMATION: to be discussed at the hearing. If a Dated: December 5, 2013. request for a hearing is made, the Paul Piquado, Scope of the Investigation Department intends to hold the hearing Assistant Secretary for Enforcement and The product covered by this at the U.S. Department of Commerce, Compliance. investigation is high carbon steel wire; 14th Street and Constitution Avenue stress relieved or low relaxation; List of Topics Discussed in the NW., Washington, DC 20230, at a time indented or otherwise deformed; 7 Preliminary Decision Memorandum and date to be determined. Parties meeting at a minimum the physical, should confirm by telephone the date, 1. Respondent Selection mechanical, and chemical requirements time, and location of the hearing, two 2. Discussion of the Methodology of the American Society of Testing days before the scheduled date. a. Non-Market Economy Country Materials (‘‘ASTM’’) A881/A881M b. Surrogate Country specification; regardless of shape, size Postponement of Final Determination c. Separate Rates and Extension of Provisional Measures d. Application of Facts Available and or alloy element levels; suitable for use Pursuant to a request from the Adverse Inferences as prestressed tendons in concrete respondent in this investigation, we are e. Date of Sale railroad ties (‘‘PC tie wire’’). High postponing the final determination and f. Fair Value Comparisons carbon steel is defined as steel that extending the provisional measures g. Factor Valuation Methodology contains 0.6 percent or more of carbon h. Currency Conversion from a four-month period to a period by weight. 3. Verification PC tie wire is classified under the not greater than six months. Harmonized Tariff Schedule of the Accordingly, we will issue our final [FR Doc. 2013–29690 Filed 12–11–13; 8:45 am] United States (‘‘HTSUS’’) subheading determination no later than 135 days BILLING CODE 3510–DS–P 7217.10.8045, but may also be classified after the date of publication of this under subheadings 7217.10.7000, preliminary determination, pursuant to DEPARTMENT OF COMMERCE 7217.10.8025, 7217.10.8030, section 735(a)(2) of the Act.8 7217.10.8090, 7217.10.9000, Suspension of Liquidation International Trade Administration 7229.90.1000, 7229.90.5016, In accordance with section 733(d)(2) [A–549–829] 7229.90.5031, 7229.90.5051, of the Act, we are directing U.S. 7229.90.9000, and 7312.10.3012. Customs and Border Protection (‘‘CBP’’) Prestressed Concrete Steel Rail Tie Although the HTSUS subheadings are to suspend liquidation of all entries of Wire From Thailand: Preliminary provided for convenience and customs PC tie wire from the PRC, as described Determination of Sales at Not Less purposes, the written description of the in the scope of the investigation section Than Fair Value and Postponement of scope of the investigation is of this notice, which are entered, or Final Determination dispositive.1 withdrawn from warehouse, for AGENCY: Enforcement and Compliance, Methodology consumption on or after the date of formerly Import Administration, The Department has conducted this publication of this notice in the Federal International Trade Administration, investigation in accordance with section Register. Department of Commerce. We will instruct CBP to require a cash 731 of the Act. Constructed export deposit 9 equal to the weighted-average SUMMARY: The Department of Commerce prices (‘‘CEPs’’) have been calculated in amount by which the NV exceeds EP, as (‘‘Department’’) preliminarily accordance with section 772 of the Act. indicated in the chart above. These determines that prestressed concrete Normal value (‘‘NV’’) has been suspension of liquidation instructions steel rail tire wire (‘‘PC tie wire’’) from calculated in accordance with section will remain in effect until further notice. Thailand is not being, or likely to be, 773 of the Act. sold in the United States at less than fair For a full description of the International Trade Commission value (‘‘LTFV’’), as provided in section methodology underlying our (‘‘ITC’’) Notification 733(b) of the Tariff Act of 1930, as conclusions, see the ‘‘Decision In accordance with section 733(f) of amended (‘‘the Act’’). The period of Memorandum for the Preliminary the Act, we have notified the ITC of our investigation (‘‘POI’’) is April 1, 2012, through March 31, 2013. The estimated 1 Since the initiation of this investigation, based on interested party comments, we modified the 6 See also 19 CFR 351.310(c). weighted-average dumping margins of scope to add language to and clarify the meaning 7 See id. sales at LTFV are shown in the of the phrase ‘‘meeting at a minimum the American 8 See also 19 CFR 351.210(b)(2) and (e). ‘‘Preliminary Determination’’ section of Society for Testing Materials (‘‘ASTM’’) A881/ 9 See Modification of Regulations Regarding the this notice. The final determination will A881M specification;’’ and to include two Practice of Accepting Bonds During the Provisional additional HTSUS numbers. For further discussion, Measures Period in Antidumping and be issued 135 days after publication of see the memorandum entitled ‘‘Scope Modification Countervailing Duty Investigations, 76 FR 61042 this preliminary determination in the Requests,’’ dated concurrently with this (October 3, 2011). Federal Register. determination.

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Determination in the Antidumping Duty Border Protection to suspend International Trade Commission Investigation of Prestressed Concrete liquidation of entries of PC tie wire from (‘‘ITC’’) Notification Steel Rail Tie Wire from Thailand, from Thailand. In accordance with section 733(f) of Christian Marsh, Deputy Assistant Disclosure and Public Comment the Act, we have notified the ITC of our Secretary for Enforcement and preliminary negative determination of Compliance, to Paul Piquado, Assistant We will disclose the calculations sales at LTFV. If our final determination Secretary for Enforcement and performed to parties in this proceeding is affirmative, the ITC will determine Compliance, dated concurrently with within five days of the date of before the later of 120 days after the date this determination and hereby adopted publication of this notice in accordance of this preliminary determination or 45 by this notice (‘‘Preliminary Decision with 19 CFR 351.224(b). days after our final determination Memorandum’’). The Preliminary Case briefs or other written comments whether these imports are materially Decision Memorandum is a public may be submitted to the Assistant injuring, or threaten material injury to, document and is made available to the Secretary for Enforcement and the U.S. industry. public via Enforcement and Compliance no later than seven days This determination is issued and Compliance’s Antidumping and after the date on which the final published in accordance with sections Countervailing Duty Centralized verification report is issued in this 733(f) and 777(i)(1) of the Act and 19 Electronic Service System (‘‘IA proceeding and rebuttal briefs, limited CFR 351.205(c). ACCESS’’). IA ACCESS is available to to issues raised in case briefs, may be Dated: December 5, 2013. registered users at https:// submitted no later than five days after Paul Piquado, iaaccess.trade.gov, and is available to all the deadline date for case briefs.4 parties in the Department’s Central Pursuant to 19 CFR 351.309(c)(2) and Assistant Secretary for Enforcement and Compliance. Records Unit, located at room 7046 of (d)(2), parties who submit case briefs or the main Department of Commerce rebuttal briefs in this proceeding are List of Topics Discussed in the building. In addition, a complete encouraged to submit with each Preliminary Decision Memorandum version of the Preliminary Decision argument: (1) A statement of the issue; Memorandum can be found at http:// 1. Differential Pricing Analysis (2) a brief summary of the argument; 2. Results of the Differential Pricing Analysis enforcement.trade.gov/frn/. The signed and (3) a table of authorities. 3. Fair Value Comparisons and the electronic versions of the Pursuant to 19 CFR 351.310(c), 4. Product Comparisons Preliminary Decision Memorandum are 5. Date of Sale 2 interested parties who wish to request a identical in content. hearing, or to participate if one is 6. Constructed Export Price requested, must submit a written 7. Normal Value Preliminary Determination a. Comparison Market Viability The Department preliminarily request to the Assistant Secretary for b. Level of Trade determines that the following weighted- Enforcement and Compliance, U.S. c. Calculation of Normal Value Based on average dumping margins exist: Department of Commerce. All Constructed Value documents must be filed electronically 8. Currency Conversion using IA ACCESS. An electronically 9. Verification Exporter/manufacturer Weighted-average dumping margin filed request must be received [FR Doc. 2013–29692 Filed 12–11–13; 8:45 am] successfully in its entirety by IA BILLING CODE 3510–DS–P The Siam Industrial 0.07% (de minimis). ACCESS, by 5:00 p.m. Eastern Standard Wire Co., Ltd. Time, within 30 days after the date of All Others ...... 0.07% (de minimis). publication of this notice.5 Requests DEPARTMENT OF COMMERCE The ‘‘All Others’’ rate is based on the should contain the party’s name, address, and telephone number, the National Oceanic and Atmospheric weighted-average dumping margin Administration calculated for The Siam Industrial Wire number of participants, and a list of the issues to be discussed. If a request for Co., Ltd., the only company for which National Estuarine Research Reserve the Department calculated a rate.3 a hearing is made, the Department intends to hold the hearing at the U.S. System Suspension of Liquidation Department of Commerce, 14th Street AGENCY: Estuarine Reserves Division, Because the estimated weighted- and Constitution Avenue NW., Office of Ocean and Coastal Resource average dumping margin for the Washington, DC 20230, at a time and Management, National Ocean Service, examined company is de minimis, we date to be determined. Parties should National Oceanic and Atmospheric are not directing U.S. Customs and confirm by telephone the date, time, and Administration, U.S. Department of location of the hearing two days before Commerce 2 As explained in the memorandum from the the scheduled date. ACTION: Notice of Approval of the Wells, Assistant Secretary for Enforcement and Maine National Estuarine Research Compliance, the Department has exercised its Postponement of Final Determination discretion to toll deadlines for the duration of the Reserve Management Plan revision. closure of the Federal Government from October 1, Pursuant to a request from the through October 16, 2013. See Memorandum for the petitioners in this investigation, we are SUMMARY: Notice is hereby given that Record from Paul Piquado, Assistant Secretary for postponing the final determination. the Estuarine Reserves Division, Office Enforcement and Compliance, ‘‘Deadlines Affected Accordingly, we will make our final of Ocean and Coastal Resource by the Shutdown of the Federal Government’’ Management, National Ocean Service, (October 18, 2013). Therefore, all deadlines in this determination no later than 135 days segment of the proceeding have been extended by after the date of publication of this National Oceanic and Atmospheric 16 days. If the new deadline falls on a non-business preliminary determination, pursuant to Administration, U.S. Department of day, in accordance with the Department’s practice, section 735(a)(2) of the Act.6 Commerce approves the Wells, Maine the deadline will become the next business day. National Estuarine Research Reserve The revised deadline for the preliminary determination in this investigation is now 4 See 19 CFR 351.309. Management Plan revision. The revised December 5, 2013. 5 See 19 CFR 351.310(c). management plan outlines the 3 See section 735(c)(5)(A) of the Act. 6 See also 19 CFR 351.210(e). administrative structure; the research,

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education, training, and stewardship paperwork and respondent burden, functions of CNCS, including whether goals of the reserve; and the plans for conducts a pre-clearance consultation the information will have practical future land acquisition and facility program to provide the general public utility; development to support reserve and federal agencies with an • Evaluate the accuracy of the operations. The Wells Reserve opportunity to comment on proposed agency’s estimate of the burden of the Management Plan revision will replace and/or continuing collections of proposed collection of information, the plan approved in 2007. information in accordance with the including the validity of the The Wells, Maine National Estuarine Paperwork Reduction Act of 1995 methodology and assumptions used; Research Reserve takes an integrated (PRA95) (44 U.S.C. 3506(c)(2)(A)). This • Enhance the quality, utility, and approach to management, linking program helps to ensure that requested clarity of the information to be research, education, training and data can be provided in the desired collected; and • stewardship functions to address high format, reporting burden (time and Minimize the burden of the priority issues including the impact of financial resources) is minimized, collection of information on those who climate change of coastal ecosystems collection instruments are clearly are expected to respond, including the and communities, development understood, and the impact of the use of appropriate automated, pressures, population growth, land-use collection requirement on respondents electronic, mechanical, or other change, habitat fragmentation, and can be properly assessed. technological collection techniques or water quality degradation. Since the last Currently, CNCS is soliciting other forms of information technology management plan, the reserve comments on its proposed revised (e.g., permitting electronic submissions implemented its core programs and enrollment and exit forms entitled of responses). expanded its monitoring infrastructure National Service Trust Enrollment Form Background to include capabilities for and National Service Trust Exit Form. understanding climate impacts; The Enrollment Form and Exit Forms The Enrollment Form and Exit Forms enhanced its facilities, including new are used by AmeriCorps members and are used by AmeriCorps members and Visitor Center exhibits and interpretive program staff to enroll in the National program staff to enroll in the National trail signs; constructed an Service Trust and to document the Service Trust and to document the environmental chamber for year-round completion of AmeriCorps member’s completion of a member’s term of research; and furthered land term of service. AmeriCorps requires service, a requirement to receiving a conservation in the reserve’s targeted these forms in order for members to Segal Education Award and to meet watersheds. receive a Segal Education Award. other legal and program requirements. The revised management plan will Copies of the forms can be obtained This information is also entered serve as the guiding document for the by contacting the office listed in the electronically into the National Service 2,250 acre Wells National Estuarine ADDRESSES section of this Notice. Trust’s database. Research Reserve for the next five years. DATES: Written comments must be Current Action The Wells National Estuarine Research submitted to the individual and office Reserve Management Plan revision can CNCS seeks to renew the current listed in the ADDRESSES section by information collection with some be viewed at www.wellsreserve.org. February 10, 2014. Comments can be provided to Paul Dest, changes, principally to demographics ADDRESSES: Reserve Director at [email protected]. You may submit comments, questions, such as income levels, identified by the title of the information disability, veteran’s status, citizenship FOR FURTHER INFORMATION CONTACT: collection activity, by any of the Alison Krepp at (301) 563–7105 or Erica status, and educational levels. following methods: The information collection will Seiden at (301) 563–1172 of NOAA’s (1) By mail sent to: Corporation for otherwise be used in the same manner National Ocean Service, Estuarine National and Community Service, as the existing forms. CNCS also seeks Reserves Division, 1305 East-West Attention Bruce Kellogg, 8309C, 1201 to continue using the current forms Highway, N/ORM5, 10th Floor, Silver New York Avenue NW., Washington, until the revised forms are approved by Spring, MD 20910. DC 20525. OMB. The current application is due to Dated: December 6, 2013. (2) By hand delivery or by courier to expire on 05/31/2016. Christopher C. Cartwright, the CNCS mailroom at Room 8100 at the Type of Review: Renewal. Associate Assistant Administrator for mail address given in paragraph (1) Agency: Corporation for National and Management and CFO/CAO, National Ocean above, between 9:00 a.m. and 4:00 p.m. Community Service. Service, National Oceanic and Atmospheric Eastern Time, Monday through Friday, Title: National Service Trust Administration. except Federal holidays. Enrollment and Exit Forms. [FR Doc. 2013–29673 Filed 12–11–13; 8:45 am] (3) Electronically through OMB Number: 3045–0006. BILLING CODE 3510–08–P www.regulations.gov. Agency Number: None. Individuals who use a Affected Public: AmeriCorps telecommunications device for the deaf members, grantee and other program CORPORATION FOR NATIONAL AND (TTY–TDD) may call 1–800–833–3722 staff. COMMUNITY SERVICE between 8:00 a.m. and 8:00 p.m. Eastern Total Respondents: 160,000. Time, Monday through Friday. Frequency: Once per form. Average Time per Response: Averages Proposed Information Collection; FOR FURTHER INFORMATION CONTACT: Comment Request 10 minutes per form. Bruce Kellogg, (202) 606–6954, or by Estimated Total Burden Hours: AGENCY: Corporation for National and email at [email protected]. 266,667. Community Service. SUPPLEMENTARY INFORMATION: Total Burden Cost (capital/startup): ACTION: Notice. CNCS is particularly interested in None. comments that: Total Burden Cost (operating/ SUMMARY: The Corporation for National • Evaluate whether the proposed maintenance): None. and Community Service (CNCS), as part collection of information is necessary Comments submitted in response to of its continuing effort to reduce for the proper performance of the this notice will be summarized and/or

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included in CNCS’s request for Office of The Secretary determined tests and Secretary approves a period of time for Management and Budget approval of the test forms to be suitable for a period of which the test may continue to be used information collection forms; they will either seven or three years from the date in the NRS. also become a matter of public record. of the February 2010 notice. A seven- Approved Tests, Forms and Approval year approval required no additional Dated: December 5, 2013. Periods action on the part of the publisher, Maggie Taylor-Coates, unless the information the publisher Adult education programs must use Chief of Trust Operations. submitted as a basis for the Secretary’s only the approved forms and computer [FR Doc. 2013–29663 Filed 12–11–13; 8:45 am] review was inaccurate or unless the test delivery formats for the tests published BILLING CODE 6050–28–P is substantially revised. A three-year in this notice. If a particular test form or approval was issued with a set of computer delivery format is not conditions to be met by the completion explicitly specified for a test in this DEPARTMENT OF EDUCATION of the three-year period. If these notice, it is not approved for use in the conditions were met, the Secretary NRS. Tests Determined To Be Suitable for would approve a period of time for Tests Determined To Be Suitable for Use in the National Reporting System which the test may continue to be used Use in the NRS for Seven Years for Adult Education in the NRS. On September 12, 2011, we published (a) The Secretary has determined that AGENCY: Office of Vocational and Adult in the Federal Register (76 FR 56188) a the following test is suitable for use at Education, Department of Education. notice (September 2011 notice) to all Adult Basic Education (ABE) and ACTION: Notice. update the list published in the Adult Secondary Education (ASE) levels February 2010 notice, and include and at all English-as-a-Second-Language SUMMARY: The Secretary annually suitable test delivery formats. The (ESL) levels of the NRS for a period of announces tests, test forms, and delivery update clarified that some, but not all, seven years beginning on February 2, formats that the Secretary determines to tests using computer-adaptive or 2010: be suitable for use in the National computer-based delivery formats are Comprehensive Adult Student Reporting System for Adult Education suitable for use in the NRS. Assessment Systems (CASAS) Reading (NRS). On August 6, 2012, we published in Assessments (Life and Work, Life Skills, FOR FURTHER INFORMATION CONTACT: the Federal Register (77 FR 46749) the Reading for Citizenship, Reading for Michelle Meier, Department of same list of forms and computer Language Arts—Secondary Level). Education, 400 Maryland Avenue SW., delivery formats for the tests published Forms 27, 28, 81, 82, 81X, 82X, 83, 84, Room 11161, Potomac Center Plaza, in the September 2011 notice. We also 85, 86, 185, 186, 187, 188, 310, 311, 513, Washington, DC 20202–7240. announced a sunset period during 514, 951, 952, 951X, and 952X of this Telephone: (202) 245–7890 or by email: which States and local providers may test are approved for use on paper and [email protected]. continue to use tests with three-year through the computer-based delivery If you use a telecommunications NRS approvals otherwise expiring on format. Publisher: CASAS, 5151 device for the deaf (TDD) or a text February 2, 2013, during a transition Murphy Canyon Road, suite 220, San telephone (TTY), call the Federal Relay period ending on June 30, 2014. Diego, CA 92123–4339. Telephone: Service (FRS), toll free, at 1–800–877– On January 25, 2013, we announced (800) 255–1036. Internet: 8339. in the Federal Register (78 FR 5430) an www.casas.org. extension of the approval period for (b) The Secretary has determined that SUPPLEMENTARY INFORMATION: On tests approved for a three-year period the following tests are suitable for use January 14, 2008, we published in the beginning on February 2, 2010. The at all ABE and ASE levels of the NRS Federal Register final regulations for 34 approval period was extended from for a period of seven years beginning on CFR part 462, Measuring Educational February 2, 2013 to September 30, 2013, February 2, 2010: Gain in the National Reporting System with the sunset period ending on June (1) Comprehensive Adult Student for Adult Education (NRS regulations) 30, 2014 still applicable. Assessment Systems (CASAS) Life Skills (73 FR 2306). The NRS regulations The Secretary publishes here the list Math Assessments—Application of established the process the Secretary of tests and test forms determined to be Mathematics (Secondary Level). Forms uses to determine the suitability of tests suitable for use in the NRS. These 31, 32, 33, 34, 35, 36, 37, 38, 505, and for use in the NRS by States and local include: (1) Tests previously approved 506 of this test are approved for use on eligible providers. We annually publish for a seven-year period from February 2, paper and through the computer-based in the Federal Register and post on the 2010; (2) three tests—previously delivery format. Publisher: CASAS, Internet at http://www.nrsweb.org a list approved for a three-year conditional 5151 Murphy Canyon Road, suite 220, of the names of tests and the period from February 2, 2010—for San Diego, CA 92123–4339. Telephone: educational functioning levels the tests which the Secretary is extending the (800) 255–1036. Internet: are suitable to measure in the NRS as approval period through June 30, 2015; www.casas.org. required by § 462.12(c)(2) of the NRS and (3) one test—a revised version of a (2) Massachusetts Adult Proficiency regulations. test previously approved for a three-year Test (MAPT) for Math. This test is On April 16, 2008, we published in conditional period from February 2, approved for use through a computer- the Federal Register a notice inviting 2010—for which the Secretary is adaptive delivery format. Publisher: test publishers to submit tests for review providing an approval period through Massachusetts Department of under the NRS regulations (73 FR June 30, 2015. The extended approval Elementary and Secondary Education 20616). period through June 30, 2015 for these and University of Massachusetts On February 2, 2010, we published in four tests is issued with a set of Amherst, School of Education, 156 Hills the Federal Register a notice (February conditions for each test that a test South, University of Massachusetts, 2010 notice) listing the tests and test publisher must meet eby the completion Amherst, MA 01003. Telephone: (413) forms the Secretary determined to be of the extended period. If a test 545–0564. Internet: www.sabes.org/ suitable for use in the NRS (75 FR 5303). publisher meets these conditions, the assessment/mapt.htm.

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(3) Massachusetts Adult Proficiency Publisher: Wonderlic Inc., 400 Lakeview (2) Comprehensive Adult Student Test (MAPT) for Reading. This test is Parkway, Suite 200, Vernon Hills, IL Assessment Systems (CASAS) approved for use through the computer- 60061. Telephone: (877) 605–9496. Functional Writing Assessments. Forms adaptive delivery format. Publisher: Internet: www.wonderlic.com. 460, 461, 462, 463, 464, 465, and 466 are Massachusetts Department of (b) The Secretary has determined that approved for use on paper. Publisher: Elementary and Secondary Education the following tests are suitable for use CASAS, 5151 Murphy Canyon Road, and University of Massachusetts at all ESL levels of the NRS until June Suite 220, San Diego, CA 92123–4339. Amherst, School of Education, 156 Hills 30, 2015: Telephone: (800) 255–1036. Internet: South, University of Massachusetts, (1) Basic English Skills Test (BEST) www.casas.org. Amherst, MA 01003. Telephone: (413) Plus. Forms A, B, and C are approved (c) The Secretary has determined that 545–0564. Internet: www.sabes.org/ for use on paper and through the the following test may be used at all assessment/mapt.htm. computer-adaptive delivery format. ABE and ASE levels of the NRS during (4) Tests of Adult Basic Education Publisher: Center for Applied the sunset period ending on June 30, (TABE 9/10). Forms 9 and 10 are Linguistics, 4646 40th Street NW., 2014: approved for use on paper and through Washington, DC 20016–1859. (1) Comprehensive Adult Student the computer-based delivery format. Telephone: (202) 362–0700. Internet: Assessment Systems (CASAS) Publisher: CTB/McGraw Hill, 20 Ryan www.cal.org. Employability Competency System Ranch Road, Monterey, CA 93940. (2) Comprehensive Adult Student (ECS) Math Assessments—Workforce Telephone: (800) 538–9547. Internet: Assessment Systems (CASAS) Life and Learning Systems (WLS). Forms 11, 12, www.ctb.com. Work Listening Assessments (LW 13, 14, 15, 16, 17, 18, 213, 214, 215, and (5) Tests of Adult Basic Education Listening). Forms 981L, 982L, 983L, 216 are approved for use on paper and Survey (TABE Survey). Forms 9 and 10 984L, 985L and 986L are approved for through the computer-based delivery are approved for use on paper and use on paper and through the computer- format. Publisher: CASAS, 5151 through the computer-based delivery based delivery format. Publisher: Murphy Canyon Road, Suite 220, San format. Publisher: CTB/McGraw Hill, 20 CASAS, 5151 Murphy Canyon Road, Diego, CA 92123–4339. Telephone: Ryan Ranch Road, Monterey, CA 93940. Suite 220, San Diego, CA 92123–4339. (800) 255–1036. Internet: Telephone: (800) 538–9547. Internet: Telephone: (800) 255–1036. Internet: www.casas.org. www.ctb.com. www.casas.org. (d) The Secretary has determined that (c) The Secretary has determined that Tests That May Be Used in the NRS the following test may be used at all ESL the following tests are suitable for use During the Sunset Period Ending on levels of the NRS during the sunset at all ESL levels of the NRS for a period June 30, 2014 period ending on June 30, 2014: of seven years beginning on February 2, (1) Comprehensive Adult Student 2010: (a) The Secretary has determined that Assessment Systems (CASAS) (1) Basic English Skills Test (BEST) the following tests may be used at the Employability Competency System Literacy. Forms B, C, and D are High Intermediate, Low Adult (ECS) Listening Assessments—Life approved for use on paper. Publisher: Secondary, and High Adult Secondary Skills (LS). Forms 51, 52, 53, 54, 55, 56, Center for Applied Linguistics, 4646 levels of the NRS during the sunset 63, 64, 65, and 66 are approved for use 40th Street NW., Washington, DC period ending on June 30, 2014: on paper and through the computer- 20016–1859. Telephone: (202) 362– (1) WorkKeys: Applied Mathematics. based delivery format. Publisher: 0700. Internet: www.cal.org. Forms 210 and 220 are approved for use CASAS, 5151 Murphy Canyon Road, (2) Tests of Adult Basic Education on paper. Publisher: ACT, 500 ACT Suite 220, San Diego, CA 92123–4339. Complete Language Assessment Drive, P.O. Box 168, Iowa City, Iowa Telephone: (800) 255–1036. Internet: System—English (TABE/CLAS–E). 52243–0168. Telephone: (800) 967– www.casas.org. Forms A and B are approved for use on 5539. Internet: www.act.org. paper. Publisher: CTB/McGraw Hill, 20 (2) WorkKeys: Reading for Expiring Tests Ryan Ranch Road, Monterey, CA 93940. Information. Forms 110 and 120 are The sunset period for an expiring test Telephone: (800) 538–9547. Internet: approved for use on paper. Publisher: allows a State and local provider to www.ctb.com. ACT, 500 ACT Drive, P.O. Box 168, transition to other tests suitable for use Iowa City, Iowa 52243–0168. in the NRS. The State and local provider Tests Determined To Be Suitable for Telephone: (800) 967–5539. Internet: may use the transition period to select Use in the NRS Until June 30, 2015 www.act.org. new tests, purchase appropriate (a) The Secretary has determined that (b) The Secretary has determined that inventories of assessment materials, and the following tests are suitable for use the following tests may be used at all provide training to staff. at all ABE and ASE levels of the NRS ABE and ASE levels and at all ESL until June 30, 2015: levels of the NRS during the sunset Revocation of Tests (1) General Assessment of period ending on June 30, 2014: Under certain circumstances the Instructional Needs (GAIN)—Test of (1) Comprehensive Adult Student Secretary may revoke the determination English Skills. Forms A and B are Assessment Systems (CASAS) that a test is suitable (see 34 CFR approved for use on paper and through Employability Competency System 462.12(e)). If the Secretary revokes the the computer-based delivery format. (ECS) Reading Assessments—Workforce determination of suitability, the Publisher: Wonderlic Inc., 400 Lakeview Learning Systems (WSL). Forms 11, 12, Secretary announces through the Parkway, Suite 200, Vernon Hills, IL 13, 14, 15, 16, 17, 18, 114, 116, 213, 214, Federal Register and posts on the 60061. Telephone: (877) 605–9496. 215, and 216 may be used on paper and Internet at www.nrsweb.org a notice of Internet: www.wonderlic.com. through the computer-based delivery that revocation, along with the date by (2) General Assessment of format. Publisher: CASAS, 5151 which States and local eligible Instructional Needs (GAIN)—Test of Murphy Canyon Road, Suite 220, San providers must stop using the revoked Math Skills. Forms A and B are Diego, CA 92123–4339. Telephone: test. approved for use on paper and through (800) 255–1036. Internet: Accessible Format: Individuals with the computer-based delivery format. www.casas.org. disabilities can obtain this document in

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an accessible format (e.g., braille, large FOR FURTHER INFORMATION CONTACT: 8. 3:45p.m. Public Comment Period print, audiotape, or compact disc) on Menice Santistevan, Northern New 9. 4:00 p.m. Adjourn request to the contact person listed Mexico Citizens’ Advisory Board, 94 Public Participation: The NNMCAB’s under FOR FURTHER INFORMATION Cities of Gold Road, Santa Fe, NM Committees welcome the attendance of CONTACT in this notice. 87506. Phone (505) 995–0393; Fax (505) the public at their combined committee Electronic Access to This Document: 989–1752 or Email: meeting and will make every effort to The official version of this document is [email protected]. accommodate persons with physical the document published in the Federal SUPPLEMENTARY INFORMATION: disabilities or special needs. If you Register. Free Internet access to the Purpose of the Board: The purpose of require special accommodations due to official edition of the Federal Register the Board is to make recommendations a disability, please contact Menice and the Code of Federal Regulations is to DOE–EM and site management in the Santistevan at least seven days in available via the Federal Digital System areas of environmental restoration, advance of the meeting at the telephone at: www.gpo.gov/fdsys. At this site you waste management, and related number listed above. Written statements can view this document, as well as all activities. may be filed with the Committees either other documents of this Department Purpose of the Environmental before or after the meeting. Individuals published in the Federal Register, in Monitoring and Remediation Committee who wish to make oral statements text or Adobe Portable Document (EM&R): The EM&R Committee provides pertaining to agenda items should Format (PDF). To use PDF you must a citizens’ perspective to NNMCAB on contact Menice Santistevan at the have Adobe Acrobat Reader, which is current and future environmental address or telephone number listed available free at the site. remediation activities resulting from above. Requests must be received five You may also access documents of the historical Los Alamos National days prior to the meeting and reasonable Department published in the Federal Laboratory operations and, in particular, provision will be made to include the Register by using the article search issues pertaining to groundwater, presentation in the agenda. The Deputy feature at: www.federalregister.gov. surface water and work required under Designated Federal Officer is Specifically, through the advanced the New Mexico Environment empowered to conduct the meeting in a search feature at this site, you can limit Department Order on Consent. The fashion that will facilitate the orderly your search to documents published by EM&R Committee will keep abreast of conduct of business. Individuals the Department. DOE–EM and site programs and plans. wishing to make public comments will Program Authority: 20 U.S.C. 9212. The committee will work with the be provided a maximum of five minutes NNMCAB to provide assistance in Dated: December 9, 2013. to present their comments. determining priorities and the best use Minutes: Minutes will be available by Johan Uvin, of limited funds and time. Formal Deputy Assistant Secretary for Policy and writing or calling Menice Santistevan at recommendations will be proposed the address or phone number listed Strategic Initiatives, Delegated Authority to when needed and, after consideration Perform the Functions and Duties of the above. Minutes and other Board Assistant Secretary for Vocational and Adult and approval by the full NNMCAB, may documents are on the Internet at: Education. be sent to DOE–EM for action. http://www.nnmcab.energy.gov/. Purpose of the Waste Management [FR Doc. 2013–29709 Filed 12–11–13; 8:45 am] (WM) Committee: The WM Committee Issued at Washington, DC, on December 9, BILLING CODE 4000–01–P reviews policies, practices and 2013. procedures, existing and proposed, so as LaTanya R. Butler, to provide recommendations, advice, Deputy Committee Management Officer. DEPARTMENT OF ENERGY suggestions and opinions to the [FR Doc. 2013–29680 Filed 12–11–13; 8:45 am] Environmental Management Site- NNMCAB regarding waste management BILLING CODE 6405–01–P Specific Advisory Board, Northern New operations at the Los Alamos site. Mexico Tentative Agenda DEPARTMENT OF ENERGY AGENCY: Department of Energy. 1. 2:00 p.m. Approval of Agenda 2. 2:05 p.m. Review of Minutes from Environmental Management Site- ACTION: Notice of Open Meeting. September 10, 2013 (Approved Specific Advisory Board, Oak Ridge SUMMARY: This notice announces a November 20, 2013) Reservation combined meeting of the Environmental 3. 2:07 p.m. Old Business • AGENCY: Department of Energy. Monitoring and Remediation Committee Update on Waste Isolation Pilot and Waste Management Committee of Plant Permit Modification (Hanford ACTION: Notice of open meeting. the Environmental Management Site- Mod) • SUMMARY: Specific Advisory Board (EM SSAB), Review of Mercury Supplemental This notice announces a Northern New Mexico (known locally as Environmental Impact Statement meeting of the Environmental the Northern New Mexico Citizens’ NNMCAB Comment Responses Management Site-Specific Advisory 4. 2:25 p.m. New Business Board (EM SSAB), Oak Ridge Advisory Board [NNMCAB]). The • Federal Advisory Committee Act (Pub. NNMCAB 101 Reservation. The Federal Advisory 5. 2:40 p.m. Update from Executive L. 92–463, 86 Stat. 770) requires that Committee Act (Pub. L. 92–463, 86 Stat. Committee—Carlos Valdez, Chair public notice of this meeting be 770) requires that public notice of this 6. 2:50 p.m. Update from DOE—Lee announced in the Federal Register. meeting be announced in the Federal Bishop, Deputy Designated Federal Register. DATES: Wednesday, January 8, 2014, Officer 2:00 p.m.–4:00 p.m. 7. 3:00 p.m. Presentation by Tori DATES: Wednesday, January 8, 2014, ADDRESSES: Cities of Gold Conference George, Los Alamos National 6:00 p.m. Center, NNMCAB Conference Room, 94 Security ADDRESSES: Department of Energy Cities of Gold Road, Pojoaque, NM • General Information on Los Alamos Information Center, Office of Science 87506. National Laboratory and Technical Information, 1

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Science.gov Way, Oak Ridge, Tennessee Issued at Washington, DC, on December 6, exemptee states that the project has not 37830. 2013. operated since the facility was flooded FOR FURTHER INFORMATION CONTACT: LaTanya R. Butler, in June of 2008 and that it is not Melyssa P. Noe, Federal Coordinator, Deputy Committee Management Officer. economical to rehabilitate the project Department of Energy Oak Ridge [FR Doc. 2013–29681 Filed 12–11–13; 8:45 am] and resume operation. The exemptee Operations Office, P.O. Box 2001, EM– BILLING CODE 6450–01–P disconnected the electric generating 90, Oak Ridge, TN 37831. Phone (865) equipment from the local power grid in 241–3315; Fax (865) 576–0956 or email: 2008. The exemptee completed the [email protected] or check the Web DEPARTMENT OF ENERGY cleanup of water, oil, and sludge from site at www.oakridge.doe.gov/em/ssab. the interior of the hydropower facility in Federal Energy Regulatory SUPPLEMENTARY INFORMATION: November 2012. Currently, the facility Purpose of the Board: The purpose of Commission is secured and the exemptee plans on the Board is to make recommendations [Project No. 4344–011] leaving the structure and inoperable to DOE–EM and site management in the equipment in place. areas of environmental restoration, Cedar Rapids Water Board; Notice of l. Locations of the Application: A waste management, and related Application Accepted for Filing, copy of the application is available for activities. Soliciting Comments, Motions To inspection and reproduction at the Intervene, and Protests Commission’s Public Reference Room, Tentative Agenda located at 888 First Street NE., Room • Welcome and Announcements Take notice that the following 2A, Washington, DC 20426, or by calling • Comments from the Deputy hydroelectric application has been filed (202) 502–8371. This filing may also be Designated Federal Officer with the Commission and is available viewed on the Commission’s Web site at • Comments from the DOE, Tennessee for public inspection: http://www.ferc.gov/docs-filing/ Department of Environment and a. Type of Application: Surrender of elibrary.asp. Enter the docket number Conservation, and Environmental Exemption. excluding the last three digits in the Protection Agency Liaisons b. Project No.: 4344–011. docket number field to access the • Public Comment Period c. Date Filed: November 5, 2013. document. You may also register online • Presentation d. Applicant: City of Cedar Rapids, at http://www.ferc.gov/docs-filing/ • Additions/Approval of Agenda Iowa. esubscription.asp to be notified via • Motions/Approval of November 13, e. Name of Project: Five-In-One Dam. email of new filings and issuances 2013 Meeting Minutes f. Location: On the Cedar River in related to this or other pending projects. • Status of Recommendations with DOE Linn County, Iowa. For assistance, call 1–866–208–3676 or • Committee Reports g. Filed Pursuant to: 18 CFR 4.95. email [email protected], for • Federal Coordinator Report h. Applicant Contact: Bruce A. Jacobs, • TTY, call (202) 502–8659. A copy is also Adjourn Utilities Engineering Manager, City of available for inspection and Public Participation: The EM SSAB, Cedar Rapids, Iowa, 1111 Shaver Road reproduction at the address in item (h) Oak Ridge, welcomes the attendance of NE., Cedar Rapids, IA 52402–4593. above. the public at its advisory committee i. FERC Contact: Ms. Krista Sakallaris, m. Individuals desiring to be included meetings and will make every effort to (202) 502–6302, krista.sakallaris@ on the Commission’s mailing list should accommodate persons with physical ferc.gov. so indicate by writing to the Secretary disabilities or special needs. If you j. Deadline for filing comments, of the Commission. require special accommodations due to motions to intervene, and protests, is 30 n. Comments, Protests, or Motions to a disability, please contact Melyssa P. days from the issuance date of this Intervene: Anyone may submit Noe at least seven days in advance of notice. All documents may be filed comments, a protest, or a motion to the meeting at the phone number listed electronically via the Internet. See, 18 intervene in accordance with the above. Written statements may be filed CFR 385.2001(a)(1)(iii) and the requirements of Rules of Practice and with the Board either before or after the instructions on the Commission’s Web Procedure, 18 CFR 385.210, .211, .214. meeting. Individuals who wish to make site at http://www.ferc.gov/docs-filing/ In determining the appropriate action to oral statements pertaining to the agenda efiling.asp. If unable to be filed take, the Commission will consider all item should contact Melyssa P. Noe at electronically, documents may be paper- protests or other comments filed, but the address or telephone number listed filed. To paper-file, an original and only those who file a motion to above. Requests must be received five seven copies should be mailed to: intervene in accordance with the days prior to the meeting and reasonable Secretary, Federal Energy Regulatory Commission’s Rules may become a provision will be made to include the Commission, 888 First Street NE., party to the proceeding. Any comments, presentation in the agenda. The Deputy Washington, DC 20426. Commenters protests, or motions to intervene must Designated Federal Officer is can submit brief comments up to 6,000 be received on or before the specified empowered to conduct the meeting in a characters, without prior registration, comment date for the particular fashion that will facilitate the orderly using the eComment system at http:// application. conduct of business. Individuals www.ferc.gov/docs-filing/ o. Filing and Service of Responsive wishing to make public comments will ecomment.asp. You must include your Documents: Any filing must (1) bear in be provided a maximum of five minutes name and contact information at the end all capital letters the title to present their comments. of your comments. ‘‘COMMENTS’’, ‘‘PROTEST’’, or Minutes: Minutes will be available by Please include the project number (P– ‘‘MOTION TO INTERVENE’’ as writing or calling Melyssa P. Noe at the 4344–011) on any comments, motions, applicable; (2) set forth in the heading address and phone number listed above. or protests filed. the name of the applicant and the Minutes will also be available at the k. Description of Request: The City of project number of the application to following Web site: http:// Cedar Rapids, Iowa (exemptee) proposes which the filing responds; (3) furnish www.oakridge.doe.gov/em/ssab/board- to surrender the exemption for the Five- the name, address, and telephone minutes.html. In-One Dam Project (P–4344). The number of the person protesting or

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intervening; and (4) otherwise comply Applicants: Gulf South Pipeline time on the specified comment date. with the requirements of 18 CFR Company, LP. Protests may be considered, but 385.2001 through 385.2005. All Description: Cap Rel Neg Rate Agmt intervention is necessary to become a comments, motions to intervene, or Filing (Petrohawk 41455 to Texla 41554) party to the proceeding. protests must set forth their evidentiary to be effective 12/1/2013. eFiling is encouraged. More detailed basis and otherwise comply with the Filed Date: 12/2/13. information relating to filing requirements of 18 CFR 4.34(b). All Accession Number: 20131202–5050. requirements, interventions, protests, comments, motions to intervene, or Comments Due: 5 p.m. ET 12/16/13. service, and qualifying facilities filings protests should relate to project works Docket Numbers: RP14–244–000. can be found at: http://www.ferc.gov/ which are the subject of the license Applicants: Gulf South Pipeline docs-filing/efiling/filing-req.pdf. For surrender. Agencies may obtain copies Company, LP. other information, call (866) 208–3676 of the application directly from the Description: Cap Rel Neg Rate Agmt (toll free). For TTY, call (202) 502–8659. applicant. A copy of any protest or Filing (Encana 37663 to Texla 41556) to Dated: December 3, 2013. motion to intervene must be served be effective 12/1/2013. Nathaniel J. Davis, Sr., upon each representative of the Filed Date: 12/2/13. Deputy Secretary. applicant specified in the particular Accession Number: 20131202–5051. [FR Doc. 2013–29565 Filed 12–11–13; 8:45 am] application. If an intervener files Comments Due: 5 p.m. ET 12/16/13. BILLING CODE 6717–01–P comments or documents with the Docket Numbers: RP14–245–000. Commission relating to the merits of an Applicants: Gulf South Pipeline issue that may affect the responsibilities Company, LP. DEPARTMENT OF ENERGY of a particular resource agency, they Description: Cap Rel Neg Rate Agmt must also serve a copy of the document Filing (JW Operating 34690 to Q-West Federal Energy Regulatory on that resource agency. A copy of all 41559) to be effective 12/1/2013. Commission other filings in reference to this Filed Date: 12/2/13. application must be accompanied by Accession Number: 20131202–5052. Combined Notice of Filings proof of service on all persons listed in Comments Due: 5 p.m. ET 12/16/13. the service list prepared by the Take notice that the Commission has Commission in this proceeding, in Docket Numbers: RP14–246–000. received the following Natural Gas accordance with 18 CFR 4.34(b) and Applicants: Gulf Crossing Pipeline Pipeline Rate and Refund Report filings: Company LLC. 385.2010. Filings Instituting Proceedings Description: Amendment to Neg Rate Dated: December 5, 2013. Agmt (BP 37–13) to be effective 12/3/ Docket Numbers: RP14–226–000. Kimberly D. Bose, 2013. Applicants: Northern Natural Gas Secretary. Filed Date: 12/2/13. Company. [FR Doc. 2013–29602 Filed 12–11–13; 8:45 am] Accession Number: 20131202–5055. Description: 20131127 Negotiated BILLING CODE 6717–01–P Comments Due: 5 p.m. ET 12/16/13. Rate Non-Conforming to be effective 1/ Docket Numbers: RP14–247–000. 1/2014. Filed Date: 11/27/13. Applicants: Sea Robin Pipeline DEPARTMENT OF ENERGY Accession Number: 20131127–5063. Company, LLC. Comments Due: 5 p.m. ET 12/9/13. Description: Sea Robin Pipeline Federal Energy Regulatory Company, LLC submits tariff filing per Docket Numbers: RP14–227–000. Commission Applicants: KPC Pipeline, LLC. 154.312: Sea Robin Docket No. RP14– Description: Request for Waiver of xxx Rate Case to be effective 1/1/2014. Combined Notice of Filings Tariff Provision Requiring the Filing of Filed Date: 12/2/13. an Annual Interruptible Transportation Take notice that the Commission has Accession Number: 20131202–5124. Revenue Crediting Report of KPC received the following Natural Gas Comments Due: 5 p.m. ET 12/16/13. Pipeline, LLC. Pipeline Rate and Refund Report filings: Docket Numbers: RP14–248–000. Filed Date: 11/27/13. Filings Instituting Proceedings Applicants: Transcontinental Gas Accession Number: 20131127–5072. Pipe Line Company. Comments Due: 5 p.m. ET 12/9/13. Docket Numbers: RP14–241–000. Description: Transcontinental Gas Applicants: Columbia Gas Docket Numbers: RP14–228–000. Pipe Line Company, LLC submits tariff Applicants: Elba Express Company, Transmission, LLC. filing per 154.204: Negotiated Rates— Description: TCO Modernization— L.L.C. Cherokee AGL—Replacement Description: Clean-up Filing to be 2014 Base Rate Reduction to be effective Shippers—Dec 2013 to be effective 12/ effective 1/1/2014. 1/1/2014. 1/2013. Filed Date: 11/27/13. Filed Date: 12/2/13. Filed Date: 12/2/13. Accession Number: 20131127–5076. Accession Number: 20131202–5038. Accession Number: 20131202–5150. Comments Due: 5 p.m. ET 12/9/13. Comments Due: 5 p.m. ET 12/16/13. Comments Due: 5 p.m. ET 12/16/13. Docket Numbers: RP14–229–000. Docket Numbers: RP14–242–000. The filings are accessible in the Applicants: MarkWest Pioneer, L.L.C. Applicants: Gulf South Pipeline Commission’s eLibrary system by Description: Quarterly Fuel Company, LP. clicking on the links or querying the Adjustment Filing of MarkWest Pioneer, Description: Neg Rate Agmt Filing docket number. L.L.C. (Entergy LA 40489) to be effective 12/1/ Any person desiring to intervene or Filed Date: 11/27/13. 2013. protest in any of the above proceedings Accession Number: 20131127–5080. Filed Date: 12/2/13. must file in accordance with Rules 211 Comments Due: 5 p.m. ET 12/9/13. Accession Number: 20131202–5048. and 214 of the Commission’s Docket Numbers: RP14–230–000. Comments Due: 5 p.m. ET 12/16/13. Regulations (18 CFR 385.211 and Applicants: Iroquois Gas Docket Numbers: RP14–243–000. 385.214) on or before 5:00 p.m. Eastern Transmission System, L.P.

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Description: 11/27/13 Negotiated Applicants: ETC Tiger Pipeline, LLC. Accession Number: 20131126–5195. Rates—JP Morgan Ventures (RTS) 6025– Description: Tiger Cost and Revenue Comments Due: 5 p.m. ET 12/16/13. 26 to be effective 12/1/2013. Study CP09–460. Docket Numbers: ER13–298–002. Filed Date: 11/27/13. Filed Date: 11/27/13. Applicants: New York Independent Accession Number: 20131127–5090. Accession Number: 20131127–5225. System Operator, Inc. Comments Due: 5 p.m. ET 12/9/13. Comments Due: 5 p.m. ET 12/9/13. Description: NYISO compliance filing Docket Numbers: RP14–231–000. Docket Numbers: RP14–239–000. tariff revision on Market Mitigation to Applicants: Northern Natural Gas Applicants: Fayetteville Express be effective 9/25/2013. Company. Pipeline LLC. Filed Date: 12/3/13. Description: 20131127 Negotiated Description: FEP Cost and Revenue Accession Number: 20131203–5137. Rate to be effective 12/1/2013. Study CP09–433. Comments Due: 5 p.m. ET 12/24/13. Filed Date: 11/27/13. Filed Date: 11/27/13. Docket Numbers: ER13–1346–000. Accession Number: 20131127–5111. Accession Number: 20131127–5231. Applicants: Mesa Wind Power Comments Due: 5 p.m. ET 12/9/13. Comments Due: 5 p.m. ET 12/9/13. Corporation. Docket Numbers: RP14–232–000. Docket Numbers: RP14–240–000. Description: Mesa Wind Power Applicants: Young Gas Storage Applicants: Alliance Pipeline L.P. Corporation submits Mesa Wind Refund Company, Ltd. Description: 2014 Negotiated Rate Report 12.4.2013 to be effective N/A. Description: Young Fuel Filing to be effective 1/1/2014. Filed Date: 12/4/13. Reimbursement Filing to be effective 1/ Filed Date: 11/29/13. Accession Number: 20131204–5049. 1/2014. Accession Number: 20131129–5030. Comments Due: 5 p.m. ET 12/26/13. Filed Date: 11/27/13. Comments Due: 5 p.m. ET 12/11/13. Docket Numbers: ER14–206–002. Accession Number: 20131127–5115. The filings are accessible in the Applicants: Midcontinent Comments Due: 5 p.m. ET 12/9/13. Commission’s eLibrary system by Independent System Operator, Inc. Docket Numbers: RP14–233–000. clicking on the links or querying the Description: 2013–12–03 Appendix A Applicants: El Paso Natural Gas docket number. SOC Revs to be effective 12/28/2013. Company, L.L.C. Any person desiring to intervene or Filed Date: 12/3/13. Description: Non-Conforming protest in any of the above proceedings Accession Number: 20131203–5084. Transportation Service Agreements must file in accordance with Rules 211 Comments Due: 5 p.m. ET 12/24/13. Filing to be effective 1/1/2014. and 214 of the Commission’s Docket Numbers: ER14–209–001. Filed Date: 11/27/13. Regulations (18 CFR 385.211 and Applicants: PowerOne Corporation. Accession Number: 20131127–5159. 385.214) on or before 5:00 p.m. Eastern Description: Amendment to MBR Comments Due: 5 p.m. ET 12/9/13. time on the specified comment date. Application to be effective 11/28/2013. Filed Date: 12/3/13. Docket Numbers: RP14–234–000. Protests may be considered, but Accession Number: 20131203–5162. Applicants: Texas Eastern intervention is necessary to become a Comments Due: 5 p.m. ET 12/24/13. Transmission, LP. party to the proceeding. Description: ConocoPhillips 12–01– eFiling is encouraged. More detailed Docket Numbers: ER14–382–001. 2013 Releases to be effective 12/1/2013. information relating to filing Applicants: Cheyenne Light, Fuel and Filed Date: 11/27/13. requirements, interventions, protests, Power Company. Accession Number: 20131127–5195. service, and qualifying facilities filings Description: Cheyenne Light, Fuel and Comments Due: 5 p.m. ET 12/9/13. can be found at: http://www.ferc.gov/ Power Company submits Order No. 764 docs-filing/efiling/filing-req.pdf. For Compliance Filing Amendment to be Docket Numbers: RP14–235–000. effective 12/4/2013. Applicants: Tallgrass Interstate Gas other information, call (866) 208–3676 (toll free). For TTY, call (202) 502–8659. Filed Date: 12/4/13. Transmission, L. Accession Number: 20131204–5069. Description: Neg Rate 2013–12–2 Dated: December 2, 2013. Comments Due: 5 p.m. ET 12/26/13. Green Plains Wood River fka/Pioneer Nathaniel J. Davis, Sr., Docket Numbers: ER14–517–000. Trail A&R NC NRA to be effective 12/ Deputy Secretary. Applicants: Arizona Public Service 1/2013. [FR Doc. 2013–29564 Filed 12–11–13; 8:45 am] Company. Filed Date: 11/27/13. BILLING CODE 6717–01–P Description: Amendment to APS RS Accession Number: 20131127–5196. No. 259, WAPA Bouse Switchyard Comments Due: 5 p.m. ET 12/9/13. Construction Agreement to be effective Docket Numbers: RP14–236–000. DEPARTMENT OF ENERGY 12/31/2013. Applicants: Natural Gas Pipeline Filed Date: 12/3/13. Federal Energy Regulatory Company of America. Accession Number: 20131203–5099. Commission Description: Negotiated Rate Filing— Comments Due: 5 p.m. ET 12/24/13. Tenaska LPS—RO 143863 to be effective Combined Notice of Filings #1 Docket Numbers: ER14–518–000. 12/1/2013. Applicants: Powerex Corp. Filed Date: 11/27/13. Take notice that the Commission Description: Amendment to Powerex Accession Number: 20131127–5215. received the following electric rate FERC Rate Schedule No. 1 to be Comments Due: 5 p.m. ET 12/9/13. filings: effective 12/3/2013. Docket Numbers: RP14–237–000. Docket Numbers: ER11–3697–000. Filed Date: 12/3/13. Applicants: Alliance Pipeline L.P. Applicants: Southern California Accession Number: 20131203–5100. Description: Dec 1 2013 Permanent Edison Company. Comments Due: 5 p.m. ET 12/24/13. Assignments to be effective 12/1/2013. Description: Informational Filing of Docket Numbers: ER14–519–000. Filed Date: 11/27/13. Formula Transmission Rate 2014 Applicants: Astral Energy LLC. Accession Number: 20131127–5223. Annual Update of Southern California Description: Astral Energy Market Comments Due: 5 p.m. ET 12/9/13. Edison Company. Based Rate Tariff to be effective 1/15/ Docket Numbers: RP14–238–000. Filed Date: 11/26/13. 2014.

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Filed Date: 12/3/13. Cancellation Filing—Group #5 to be Description: Arizona Public Service Accession Number: 20131203–5134. effective 12/1/2013. Company submits Schedule No. 217— Comments Due: 5 p.m. ET 12/24/13. Filed Date: 12/4/13. Raceway—Exhibit B.RWY, Revision No. Docket Numbers: ER14–520–000. Accession Number: 20131204–5047. 6 to be effective 2/3/2014. Applicants: Ivanpah Master Holdings, Comments Due: 5 p.m. ET 12/26/13. Filed Date: 12/4/13. LLC. Docket Numbers: ER14–527–000. Accession Number: 20131204–5061. Description: Ivanpah Master Holdings, Applicants: Green Current Solutions, Comments Due: 5 p.m. ET 12/26/13. LLC submits Cancellation of MBR Tariff LLC. to be effective 12/5/2013. Description: Green Current Solutions, Docket Numbers: ER14–534–000. Filed Date: 12/4/13. LLC submits Green Current Solutions Applicants: Arizona Public Service Accession Number: 20131204–5029. Market Based Rate Tariff to be effective Company. Comments Due: 5 p.m. ET 12/26/13. 1/20/2014. Description: Arizona Public Service Docket Numbers: ER14–521–000. Filed Date: 12/4/13. Company submits Rate Schedule No. Applicants: Southwest Power Pool, Accession Number: 20131204–5048. 217—Gila-Gila Valley—Exhibit Inc. Comments Due: 5 p.m. ET 12/26/13. B.GLA.GLV, Revision No. 2 to be Description: Southwest Power Pool, Docket Numbers: ER14–528–000. effective 2/3/2014. Inc. submits Service Agreement Mass Applicants: Southwest Power Pool, Filed Date: 12/4/13. Cancellation Filing—Group #1 to be Inc. Accession Number: 20131204–5062. effective 12/1/2013. Description: Southwest Power Pool, Comments Due: 5 p.m. ET 12/26/13. Filed Date: 12/4/13. Inc. submits Service Agreement Mass Accession Number: 20131204–5035. Cancellation Filing—Group #6 to be Docket Numbers: ER14–535–000. Comments Due: 5 p.m. ET 12/26/13. effective 12/1/2013. Applicants: Alcoa Power Generating Docket Numbers: ER14–522–000. Filed Date: 12/4/13. Inc. Applicants: Southwest Power Pool, Accession Number: 20131204–5050. Description: Alcoa Power Generating Inc. Comments Due: 5 p.m. ET 12/26/13. Inc. submits OATT Order Nos. 764 and Description: Southwest Power Pool, Docket Numbers: ER14–529–000. 784 Compliance Filing to be effective Inc. submits Service Agreement Mass Applicants: Southwest Power Pool, 12/5/2013. Cancellation Filing—Group #2 to be Inc. Filed Date: 12/4/13. effective 12/1/2013. Description: Southwest Power Pool, Accession Number: 20131204–5095. Filed Date: 12/4/13. Inc. submits Service Agreement Mass Comments Due: 5 p.m. ET 12/26/13. Accession Number: 20131204–5037. Cancellation Filing—Group #7 to be Comments Due: 5 p.m. ET 12/26/13. effective 12/1/2013. Take notice that the Commission received the following electric Docket Numbers: ER14–523–000. Filed Date: 12/4/13. reliability filings: Applicants: Southwest Power Pool, Accession Number: 20131204–5053. Inc. Comments Due: 5 p.m. ET 12/26/13. Docket Numbers: RR13–9–002. Description: Southwest Power Pool, Docket Numbers: ER14–530–000. Applicants: North American Electric Inc. submits Service Agreement Mass Applicants: Southwest Power Pool, Reliability Corporation. Cancellation Filing—Group #3 to be Inc. Description: North American Electric effective 12/1/2013. Description: Southwest Power Pool, Reliability Corporation’s Filing of Filed Date: 12/4/13. Inc. submits Service Agreement Mass Corrected Appendix 2 to its 2014 Accession Number: 20131204–5041. Cancellation Filing—Group #8 to be Business Plan and Budget under RR13– Comments Due: 5 p.m. ET 12/26/13. effective 12/1/2013. 9. Docket Numbers: ER14–524–000. Filed Date: 12/4/13. Filed Date: 12/3/13. Accession Number: 20131204–5054. Applicants: Southwest Power Pool, Accession Number: 20131203–5185. Inc. Comments Due: 5 p.m. ET 12/26/13. Comments Due: 5 p.m. ET 12/24/13. Description: Southwest Power Pool, Docket Numbers: ER14–531–000. Inc. submits Service Agreement Mass Applicants: Southwest Power Pool, The filings are accessible in the Cancellation Filing—Group #4 to be Inc. Commission’s eLibrary system by effective 12/1/2013. Description: Southwest Power Pool, clicking on the links or querying the Filed Date: 12/4/13. Inc. submits Service Agreement Mass docket number. Accession Number: 20131204–5042. Cancellation Filing—Group #9 to be Any person desiring to intervene or Comments Due: 5 p.m. ET 12/26/13. effective 12/1/2013. protest in any of the above proceedings Docket Numbers: ER14–525–000. Filed Date: 12/4/13. must file in accordance with Rules 211 Applicants: ISO New England Inc., Accession Number: 20131204–5057. and 214 of the Commission’s New England Power Pool Participants Comments Due: 5 p.m. ET 12/26/13. Regulations (18 CFR 385.211 and Committee. Docket Numbers: ER14–532–000. 385.214) on or before 5:00 p.m. Eastern Description: ISO New England Inc. Applicants: Southwest Power Pool, time on the specified comment date. submits Rev. Related to FA for Non- Inc. Protests may be considered, but Commercial Capacity in the FCM to be Description: Southwest Power Pool, intervention is necessary to become a effective 3/28/2014. Inc. submits Service Agreement Mass party to the proceeding. Filed Date: 12/4/13. Cancellation Filing—Group #10 to be eFiling is encouraged. More detailed Accession Number: 20131204–5045. effective 12/1/2013. information relating to filing Comments Due: 5 p.m. ET 12/26/13. Filed Date: 12/4/13. requirements, interventions, protests, Docket Numbers: ER14–526–000. Accession Number: 20131204–5060. service, and qualifying facilities filings Applicants: Southwest Power Pool, Comments Due: 5 p.m. ET 12/26/13. can be found at: http://www.ferc.gov/ Inc. Docket Numbers: ER14–533–000. docs-filing/efiling/filing-req.pdf. For Description: Southwest Power Pool, Applicants: Arizona Public Service other information, call (866) 208–3676 Inc. submits Service Agreement Mass Company. (toll free). For TTY, call (202) 502–8659.

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Dated: December 4, 2013. and encourage them to comment about natural gas infrastructure facilities. The Nathaniel J. Davis, Sr., their concerns. northern terminus of the pipeline would Deputy Secretary. If you are a landowner receiving this connect with a Tennessee Gas Pipeline [FR Doc. 2013–29570 Filed 12–11–13; 8:45 am] notice, a CE FLNG representative may Company pipeline and the southern BILLING CODE 6717–01–P contact you about the acquisition of an pipeline terminus would connect with easement to construct, operate, and the Targa Gas Plant and Gulf South maintain the natural gas transmission Pipeline Company, Texas Eastern DEPARTMENT OF ENERGY pipeline facilities. The company would Transmission Company, and Columbia seek to negotiate a mutually acceptable Gulf Transmission pipelines. Federal Energy Regulatory agreement. However, if the Commission The general locations of the planned Commission approves the facilities, that approval facilities are shown in Appendix 1.1 conveys with it the right of eminent [Docket No. PF13–11–000] Land Requirements domain. Therefore, if easement CE FLNG, LLC, CE Pipeline, LLC; negotiations fail to produce an Constructing the LNG terminal along Notice of Intent To Prepare an agreement, a condemnation proceeding the east bank of the Mississippi River Environmental Impact Statement for could be initiated in a federal or state would require dredging approximately the Planned CE FLNG Project, Request court where compensation would be 125 acres of wetlands/open water. for Comments on Environmental determined in accordance with state Additional lands and waters could be Issues, and Notice of Public Scoping law. impacted by the establishment of safety Meeting The ‘‘For Citizens’’ section of the zones for operation of the LNG terminal FERC Web site (www.ferc.gov) provides and LNGCs calling on the terminal. Any The staff of the Federal Energy more information about the FERC, the safety zones would be established by the Regulatory Commission (FERC or environmental review process, and U.S. Coast Guard-New Orleans Sector Commission) will prepare an LNG. This section also includes (Coast Guard) following a review of environmental impact statement (EIS) information about getting involved in safety and security issues. CE FLNG is that will discuss the environmental FERC jurisdictional projects, and a currently evaluating potential sites for impacts of the CE FLNG Project citizens’ guide entitled ‘‘An Interstate dredge material placement. Dredge involving construction and operation of Natural Gas Facility On My Land? What disposal would be authorized by the liquefied natural gas (LNG) export, and Do I Need to Know?’’ This guide U.S. Army Corps of Engineers–New interstate natural gas transmission addresses a number of frequently-asked Orleans District (USACOE). pipeline facilities by CE FLNG, LLC and questions including the use of eminent Constructing the pipeline would require CE Pipeline, LLC (collectively referred domain and how to participate in the the temporary use of approximately 900 to as CE FLNG) in Plaquemines Parish, Commission’s proceedings. acres of wetland/open water, and the Louisiana. The Commission will use permanent use of approximately 225 Summary of the Planned Project this EIS in its decision-making process acres of wetland/open water to maintain to determine whether to authorize the CE FLNG plans to construct and and operate the pipeline. LNG facilities. The Commission will operate a LNG export terminal, and The EIS Process also use this EIS to help determine approximately 37 miles of 42-inch- whether the pipeline facilities are in the diameter natural gas transmission The National Environmental Policy public convenience and necessity. pipeline in Plaquemines Parish, Act (NEPA) requires the Commission to This notice announces the opening of Louisiana. The LNG terminal would be take into account the environmental the scoping process the Commission located along the east bank of the impacts that could result from an action will use to gather input from the public Mississippi River at approximately mile whenever it considers the issuance of an and interested agencies about the marker 12.5, northeast of the Order Granting Section 3 Authorization, project. Your input will help the community of Venice. CE FLNG plans to and a Certificate of Public Convenience Commission’s staff determine what moor two self-propelled, natural gas and Necessity under Section 7 of the issues need to be evaluated in the EIS. liquefaction, storage, and offloading Natural Gas Act (NGA). The NEPA also Please note that the scoping period will vessels at the terminal. The floating requires us 2 to discover and address close on January 6, 2014. LNG (FLNG) vessels would each be concerns the public may have about Comments about the project may be about 1,100 feet long, 180 feet wide, and proposals. This discovery process is submitted in writing or verbally. The extend up to 80 feet above the waterline. commonly referred to as scoping. The Public Participation section of this The FLNG vessels would be capable of main goal of the scoping process is to notice describes how to submit written producing up to 8 million tons per focus the analysis in the EIS on the comments. Verbal comments can be annum of LNG and storing 250,000 important environmental issues. By this provided at the public scoping meeting cubic meters of LNG. notice, the Commission requests public scheduled as follows: FERC Public Approximately 80 to 130 LNG carriers comments on the scope of the issues to Scoping Meeting, CE FLNG Project, (LNGC), with cargo capacities ranging be addressed in the EIS. All comments Wednesday—December 18, 2013—6:00 from 125,000 to 170,000 cubic meters, received will be considered during the p.m., Buras Auditorium, 35619 Highway would call upon the terminal each year 11, Buras, Louisiana 70041. during operation. CE FLNG plans to use 1 The appendices referenced in this notice will CE FLNG representatives will be tug boats to maneuver the FLNG vessels not appear in the Federal Register. Copies of the available at 5:30 p.m. to provide and LNGCs. During storm events, the appendices were sent to all those receiving this notice in the mail and are available at www.ferc.gov information and answer questions about vessels could leave the terminal for the using the ‘‘eLibrary’’ or from the Commission’s the project. Gulf of Mexico. A CE FLNG office Public Reference Room, 888 First Street NE., This notice is being sent to the would be located at the Venice Port Washington, DC 20426, (202) 502–8371. For Commission’s current environmental Complex, and the tug boats would instructions on using eLibrary, refer to the last page of this notice. mailing list for this project. State and operate out of that port. 2 ‘‘We’’, ‘‘us’’, and ‘‘our’’ refer to the local government representatives should The planned transmission pipeline environmental staff of the Commission’s Office of notify their constituents of this project would connect the terminal to existing Energy Projects.

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preparation of the EIS, and addressed as as cooperating agencies in the Historic Preservation Office (SHPO), appropriate. preparation of the EIS to satisfy their and to solicit their views and those of In the EIS we will describe the NEPA responsibilities related to this other government agencies, interested impacts that could occur as a result of project. The USACOE has jurisdictional Indian tribes, and the public on the constructing and operating the planned authority pursuant to Section 404 of the project’s potential effects on historic project under these general headings: Clean Water Act, which governs the properties.4 Staff will define the project- • Geology and soils; discharge of dredged or fill material into specific Area of Potential Effects (APE) • water resources and wetlands; waters of the United States, and Section in consultation with the SHPO as the • vegetation, fisheries and wildlife; 10 of the Rivers and Harbors Act, which project is more fully developed. For • threatened and endangered species; regulates any work or structures that natural gas projects, the APE usually • socioeconomics; potentially affect the navigability of a encompasses all areas subject to ground • land use and aesthetics; waterway. The Coast Guard is the disturbance (examples include • cultural resources; federal agency responsible for construction right-of-way, contractor/ • air quality and noise; determining the suitability of waterways pipe storage yards, access roads, and • public safety; for LNG marine traffic. The Coast Guard aboveground facilities). The EIS will • navigation; and exercises regulatory authority over LNG document our findings on project- • cumulative impacts. facilities that affect the safety and related effects on historic properties and We will also evaluate possible security of port areas and navigable summarize the status of Section 106 alternatives to the project or portions of waterways under Executive Order consultations. 10173, the Magnuson Act, the Ports and the project, and make recommendations Currently Identified Environmental Waterways Safety Act, and the Maritime on how to lessen or avoid impacts on Issues the various resource areas. Transportation Security Act. Although no formal application has Based on our preliminary review of Involvement of U.S. Department of the planned facilities and information been filed, we have already initiated our Energy NEPA review under the Commission’s provided by CE FLNG, we have pre-filing process. The purpose of the Under Section 3 of the NGA, the DOE identified several issues that we think pre-filing process is to encourage early would authorize applications to export deserve attention. This preliminary list involvement of interested stakeholders natural gas, including LNG, unless it of issues may be changed based on your and to identify and resolve issues before finds that the proposed export would comments and our ongoing the FERC receives an application. As not be consistent with the public environmental analysis. These issues part of our pre-filing review, we have interest. The purpose and need for DOE are: action is to respond to the application • Coastal zone management; contacted several federal agencies and • will also contact state agencies to filed by CE FLNG on September 21, wetland loss; • dredging and dredge material discuss their involvement in the scoping 2012 with the DOE (FE Docket No. 12– 123–LNG), seeking authorization to placement; process and the preparation of an EIS. • export 1.07 billion cubic feet per day of essential fish habitat; The EIS will present our independent • recreational and commercial analysis of the issues. We will publish domestic natural gas as LNG. CE FLNG requested to export LNG from its fisheries; and distribute a draft EIS for public • shipping traffic and marine safety; comment. After the comment period, we proposed terminal in Plaquemines • visual impacts; will consider all timely comments and Parish, Louisiana for a 30-year period • air quality; revise the document, as necessary, commencing from the earlier of the date • water use; before issuing a final EIS. To ensure we of first export or ten years from the date • socioeconomics; and have the opportunity to consider and that the requested authorization was • public safety. issued to any country: (1) That has, or address your comments, please carefully Public Participation follow the instructions in the Public in the future develops, the capacity to Participation section below. import LNG; and (2) with which trade You can make a difference by The FERC is the lead federal agency is not prohibited by U.S. law or policy. providing us with your specific comments about the project. Your in preparing the EIS to satisfy the Notice of Floodplain Involvement requirements of the NEPA. With this comments should focus on the potential notice, we are asking agencies with Because the planned project would environmental impacts, reasonable jurisdiction by law and/or special involve actions in floodplains, in alternatives, and measures to avoid or expertise with respect to the accordance with Title 10 of the Code of lessen environmental impacts. The more environmental issues related to this Federal Regulations, Part 1022, specific your comments, the more useful project to formally cooperate with us in Compliance With Floodplain and they will be. To ensure that your Wetland Environmental Review the preparation of the EIS.3 Agencies comments are considered in a timely Requirements, the EIS will include a that would like to request cooperating manner and properly recorded, please floodplain assessment, as appropriate, agency status should follow the send your comments so that the and a floodplain statement of findings instructions for filing comments Commission receives them in will be included in any DOE finding of provided under the Public Participation Washington, DC on or before January 6, no significant impact. section of this notice. 2014. Currently, the U.S. Department of Consultations Under Section 106 of the For your convenience, there are three Energy-Office of Fossil Energy (DOE), National Historic Preservation Act methods you can use to submit your the USACOE, and the Coast Guard have In accordance with the Advisory 4 The Advisory Council on Historic Preservation expressed their intention to participate Council on Historic Preservation’s regulations are at Title 36, Code of Federal regulations implementing Section 106 of Regulations, Part 800. Those regulations define 3 The Council on Environmental Quality historic properties as any prehistoric or historic regulations addressing cooperating agency the National Historic Preservation Act, district, site, building, structure, or object included responsibilities are at Title 40, Code of Federal we are using this notice to initiate in or eligible for inclusion in the National Register Regulations, 1501.6. consultations with the Louisiana State for Historic Places.

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comments to the Commission. In all Becoming an Intervenor DEPARTMENT OF ENERGY instances, please reference the project docket number (PF13–11–000) with Once CE FLNG files its application Federal Energy Regulatory your submission. The Commission with the Commission, you may want to Commission become an ‘‘intervenor’’ which is an encourages electronic filing of [Project No. 1510–017] comments and has expert staff available official party to the Commission’s to assist you at (202) 502–8258 or proceeding. Intervenors play a more Kaukauna Utilities; Notice of Intent To [email protected]. formal role in the process and are able File License Application, Filing of Pre- (1) You can file your comments to file briefs, appear at hearings, and be Application Document, and Approving electronically using the eComment heard by the courts if they choose to Use of the Traditional Licensing feature located on the Commission’s appeal the Commission’s final ruling. Process Web site (www.ferc.gov) under the An intervenor formally participates in Documents and Filings heading. This is the proceeding by filing a request to a. Type of Filing: Notice of Intent to File License Application and Request to an easy method for interested persons to intervene. Instructions for becoming an Use the Traditional Licensing Process. submit brief, text-only comments on a intervenor can be found under the project; b. Project No.: 1510–017. ‘‘Getting Involved’’ heading of the ‘‘For c. Date Filed: October 7, 2013. (2) You can also file your comments Citizens’’ section on the FERC Web site. d. Submitted By: Kaukauna Utilities. electronically using the eFiling feature Please note that the Commission will e. Name of Project: Kaukauna City located on the Commission’s Web site not accept requests for intervenor status Plant Hydroelectric Project. (www.ferc.gov) under the Documents at this time. You must wait until the f. Location: On the Lower Fox River, and Filings heading. With eFiling, you Commission receives a formal in Outagamie County, Wisconsin. No can provide comments in a variety of application for the project. federal lands are occupied by the project formats by attaching them as a file with works or located within the project your submission. New eFiling users Additional Information boundary. must first create an account by clicking g. Filed Pursuant to: 18 CFR 5.3 of the on ‘‘eRegister.’’ You must select the type Additional information about the project is available from the Commission’s regulations. of filing you are making. If you are filing h. Potential Applicant Contact: Mike Commission’s Office of External Affairs a comment on a particular project, Pedersen, Manager of Generation and at (866) 208–FERC or on the FERC Web please select ‘‘Comment on a Filing’’; or Operations, Kaukauna Utilities, 777 (3) You can file a paper copy of your site (www.ferc.gov) using the eLibrary. Island Street, Kaukauna, WI 54130; comments by mailing them to the Click on the eLibrary link, click on phone: (920) 462–0220; email: following address: Kimberly D. Bose, ‘‘General Search’’ and enter the docket [email protected]. Secretary, Federal Energy Regulatory number, excluding the last three digits i. FERC Contact: Isis Johnson at (202) Commission, 888 First Street NE., Room (PF13–11). Be sure you have selected an 502–6346; or email at isis.johnson@ 1A, Washington, DC 20426. appropriate date range. For assistance, ferc.gov. please contact FERC Online Support at Environmental Mailing List j. Kaukauna Utilities filed its request [email protected] or toll free to use the Traditional Licensing Process The environmental mailing list at (866) 208–3676, or for TTY, contact on October 7, 2013. Kaukauna utilities includes federal, state, and local (202) 502–8659. The eLibrary link also provided public notice of its request on government representatives and provides access to the texts of formal September 25, 2013. In a letter dated agencies; elected officials; documents issued by the Commission, December 05, 2013, the Director of the environmental and public interest such as orders, notices, and Division of Hydropower Licensing groups; Indian tribes; and local libraries rulemakings. approved Kaukauna Utilities’ request to and newspapers. This list also includes use the Traditional Licensing Process. In addition, the Commission offers a affected landowners (as defined in the k. With this notice, we are initiating Commission’s regulations) who are free service called eSubscription which informal consultation with: (a) The U.S. potential right-of-way grantors, whose allows you to keep track of all formal Fish and Wildlife Service and/or NOAA property may be used temporarily for issuances and submittals in specific Fisheries under section 7 of the project purposes, or who own homes dockets. This can reduce the amount of Endangered Species Act and the joint within certain distances of aboveground time you spend researching proceedings agency regulations thereunder at 50 facilities, and anyone who submits by automatically providing you with CFR, Part 402; (b) NOAA Fisheries comments on the project. We will notification of these filings, document under section 305(b) of the Magnuson- update the environmental mailing list as summaries, and direct links to the Stevens Fishery Conservation and the analysis proceeds to ensure that we documents. Go to www.ferc.gov/ Management Act and implementing send the information related to this esubscribenow.htm. regulations at 50 CFR 600.920; and (c) environmental review to all individuals, Finally, public meetings or site visits the Wisconsin State Historic organizations, and government entities will be posted on the Commission’s Preservation Officer, as required by interested in and/or potentially affected calendar located at www.ferc.gov/ section 106, National Historical by the planned project. EventCalendar/EventsList.aspx along Preservation Act, and the implementing Copies of the draft EIS will be sent to with other related information. regulations of the Advisory Council on the environmental mailing list for Historic Preservation at 36 CFR 800.2. public review and comment. If you Dated: December 5, 2013. l. With this notice, we are designating would prefer to receive a paper copy of Kimberly D. Bose, Kaukauna Utilities as the Commission’s the EIS instead of the compact disc Secretary. non-federal representative for carrying version, or if you would like to remove [FR Doc. 2013–29600 Filed 12–11–13; 8:45 am] out informal consultation, pursuant to your name from the mailing list, please section 7 of the Endangered Species Act, BILLING CODE 6717–01–P return the attached Information Request section 305 of the Magnuson-Stevens (Appendix 2). Fishery Conservation and Management

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Act, and section 106 of the National Any person desiring to intervene or to DEPARTMENT OF ENERGY Historic Preservation Act. protest should file with the Federal m. Kaukauna Utilities filed a Pre- Energy Regulatory Commission, 888 Federal Energy Regulatory Application Document (PAD; including First Street NE., Washington, DC 20426, Commission a proposed process plan and schedule) in accordance with Rules 211 and 214 [Docket No. ER14–527–000] with the Commission, pursuant to 18 of the Commission’s Rules of Practice CFR 5.6 of the Commission’s and Procedure (18 CFR 385.211 and Green Current Solutions, LLC; regulations. 385.214). Anyone filing a motion to Supplemental Notice That Initial n. A copy of the PAD is available for Market-Based Rate Filing Includes review at the Commission in the Public intervene or protest must serve a copy of that document on the Applicant. Request for Blanket Section 204 Reference Room or may be viewed on Authorization the Commission’s Web site (http:// Notice is hereby given that the www.ferc.gov), using the ‘‘eLibrary’’ deadline for filing protests with regard This is a supplemental notice in the link. Enter the docket number, to the applicant’s request for blanket above-referenced proceeding, of Green excluding the last three digits in the authorization, under 18 CFR part 34, of Current Solutions, LLC’s application for docket number field to access the future issuances of securities and market-based rate authority, with an document. For assistance, contact FERC assumptions of liability is December 26, accompanying rate schedule, noting that Online Support at 2013. such application includes a request for [email protected], (866) blanket authorization, under 18 CFR 208–3676 (toll free), or (202) 502–8659 The Commission encourages Part 34, of future issuances of securities (TTY). A copy is also available for electronic submission of protests and and assumptions of liability. inspection and reproduction at the interventions in lieu of paper, using the Any person desiring to intervene or to address in paragraph h. FERC Online links at http:// protest should file with the Federal o. The licensee states its unequivocal www.ferc.gov. To facilitate electronic Energy Regulatory Commission, 888 intent to submit an application for a service, persons with Internet access First Street NE., Washington, DC 20426, new license for Project No. 1510. who will eFile a document and/or be in accordance with Rules 211 and 214 Pursuant to 18 CFR 16.8, 16.9, and 16.10 listed as a contact for an intervenor of the Commission’s Rules of Practice each application for a new license and must create and validate an and Procedure (18 CFR 385.211 and any competing license applications eRegistration account using the 385.214). Anyone filing a motion to must be filed with the Commission at eRegistration link. Select the eFiling intervene or protest must serve a copy least 24 months prior to the expiration link to log on and submit the of that document on the Applicant. of the existing license. All applications intervention or protests. Notice is hereby given that the for license for this project must be filed deadline for filing protests with regard by March 31, 2017. Persons unable to file electronically to the applicant’s request for blanket p. Register online at http:// should submit an original and 5 copies authorization, under 18 CFR Part 34, of www.ferc.gov/docs-filing/ of the intervention or protest to the future issuances of securities and esubscription.asp to be notified via Federal Energy Regulatory Commission, assumptions of liability is December 26, email of new filing and issuances 888 First Street NE., Washington, DC 2013. related to this or other pending projects. 20426. The Commission encourages For assistance, contact FERC Online The filings in the above-referenced electronic submission of protests and Support. proceeding(s) are accessible in the interventions in lieu of paper, using the Dated: December 5, 2013. Commission’s eLibrary system by FERC Online links at http:// Kimberly D. Bose, clicking on the appropriate link in the www.ferc.gov. To facilitate electronic Secretary. above list. They are also available for service, persons with Internet access review in the Commission’s Public who will eFile a document and/or be [FR Doc. 2013–29601 Filed 12–11–13; 8:45 am] listed as a contact for an intervenor Reference Room in Washington, DC. BILLING CODE 6717–01–P must create and validate an There is an eSubscription link on the eRegistration account using the Web site that enables subscribers to DEPARTMENT OF ENERGY eRegistration link. Select the eFiling receive email notification when a link to log on and submit the document is added to a subscribed Federal Energy Regulatory intervention or protests. docket(s). For assistance with any FERC Commission Persons unable to file electronically Online service, please email should submit an original and 5 copies [Docket No. ER14–506–000] [email protected]. or call of the intervention or protest to the (866) 208–3676 (toll free). For TTY, call Biofuels Washington LLC; Federal Energy Regulatory Commission, (202) 502–8659. Supplemental Notice That Initial 888 First Street NE., Washington, DC Market-Based Rate Filing Includes Dated: December 5, 2013. 20426. The filings in the above-referenced Request for Blanket Section 204 Nathaniel J. Davis, Sr., proceeding(s) are accessible in the Authorization Deputy Secretary. Commission’s eLibrary system by This is a supplemental notice in the [FR Doc. 2013–29573 Filed 12–11–13; 8:45 am] clicking on the appropriate link in the above-referenced proceeding, of BILLING CODE 6717–01–P above list. They are also available for Biofuels Washington LLC’s application review in the Commission’s Public for market-based rate authority, with an Reference Room in Washington, DC. accompanying rate schedule, noting that There is an eSubscription link on the such application includes a request for Web site that enables subscribers to blanket authorization, under 18 CFR receive email notification when a part 34, of future issuances of securities document is added to a subscribed and assumptions of liability. docket(s). For assistance with any FERC

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Online service, please email Commission’s eLibrary system by eRegistration account using the [email protected]. or call clicking on the appropriate link in the eRegistration link. Select the eFiling (866) 208–3676 (toll free). For TTY, call above list. They are also available for link to log on and submit the (202) 502–8659. review in the Commission’s Public intervention or protests. Dated: December 5, 2013. Reference Room in Washington, DC. Persons unable to file electronically Nathaniel J. Davis, Sr., There is an eSubscription link on the should submit an original and 5 copies Deputy Secretary. Web site that enables subscribers to of the intervention or protest to the receive email notification when a Federal Energy Regulatory Commission, [FR Doc. 2013–29567 Filed 12–11–13; 8:45 am] document is added to a subscribed 888 First Street NE., Washington, DC BILLING CODE 6717–01–P docket(s). For assistance with any FERC 20426. Online service, please email The filings in the above-referenced DEPARTMENT OF ENERGY [email protected]. or call proceeding(s) are accessible in the (866) 208–3676 (toll free). For TTY, call Commission’s eLibrary system by Federal Energy Regulatory (202) 502–8659. clicking on the appropriate link in the Commission Dated: December 5, 2013. above list. They are also available for Nathaniel J. Davis, Sr., review in the Commission’s Public [Docket No. ER14–494–000] Reference Room in Washington, DC. Deputy Secretary. South Bay Energy Corp.; Supplemental There is an eSubscription link on the [FR Doc. 2013–29572 Filed 12–11–13; 8:45 am] Web site that enables subscribers to Notice That Initial Market-Based Rate BILLING CODE 6717–01–P Filing Includes Request for Blanket receive email notification when a Section 204 Authorization document is added to a subscribed docket(s). For assistance with any FERC DEPARTMENT OF ENERGY This is a supplemental notice in the Online service, please email above-referenced proceeding, of South Federal Energy Regulatory [email protected]. or call Bay Energy Corp.’s application for Commission (866) 208–3676 (toll free). For TTY, call market-based rate authority, with an (202) 502–8659. accompanying rate schedule, noting that [Docket No. ER14–479–000] Dated: December 5, 2013. such application includes a request for blanket authorization, under 18 CFR Great Bay Energy V, LLC; Nathaniel J. Davis, Sr., Part 34, of future issuances of securities Supplemental Notice That Initial Deputy Secretary. and assumptions of liability. Market-Based Rate Filing Includes [FR Doc. 2013–29571 Filed 12–11–13; 8:45 am] Any person desiring to intervene or to Request for Blanket Section 204 BILLING CODE 6717–01–P protest should file with the Federal Authorization Energy Regulatory Commission, 888 This is a supplemental notice in the First Street NE., Washington, DC 20426, DEPARTMENT OF ENERGY above-referenced proceeding, of Great in accordance with Rules 211 and 214 Bay Energy V, LLC’s application for of the Commission’s Rules of Practice Federal Energy Regulatory market-based rate authority, with an and Procedure (18 CFR 385.211 and Commission accompanying rate schedule, noting that 385.214). Anyone filing a motion to [Docket No. ER14–519–000] intervene or protest must serve a copy such application includes a request for of that document on the Applicant. blanket authorization, under 18 CFR. Astral Energy LLC; Supplemental Notice is hereby given that the Part 34, of future issuances of securities Notice That Initial Market-Based Rate deadline for filing protests with regard and assumptions of liability. Filing Includes Request for Blanket to the applicant’s request for blanket Any person desiring to intervene or to Section 204 Authorization authorization, under 18 CFR Part 34, of protest should file with the Federal future issuances of securities and Energy Regulatory Commission, 888 This is a supplemental notice in the assumptions of liability is December 26, First Street NE., Washington, DC 20426, above-referenced proceeding, of Astral 2013. in accordance with Rules 211 and 214 Energy LLC’s application for market- The Commission encourages of the Commission’s Rules of Practice based rate authority, with an electronic submission of protests and and Procedure (18 CFR 385.211 and accompanying rate schedule, noting that interventions in lieu of paper, using the 385.214). Anyone filing a motion to such application includes a request for FERC Online links at http:// intervene or protest must serve a copy blanket authorization, under 18 CFR www.ferc.gov. To facilitate electronic of that document on the Applicant. part 34, of future issuances of securities service, persons with Internet access Notice is hereby given that the and assumptions of liability. who will eFile a document and/or be deadline for filing protests with regard Any person desiring to intervene or to listed as a contact for an intervenor to the applicant’s request for blanket protest should file with the Federal must create and validate an authorization, under 18 CFR Part 34, of Energy Regulatory Commission, 888 eRegistration account using the future issuances of securities and First Street NE., Washington, DC 20426, eRegistration link. Select the eFiling assumptions of liability is December 26, in accordance with Rules 211 and 214 link to log on and submit the 2013. of the Commission’s Rules of Practice intervention or protests. The Commission encourages and Procedure (18 CFR 385.211 and Persons unable to file electronically electronic submission of protests and 385.214). Anyone filing a motion to should submit an original and 5 copies interventions in lieu of paper, using the intervene or protest must serve a copy of the intervention or protest to the FERC Online links at http:// of that document on the Applicant. Federal Energy Regulatory Commission, www.ferc.gov. To facilitate electronic Notice is hereby given that the 888 First Street NE., Washington, DC service, persons with Internet access deadline for filing protests with regard 20426. who will eFile a document and/or be to the applicant’s request for blanket The filings in the above-referenced listed as a contact for an intervenor authorization, under 18 CFR part 34, of proceeding(s) are accessible in the must create and validate an future issuances of securities and

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assumptions of liability is December 26, Commission staff, with presentations DEPARTMENT OF ENERGY 2013. from panelists. The questions to be The Commission encourages discussed during this workshop are as Federal Energy Regulatory electronic submission of protests and follows: Commission interventions in lieu of paper, using the • The most efficient way for public FERC Online links at http:// utilities to file their rates for reactive [Docket No. OR14–10–000] www.ferc.gov. To facilitate electronic power rate schedules for which there is MarkWest Pipeline Company L.L.C.; service, persons with Internet access no compensation. Notice of Petition for Waiver who will eFile a document and/or be Æ E.g., pro forma rate schedule, part listed as a contact for an intervenor of a transmission provider’s tariff, EQR Take notice that on November 29, must create and validate an reporting, etc. 2013, pursuant to Rule 202 of the eRegistration account using the • Whether Articles 9.6.3 and 11.6 of Commission’s Rules of Practices and eRegistration link. Select the eFiling the pro forma Large Generator Procedure, 18 CFR 385.202 (2013), link to log on and submit the Interconnection Agreement and Article MarkWest Pipeline Company L.L.C. intervention or protests. (MarkWest Pipeline) requested that the Persons unable to file electronically 1.8 of the pro forma Small Generator Commission grant a temporary waiver of should submit an original and 5 copies Interconnection Agreement can be the Interstate Commerce Act (ICA) of the intervention or protest to the interpreted as already providing for a Section 6 and Section 20 tariff filing and Federal Energy Regulatory Commission, zero rate on file for reactive power reporting requirements applicable to 888 First Street NE., Washington, DC service, including service that is within interstate common carrier pipelines 20426. the deadband and/or outside the The filings in the above-referenced deadband. with respect to its natural gas liquids proceeding(s) are accessible in the • Whether there should be different (NGL) pipeline. Commission’s eLibrary system by filing requirements for different types of Any person desiring to intervene or to clicking on the appropriate link in the public utilities. protest in this proceedings must file in above list. They are also available for • Other questions regarding the accordance with Rules 211 and 214 of review in the Commission’s Public mechanics of filing reactive power rate the Commission’s Rules of Practice and Reference Room in Washington, DC. schedules. Procedure (18 CFR 385.211 and There is an eSubscription link on the The workshop will not be transcribed. 385.214) on or before 5:00 p.m. Eastern Web site that enables subscribers to However, there will be a free webcast of time on the specified comment date. receive email notification when a the workshop. The webcast will allow Protests will be considered by the document is added to a subscribed persons to listen to the workshop, but Commission in determining the docket(s). For assistance with any FERC not participate. Anyone with Internet appropriate action to be taken, but will Online service, please email access who wants to listen can do so by not serve to make protestants parties to [email protected]. or call navigating to the Calendar of Events at the proceeding. Anyone filing a motion (866) 208–3676 (toll free). For TTY, call www.ferc.gov and locating the workshop to intervene or protest must serve a copy (202) 502–8659. in the Calendar. The Commission Web of that document on the Petitioner. The Commission encourages Dated: December 5, 2013. site’s link to the workshop will contain a link to the webcast. The Capitol electronic submission of protests and Nathaniel J. Davis, Sr., interventions in lieu of paper, using the Deputy Secretary. Connection provides technical support for the webcast. If you have questions, FERC Online links at http:// [FR Doc. 2013–29566 Filed 12–11–13; 8:45 am] visit www.CapitolConnection.org or call www.ferc.gov. To facilitate electronic BILLING CODE 6717–01–P 703–992–3100.2 service, persons with Internet access who will eFile a document and/or be FERC conferences are accessible listed as a contact for an intervenor under section 508 of the Rehabilitation DEPARTMENT OF ENERGY must create and validate an Act of 1973. For accessibility eRegistration account using the Federal Energy Regulatory accommodations please send an email eRegistration link. Select the eFiling Commission to [email protected] or call toll free link to log on and submit the 1–866–208–3372 (voice) or 202–208– [Docket No. AD14–1–000] intervention or protests. 8659 (TTY), or send a fax to 202–208– Persons unable to file electronically 2106 with the required Zero Rate Reactive Power Rate should submit an original and 5 copies accommodations. Schedules; Notice of Staff Workshop of the intervention or protest to the For more information about this This notice establishes the topics for Federal Energy Regulatory Commission, conference, please contact: Sarah 888 First St. NE., Washington, DC discussion at the workshop directed by McKinley, Office of External Affairs, the Commission in Chehalis Power 20426. Federal Energy Regulatory Commission, The filings in the above proceedings Generating, L.P., Docket No. ER05– 888 First Street NE., Washington, DC 1056–007.1 The workshop is intended to are accessible in the Commission’s 20426, (202) 502–8368, eLibrary system by clicking on the explore the mechanics of public utilities [email protected]. filing reactive power rate schedules for appropriate link in the above list. They which there is no compensation. The Dated: December 5, 2013. are also available for review in the workshop will be held on December 11, Nathaniel J. Davis, Sr., Commission’s Public Reference Room in 2013 from 1:30 p.m. to 4 p.m. at the Deputy Secretary. Washington, DC. There is an Federal Energy Regulatory Commission, [FR Doc. 2013–29569 Filed 12–11–13; 8:45 am] eSubscription link on the Web site that 888 First Street NE., Washington, DC BILLING CODE 6717–01–P enables subscribers to receive email 20426. The workshop will be led by notification when a document is added 2 The webcast will continue to be available on the to a subscribed docket(s). For assistance 1 Chehalis Power Generating, L.P., 145 FERC Calendar of Events on the Commission’s Web site with any FERC Online service, please ¶ 61,052 (2013). www.ferc.gov for three months after the workshop. email [email protected]. or

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call (866) 208–3676 (toll free). For TTY, exported are not expected to produce benchmark on a case-by-case basis. The call (202) 502–8659. exports or provide services in Declaratory Ruling responds to a request Comment Date: 5:00 p.m. Eastern time competition with the exportation of from a broad coalition of interested on December 20, 2013. goods or provision of services by a parties, including broadcasters, public Dated: December 5, 2013. United States industry. interest groups and the financial sector, Parties: that the Commission clarify that it Nathaniel J. Davis, Sr., Principal Supplier: The Boeing intends to exercise its statutory Deputy Secretary. Company and the General Electric discretion to conduct a substantive, [FR Doc. 2013–29568 Filed 12–11–13; 8:45 am] Company. facts and circumstances evaluation of BILLING CODE 6717–01–P Obligor: Linhas Aereas de Angola— proposals seeking above-the-benchmark TAAG Angola Airlines. foreign investment. Guarantor(s): The Ministry of Finance FOR FURTHER INFORMATION CONTACT: EXPORT-IMPORT BANK of the Republic of Angola. Jamila Bess Johnson, Media Bureau Description Of Items Being Exported: [Public Notice: 2013–0058] (202) 418–2608, or email at Jamila- The items being exported are Boeing [email protected]. 777 aircraft, GE spare engines and spare Application for Final Commitment for a SUPPLEMENTARY INFORMATION: This Long-Term Loan or Financial parts. Declaratory Ruling in MB Docket No. Information On Decision: Information Guarantee in Excess of $100 Million: 13–50, FCC 13–150, was adopted and on the final decision for this transaction AP088406XX released on November 14, 2013. The will be available in the ‘‘Summary complete text of the document is AGENCY: Export-Import Bank of the Minutes of Meetings of Board of available for inspection and copying United States. Directors’’ on http://exim.gov/ during normal business hours in the ACTION: Notice. newsandevents/boardmeetings/board/. FCC Reference Center, 445 12th Street Confidential Information: Please note SW., Washington, DC 20554, and may SUMMARY: This Notice is to inform the that this notice does not include also be purchased from the public, in accordance with Section confidential or proprietary business Commission’s copy contractor, BCPI, 3(c)(10) of the Charter of the Export- information; information which, if Inc., Portals II, 445 12th Street SW., Import Bank of the United States (‘‘Ex- disclosed, would violate the Trade Washington, DC 20554. Customers may Im Bank’’), that Ex-Im Bank has received Secrets Act; or information which contact BCPI, Inc. at their Web site an application for final commitment for would jeopardize jobs in the United http://www.bcpi.com or call 1–800– a long-term loan or financial guarantee States by supplying information that 378–3160. This document is also in excess of $100 million (as calculated competitors could use to compete with available on the Commission’s Web site in accordance with Section 3(c)(10) of companies in the United States. at http://fcc.gov. the Charter). Comments received within Cristopolis Dieguez, the comment period specified below Synopsis of the Declaratory Ruling will be presented to the Ex-Im Bank Program Specialist, Office of the General Counsel. I. Introduction Board of Directors prior to final action [FR Doc. 2013–29575 Filed 12–11–13; 8:45 am] 1. This Declaratory Ruling issued on this Transaction. BILLING CODE 6690–01–P pursuant to § 1.2 of the Commission’s DATES: Comments must be received on rules 1 is intended to remove apparent or before January 6, 2014 to be assured uncertainty about the Commission’s of consideration before final FEDERAL COMMUNICATIONS policies and procedures for evaluating consideration of the transaction by the COMMISSION potential foreign investment in Board of Directors of Ex-Im Bank. broadcast licensees under section ADDRESSES: Comments may be [MB Docket No. 13–50; FCC No. 13–150] 310(b)(4) of the Communications Act of submitted through Regulations.gov at 2 Commission Policies and Procedures 1934, as amended (the Act). That WWW.REGULATIONS.GOV. To submit Under the Communications Act, section restricts foreign ownership or a comment, enter EIB–2013–0058 under Foreign Investment in Broadcast voting interests exceeding 25 percent of the heading ‘‘Enter Keyword or ID’’ and Licensees the capital stock in U.S.-organized select Search. Follow the instructions entities that control broadcast (and provided at the Submit a Comment AGENCY: Federal Communications certain other types of) Commission screen. Please include your name, Commission. licensees, when the Commission finds company name (if any) and EIB–2013– ACTION: Notice. that the imposition of such a limitation 0058 on any attached document. is in the public interest. As noted below, Reference: AP088406XX. SUMMARY: This Declaratory Ruling is broadcasters, public interest groups, and Purpose and Use: intended to remove apparent others have expressed the view that it Brief description of the purpose of the uncertainty regarding Commission would be in the public interest to transaction: policies and procedures in reviewing increase access to capital and To support the export of U.S.- broadcast applications for transfer of investment financing for the broadcast manufactured commercial aircraft, spare control, or requests for declaratory sector. These parties assert that, as they engines and spare parts to Angola. ruling, that seek greater than 25 percent read Commission precedent, the Brief non-proprietary description of indirect foreign ownership in the application of section 310(b)(4) to the anticipated use of the items being controlling U.S. parents of broadcast broadcast licensees has restricted the exported: licensees pursuant to the flow of foreign capital to domestic To be used for long-haul air service Communications Act of 1934. The broadcast licensees or to entities between Angola and China, Brazil, ruling clarifies that the Commission interested in entering the broadcast Europe and South Africa. intends to evaluate any applications or To the extent that Ex-Im Bank is proposed transactions that would 1 47 CFR 1.2. See also 5 U.S.C. 554(e). reasonably aware, the items being exceed the statutory 25 percent 2 47 U.S.C. 310(b)(4).

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industry. They assert that foreign by aliens, their representatives, or by a reflected heightened concern for foreign sources of capital would be available to foreign government or representative thereof, influence over or control of [broadcast] broadcasters if section 310(b)(4) were or by any corporation organized under the licensees which exercise editorial not applied to block access to those laws of a foreign country, if the Commission discretion over the content of their finds that the public interest will be served 7 sources. Some parties further believe by the refusal or revocation of such license.4 transmissions. Over time, the that the benefits of increased capital Commission’s approach to foreign from foreign investors would assist, 3. The Commission has traditionally investment in the common carrier among other beneficiaries, minorities, viewed the 25 percent benchmark for context has resulted in the development women, and small broadcast entities, for foreign ownership and voting interests of a body of precedent, rules, and which access to capital is a particular in U.S.-organized entities that control procedures for transactions involving impediment to market entry. In light of broadcast licensees as the presumptive such carriers. The Commission has not limit consistent with the public been presented with a similar number of these stated concerns, we believe it 5 useful to articulate and clarify the interest. It has done so based on a applications in the broadcast sector and Commission’s policies and procedures determination that foreign ownership of therefore has not had the opportunity to broadcast stations presents different in reviewing applications or proposed develop its policies and procedures in questions from those raised by foreign transactions that propose foreign this context. ownership in other types of radio broadcast ownership that would exceed 4. A number of diverse interested spectrum licensees.6 The Commission’s the 25 percent benchmark contained in parties have asked the Commission to approach to the benchmark for foreign section 310(b)(4) and to assure the review its policies and procedures investments in broadcast licensees has broadcast industry and potential foreign regarding the assessment of applications investors that the Commission intends or proposed transactions that would 4 47 U.S.C. 310(b)(4). The officer and director exceed the 25 percent threshold in to consider such matters on a case-by- thresholds originally contained in section 310(b)(4) case basis. were eliminated by Section 403(k) of the section 310(b)(4) in the broadcast Telecommunications Act of 1996, Public Law 104– context. On August 31, 2012, the II. Background 104, 110 Stat 56 (1996); see also Implementation of Coalition for Broadcast Investment (CBI) section 403(k) of the Telecommunications Act of filed a ‘‘Request for Clarification of the 2. The Act’s foreign ownership 1996 (Citizenship Requirements), 61 CFR 55579–01, restrictions were originally conceived to Oct. 28, 1996 (FCC 96–396) (amending Commission Commission’s Policies and Procedures address homeland security interests rules, 47 CFR parts 20, 21, 22 and 101 Under 47 U.S.C. 310(b)(4). Therein, CBI during wartime. They were designed to (Communications common carriers, Radio); and 47 sought clarification that the Commission CFR parts 24, 26, 80, 87, 90 and 100 (Radio). will exercise its statutory discretion to protect the integrity of ship-to-shore and 5 Traditionally, the Commission has considered governmental communications and the type of radio license at issue in assessing conduct a substantive, facts and thwart the airing of foreign propaganda whether foreign ownership in excess of the circumstances evaluation of proposals on broadcast stations.3 Nevertheless, benchmark would serve the public interest. See, for foreign investment in excess of 25 those statutory provisions have always e.g., Review of Foreign Ownership Policies for percent in the parent company of a Common Carrier and Aeronautical Radio Licensees 8 provided the Commission with the under section 310(b)(4) of the Communications Act broadcast licensee. On February 26, discretion to approve foreign ownership of 1934, As Amended, IB Docket No. 11–133, Notice 2013, the Media Bureau issued a public in broadcast licensees in excess of the of Proposed Rulemaking, FCC 11–121, 26 FCC Rcd notice inviting comment on the CBI 11703, 11704 n.3 (2011) (Foreign Ownership NPRM) Request. The Commission received nine 25 percent benchmark. Section 310 (noting that the Commission historically has currently states in pertinent part: recognized different policy concerns for foreign comments and five reply comments, the ownership in the U.S.-organized parents of majority of which support CBI’s (b) No broadcast or common carrier or broadcast licensees under section 310(b)(4)); Review position.9 aeronautical en route or aeronautical fixed of Foreign Ownership Policies for Common Carrier 5. CBI asserts that the Commission, radio station license shall be granted to or and Aeronautical Radio Licensees under Section held by—* * * (4) any corporation directly 310(b)(4) of the Communications Act of 1934, As for over 80 years, has failed to exercise or indirectly controlled by any other Amended, IB Docket No. 11–133, First Report and corporation of which more than one-fourth of Order, FCC 12–93, 27 FCC Rcd 9832, 9834 n.11 7 Market Entry NPRM, 10 FCC Rcd at 4884 the capital stock is owned of record or voted (2012) (same) (Foreign Ownership First Report and paragraph 99. Order); Review of Foreign Ownership Policies for 8 CBI Request at 1; see also CBI May 28, 2013, Ex Common Carrier and Aeronautical Radio Licensees Parte at 1. CBI members comprise national 3 See, e.g., Radio Communications: Hearing on S. under Section 310(b)(4) of the Communications Act broadcast networks, radio and television station 3620 and S. 5334 Before the House Commerce of 1934, As Amended, IB Docket No. 11–133, licensees, and community and consumer Committee, 62nd Cong 35–37 (Mar. 1, 1912) Second Report and Order, FCC 13–50, 28 FCC Rcd organizations. (adopting predecessor language to section 310). See 5741, 5742 n.4 (2013) (Foreign Ownership Second 9 Media Bureau Announces Filing of Request for also Fox Television Stations, Inc., 10 FCC Rcd 8452 Report and Order), citing to Foreign Ownership Clarification of the Commission’s Policies and (1995) (Fox I); Wilner & Scheiner, Request for NPRM at 11704 n.3. For example, the Commission Procedures Under 47 U.S.C. 310(b)(4) by the Declaratory Ruling Concerning the Citizenship has noted common carrier radio licenses are passive Coalition for Broadcast Investment, MB Docket No. Requirements of Section 310(b)(3) and (4) of the in nature and confer no control over the content of 13–50, Public Notice, 28 FCC Rcd 1469 (MB 2013). Communications Act of 1934, 103 FCC 2d 511, 516– transmissions. Broadcast transmissions have been Comments were filed by Adelante Media Group, 17 (stating that . . . Section 310(b) reflects the found to present additional national security Nexstar Broadcasting, Inc., Asian American Justice broader purpose of ‘safeguard[ing] the United States concerns because they implicate content. See, e.g., Center, Minority Media and Telecommunications from foreign influence’ in the field of broadcasting. Foreign Ownership NPRM, 26 FCC Rcd at 11704 Council, National Association of Broadcasters, The specific citizenship requirements governing n.3, citing Cable & Wireless, Inc., Declaratory National Association of Media Brokers, Dale A. positional, ownership and voting interests reflect a Ruling and Memorandum Opinion, Order, Ganske, Bradley L. Gould and David A. Schum. deliberate judgment on the part of Congress as to Authorization, and Certificate, 10 FCC Rcd 13177, Reply comments were filed by CBI, National the limitations necessary to prevent undue alien 13179, para. 18 (1995); Market Entry and Regulation Association of Broadcasters, Alaska Broadcast influence in broadcasting.) (1985) (Wilner & of Foreign-Affiliated Entities, Notice of Proposed Communications, Inc. et al., Wiley Rein LLP, and Scheiner); Request for Declaratory Ruling Rule Making, 10 FCC Rcd 4844, 4852 n.19 and National Association of Black Elected Legislative Concerning section 310(a)(5) of the accompanying text (1995) (Market Entry NPRM). Women. See also Letter from Sen. Harry Reid (D- Communications Act, 67 FCC 2d 604 (1974) (the 6 Market Entry and Regulation of Foreign- Nevada) to Julius Genachowski, FCC Chairman prior section 310(a)(5) is now section 310(b)(4)). See Affiliated Entities, Report and Order, 11 FCC Rcd (June 8, 2012); Letter from Sen. Charles Schumer also Letter from Mace Rosenstein and Gerard J. 3873, 3947 (1995) (Market Entry Order) (D–New York) to Julius Genachowski, FCC Waldron, Counsel for the Coalition for Broadcast (Commission determination not to adopt an Chairman (July 2, 2012). Senators Reid and Investment (CBI), to Marlene H. Dortch, Secretary, effective competitive opportunities (ECO) approach Schumer support a case-by-case review process for Federal Communications Commission at 2 (Aug. 31, for broadcast foreign ownership similar to that foreign broadcast investments and coordination of 2012) (CBI Request); Nexstar Broadcasting, Inc. applied in common carrier section 310 evaluations). national security reviews with Executive Branch Comments at 2 (Nexstar). See also supra note 5. agencies.

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its authority and discretion to permit multichannel video program foreign investment over the 25 percent foreign ownership interests in entities distributors, and pay TV networks.10 benchmark would receive national that control the licensees of broadcast Others concur,11 stating that wireless security review. radio or television stations in excess of carriers and cable operators have seen 9. NAB and other commenters observe the 25 percent benchmark. It is significant capital investments from that Congress and the Commission have commenters’ view that the Commission foreign interests while broadcasters long recognized lack of access to capital ‘‘maintains an irrebutable presumption’’ have been denied those same as a leading barrier to increased against relief from the 25 percent opportunities. Wiley Rein LLP similarly ownership opportunities for small restriction, which inhibits financial contends that a revised foreign businesses, including women and institutions and other investors from investment policy for broadcasting minorities, in broadcasting and other considering broadcast transactions would correct the current marketplace communications sectors.12 Commenters where the 25 percent benchmark would distortion that exists between be surpassed and frustrates the public broadcasters and their competitors in in other Commission proceedings have interest. CBI contends that by other services. NAB states that today’s raised similar concerns. For example, in confirming its intention to exercise the security concerns stem principally from the current quadrennial review of discretion afforded the agency by the the possibility that foreign interests will broadcast ownership rules, Diversity 13 plain language of the statute the engage in cyber-warfare over wired and and Competition Supporters request Commission can ease the path for new wireless communications networks, not that the Commission relax its foreign broadcast entrants, while enabling from the possibility of editorial control ownership policies pursuant to section existing broadcasters to offer expanded, over broadcast transmissions. 310(b)(4) to provide new funding innovative services. National 8. CBI maintains that a regulatory options for minority broadcast Association of Media Brokers (NAMB) infrastructure exists that is sufficient for entrepreneurs . . . and give all U.S. indicates that banks from Canada and the Commission to evaluate broadcasters the opportunity to increase Europe have expressed their interest in broadcasters’ foreign investment their investments in foreign broadcast making equity investments in U.S. proposals. They recommend that the outlets.14 Diversity and Competition broadcast stations but that the alien Commission utilize the procedures Supporters (DCS) includes 50 trade, ownership limitations in section already in place with respect to civil rights, legislative and scholarly 310(b)(4) of the Act, as applied to the proposed common carrier foreign organizations. Furthermore, in its broadcast industry, have limited their ownership to coordinate with the comments in this proceeding, Minority participation. Broadcasters support relevant Executive Branch agencies on Media and Telecommunications CBI’s request for clarification as a way any issues related to national security, Council (MMTC), on behalf of 31 to attract new sources of capital to their law enforcement, foreign policy, or national minority and civil rights industry. trade policy with respect to particular organizations, states that encouraging 6. Commenters also highlight the fact applications or proposed transactions foreign investment in broadcasting that the Commission adjusted its that would exceed 25 percent foreign would create ‘‘reciprocal opportunities’’ policies and procedures involving investment in the controlling U.S. for American broadcasters to expand common carrier licensees over 15 years parents of telecommunications entities. their footprints into radio and television ago to authorize foreign investment in CBI notes that, pursuant to current markets in regions and countries such as excess of the statutory benchmark in procedures, the Commission regularly Central and South America, China, order to encourage a more open and refers requests for section 310(b)(4) competitive U.S. telecommunications declaratory rulings involving such 12 Asian American Justice Center Comments at 1; market. Commenters attribute proposed investments in common CBI Request at 4; see also NAB Comments at 5 n.13 globalization, growth and innovation in carriers to the relevant Executive Branch (the Commission has previously recognized that the the telecommunications sector to that agencies with expertise in national primary impediment to the participation of women and minorities in spectrum-based services is lack of Commission decision. NAB adds that security matters. CBI suggests that a access to capital, caused by factors which include the Commission has issued similar process would ensure that higher costs in raising capital and lending approximately 150 section 310(b)(4) broadcast transactions that propose discrimination). rulings authorizing foreign investment 13 Diversity and Competition Supporters (DCS) in U.S. telecommunications carriers 10 Adelante Comments at 2. Adelante Media includes 50 trade, civil rights, legislative and scholarly organizations. See Initial Comments of the exceeding the 25 percent statutory Group specializes in Spanish language radio and television broadcasting in emerging Hispanic Diversity and Competition Supporters in Response benchmark. By comparison, in the view markets, owning and operating 18 radio stations in to the Notice of Proposed Rulemaking, 2010 of industry commenters, the nine markets. Jay Meyers, Chief Executive Officer Quadrennial Regulatory Review—Review of the Commission’s inflexibility in its review of Adelante, is also President and CEO of Broadcast Commission’s Broadcast Ownership Rules and Other Rules Adopted Pursuant to section 202 of the of broadcast foreign investment over the Management and Technology, a firm that consults with financial institutions and broadcast owners. Telecommunications Act of 1996, Promoting 25 percent benchmark has deprived the Adelante Comments at 1–2; see also Nexstar Diversification of Ownership in the Broadcasting broadcast sector of available capital. Comments at 2–3; AJT Joint Reply Comments at 3– Services, MB Docket Nos. 09–182, 07–294 (DCS 7. Several commenters remark that the 4 n.11 (citing Statement of Ajit Pai, Commissioner, Initial Comments). media landscape has evolved Federal Communications Commission, Hearing 14 See DCS Initial Comments at 24. Several Before the Committee on Commerce, Science, and commenters in that proceeding broadly endorsed significantly since section 310 was Transportation of the United States Senate, DCS’ proposal that the Commission relax foreign enacted and that those changes Oversight of the Federal Communications ownership policies. See Reply Comments of eliminate the need to restrict foreign Commission, 2013 WL 987095 *11 (Mar. 12, 2013); Tribune Company, Debtor-in-Possession, MB ownership in broadcast licensees to 25 Wiley Rein Reply Comments at 4. Docket Nos. 09–182, 07–294 at 41–42; Bonneville/ percent. CBI member Adelante Media 11 See, e.g., NAB Reply Comments at 2 n.4, citing Scranton Reply to the Report on Ownership of Foreign Ownership Second Report and Order, Commercial Broadcast Stations, MB Docket Nos. Group states that imposition of the limit Statement of Commissioner Jessica Rosenwercel 09–182, 07–294 at 13 (323 Report); see also NAB on broadcasters is unfair because (available at http://transition.fcc.gov/Daily_ 323 Report Reply at 3. See also Azteca: Raise broadcasters must compete against Releases/Daily_Business/2013/db0418/FCC-13- Foreign Ownership Limits, by Harry A. Jessell, TV distribution platforms that are not 50A4.pdf) and Statement of Commissioner Ajit Pai Newscheck (July 13, 2010) (Azteca International (available at http://transition.fcc.gov/Daily_ Corp. urges the Commission to relax foreign subject to the same statutory policy— Releases/Daily_Business/2013/db0418/FCC-13- ownership rules to allow foreign companies to own Netflix, Apple, Google, Twitter, 50A5.pdf). up to 51 percent of U.S. broadcasting companies).

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Korea, and Australia.15 These groups for capitalization for broadcasters, and this occasion to clarify that the contrary maintain that relaxing the strict particularly for minority, female, small is true. We have given, and will interpretation and application of section business entities, and new entrants.18 continue to give, the fact-specific, 310(b)(4) is one of the most significant Greater capitalization may in turn yield individual case-by-case review the steps the Commission can take to greater innovation, particularly in statute calls for to applications reverse the decline in minority programming directed at niche or involving broadcast stations. As we broadcast ownership.16 Commenters, minority audiences. have previously concluded with respect including Adelante and NAMB, assert 11. Section 310(b)(4) of the Act to the application of section 310(b)(4) in that access to additional capital will authorizes us to evaluate whether or broadcast cases, the 25 percent support the creation of more not, in a particular situation, it is in the benchmark is only a trigger for the programming aimed at racial and ethnic public interest to permit an entity to exercise of our discretion, which we minorities and bilingual speakers, and obtain or to hold a station license then exercise based upon a more foster new entrants into broadcast notwithstanding the fact that the alien searching analysis of the circumstances ownership.17 interest in the U.S. parent of the station in each case.22 licensee would exceed the statutory 12. The Commission has not benchmark—and to make such interpreted the benchmark as a III. Discussion determinations on a case-by-case permissive threshold that would allow 10. We believe the broadcast industry, basis.19 Congress’ directive is that 25 foreign investors to hold more than 25 the financial sector, and ownership percent alien ownership is the point at percent interests in the controlling U.S. diversity advocates will each benefit which the Commission must act and parents of licensees absent Commission from a fresh statement of our policy and exercise its discretion in making a action.23 Rather, under the procedures governing Commission public interest determination on Commission’s precedent the 25 percent review under section 310(b)(4) of the proposed ownership arrangements that benchmark set forth in section 310(b)(4) Act of proposals for foreign investment would exceed this level.20 Congress of the Act has been applied to restrict exceeding the 25 percent benchmark in entrusts to the Commission the foreign ownership of the controlling U.S.-organized entities that control discretion to reject alien voting or U.S. parents of broadcast licensees broadcast licensees. We acknowledge ownership above the benchmark if the absent an affirmative Commission commenters’ common position that Commission finds that the public finding in a particular case that such changes have occurred in the media interest would be served by the refusal ownership is in the public interest. The landscape and marketplace since the of the transaction which would confer a parties to this proceeding have not foreign ownership restriction was greater than 25 percent alien interest in asked us to reconsider this precedent. enacted and that limited access to the controlling U.S. parent of a domestic Thus, we reiterate that, under this capital is a concern in the broadcast broadcast license or by the revocation of precedent, applicants may not exceed industry, especially for small business the licenses involved. The the section 310(b)(4) benchmark absent entities and new entrants, including Commission’s decision in such cases is the express prior consent of the minorities and women. We read the based on the specific facts and unique Commission. To exercise the statute’s plain language of the statute as circumstances presented by each discretion in a meaningful way, the providing us the opportunity to review application before it. The bulk of the Commission must receive from the on a case-by-case basis applications for Commission’s precedent under section applicant detailed information sufficient approval of foreign investment in the 310(b)(4) has involved foreign for the agency to make the public controlling U.S. parent of a broadcast investment in the controlling U.S. interest finding required by the 24 licensee above the 25 percent parents of telecommunications carriers, statute. 21 benchmark. Such applications may be not broadcast station licensees. To the 22 granted unless the Commission finds extent that the Commission’s past Fox I, 10 FCC Rcd at 8472. See also GRC practice may have been interpreted as Cablevision Inc., 47 FCC 2d 467, 468 paragraph 6 that a denial will serve the public (1974) (alien ownership in broadcast television interest. In light of the concerns many precluding case-by-case review of presents different questions which we will deal commenters raised, we believe that a applications involving foreign with as they arise in concrete situations.). clear articulation of the Commission’s investment in the controlling U.S. 23 Fox I, 10 FCC Rcd at 8745–46 (stating that . . . [T]he Commission must be given the opportunity to approach to section 310(b)(4) in the parents of broadcast licensees, as some commenters have suggested, we take make a public interest determination specifically broadcast context has the potential to focused upon the implications of exercising its spur new and increased opportunities discretion before an ownership structure above the 18 We also hope that clarifying our policy foreign ownership benchmark is vested with regarding foreign investment will encourage other corporate prerogatives over a Commission 15 Comments of MMTC on behalf of Thirty-one countries to liberalize restrictions on investment in licensee.); Galesburg Broadcasting Company, Notice Civil Rights Organizations at 1; see also CBI Reply their media markets and pave the way for greater of Apparent Liability for Forfeiture, 6 FCC Rcd Comments at 1, 5; Asian American Justice Center U.S. investment opportunities in those markets. 2210, 2210 (1991) (Galesburg) (finding that the Comments at 1; Letter from Margaret L. Tobey, Vice 19 See, e.g., Wilner & Scheiner, 103 FCC 2d at 524 transfer of a majority of the voting stock in the U.S.- President for Regulatory Affairs, NBC Universal, to (clarifying, inter alia, that limited partnership organized parent of the licensee to a trustee wholly Marlene H. Dortch, FCC Secretary (Nov. 7, 2013) interests are within the scope of section 310(b)). owned by a Canadian bank without prior (the Declaratory Ruling . . . could help U.S. 20 The statutory benchmark reflects Congress’ Commission approval deprived the Commission of broadcast companies gain greater access to foreign judgment of the point at which foreign ownership the opportunity to pass on the propriety of alien media markets). and voting may conflict with the national interest. ownership which section 310(b)(4) of the Act 16 Comments of MMTC on behalf of Thirty-one Fox Television Stations Inc., 11 FCC Rcd 5714, 5722 contemplates). See also Foreign Ownership First Civil Rights Organizations at 1; see also National (1995); see also Univision Holdings, Inc. Report and Order, 27 FCC Rcd at 9843 n.58; Foreign Organization of Black Elected Legislative Women (Transferor) and Perenchio Television, Inc. Ownership Second Report and Order, 28 FCC Rcd Reply Comments at 2. But see Letter from Lauren (Transferee) for Transfer of Control of Univision at 5759, n.98 (both citing to Fox I and Galesburg M. Wilson, Policy Counsel, Free Press, to Marlene Station Group, Inc., Licensee of Television Station for the same proposition). H. Dortch, FCC Secretary (Nov. 7, 2013) (raising Group Inc., 7 FCC Rcd 6672 (1992) (examining alien 24 Fox I, 10 FCC Rcd at 8476–77; Galesburg concerns about the availability of foreign de facto control and real-party-in-interest issues for Broadcasting Company, 6 FCC Rcd at 2210; investment for new entrants and smaller section 310(b)(4) compliance). compare In re Hispanic Broadcasting Corp., 18 FCC broadcasters). 21 See, e.g., supra note 5; see also Foreign Rcd 18834 (2003) (finding that the equity and 17 Adelante Comments at 2; NAMB Comments at Ownership Second Report and Order, 28 FCC Rcd voting interests held by foreign entities in Univision 4; NAB Reply Comments at 3. 5741. comply with the alien ownership restrictions set

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13. Applicants seeking approval of notice seeking comment from interested facts as they are presented in each broadcast assignments or transfers must parties. The Commission will specific application or petition for continue to inform the Commission of coordinate as necessary and appropriate declaratory ruling.30 By their nature, their proposed transaction’s compliance with Executive Branch agencies these case-by-case reviews will lead to with section 310 of the Act.25 For regarding such applications and distinct, factually driven results. Each example, Section III, Question 9 of Form petitions. Consistent with the application or petition will be assessed 314 requires proposed assignees to Commission’s long-standing policy in on its own merits, and we will certify their compliance with the reviewing foreign ownership of common determine, given the particular provisions of section 310 relating to carrier applicants and licensees, the circumstances presented in a particular interests of aliens and foreign Commission will continue to afford case, whether the public interest would governments. Applicants must continue appropriate deference to the expertise of be served by permitting the requested either to certify that their transactions the Executive Branch agencies on issues foreign ownership. We anticipate that will comply with section 310 related to national security, law applicants may propose ownership by a benchmarks or, in the event they will enforcement, foreign policy, and trade range of foreign interests and countries, not, to indicate that they will not policy.28 As part of its review, the involving varying corporate and comply and provide an explanatory Commission may send the applicants or organizational structures, with differing exhibit.26 A petition for declaratory petitioners letters of inquiry or public interest showings. Although ruling to allow foreign ownership to document requests, request additional many commenters have suggested that exceed the 25 percent benchmark must materials, or take any other needed there is significant availability of foreign be filed along with any application in measures in order to conduct a capital for broadcasters, we cannot which the applicant cannot certify comprehensive public interest review. predict whether applications proposing compliance with section 310(b)(4).27 Once the Commission has concluded its new foreign investment will in fact Again, in all cases, before the inquiry, it will release a written opinion increase. If they do increase, over time, benchmark may be exceeded, we must or other notice authorizing, denying, or the Commission’s case-by-case review approve the transaction. conditioning the requested foreign may suggest policy issues or 14. We also clarify that, prospectively, ownership.29 streamlined procedural mechanisms if a proposed foreign investment in a 15. We expect to evaluate proposals that could be addressed in future broadcast licensee’s controlling U.S. on the basis of our body of decisions Commission proceedings. We may in parent would exceed the benchmark but relating to broadcast ownership and the future elect to create a standardized does not require the filing of a Form 314 foreign ownership and the framework review process similar to that adopted or other FCC application, a petition for set forth in this item, evaluating the in the common carrier context.31 At this declaratory ruling must be filed with the time, however, we are cognizant of the Commission in advance. We expect to 28 See generally Foreign Ownership Second distinctions between common carrier process Form 314 and other Report and Order, 28 FCC Rcd at 5751 paragraph facilities and broadcast stations and of 13, 5762 paragraph 34; see also Rules and Policies applications, as well as petitions for on Foreign Participation in the U.S. the differences in the Commission’s declaratory rulings in this category, in a Telecommunications Market: Market Entry and experiences with proposals to exceed similar manner for purposes of section Regulation of Foreign Affiliated Entities, IB Docket the section 310(b)(4) benchmark for 310(b)(4) review. Following preliminary Nos. 97–14 and 95–22, Report and Order and Order on Reconsideration, 12 FCC Rcd 23891, 23920 para. 30 staff review to ensure completeness of 63 (1997) (Foreign Participation Order) (We thus We will not entertain petitions to exceed the the filing materials, both types of will continue to accord deference to the expertise foreign ownership limits of section 310(b)(3) for submissions will be subject to public of Executive Branch agencies in identifying and foreign investment in broadcast licensees. Foreign interpreting issues of concern related to national interests in a U.S.-organized parent that controls a security, law enforcement, and foreign policy that licensee are subject to section 310(b)(4), not section forth in section 310 of the Communications Act). are relevant to an application pending before us.); 310(b)(3). Unlike section 310(b)(4), section 310(b)(3) See also Foreign Ownership Second Report and see also Market Entry Order, 11 FCC Rcd at 3955 does not afford the Commission any discretion to Order, 28 FCC Rcd at 5759 (confirming the para. 219. We anticipate that we may further approve foreign investment in broadcast licensees Commission’s long-standing policy that the statute develop our broadcast foreign ownership policies in excess of the limitations contained therein. requires us to review and approve foreign and procedures as we conduct our case-by-case While the Commission has statutory authority to ownership of licensees subject to section 310(b)(4) reviews of particular applications and petitions and forbear from applying any regulation or provision before that foreign ownership exceeds the 25 as we coordinate such filings with the appropriate of the Act to a telecommunications carrier or percent statutory limit). Executive Branch agencies. service if the Commission determines that 25 See FCC Form 314—Application for Consent to 29 See, e.g., Applications of Cellco Partnership d/ forbearance is in the public interest, that authority Assignment of Broadcast Station Construction b/a Verizon Wireless and SpectrumCo LLC and Cox is limited to application of those requirements to Permit or License, Section III, Question 9, Alien TMI, LLC For Consent To Assign AWS–1 Licenses, telecommunications carriers or services. See 47 Ownership and Control (Oct. 2012) (available at Applications of Verizon Wireless and Leap for U.S.C. 160. It does not extend to broadcast station http://transition.fcc.gov/Forms/Form314/314.pdf); Consent To Exchange Lower 700 MHz, AWS–1, and licensees covered by section 310(b)(3). Foreign FCC Form 315—Application for Consent to Transfer PCS Licenses, Applications of T-Mobile License LLC Ownership Second Report and Order, 28 FCC Rcd Control of Entity Holding Broadcast Station and Cellco Partnership d/b/a Verizon Wireless for at 5749 paragraph 9 n.31. See also Foreign Construction Permit or License, Section IV, Consent to Assign Licenses, WT Docket No. 12–4, Ownership First Report and Order, 27 FCC Rcd Question 11, Alien Ownership and Control (Oct. Memorandum Opinion and Order and Declaratory 9832 (adopting forbearance from applying the 2012) (available at http://transition.fcc.gov/Form/ Ruling, FCC 12–95, 27 FCC Rcd 10699, 10769 section 310(b)(3) limit to the class of common Form315/315.pdf; FCC Form 316—Application for paragraphs 191–92 (2013), pet. for recon. pending carrier licensees in which foreign ownership in the Consent to Assign Broadcast Station Construction (conditioning grant of applications to assign licensee is held through U.S.-organized entities that Permit or License or Transfer of Control of Entity licenses and grant of declaratory ruling to Verizon do not control the licensee, to the extent the Holding Broadcast Station Construction Permit or Wireless on its compliance with the terms and Commission determines such foreign ownership is License, Section III, Question 10, Alien Ownership conditions contained in the March 27, 2008, Letter consistent with the public interest under the and Control (June 2010) (available at http:// to Stewart Baker, Assistant Secretary of Policy, U.S. policies and procedures the Commission has transition.fcc.gov/Forms/Form316/316.pdf). Department of Homeland Security; and adopted for the public interest review of foreign 26 We use the long-form broadcast assignment conditioning grant of applications to assign licenses ownership subject to section 310(b)(4) of the Act). application, FCC Form 314, as an example. The to T-Mobile License on its compliance with the 31 See Foreign Ownership Second Report and same standard would apply whenever compliance terms contained in the National Security Agreement Order, 28 FCC Rcd 5741 (codifying policies and with the alien ownership provisions or certification entered into on January 12, 2001, as amended as of procedures for authorizing foreign ownership of to such compliance arises. See, e.g., supra note 25. January 4, 2008, between Deutsche Telekom and the common carrier, aeronautical en route, and 27 47 CFR 1.2(a) (the Commission may on motion U.S. Department of Justice, the Federal Bureau of aeronautical fixed radio station licensees under or on its own motion issue a declaratory ruling Investigation, and the U.S. Department of section 310(b)). See also Foreign Participation terminating a controversy or removing uncertainty). Homeland Security). Order, 12 FCC Rcd at 24033 paragraph 323.

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foreign investments in these two Federal Communications Commission. Meeting Dates; categories of Commission licensees. Marlene H. Dortch, Election of Officers; Therefore, we believe it is appropriate Secretary. Management and Administrative that our review of proposed broadcast [FR Doc. 2013–29698 Filed 12–11–13; 8:45 am] Matters. investments remain on a case-by-case BILLING CODE 6712–01–P Individuals who plan to attend and basis and be allowed to mature before require special assistance, such as sign we consider comprehensive rules and language interpretation or other procedures similar to those applicable FEDERAL ELECTION COMMISSION reasonable accommodations, should to foreign investment in common carrier contact Shawn Woodhead Werth, licensees.32 Sunshine Act Meeting Secretary and Clerk, at (202) 694–1040, 16. Some commenters have asserted at least 72 hours prior to the meeting that the underlying national security AGENCY: Federal Election Commission. date. rationale for section 310(b)(4) in the DATE AND TIME: Tuesday, December 17, PERSON TO CONTACT FOR INFORMATION: broadcast area, protection from foreign 2013 at the conclusion of the open Judith Ingram, Press Officer, Telephone: propaganda on radio and television meeting and its continuation on (202) 694–1220. stations, no longer exists. Although Thursday, December 19, 2013 at 10:00 many new potential threats and national a.m. Shelley E. Garr, security issues have arisen as PLACE: Deputy Secretary of the Commission. 33 999 E Street NW., Washington, technology has advanced, we do not DC. [FR Doc. 2013–29758 Filed 12–10–13; 4:15 pm] believe that the historical statutory BILLING CODE 6715–01–P concern for foreign influence over STATUS: This meeting will be closed to broadcast stations has disappeared. the public. ITEMS TO BE DISCUSSED: Broadcast stations are licensed to serve FEDERAL MARITIME COMMISSION the needs and interests of local U.S. Compliance matters pursuant to 2 communities. They uniquely offer a U.S.C. 437g. Notice of Request for Additional range of critical information services to Matters concerning participation in civil Information the American public, including, for actions or proceedings or arbitration. instance, the provision of local, state, Internal personnel rules and procedures The Commission gives notice that it national, and international news, or matters affecting a particular has formally requested that the parties national Emergency Alerts, local severe employee. to the below listed agreement provide weather alerts, Amber Alerts for missing * * * * * additional information pursuant to 46 children, and homeland security U.S.C. 40304(d). This action prevents PERSON TO CONTACT FOR INFORMATION: information. Ensuring that the the agreement from becoming effective ownership of broadcast licensees serves Judith Ingram, Press Officer, Telephone: as originally scheduled. Interested the public interest is embodied in a (202) 694–1220. parties may file comments within fifteen statutory directive with which we must Shelley E. Garr, (15) days after publication of this notice faithfully comply and we will evaluate Deputy Secretary of the Commission. in the Federal Register. applications proposing foreign [FR Doc. 2013–29757 Filed 12–10–13; 4:15 pm] Agreement No.: 012230. broadcast ownership accordingly. In BILLING CODE 6715–01–P Title: P3 Network Vessel Sharing particular, we will address each specific Agreement. situation in terms of its potential public Parties: A.P. Moller-Maersk A/S interest benefits and any relevant public FEDERAL ELECTION COMMISSION trading under the name Maersk Line; interest concerns, including national CMA CGM S.A.; and MSC security concerns, consistent with the Sunshine Act Meeting Mediterranean Shipping Company, S.A. statute and this Declaratory Ruling. AGENCY: Federal Election Commission. By Order of the Federal Maritime IV. Ordering Clause Commission. DATE AND TIME: Tuesday, December 17, Dated: December 6, 2013. 17. Accordingly, it is ordered that, 2013 at 10:00 a.m. Rachel E. Dickon, pursuant to the authority contained in PLACE: 999 E Street NW., Washington, Assistant Secretary. sections 4(i) and 310(b) of the DC (Ninth Floor). Communications Act of 1934, as [FR Doc. 2013–29599 Filed 12–11–13; 8:45 am] STATUS: This meeting will be open to the amended, 47 U.S.C. 154(i), 310(b), 5 BILLING CODE 6730–01–P U.S.C. 554(e) and § 1.2 of the public. Commission’s rules, 47 CFR 1.2, this ITEMS TO BE DISCUSSED: Declaratory Ruling in MB Docket No. Correction and Approval of Minutes for DEPARTMENT OF HEALTH AND 13–50 is adopted. November 14, 2013; HUMAN SERVICES Correction and Approval of Minutes for 32 Some commenters raise additional suggestions November 21, 2013; Agency for Toxic Substances and for Commission review of foreign investment in Audit Division Recommendation Disease Registry broadcast licensees. Although many of these Memorandum on the North Dakota recommendations proffer thoughtful contributions [30Day–14–13AIM] to the proceeding record, it is premature to adopt Republican Party (NDRP) (A11–11); them at this time. Our consideration of the Agency Procedure for Notice to Named Agency Forms Undergoing Paperwork numerous overarching issues involved in this area Respondents in Enforcement Matters is ongoing. As we continue to address applications Reduction Act Review on a case-by-case basis, we will ascertain whether of Additional Material Facts and/or it is appropriate to conduct a rulemaking Additional Potential Violations; The Centers for Disease Control and proceeding. Proposed Directive re: Information Prevention (CDC) publishes a list of 33 See, e.g., Confidential Reports List U.S. Sharing with Other Law Enforcement information collection requests under Weapon System Designs Compromised by Chinese Cyberspies, by Ellen Nakashima, The Washington Agencies; review by the Office of Management and Post (May 27, 2013). 2013 Legislative Recommendations; Budget (OMB) in compliance with the

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Paperwork Reduction Act (44 U.S.C. the agencies’ communications related to first method includes focus groups to Chapter 35). To request a copy of these both unintentional and intentional explore the KAB of members of these requests, call (404) 639–7570 or send an chemical releases. In order to inform the key professions in a group setting, email to [email protected]. Send written development of messages and materials, allowing for dialogue between comments to CDC Desk Officer, Office of the Office of Communications would participants to provide the Office of Management and Budget, Washington, like to understand the knowledge, Communications with in-depth DC or by fax to (202) 395–5806. Written attitudes, and behaviors (KAB) of key information about this complex topic. comments should be received within 30 professional audiences who are Focus groups will take place remotely days of this notice. involved in the immediate aftermath of using Webinar technology, and chemical emergencies. In consultation Proposed Project participants will join the discussion by with Subject Matter Experts, the Office telephone. Although the Recruitment Chemical Emergencies Audience of Communications prioritized the Screeners vary by respondent type, the Analysis—New—Agency for Toxic following professional audiences for same Moderator’s Guide will be used for Substances and Disease Registry this research: all focus groups. The second part of this • (ATSDR). First responders, including police, fire information collection will include Background and Brief Description fighters and emergency medical individual interviews with state-level service workers environmental health professionals and The National Center for • Emergency department personnel, Poison Control Center directors. Environmental Health (NCEH) and the both clinical and non-clinical Individual interviews will allow the Agency for Toxic Substances and • Environmental and public health agencies to gather in-depth information Disease Registry (ATSDR) play a vital professionals at the city, county and about state-level response structures and role in mitigating chemical-related risks state levels to public health. As part of that role, • Poison Control Center directors and Poison Control Centers. Interviews will both agencies are responsible for staff take place by telephone. To help ensure that participants have some experience assessing, minimizing, and monitoring This information collection seeks to responding to chemical emergencies, risks to public health, and are tasked characterize what these key participants will be recruited from five with providing trusted, accurate health professionals know and believe about states with the highest number of information to the public. Given that chemical emergency events, what chemical emergencies, and within those both agencies are under the same related activities and behaviors they leadership, information collected to engage in or would engage in, what states, from the areas where the highest inform health communications will be information these audiences want, and number of incidents have occurred. of value to both agencies. what their challenges and concerns are. There are no costs to respondents The Office of Communications is This information collection seeks other than their time. The total seeking a one-year OMB-approval for an approval to obtain data using two estimated annual burden hours are 138 initiative to increase the effectiveness of qualitative data collection methods. The hours.

ESTIMATED ANNUALIZED BURDEN HOURS

Number of Average Number of responses burden per Type of respondents Form name respondents per response respondent (in hrs.)

First responders ...... Focus Group Recruitment Screener ...... 72 1 5/60 Focus Group Moderator Guide ...... 36 1 1 Emergency department personnel ...... Focus Group Recruitment Screener ...... 72 1 5/60 Focus Group Moderator Guide ...... 36 1 1 County or city environmental health profes- Focus Group Recruitment Screener ...... 36 1 5/60 sionals. Focus Group Moderator Guide ...... 18 1 1 Poison Control Center staff ...... Focus Group Recruitment Screener ...... 36 1 5/60 Focus Group Moderator Guide ...... 18 1 1 State environmental health professionals ...... Interview Recruitment Screener ...... 7 1 5/60 Interview Guide ...... 5 1 1 Poison Control Center directors ...... Interview Recruitment Screener ...... 7 1 5/60 Interview Guide ...... 5 1 1

LeRoy Richardson, DEPARTMENT OF HEALTH AND Description: The Office of Planning, Chief, Information Collection Review Office, HUMAN SERVICES Research and Evaluation (OPRE), Office of Scientific Integrity, Office of the Administration for Children and Associate Director for Science, Office of the Administration for Children and Families (ACF), U.S. Department of Director, Centers for Disease Control and Families Health and Human Services (HHS), is Prevention. proposing to collect data for a new [FR Doc. 2013–29695 Filed 12–11–13; 8:45 am] Proposed Information Collection round of the Head Start Family and BILLING CODE 4163–18–P Activity; Comment Request Child Experiences Survey (FACES). Featuring a new ‘‘Core Plus’’ Study Title: Head Start Family and Child design, FACES 2014–2018 will provide Experiences Survey (FACES). data on a set of key indicators, including OMB No.: 0970–0151. information for performance measures,

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more rapidly and with greater frequency include more programs being sampled. recruited at a similar time as the Core (Core Studies) and serve as a vehicle for This notice is specific to the data study programs (i.e., spring 2014 or fall studying more complex issues and collection activities needed to recruit 2014/2016) depending on the nature of topics in greater detail and with Head Start programs and centers into the study being conducted. increased efficiency (Plus Studies). In FACES 2014–2018. A future notice will The method of data collection for fall 2014 and spring 2015, FACES will provide information about data recruitment of all programs will include assess the school readiness skills of collection for the Core and Plus studies. telephone conversations with program 2,400 Head Start children, survey their A total of 230 Head Start programs directors and on-site coordinators who parents, and ask their Head Start and 460 Head Start centers will be serve as liaisons between the FACES selected to participate in FACES 2014– teachers to rate children’s social and study team and the Head Start centers. 2018. The Core Study will include a emotional skills. In spring 2015 and These calls will inform program staff nationally representative sample of 180 again in spring 2017, the number of about the purpose of the study and will programs, with up to 50 additional gather lists of centers in each program programs in the FACES sample will programs potentially selected for Plus increase from the 60 that are used to in order to compile the center sampling studies. For the Core, the 60 programs frame. collect data on children’s school participating in the Core child-level data readiness outcomes to 180 for the collection will be contacted and The purpose of this data collection is purpose of conducting observations in recruited for the study in spring 2014. to support the 2007 reauthorization of 720 Head Start classrooms. Program In fall 2014, the remaining 120 programs the Head Start program (Pub. L. 110– director, center director, and teacher will be contacted. All 180 programs will 134), which calls for periodic surveys will also be conducted in the be contacted a second time in fall 2016 assessments of Head Start’s quality and spring. Plus features include additional to confirm their continued participation effectiveness. survey content of policy or in the Core spring 2017 data collection. Respondents: Head Start Program programmatic interest, which may The 50 Plus study programs would be Directors and Staff. ANNUAL BURDEN ESTIMATES

Number of Average Estimated Instrument Total number responses per burden hour Estimated total annual burden of respondents respondent per response burden hours hours

Telephone script for program directors ...... 230 2 1 460 154 Telephone script for on-site coordinators ...... 230 2 .75 345 115

Total ...... 805 269

In compliance with the requirements respondents, including through the use SUMMARY: The Food and Drug of Section 3506(c)(2)(A) of the of automated collection techniques or Administration (FDA) is announcing the Paperwork Reduction Act of 1995, the other forms of information technology. availability of a guidance for industry Administration for Children and Consideration will be given to #213 entitled ‘‘New Animal Drugs and Families is soliciting public comment comments and suggestions submitted New Animal Drug Combination on the specific aspects of the within 60 days of this publication. Products Administered in or on information collection described above. Medicated Feed or Drinking Water of Karl Koerper, Copies of the proposed collection of Food-Producing Animals: OPRE Reports Clearance Officer. information can be obtained and Recommendations for Drug Sponsors for comments may be forwarded by writing [FR Doc. 2013–29668 Filed 12–11–13; 8:45 am] Voluntarily Aligning Product Use to the Administration for Children and BILLING CODE 4184–22–P Conditions With Guidance for Industry Families, Office of Planning, Research #209.’’ The purpose of this document is and Evaluation, 370 L’Enfant to provide information to sponsors of DEPARTMENT OF HEALTH AND Promenade SW., Washington, DC 20447, certain antimicrobial new animal drug HUMAN SERVICES Attn: OPRE Reports Clearance Officer. products who are interested in revising Email address: OPREinfocollection@ Food and Drug Administration conditions of use for those products acf.hhs.gov. All requests should be consistent with FDA’s Guidance for identified by the title of the information [Docket No. FDA–2011–D–0889] Industry (GFI) #209, ‘‘The Judicious Use collection. of Medically Important Antimicrobial Drugs in Food-Producing Animals,’’ and The Department specifically requests Guidance for Industry on New Animal to set timelines for stakeholders wishing comments on (a) Whether the proposed Drugs and New Animal Drug to comply voluntarily with this collection of information is necessary Combination Products Administered in guidance. for the proper performance of the or on Medicated Feed or Drinking functions of the agency, including Water of Food-Producing Animals: DATES: Submit either electronic or whether the information shall have Recommendations for Drug Sponsors written comments on Agency guidances practical utility; (b) the accuracy of the for Voluntarily Aligning Product Use at any time. agency’s estimate of the burden of the Conditions With Guidance for Industry ADDRESSES: Submit written requests for proposed collection of information; (c) #209; Availability single copies of the guidance to the the quality, utility, and clarity of the AGENCY: Food and Drug Administration, Communications Staff (HFV–12), Center information to be collected; and (d) HHS. for Veterinary Medicine, Food and Drug ways to minimize the burden of the Administration, 7519 Standish Pl., ACTION: Notice. collection of information on Rockville, MD 20855. Send one self-

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addressed adhesive label to assist that currently collects data on the sale and Dated: December 9, 2013. office in processing your requests. See distribution of antimicrobial drugs Leslie Kux, the SUPPLEMENTARY INFORMATION section intended for use in food-producing Assistant Commissioner for Policy. for electronic access to the guidance animals, as well as data on [FR Doc. 2013–29697 Filed 12–11–13; 8:45 am] document. antimicrobial resistance among BILLING CODE 4160–01–P Submit electronic comments on the foodborne pathogens as part of the guidance to http://www.regulations.gov. National Antimicrobial Resistance Submit written comments to the Monitoring System. FDA is currently DEPARTMENT OF HEALTH AND Division of Dockets Management (HFA– working in collaboration with other HUMAN SERVICES 305), Food and Drug Administration, agencies, including United States 5630 Fishers Lane, Rm. 1061, Rockville, Department of Agriculture and the Food and Drug Administration MD 20852. Centers for Disease Control, to explore [Docket No. FDA–2013–N–1504] FOR FURTHER INFORMATION CONTACT: approaches for enhancing current data William T. Flynn, Center for Veterinary collection efforts in order to measure the Independent Assessment of the Medicine (HVF–1), Food and Drug effectiveness of the strategy. FDA Process for the Review of Device Administration, 7519 Standish Pl., anticipates seeking additional public Submissions; High Priority Rockville, MD 20855, 240–276–9084, input as it develops these Recommendations email: [email protected]. enhancements. AGENCY: SUPPLEMENTARY INFORMATION: II. Significance of Guidance Food and Drug Administration, HHS. I. Background This level 1 guidance is being issued ACTION: Notice. In the Federal Register of April 13, consistent with FDA’s good guidance 2012 (77 FR 22327), FDA published the practices regulation (21 CFR 10.115). SUMMARY: The Food and Drug notice of availability for a draft guidance The guidance represents the Agency’s Administration (FDA) is presenting entitled ‘‘New Animal Drugs and New current thinking on the topic. It does not Booz Allen Hamilton’s high priority Animal Drug Combination Products create or confer any rights for or on any recommendations submitted as part of Administered in or on Medicated Feed person and does not operate to bind their independent assessment of the or Drinking Water of Food-Producing FDA or the public. An alternative process for the review of medical device Animals: Recommendations for Drug approach may be used if such approach submissions. The assessment is part of Sponsors for Voluntarily Aligning satisfies the requirements of the the FDA performance commitments Product Use Conditions With GFI applicable statutes and regulations. relating to the Medical Device User Fee Amendments of 2012 (MDUFA III), #209,’’ giving interested persons until III. Paperwork Reduction Act of 1995 July 12, 2012, to comment on the draft which reauthorized device user fees for guidance. FDA received numerous This guidance refers to previously fiscal years 2013 to 2017. The comments on the draft guidance and approved collections of information assessment is described in section V, those comments were considered as the found in FDA regulations. These ‘‘Independent Assessment of Review guidance was finalized. In addition, collections of information are subject to Process Management’’, of the editorial changes were made to improve review by the Office of Management and commitment letter entitled ‘‘MDUFA clarity. The guidance announced in this Budget (OMB) under the Paperwork Performance Goals and Procedures’’ 1 notice finalizes the draft guidance dated Reduction Act of 1995 (44 U.S.C. 3501– (MDUFA III Commitment Letter). The April 13, 2012. 3520). The collections of information in assessment is being conducted in two The purpose of this guidance 21 CFR part 514 have been approved phases. The high priority document is to provide information to under OMB control numbers 0910–0032 recommendations are the first of a series sponsors of certain antimicrobial new and 0910–0669. of deliverables, as outlined in the contract statement of work,2 to be animal drug products who are interested IV. Comments in revising conditions of use for those published as part of Phase 1 of the products consistent with FDA’s Interested persons may submit either assessment. Guidance for Industry (GFI) #209, ‘‘The electronic comments regarding this FOR FURTHER INFORMATION CONTACT: Judicious Use of Medically Important document to http://www.regulations.gov Amber Sligar, Office of Planning, Food Antimicrobial Drugs in Food-Producing or written comments to the Division of and Drug Administration, 10903 New Animals,’’ and to set timelines for Dockets Management (see ADDRESSES). It Hampshire Ave., Bldg. 32, rm. 3291, stakeholders wishing to comply is only necessary to send one set of Silver Spring, MD 20993–0002, 301– voluntarily with this guidance. FDA comments. Identify comments with the 796–9384, [email protected]. intends to work with affected drug docket number found in brackets in the SUPPLEMENTARY INFORMATION: sponsors to help them to voluntarily heading of this document. Received implement the principles described comments may be seen in the Division I. Background above through modifications to the of Dockets Management between 9 a.m. On July 9, 2012, President Obama approved conditions of use of their new and 4 p.m., Monday through Friday, and signed into law the Food and Drug animal drug products. FDA believes a will be posted to the docket at http:// Administration Safety and Innovation voluntary approach, conducted in a www.regulations.gov. Act (Pub. L. 112–144) (FDASIA).3 Title cooperative and timely manner, is the V. Electronic Access most effective approach to achieve the 1 www.fda.gov/downloads/MedicalDevices/ common goal of more judicious use of Persons with access to the Internet NewsEvents/WorkshopsConferences/ medically important antimicrobials in may obtain the guidance at either UCM295454.pdf. animal agriculture. http://www.fda.gov/AnimalVeterinary/ 2 http://www.fda.gov/MedicalDevices/Device RegulationandGuidance/Overview/MDUFAIII/ FDA recognizes that it is important to GuidanceComplianceEnforcement/ ucm314036.htm. identify ways to assess the effect of GFI GuidanceforIndustry/default.htm or 3 http://www.gpo.gov/fdsys/pkg/PLAW– #209 and GFI #213 over time. FDA http://www.regulations.gov. 112publ144/pdf/PLAW–112publ144.pdf.

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II of FDASIA is MDUFA III, which gives The assessment includes, but is not DEPARTMENT OF HEALTH AND FDA the authority to collect device user limited to, the following areas: HUMAN SERVICES fees from industry for fiscal years 2013 1. Identification of process National Institutes of Health to 2017. MDUFA III took effect on improvements and best practices for October 1, 2012, and will continue conducting predictable, efficient, and through September 30, 2017. Center For Scientific Review; Notice of consistent premarket reviews that meet Closed Meetings Device user fees were first established regulatory review standards. by Congress in 2002. Medical device companies pay fees to FDA when they 2. Analysis of elements of the review Pursuant to section 10(d) of the register their establishment and list their process (including the presubmission Federal Advisory Committee Act, as devices with the Agency, whenever they process, and investigational device amended (5 U.S.C. App.), notice is submit an application or a notification exemption, premarket notification hereby given of the following meetings. to market a new medical device in the (510(k)), and premarket approval The meetings will be closed to the United States, and for certain other application reviews) that consume or public in accordance with the types of submissions. Under MDUFA III, save time to facilitate a more efficient provisions set forth in sections FDA is authorized to collect user fees process. This includes analysis of root 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., that will total approximately $595 causes for inefficiencies that may affect as amended. The grant applications and million (plus adjustments for inflation) review performance and total time to the discussions could disclose over 5 years. With this additional decision. This will also include confidential trade secrets or commercial funding, FDA will be able to hire more recommended actions to correct any property such as patentable material, than 200 full-time-equivalent workers failures to meet MDUFA goals. Analysis and personal information concerning over the course of MDUFA III. In of the review process will include the individuals associated with the grant exchange, FDA has committed to meet impact of combination products, applications, the disclosure of which certain performance goals outlined in companion diagnostic products, and would constitute a clearly unwarranted 4 invasion of personal privacy. the MDUFA III Commitment Letter. laboratory developed tests on the review II. Assessment of FDA’s Process for the process. Name of Committee: Center for Scientific Review of Device Submissions Review Special Emphasis Panel; Obesity, 3. Assessment of FDA methods and Insulin Action, and Metabolic Dysfunction. Section V of the MDUFA III controls for collecting and reporting Date: January 9, 2014. Commitment Letter states that FDA and information on premarket review Time: 9:00 a.m. to 1:00 p.m. the device industry will participate in a process resource use and performance. Agenda: To review and evaluate grant comprehensive assessment of the 4. Assessment of effectiveness of applications. process for the review of device FDA’s Reviewer Training Program Place: National Institutes of Health, 6701 Rockledge Drive, Bethesda, MD 20892, applications. The assessment will implementation. include consultation with both FDA and (Telephone Conference Call). 5. Recommendations for ongoing industry. The assessment will be Contact Person: Reed A Graves, Ph.D., conducted in two phases by a private, periodic assessments and any Scientific Review Officer, Center for Scientific Review, National Institutes of independent consulting firm, under additional, more detailed, or focused assessments. Health, 6701 Rockledge Drive, Room 6166, contract with FDA, that is capable of MSC 7892, Bethesda, MD 20892, (301) 402– performing the technical analysis, FDA will incorporate findings and 6297, [email protected]. management assessment, and program recommendations, as appropriate, into Name of Committee: Center for Scientific evaluation tasks required to address the its management of the premarket review Review Special Emphasis Panel; Member assessment as described in the MDUFA program. FDA will analyze the Conflict: Immune and Radiotherapy. III Commitment Letter. recommendations for improvement Date: January 16, 2014. FDA awarded the contract in June opportunities identified in the Time: 9:30 a.m. to 12:30 p.m. 2013 to the consulting firm Booz Allen assessment, develop and implement a Agenda: To review and evaluate grant Hamilton. Findings on high-priority corrective action plan, and assure its applications. recommendations (i.e., those likely to effectiveness. FDA also will incorporate Place: National Institutes of Health, 6701 have a significant impact on review the results of the assessment into a Good Rockledge Drive, Bethesda, MD 20892, times) were scheduled to be published Review Management Practices (GRMP) (Telephone Conference Call). within 6 months of award and are Contact Person: Lawrence Ka-Yun Ng, guidance document. FDA’s Ph.D., Scientific Review Officer, Center for included in the report available through implementation of the GRMP guidance the link near the end of this notice. Scientific Review, National Institutes of will include initial and ongoing training Health, 6701 Rockledge Drive, Room 6152, Final comprehensive findings and of FDA staff, and periodic audits of MSC 7804, Bethesda, MD 20892, 301–435– recommendations are scheduled to be compliance with the guidance. 1719, [email protected]. published within 1 year of contract award. FDA agreed to publish an The contractor’s Phase 1 findings on (Catalogue of Federal Domestic Assistance Program Nos. 93.306, Comparative Medicine; implementation plan within 6 months high priority recommendations are available at http://www.fda.gov/Medical 93.333, Clinical Research, 93.306, 93.333, of receipt of each set of 93.337, 93.393–93.396, 93.837–93.844, recommendations. For Phase 2 of the Devices/DeviceRegulationandGuidance/ 93.846–93.878, 93.892, 93.893, National independent assessment, the contractor Overview/MDUFAIII/ucm314036.htm. Institutes of Health, HHS) will evaluate the implementation of Dated: December 6, 2013. Dated: December 6, 2013. recommendations and publish a written Leslie Kux, assessment no later than February 1, Anna Snouffer, 2016. Assistant Commissioner for Policy. Deputy Director, Office of Federal Advisory [FR Doc. 2013–29612 Filed 12–6–13; 8:45 am] Committee Policy. 4 www.fda.gov/downloads/MedicalDevices/News BILLING CODE 4160–01–P [FR Doc. 2013–29613 Filed 12–11–13; 8:45 am] Events/WorkshopsConferences/UCM295454.pdf. BILLING CODE 4140–01–P

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DEPARTMENT OF HOMELAND document and disseminate first-hand ADDRESSES: Submit written comments SECURITY experiences of mitigation activities that on the proposed information collection result in benefits to individuals. By to the Office of Information and Federal Emergency Management sharing information, communities, Regulatory Affairs, Office of Agency individuals, and the affected public can Management and Budget. Comments [Docket ID: FEMA–2013–0035; OMB No. learn about available Federal programs should be addressed to the Desk Officer 1660–0089] to support the implementation of for the Department of Homeland noteworthy local activities that lessen Security, Federal Emergency Agency Information Collection the chance of a catastrophic event Management Agency, and sent via Activities: Submission for OMB causing damage or possibly loss of life. electronic mail to oira.submission@ Review; Comment Request Affected Public: Individuals or omb.eop.gov or faxed to (202) 395–5806. households; State, local or Tribal FOR FURTHER INFORMATION CONTACT: AGENCY: Federal Emergency Government. Management Agency, DHS. Requests for additional information or Estimated Number of Respondents: copies of the information collection ACTION: Notice. 50. should be made to Director, Records Estimated Total Annual Burden SUMMARY: The Federal Emergency Management Division, 1800 South Bell Hours: 88 hours. Management Agency (FEMA) will Street, Arlington, VA 20598–3005, Estimated Cost: The estimated annual submit the information collection facsimile number (202) 646–3347, or cost to respondents for the hour burden abstracted below to the Office of email address FEMA-Information- is $2,711.28. There are no annual costs Management and Budget for review and [email protected]. to respondents’ operations and clearance in accordance with the maintenance costs for technical SUPPLEMENTARY INFORMATION: requirements of the Paperwork services. There is no annual start-up or Reduction Act of 1995. The submission Collection of Information capital costs. The cost to the Federal will describe the nature of the Government is $75,190.00. Title: Homeland Security Exercise and information collection, the categories of Dated: December 4, 2013. Evaluation Program (HSEEP) After respondents, the estimated burden (i.e., Action Report (AAR) Improvement Plan Charlene D. Myrthil, the time, effort and resources used by (IP). respondents to respond) and cost, and Director, Records Management Division, Type of Information Collection: the actual data collection instruments Mission Support Bureau, Federal Emergency Revision of a currently approved FEMA will use. Management Agency, Department of Homeland Security. information collection. DATES: Comments must be submitted on Form Titles and Numbers: FEMA or before January 13, 2014. [FR Doc. 2013–29655 Filed 12–11–13; 8:45 am] BILLING CODE 9110–11–P Form 091–0, Homeland Security ADDRESSES: Submit written comments Exercise and Evaluation Program on the proposed information collection (HSEEP) After Action Report (AAR) to the Office of Information and DEPARTMENT OF HOMELAND Improvement Plan (IP). Regulatory Affairs, Office of SECURITY Abstract: The Homeland Security Management and Budget. Comments Exercise and Evaluation Program should be addressed to the Desk Officer Federal Emergency Management (HSEEP) After Action Report (AAR) for the Department of Homeland Agency Improvement Plan (IP) collection Security, Federal Emergency provides reporting on the results of Management Agency, and sent via [Docket ID FEMA–2013–0041; OMB No. 1660–0118] preparedness exercises and provides electronic mail to oira.submission@ assessments of the respondents’ omb.eop.gov or faxed to (202) 395–5806. Agency Information Collection capabilities so that strengths and areas FOR FURTHER INFORMATION CONTACT: Activities: Submission for OMB for improvement are identified, Requests for additional information or Review; Comment Request corrected, and shared as appropriate copies of the information collection prior to a real incident. This information should be made to Director, Records AGENCY: Federal Emergency is also required to be submitted as part Management Division, 1800 South Bell Management Agency, DHS. of certain FEMA grant programs. Street, Arlington, VA 20598–3005, ACTION: Notice. Affected Public: State, Local or Tribal facsimile number (202) 646–3347, or Government; Federal Government. SUMMARY: The Federal Emergency email address FEMA-Information- Estimated Number of Respondents: Management Agency (FEMA) will [email protected]. 175. SUPPLEMENTARY INFORMATION: submit the information collection abstracted below to the Office of Estimated Total Annual Burden Collection of Information Management and Budget for review and Hours: 511. Title: FEMA Mitigation Success Story clearance in accordance with the Estimated Cost: There are no Database. requirements of the Paperwork recordkeeping, capital, start-up or Type of Information Collection: Reduction Act of 1995. The submission maintenance costs associated with this Extension, without change, of a will describe the nature of the information collection. currently approved information information collection, the categories of Dated: December 4, 2013. collection. respondents, the estimated burden (i.e., Charlene D. Myrthil, OMB Number: 1660–0089. the time, effort and resources used by Director, Records Management Division, Form Titles and Numbers: FEMA respondents to respond) and cost, and Mission Support Bureau, Federal Emergency Form 086–0–25, Mitigation Best Practice the actual data collection instruments Management Agency, Department of Submission Worksheet. FEMA will use. Homeland Security. Abstract: FEMA uses the information DATES: Comments must be submitted on [FR Doc. 2013–29656 Filed 12–11–13; 8:45 am] provided through success stories to or before January 13, 2014. BILLING CODE 9111–46–P

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DEPARTMENT OF HOMELAND governments in enhancing and respondents to respond) and cost, and SECURITY sustaining all-hazards emergency the actual data collection instruments management capabilities. The EMPG FEMA will use. Federal Emergency Management Work Plan narrative must demonstrate DATES: Comments must be submitted on Agency how proposed projects address gaps, or before January 13, 2014. [Docket ID FEMA–2013–0036; OMB No. deficiencies, and capabilities in current ADDRESSES: Submit written comments 1660–0126] programs and the ability to provide on the proposed information collection enhancements consistent with the to the Office of Information and Agency Information Collection purpose of the program and guidance Regulatory Affairs, Office of Activities: Submission for OMB provided by FEMA. FEMA uses the Management and Budget. Comments Review; Comment Request information to provide details, should be addressed to the Desk Officer timelines, and milestones on proposed for the Department of Homeland AGENCY: Federal Emergency projects. Security, Federal Emergency Management Agency, DHS. Affected Public: State, Local, or Tribal Management Agency, and sent via ACTION: Notice. Government. electronic mail to oira.submission@ Estimated Number of Respondents: omb.eop.gov or faxed to (202) 395–5806. SUMMARY: The Federal Emergency 58. FOR FURTHER INFORMATION CONTACT: Management Agency (FEMA) will Estimated Total Annual Burden submit the information collection Requests for additional information or Hours: 174 hours. copies of the information collection abstracted below to the Office of Estimated Cost: The estimated annual should be made to Director, Records Management and Budget for review and cost to respondents for the hour burden Management Division, 1800 South Bell clearance in accordance with the is $5,603.00. There are no annual costs Street, Arlington, VA 20598–3005, requirements of the Paperwork to respondents operations and facsimile number (202) 646–3347, or Reduction Act of 1995. The submission maintenance costs for technical will describe the nature of the email address FEMA-Information- services. There is no annual start-up or [email protected]. information collection, the categories of capital costs. The cost to the Federal SUPPLEMENTARY INFORMATION: respondents, the estimated burden (i.e., Government is $362,093.40. the time, effort and resources used by Dated: December 4, 2013. Collection of Information respondents to respond) and cost, and Title: Effectiveness of a Community’s the actual data collection instruments Charlene D. Myrthil, Implementation of the NFIP Community FEMA will use. Director, Records Management Division, Mission Support Bureau, Federal Emergency Assistance Program CAC and CAV DATES: Comments must be submitted on Management Agency, Department of Reports. or before January 13, 2014. Homeland Security. OMB Number: 1660–0023. ADDRESSES: Submit written comments [FR Doc. 2013–29653 Filed 12–11–13; 8:45 am] Type of Information Collection: on the proposed information collection BILLING CODE 9111–19–P Revision of a currently approved to the Office of Information and information collection. Regulatory Affairs, Office of Form Titles and Numbers: FEMA Management and Budget. Comments DEPARTMENT OF HOMELAND Form 086–0–28(E), Community Visit should be addressed to the Desk Officer SECURITY Report; FEMA Form 086–0–29(E), for the Department of Homeland Community Contact Report. Security, Federal Emergency Federal Emergency Management Abstract: Through the use of a Management Agency, and sent via Agency Community Assistance Contact (CAC) or Community Assistance Visit (CAV), electronic mail to oira.submission@ [Docket ID FEMA–2013–0037; OMB No. omb.eop.gov or faxed to (202) 395–5806. 1660–0023] FEMA can make a comprehensive assessment of a community’s floodplain FOR FURTHER INFORMATION CONTACT: management program. Through this Requests for additional information or Agency Information Collection assessment, FEMA can assist the copies of the information collection Activities: Submission for OMB community to understand the National should be made to Director, Records Review; Comment Request; Flood Insurance Program’s (NFIP’s) Management Division, 1800 South Bell Effectiveness of a Community’s requirements, and implement effective Street, Arlington, VA 20598–3005, Implementation of the NFIP flood loss reductions measures. facsimile number (202) 646–3347, or Community Assistance Program CAC and CAV Reports Communities can achieve cost savings email address FEMA-Information- through flood mitigation actions by way [email protected]. AGENCY: Federal Emergency of insurance premium discounts and SUPPLEMENTARY INFORMATION: Management Agency, DHS. reduced property damage. Collection of Information ACTION: Notice. Affected Public: State, local or Tribal Government. Title: FEMA Preparedness Grants: SUMMARY: The Federal Emergency Estimated Number of Respondents: Emergency Management Performance Management Agency (FEMA) will 3,000. Grant (EMPG). submit the information collection Estimated Total Annual Burden Type of Information Collection: abstracted below to the Office of Hours: 4,000 hours. Extension, without change, of a Management and Budget for review and Estimated Cost: The estimated annual currently approved information clearance in accordance with the cost to respondents for the hour burden collection. requirements of the Paperwork is $141,560.00. There are no annual OMB Number: 1660–0126. Reduction Act of 1995. The submission costs to respondents operations and Form Titles and Numbers: No forms. will describe the nature of the maintenance costs for technical Abstract: The Emergency information collection, the categories of services. There is no annual start-up or Management Performance Grants respondents, the estimated burden (i.e., capital costs. The cost to the Federal (EMPG) Program assists State and local the time, effort and resources used by Government is $213,096.00.

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Dated: December 4, 2013. Collection of Information DEPARTMENT OF HOMELAND Charlene D. Myrthil, SECURITY Director, Records Management Division, Title: Request for the Site Inspection, Mission Support Bureau, Federal Emergency Landowners Authorization/Ingress/ Federal Emergency Management Management Agency, Department of Egress Agreement. Agency Homeland Security. Type of Information Collection: [FR Doc. 2013–29652 Filed 12–11–13; 8:45 am] Extension, without change, of a [Internal Agency Docket No. FEMA–4149– BILLING CODE 9111–47–P currently approved information DR; Docket ID FEMA–2013–0001] collection. Pennsylvania; Amendment No. 2 to OMB Number: 1660–0030. DEPARTMENT OF HOMELAND Notice of a Major Disaster Declaration SECURITY Form Titles and Numbers: FEMA Form 010–0–09, Request for the Site AGENCY: Federal Emergency Federal Emergency Management Inspection; FEMA Form 010–0–10, Management Agency, DHS. Agency Landowner’s Authorization Ingress- ACTION: Egress Agreement. Notice. [Docket ID: FEMA–2013–0038; OMB No. 1660–0030] Abstract: FEMA’s Individual and SUMMARY: This notice amends the notice Households Program provides of a major disaster declaration for Agency Information Collection temporary housing to eligible survivors Commonwealth of Pennsylvania Activities: Submission for OMB of federally declared disasters in the (FEMA–4149–DR), dated October 1, Review; Comment Request; Request form of financial payments for rent 2013, and related determinations. for the Site Inspection, Landowners assistance. When eligible survivors are Authorization/Ingress/Egress unable to make use of rental assistance DATES: Effective Date: November 27, Agreement. due to a lack of available housing 2013. resources, FEMA may provide direct AGENCY: Federal Emergency FOR FURTHER INFORMATION CONTACT: assistance. Manufactured housing units Management Agency, DHS. Dean Webster, Office of Response and are a form of direct assistance that ACTION: Notice. Recovery, Federal Emergency FEMA may provide. This information is Management Agency, 500 C Street SW., SUMMARY: The Federal Emergency required to determine whether the Washington, DC 20472, (202) 646–2833. Management Agency (FEMA) will infrastructure of a site identified by the SUPPLEMENTARY INFORMATION: The submit the information collection survivor supports the installation of the Federal Emergency Management Agency abstracted below to the Office of unit. This collection also obtains (FEMA) hereby gives notice that Management and Budget for review and permission for FEMA and its contractors pursuant to the authority vested in the clearance in accordance with the to place the unit on the property. The Administrator, under Executive Order requirements of the Paperwork property owner certifies that they will Reduction Act of 1995. The submission not obstruct access to the unit nor will 12148, as amended, Steven S. Ward, of will describe the nature of the they have a lien placed against the unit FEMA is appointed to act as the Federal information collection, the categories of for their own debts, thus ensuring they Coordinating Officer for this disaster. respondents, the estimated burden (i.e., will maintain the property so that This action terminates the the time, effort and resources used by FEMA can remove the unit when appointment of Donald L. Keldsen as respondents to respond) and cost, and required. Federal Coordinating Officer for this the actual data collection instruments Affected Public: Individuals or disaster. FEMA will use. households. (The following Catalog of Federal Domestic DATES: Comments must be submitted on Estimated Number of Respondents: Assistance Numbers (CFDA) are to be used or before January 13, 2014. for reporting and drawing funds: 97.030, 5,000. ADDRESSES: Submit written comments Community Disaster Loans; 97.031, Cora on the proposed information collection Estimated Total Annual Burden Brown Fund; 97.032, Crisis Counseling; to the Office of Information and Hours: 1,700 hours. 97.033, Disaster Legal Services; 97.034, Regulatory Affairs, Office of Estimated Cost: The estimated annual Disaster Unemployment Assistance (DUA); Management and Budget. Comments cost to respondents for the hour burden 97.046, Fire Management Assistance Grant; should be addressed to the Desk Officer is $47,600.00. There are no annual costs 97.048, Disaster Housing Assistance to for the Department of Homeland to respondents operations and Individuals and Households in Presidentially Declared Disaster Areas; 97.049, Security, Federal Emergency maintenance costs for technical Management Agency, and sent via Presidentially Declared Disaster Assistance— services. There is no annual start-up or Disaster Housing Operations for Individuals electronic mail to oira.submission@ capital costs. The cost to the Federal omb.eop.gov or faxed to (202) 395–5806. and Households; 97.050, Presidentially Government is $3,229,500.00. Declared Disaster Assistance to Individuals FOR FURTHER INFORMATION CONTACT: Dated: December 4, 2013. and Households—Other Needs; 97.036, Requests for additional information or Charlene D. Myrthil, Disaster Grants—Public Assistance copies of the information collection (Presidentially Declared Disasters); 97.039, Director, Records Management Division, should be made to Director, Records Hazard Mitigation Grant.) Management Division, 1800 South Bell Mission Support Bureau, Federal Emergency Street, Arlington, VA 20598–3005, Management Agency, Department of W. Craig Fugate, Homeland Security. facsimile number (202) 646–3347, or Administrator, Federal Emergency email address FEMA-Information- [FR Doc. 2013–29654 Filed 12–11–13; 8:45 am] Management Agency. [email protected]. BILLING CODE 9111–23–P [FR Doc. 2013–29659 Filed 12–11–13; 8:45 am] SUPPLEMENTARY INFORMATION: BILLING CODE 9111–23–P

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DEPARTMENT OF HOMELAND request for Office of Management and and other Federal agencies to comment SECURITY Budget (OMB) approval. All comments on an information collection will become a matter of public record. requirement concerning the Importation U.S. Customs and Border Protection In this document CBP is soliciting Bond Structure. This request for comments concerning the following comment is being made pursuant to the Agency Information Collection information collection: Paperwork Reduction Act of 1995 (Pub. Activities: Request for Information Title: Request for Information. L. 104–13; 44 U.S.C. 3507). AGENCY: U.S. Customs and Border OMB Number: 1651–0023. DATES: Written comments should be Protection (CBP), Department of Form Number: CBP Form 28. received on or before February 10, 2014, Homeland Security. Abstract: Under 19 U.S.C. 1500 and to be assured of consideration. ACTION: 60-day notice and request for 1401a, Customs and Border Protection ADDRESSES: Direct all written comments comments; extension of an existing (CBP) is responsible for appraising to U.S. Customs and Border Protection, collection of information: 1651–0023. imported merchandise by ascertaining Attn: Tracey Denning, Regulations and its value, classifying merchandise under Rulings, Office of International Trade, SUMMARY: As part of its continuing effort the tariff schedule, and assessing a rate 90 K Street NE., 10th Floor, Washington, to reduce paperwork and respondent and amount of duty to be paid. On DC 20229–1177. burden, CBP invites the general public occasions when the invoice or other FOR FURTHER INFORMATION CONTACT: and other Federal agencies to comment documentation does not provide Requests for additional information on an information collection sufficient information for appraisement should be directed to Tracey Denning, requirement concerning: Request for or classification, the CBP Officer U.S. Customs and Border Protection, Information (CBP Form 28). This request requests additional information through Regulations and Rulings, Office of for comment is being made pursuant to the use of CBP Form 28, ‘‘Request for International Trade, 90 K Street NE., the Paperwork Reduction Act of 1995 Information’’. This form is completed by 10th Floor, Washington, DC 20229– (Pub. L. 104–13; 44 U.S.C. 3507). CBP personnel requesting additional 1177, at 202–325–0265. DATES: Written comments should be information and the importers, or their SUPPLEMENTARY INFORMATION: received on or before February 10, 2014, agents, respond in the format of their CBP to be assured of consideration. choice. CBP Form 28 is provided for by invites the general public and other Federal agencies to comment on ADDRESSES: Direct all written comments 19 CFR 151.11. A copy of this form and proposed and/or continuing information to U.S. Customs and Border Protection, instructions are available at http:// collections pursuant to the Paperwork Attn: Tracey Denning, Regulations and forms.cbp.gov/pdf/CBP_Form_28.pdf. Reduction Act of 1995 (Pub. L. 104–13; Rulings, Office of International Trade, Current Actions: This submission is 44 U.S.C. 3507). The comments should 90 K Street NE., 10th Floor, Washington, being made to extend the expiration address: (a) Whether the collection of DC 20229–1177. date with no change to the burden hours or to CBP Form 28. information is necessary for the proper FOR FURTHER INFORMATION CONTACT: performance of the functions of the Requests for additional information Type of Review: Extension (without change). agency, including whether the should be directed to Tracey Denning, information shall have practical utility; U.S. Customs and Border Protection, Affected Public: Businesses. Estimated Number of Respondents: (b) the accuracy of the agency’s Regulations and Rulings, Office of estimates of the burden of the collection International Trade, 90 K Street NE., 60,000. Estimated Time per Respondent: 1 of information; (c) ways to enhance the 10th Floor, Washington, DC 20229– quality, utility, and clarity of the 1177, at 202–325–0265. hour. Estimated Total Annual Burden information to be collected; (d) ways to SUPPLEMENTARY INFORMATION: CBP Hours: 60,000. minimize the burden including the use invites the general public and other of automated collection techniques or Dated: December 9, 2013. Federal agencies to comment on the use of other forms of information proposed and/or continuing information Tracey Denning, technology; and (e) the annual costs collections pursuant to the Paperwork Agency Clearance Officer, U.S. Customs and burden to respondents or record keepers Reduction Act of 1995 (Pub. L. 104–13; Border Protection. from the collection of information (a 44 U.S.C. 3507). The comments should [FR Doc. 2013–29713 Filed 12–11–13; 8:45 am] total capital/startup costs and address: (a) Whether the collection of BILLING CODE 9111–14–P operations and maintenance costs). The information is necessary for the proper comments that are submitted will be performance of the functions of the summarized and included in the CBP agency, including whether the DEPARTMENT OF HOMELAND request for Office of Management and information shall have practical utility; SECURITY Budget (OMB) approval. All comments (b) the accuracy of the agency’s U.S. Customs and Border Protection will become a matter of public record. estimates of the burden of the collection In this document CBP is soliciting of information; (c) ways to enhance the Agency Information Collection comments concerning the following quality, utility, and clarity of the Activities: Importation Bond Structure information collection: information to be collected; (d) ways to Title: Importation Bond Structure. minimize the burden including the use AGENCY: U.S. Customs and Border OMB Number: 1651–0050. of automated collection techniques or Protection (CBP), Department of Form Number: CBP Forms 301 and the use of other forms of information Homeland Security. 5297. technology; and (e) the annual costs ACTION: 60-day notice and request for Abstract: Bonds are used to assure burden to respondents or record keepers comments; extension of an existing that duties, taxes, charges, penalties, from the collection of information (a collection of information: 1651–0050. and reimbursable expenses owed to the total capital/startup costs and Government are paid; to facilitate the operations and maintenance costs). The SUMMARY: As part of its continuing effort movement of cargo and conveyances comments that are submitted will be to reduce paperwork and respondent through CBP processing; and to provide summarized and included in the CBP burden, CBP invites the general public legal recourse for the Government for

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noncompliance with laws and DEPARTMENT OF THE INTERIOR E1⁄2E1⁄2SE1⁄4NW1⁄4, regulations. Each person who is E1⁄2W1⁄2E1⁄2NE1⁄4SW1⁄4, 1 1 1 1 required by law or regulation to post a Bureau of Land Management E ⁄2E ⁄2NE ⁄4SW ⁄4, E1⁄2W1⁄2E1⁄2SE1⁄4SW1⁄4, bond in order to secure a Customs [LLNML003100 L14300000.ES0000; NMNM E1⁄2E1⁄2SE1⁄4SW1⁄4, W1⁄2NE1⁄4SE1⁄4, transaction must submit the bond on 128496] SE1⁄4NE1⁄4SE1⁄4, W1⁄2SE1⁄4, and CBP Form 301 which is available at: SE1⁄4SE1⁄4. http://forms.cbp.gov/pdf/CBP_Form_ Notice of Realty Action: Recreation The area described contains 346.59 acres. 301.pdf. and Public Purposes Act Any area described as a half (1⁄2) of a half (1⁄2) Classification; Lease and Conveyance is based on the proper subdivision of section Surety bonds are usually executed by of Public Land, Don˜ a Ana County, NM in accordance with the Manual of Surveying an agent of the surety. The surety Instructions. AGENCY: Bureau of Land Management, company grants authority to the agent In accordance with the R&PP Act, the Interior. via a Corporate Surety Power of City of Las Cruces proposes to use the Attorney, CBP Form 5297. This power is ACTION: Notice of Realty Action. land for a fire station, police substation, vested with CBP so that when a bond is SUMMARY: The Bureau of Land trail network, and sports fields. filed, the validity of the authority of the Management (BLM) has examined Additional detailed information agent executing the bond and the name approximately 346.59 acres of public pertaining to this application, plan of of the surety can be verified to the land in Don˜ a Ana County, New Mexico, development, and site plans are surety’s grant. CBP Form 5297 is and found them suitable for contained in case file NMNM 128496 available at: http://forms.cbp.gov/pdf/ classification for lease and/or located in the BLM Las Cruces District _ _ CBP Form 5297.pdf. Bonds are conveyance under the provisions of the Office. The above-described land is not required pursuant to 19 U.S.C. 1608, Recreation and Public Purposes (R&PP) needed for any Federal purpose. The and 1623; 22 U.S.C. 463; 19 CFR Part Act, as amended. The City of Las Cruces lease and/or conveyance of the land to 113. proposes to use the land for a public the City of Las Cruces, are consistent with the BLM Mimbres Resource Current Actions: This submission is safety complex and recreation park center. Management Plan, dated December being made to extend the expiration 1993, and would be in the public date with no change to the burden hours DATES: Interested parties may submit interest. The City of Las Cruces has not or to CBP Forms 301 or 5297. written comments regarding the applied for more than the 640-acre Type of Review: Extension (without proposed classification of the land or annual limitation for public purposes change). lease and/or conveyance of the land on other than recreation use and has or before January 27, 2014. Affected Public: Businesses. submitted a statement in compliance ADDRESSES: Written comments with the regulation at 43 CFR 2741.4(b). Form 301, Customs Bond concerning this Notice should be The lease and/or conveyance, when addressed to: District Manager, BLM Las issued, will be subject to the provisions Estimated Number of Annual Cruces District Office, 1800 Marquess of the R&PP Act and applicable Respondents: 800,000. Street, Las Cruces, NM 88005. regulations of the Secretary of the Total Number of Estimated Annual FOR FURTHER INFORMATION CONTACT: Interior and will contain the following Responses: 800,000. Kendrah Penn, Realty Specialist, at the reservations to the United States: above address, by phone at 575–525– 1. Provisions of the R&PP Act and to Estimated Time per Response: 15 all applicable regulations of the minutes. 4382, or by email at [email protected]. Persons who use a telecommunications Secretary of the Interior, including, but Estimated Total Annual Burden device for the deaf (TDD) may call the not limited to, the terms required by 43 Hours: 200,000. Federal Information Relay Service CFR 2741.9. (FIRS) at 1–800–877–8339 to contact the 2. A right-of-way for ditches and Form 5297, Corporate Surety Power of canals constructed by the authority of Attorney above individual during normal business hours. The FIRS is available 24 the United States, Act of August 30, hours a day, 7 days a week, to leave a 1890 (43 U.S.C. 945). Estimated Number of Respondents: 3. Lease and/or conveyance of the message or question with the above 500. public land shall be subject to valid individual. You will receive a reply Total Number of Estimated Annual existing rights. during normal business hours. Responses: 500. 4. All minerals will be reserved to the SUPPLEMENTARY INFORMATION: In Estimated Time per Response: 15 United States, together with the right to accordance with Section 7 of the Taylor prospect for, mine, and remove such minutes. Grazing Act (43 U.S.C. 315f), the deposits from the same under applicable Estimated Total Annual Burden following public land in Don˜ a Ana law and such regulations as the Hours: 125. County, New Mexico, has been Secretary of the Interior may prescribe. examined and found suitable for Dated: December 9, 2013. 5. Any other reservations that the classification for lease and/or authorized officer determines Tracey Denning, conveyance to the City of Las Cruces appropriate to ensure public access and Agency Clearance Officer, U.S. Customs and under the provisions of the R&PP Act, proper management of Federal land and Border Protection. as amended (43 U.S.C. 869 et seq.): interests therein. [FR Doc. 2013–29712 Filed 12–11–13; 8:45 am] New Mexico Principal Meridian, New Subject to limitations prescribed by BILLING CODE P Mexico law and regulations, prior to T. 23 S., R. 2 E., conveyance, a holder of any right-of- Sec. 3, lots 1 and 2, SW1⁄4NE1⁄4, way within the lease area may be given N1⁄2SE1⁄4NE1⁄4, SW1⁄4SE1⁄4NE1⁄4, the opportunity to amend the right-of- E1⁄2W1⁄2W1⁄2E1⁄2SE1⁄4NW1⁄4, way for conversion to a new term, E1⁄2W1⁄2E1⁄2SE1⁄4NW1⁄4, including perpetuity, if applicable.

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Detailed information concerning this DEPARTMENT OF THE INTERIOR Resource Management Plan (RMP) proposed project, including, but not approved on August 8, 1997. The parcel limited to documentation relating to Bureau of Land Management is identified for disposal in the RMP compliance with applicable [LLWYD04000, L14300000, EU0000, Record of Decision, pages 171 and 172 environmental and cultural resource WYW167726] and Map 6. The BLM is offering the laws, is available for review at the BLM parcel to PacifiCorp to expand the Las Cruces District at the address above. Notice of Realty Action; Notice of adjacent landfill. PacifiCorp’s private Segregation and Proposed (Non- lands surround three sides of the public Upon publication of this notice in the Competitive) Direct Sale of Public lands. This parcel is not needed for any Federal Register, the land described Land, Sweetwater County, WY other Federal purpose and is difficult will be segregated from appropriation and uneconomical to manage. The AGENCY: Bureau of Land Management, under the public land laws, including regulations found at 43 CFR 2711.3–3(a) Interior. the general mining laws, except for lease permit the BLM to make direct sales of ACTION: or conveyance under the R&PP Act, and Notice of Realty Action. public lands when a competitive sale is leasing under the mineral leasing laws. SUMMARY: The Bureau of Land not appropriate and the public interest Classification Comments: Interested Management (BLM) is considering a would be best served by a direct sale. parties may submit comments involving parcel of public land totaling 60 acres The regulations at 43 CFR 2711.3– the suitability of the land for the adjacent to the Jim Bridger Power Plant 3(a)(3) permit direct sales if there is a proposed facility. Comments on the landfill and located approximately 30 need to recognize an authorized use classification are restricted to whether miles east of Rock Springs, Wyoming in such as an existing business which the land is physically suited for the Sweetwater County for a direct sale to could suffer a substantial economic loss proposal, where the use will maximize PacifiCorp under the provisions of the if the tract were purchased by other than the future use or uses of the land, Federal Land Policy and Management the authorized user. Conveyance of the identified public land will be subject to whether the use is consistent with local Act of 1976 (FLPMA), as amended, for valid existing rights and encumbrances planning and zoning, or if the use is not less than the appraised fair market of record, including but not limited to, consistent with State and Federal value (FMV). rights-of-way for roads and public programs. DATES: In order to ensure consideration in the environmental analysis for the utilities. All minerals will be reserved to Application Comments: Interested proposed sale, comments must be the United States in the conveyance. In parties may submit comments regarding received by the BLM by January 27, addition to this Notice of Realty Action the specific use proposed in the 2014. (NORA), the BLM will publish this application and plan of development, notice once a week for 3 weeks in the ADDRESSES: Address all comments Rocket Miner Newspaper. whether the BLM followed proper concerning this notice to Field Manager, administrative procedures in reaching BLM Rock Springs Field Office, 280 Pursuant to the requirements of 43 the decision, or any other factor not Highway 191 North, Rock Springs, WY CFR 2711.1–2(d), the lands identified directly related to the suitability of the 82901–3447. Comments may also be above will be segregated from land for R&PP use. emailed to BLM_WY_PacifiCorp_ appropriation under the public land laws, including the mining laws, upon Any adverse comments will be [email protected]. publication in the Federal Register of reviewed by the BLM New Mexico State FOR FURTHER INFORMATION CONTACT: this notice. Upon publication of this Director, who may sustain, vacate, or Carol Montgomery, Realty Specialist, at NORA, and until completion of the sale, modify this realty action. In the absence the above address, or phone number: the BLM is no longer accepting land use of any adverse comments, the 307–352–0344 for further information. applications affecting the identified classification of the land described in Persons who use a telecommunications public land, except applications for the this notice will become effective on device for the deaf (TDD) may call the amendment of previously filed right-of- February 10, 2014. The land will not be Federal Information Relay Service way applications or existing available for lease and/or conveyance (FIRS) at 1–800–877–8339 to contact the authorizations to increase the term of until after the classification becomes above individual during normal the grants in accordance with 43 CFR effective. business hours. The FIRS is available 24 2807.15 and 2886.15. This segregation hours a day, 7 days a week, to leave a will terminate upon the issuance of a Before including your address, phone message or question with the above number, email address, or other patent, publication in the Federal individual. You will receive a reply Register of a termination of the personal identifying information in your during normal business hours. comment, you should be aware that segregation, or December 14, 2015, SUPPLEMENTARY INFORMATION: The whichever comes first unless extended your entire comment—including your following described public land is being personal identifying information—may by the BLM State Director in accordance considered for direct sale under the with 43 CFR 2711.1–2(d) prior to the be made publicly available at any time. authority of Section 203 and 209 of the termination date. While you can ask us in your comment FLPMA, as amended (43 U.S.C. 1713 The following terms and conditions to withhold your personal identifying and 1719): would appear as reservations to the information from public review, we Sixth Principle Meridian United States on the conveyance cannot guarantee that we will be able to document for this parcel: do so. T. 21 N., R. 101 W., Sec. 24, NW1⁄4SW1⁄4 and W1⁄2NE1⁄4SW1⁄4. 1. A right-of-way thereon for ditches Authority: 43 CFR 2741.5. The area described contains 60 acres in or canals constructed by the authority of Sweetwater County, Wyoming, according to the United States, Act of August 30, Bill Childress, the official plat of the survey of the said land, 1890 (43 U.S.C. 945); District Manager, Las Cruces. on file with the BLM. 2. All minerals, together with the right [FR Doc. 2013–29671 Filed 12–11–13; 8:45 am] The proposed direct sale is in to prospect for, mine, and remove such BILLING CODE 4310–FB–P conformance with the BLM Green River deposits from the same under applicable

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law and such regulations as the INTERNATIONAL TRADE NUCLEAR REGULATORY Secretary of the Interior may prescribe. COMMISSION COMMISSION 3. Additional terms and conditions [Docket No. 50–416; NRC–2011–0262] that the authorized officer deems [Investigation No. 731–TA–909 (Second appropriate, including an appropriate Review)] License Renewal Application for Grand indemnification clause protecting the Gulf Nuclear Station, Unit 1 United States from claims arising out of Low Enriched Uranium From France AGENCY: the conveyee’s use, occupancy, or Nuclear Regulatory occupation on the lands should the Determination Commission. ACTION: Draft supplemental generic lands be conveyed out of Federal On the basis of the record 1 developed ownership. environmental impact statement; in the subject five-year review, the issuance, public meeting, and request The FMV for the sale parcel will be United States International Trade for comment. available for review 60 days prior to the Commission (Commission) determines, sale date. An environmental assessment pursuant to section 751(c) of the Tariff SUMMARY: The U.S. Nuclear Regulatory (EA) is being prepared for the proposed Act of 1930 (19 U.S.C. 1675(c)), that Commission (NRC) is issuing for public direct sale. When completed, the EA revocation of the antidumping duty comment a draft, plant-specific, will be available for review at the order on low enriched uranium from supplement 50 to the Generic address above. Environmental Impact Statement (GEIS) France would be likely to lead to for License Renewal of Nuclear Plants, For a period until January 27, 2014, continuation or recurrence of material NUREG–1437, regarding the renewal of interested parties and the general public injury to an industry in the United may submit in writing any comments operating license NPF–29 for an States within a reasonably foreseeable additional 20 years of operation for concerning the land being considered time.2 for sale, including notification of any Grand Gulf Nuclear Station, Unit 1 encumbrances or other claims relating Background (GGNS). The GGNS is located in to the identified land, to the Field Claiborne County, Mississippi. Possible Manager, BLM Rock Springs Field The Commission instituted this alternatives to the proposed action Office, at the above address. In order to review on December 3, 2012 (77 FR (license renewal) include no action and ensure consideration in the EA of the 71626) and determined on March 8, reasonable alternative energy sources. proposed sale, comments must be in 2013 that it would conduct a full review The NRC staff plans to hold two public writing and post marked or delivered (78 FR 19311, March 29, 2013). Notice meetings during the public comment within 45 days of the initial date of of the scheduling of the Commission’s period to present an overview of the publication of this Notice. review and of a public hearing to be draft plant-specific supplement to the held in connection therewith was given GEIS and to accept public comments on Comments transmitted via email will the document. also be accepted and should be sent to by posting copies of the notice in the _ _ _ _ Office of the Secretary, U.S. DATES: Submit comments by February BLM WY PacifiCorp Landfill 11, 2014. Comments received after this [email protected]. Comments, International Trade Commission, Washington, DC, and by publishing the date will be considered, if it is practical including names and street addresses of to do so, but the NRC staff is able to notice in the Federal Register on April respondents, will be available for public ensure consideration only for comments 10, 2013 (78 FR 21416). The hearing was review at the BLM Rock Springs Field received on or before this date. Office during regular business hours, held in Washington, DC, on September ADDRESSES: You may submit comments except holidays. Individual respondents 10, 2013, and all persons who requested by any of the following methods (unless may request confidentiality. Before the opportunity were permitted to this document describes a different including your address, phone number, appear in person or by counsel. method for submitting comments on a email address, or other personal The Commission completed and filed specific subject): identifying information in your its determination in this review on • Federal Rulemaking Web site: Go to comment, be advised that your entire December 6, 2013. The views of the http://www.regulations.gov and search comment—including your personal Commission are contained in USITC for Docket ID NRC–2011–0262. Address identifying information—may be made questions about NRC dockets to Carol publicly available at any time. While Publication 4436 (December 2013), entitled Low Enriched Uranium from Gallagher; telephone: 301–287–3422; you may ask us in your comment to email: [email protected]. For withhold from public review your France: Investigation No. 731–TA–909 (Second Review). technical questions, contact the personal identifying information, we individual(s) listed in the FOR FURTHER cannot guarantee that we will be able to By order of the Commission. INFORMATION CONTACT section of this do so. The BLM will make available for Issued: December 6, 2013. document. public review, in their entirety, all • Lisa R. Barton, Mail comments to: Cindy Bladey, comments submitted by businesses or Chief, Rules, Announcements, and Acting Secretary to the Commission. organizations, including comments by Directives Branch (RADB), Office of individuals in their capacity as an [FR Doc. 2013–29603 Filed 12–11–13; 8:45 am] Administration, Mail Stop: 3WFN–06– official or representative of a business or BILLING CODE 7020–02–P 44M, U.S. Nuclear Regulatory organization. Commission, Washington, DC 20555– (Authority: 43 CFR 2711.1–2 and 43 CFR 0001. 1 2720.1–1(b)) The record is defined in sec. 207.2(f) of the For additional direction on accessing Commission’s Rules of Practice and Procedure (19 information and submitting comments, Donald A. Simpson, CFR § 207.2(f)). see ‘‘Accessing Information and State Director, Wyoming. 2 Commissioner Kieff did not participate in this review. Commissioner Aranoff did not participate Submitting Comments’’ in the [FR Doc. 2013–29672 Filed 12–11–13; 8:45 am] in the determination concerning this review. SUPPLEMENTARY INFORMATION section of BILLING CODE 4310–22–P Commissioner Broadbent dissenting. this document.

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FOR FURTHER INFORMATION CONTACT: comment submissions to remove Drucker, the NRC Environmental Project David Drucker, Office of Nuclear identifying or contact information. Manager, at 1–800–368–5642, extension Reactor Regulation, telephone: 301– If you are requesting or aggregating 6223, or by email at david.drucker@ 415–6223 or email to David.Drucker@ comments from other persons for nrc.gov no later than Wednesday, nrc.gov; U.S. Nuclear Regulatory submission to the NRC, then you should January 22, 2014. Members of the public Commission, Washington, DC 20555– inform those persons not to include may also register to provide oral 0001. identifying or contact information that comments within 15 minutes of the start they do not want to be publicly of each session. Individual oral SUPPLEMENTARY INFORMATION: disclosed in their comment submission. comments may be limited by the time I. Accessing Information and Your request should state that the NRC available, depending on the number of Submitting Comments does not routinely edit comment persons who register. If special submissions to remove such information equipment or accommodations are A. Accessing Information before making the comment needed to attend or present information Please refer to Docket ID NRC–2011– submissions available to the public or at the public meeting, the need should 0262 when contacting the NRC about entering the comment submissions into be brought to Mr. Druckers’ attention no the availability of information regarding ADAMS. later than Wednesday, January 22, 2014, this document. You may access II. Discussion to provide the NRC staff adequate notice publicly-available information related to to determine whether the request can be this document by any of the following The NRC is issuing for public accommodated. methods: comment a draft plant-specific supplement 50 to the GEIS for License Dated at Rockville, Maryland, this 6th day • Federal Rulemaking Web site: Go to Renewal of Nuclear Plants, NUREG– of December, 2013. http://www.regulations.gov and search 1437, regarding the renewal of operating For The Nuclear Regulatory Commission. for Docket ID NRC–2011–0262. license NPF–29 for an additional 20 Brian D. Wittick, • NRC’s Agencywide Documents years of operation for GGNS. Chief, Projects Branch 2, Division of License Access and Management System Supplement 50 to the GEIS includes the Renewal, Office of Nuclear Reactor (ADAMS): You may access publicly preliminary analysis that evaluates the Regulation. available documents online in the NRC environmental impacts of the proposed [FR Doc. 2013–29676 Filed 12–11–13; 8:45 am] Library at http://www.nrc.gov/reading- action and alternatives to the proposed BILLING CODE 7590–01–P rm/adams.html. To begin the search, action. The NRC’s preliminary select ‘‘ADAMS Public Documents’’ and recommendation is that the adverse then select ‘‘Begin Web-based ADAMS environmental impacts of license PEACE CORPS Search.’’ For problems with ADAMS, renewal for GGNS are not great enough please contact the NRC’s Public to deny the option of license renewal for Information Collection Request; Document Room (PDR) reference staff at energy planning decision makers. Submission for OMB Review 1–800–397–4209, 301–415–4737, or by email to [email protected]. The III. Public Meetings AGENCY: Peace Corps. ADAMS accession number for each The NRC staff will hold public ACTION: 60-Day notice and request for document referenced in this document meetings prior to the close of the public comments. (if that document is available in comment period to present an overview ADAMS) is provided the first time that of the draft plant-specific supplement to SUMMARY: The Peace Corps will be a document is referenced. The draft the GEIS and to accept public comment submitting the following information plant-specific supplement 50 to the on the document. Two meetings will be collection request to the Office of GEIS for License Renewal of Nuclear held at the Port Gibson City Hall, 1005 Management and Budget (OMB) for Plants, NUREG–1437, is available in College Street, Port Gibson, Mississippi review and approval. The purpose of ADAMS under Accession No. 39150 on Wednesday, January 29, 2014. this notice is to allow 60 days for public ML13328A002. The first session will convene at 2:00 comment in the Federal Register • NRC’s PDR: You may examine and p.m. and will continue until 3:30 p.m., preceding submission to OMB. We are purchase copies of public documents at as necessary. The second session will conducting this process in accordance the NRC’s PDR, Room O1–F21, One convene at 7:00 p.m. and will continue with the Paperwork Reduction Act of White Flint North, 11555 Rockville until 8:30 p.m., as necessary. The 1995 (44 U.S.C. Chapter 35). Pike, Rockville, Maryland 20852. meetings will be transcribed and will DATES: Submit comments on or before include: (1) A presentation of the February 10, 2014. B. Submitting Comments contents of the draft plant-specific ADDRESSES: Comments should be Please include Docket ID NRC–2011– supplement to the GEIS, and (2) the addressed to Denora Miller, FOIA/ 0262 in the subject line of your opportunity for interested government Privacy Act Officer, Peace Corps, 1111 comment submission, in order to ensure agencies, organizations, and individuals 20th Street NW., Washington, DC 20526. that the NRC is able to make your to provide comments on the draft report. Denora Miller can be contacted by comment submission available to the Additionally, the NRC staff will host telephone at 202–692–1236 or email at public in this docket. informal discussions one hour prior to [email protected]. Email comments The NRC cautions you not to include the start of each session at the same must be made in text and not in identifying or contact information that location. No comments on the draft attachments. you do not want to be publicly supplement to the GEIS will be accepted disclosed in your comment submission. during the informal discussions. To be FOR FURTHER INFORMATION CONTACT: The NRC will post all comment considered, comments must be provided Denora Miller at Peace Corps address submissions at http:// either at the transcribed public meeting above. www.regulations.gov, as well as enter or in writing. Persons may pre-register SUPPLEMENTARY INFORMATION: The the comment submissions into ADAMS. to attend or present oral comments at information collected by the Volunteer The NRC does not routinely edit the meeting by contacting Mr. David Application is used by the Peace Corps

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to collect essential information from OFFICE OF PERSONNEL to external review (45 CFR 800.503) is individuals, including technical and MANAGEMENT also December 13, 2013. language skills, and availability for U.S. Office of Personnel Management. Patient Protection and Affordable Care Peace Corps service. The Peace Corps Katherine Archuleta, will be changing its application process Act; Establishment of the Multi-State Director. to better match applicants to programs Plan Program for the Affordable based on their skills and interests. Due Insurance Exchanges; Announcement [FR Doc. 2013–29702 Filed 12–11–13; 8:45 am] BILLING CODE 6325–64–P to this change in the way applicants are AGENCY: Office of Personnel processed and an overall agency effort Management (OPM). to reduce the burden on applicants by ACTION: Notice of effective date. only asking the most essential SECURITIES AND EXCHANGE questions, the agency is developing a SUMMARY: This document announces the COMMISSION new application. effective date of a regulatory provision [Release No. IC–30821; File No. 812–14158] Title: Peace Corps Volunteer published in the Federal Register by Application. OPM on March 11, 2013 (78 FR 15559), Minnesota Life Insurance Company, et entitled ‘‘Patient Protection and al.; Notice of Application OMB Control Number: 0420-pending. Affordable Care Act; Establishment of Type of Review: New. the Multi-State Plan Program for the December 6, 2013. AGENCY: Affected Public: General public. Affordable Insurance Exchanges.’’ The Securities and Exchange Commission (‘‘Commission’’). Respondents’ Obligation To Reply: DATES: The effective date of OPM’s ACTION: Notice of application for an Voluntary. regulatory provision relating to external review (45 CFR 800.503) is December order pursuant to Section 6(c) of the Burden to the Public 13, 2013. Investment Company Act of 1940, as amended (the ‘‘1940 Act’’ or ‘‘Act’’), FOR FURTHER INFORMATION CONTACT: a. Estimated number of respondents: granting exemptions from the provisions Padma Shah by telephone at (202) 606– 20,000. of Sections 2(a)(32) and 27(i)(2)(A) of 2128, by FAX at (202) 606–0033, or by b. Estimated average burden per the Act and rule 22c–1 under the Act. email at [email protected]. response: 1 hour. APPLICANTS: Minnesota Life Insurance SUPPLEMENTARY INFORMATION: In the Company (‘‘Minnesota Life’’ or c. Frequency of response: one time. final rule published on March 11, 2013, ‘‘Insurance Company’’), Variable d. Annual reporting burden: 20,000. OPM provided notice that the regulatory Annuity Account (‘‘Separate Account’’), provision relating to external review (45 e. Number of applications received and Securian Financial Services, Inc. electronically (99%): 19,800. CFR 800.503) will take effect on the effective date of a technical amendment (‘‘SFS’’) (collectively, ‘‘Applicants’’). f. Number of applications received in to regulations implementing section SUMMARY: Summary of Application: hard copy (1%): 200. 2719 of the Public Health Service (PHS) Applicants seek an order amending an General Description of Collection: The Act, which apply to all non- existing order pursuant to Section 6(c) Volunteer Application is used by Peace grandfathered group health plans and of the 1940 Act, exempting them from Corps in its assessment of an health insurance issuers, including the provisions of Sections 2(a)(32) and individual’s qualifications to serve as a plans in the Multi-State Plan Program. 27(i)(2)(A) of the 1940 Act and rule 22c- Peace Corps Volunteer. It is the On November 13, 2013, the Departments 1 under the Act to the extent necessary document of record for an individual’s of Treasury, Labor, and Health and to permit Applicants, under specified decision to apply for Peace Corps Human Services (‘‘the Departments’’) circumstances, to recapture certain service. jointly published ‘‘Final Rules under the bonuses (‘‘Credit Enhancements’’) Request for Comment: Peace Corps Paul Wellstone and Pete Domenici applied to cumulative net purchase invites comments on whether the Mental Health Parity and Addiction payments under certain deferred proposed collections of information are Equity Act of 2008; Technical variable annuity contracts issued by the necessary for proper performance of the Amendment to External Review for Insurance Company. functions of the Peace Corps, including Multi-State Plan Program’’ (78 FR DATES: Filing Date: The application was whether the information will have 68240). This final rule retains filed on May 23, 2013, and an amended practical use; the accuracy of the provisions the Departments proposed on and restated application was filed on agency’s estimate of the burden of the March 21, 2013 (78 FR 17313), August 9, 2013. proposed collection of information, implementing a technical amendment to Hearing or Notification of Hearing: An including the validity of the information regulations for section 2719 of the PHS order granting the application will be to be collected; and, ways to minimize Act. This final rule specifies that Multi- issued unless the Commission orders a the burden of the collection of State Plan coverage will be subject to hearing. Interested persons may request information on those who are to standards established for the Federal a hearing by writing to the Secretary of respond, including through the use of external review process under section the Commission and serving the automated collection techniques, when 2719(b)(2) of the PHS Act and paragraph Applicants with a copy of the request, appropriate, and other forms of (d) of the internal claims and appeals personally or by mail. Hearing requests information technology. and external review regulations. should be received by the Commission This notice issued in Washington, DC, Additionally, the Departments’ final by 5:30 p.m. on December 27, 2013, and on December 6, 2013. rule corrects a typographical error in the should be accompanied by proof of March 21, 2013 proposed rule. The service on the Applicants in the form of Dated: December 12, 2013. effective date of the Departments’ an affidavit or, for lawyers, a certificate Denora Miller, technical amendment is December 13, of service. Hearing requests should state FOIA/Privacy Act Officer, Management. 2013, and accordingly, this document the nature of the requester’s interest, the [FR Doc. 2013–29661 Filed 12–11–13; 8:45 am] advises the public that the effective date reason for the request, and the issues BILLING CODE 6051–01–P of OPM’s regulatory provision relating contested. Persons who wish to be

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notified of a hearing may request leave the Existing Orders intact, thus the Prior Contracts and the New notification by writing to the Secretary allowing them to continue to recapture Contracts, among others. Minnesota Life of the Commission. Credit Enhancements under the may issue Future Contracts through the ADDRESSES: Secretary, SEC, 100 F Street contracts described in those orders Separate Account. Minnesota Life also NE., Washington, D.C. 20549–1090. (collectively, the ‘‘Prior Contracts’’). may issue Contracts through Future Applicants, c/o Daniel P. Preiner, 3. The Existing Orders encompassed Accounts. Counsel, Minnesota Life Insurance relief for future contracts substantially 7. Securian Financial Services, Inc. Company, 400 Robert Street North, St. similar in all material respects to the (‘‘SFS’’) is registered as a broker-dealer Paul, Minnesota 55101. Prior Contracts. Applicants state that the under the Securities Exchange Act of New Contracts differ from the Prior 1934 and is a member of FINRA. SFS FOR FURTHER INFORMATION CONTACT: Contracts in the following respects: (1) serves as the principal underwriter of Alberto H. Zapata, Senior Counsel, or The contract charges are slightly higher the Separate Account and may act as Joyce M. Pickholz, Branch Chief, in some series and slightly lower in principal underwriter for Future Insured Investments Office, Division of other series in the New Contracts; (2) Accounts for Minnesota Life and Investment Management, at (202) 551– the schedule of deferred sales charge is distributor for Future Contracts. Future 6795. shorter in the L Series of the New Underwriters also may act as principal SUPPLEMENTARY INFORMATION: The Contracts; (3) the New Contracts offer underwriter for Future Accounts and as following is a summary of the different optional death benefit riders; distributor for any of the Contracts. application. The complete application (4) the New Contracts offer different 8. The New Contracts are deferred may be obtained via the Commission’s optional guaranteed lifetime withdrawal combination variable and fixed annuity Web site by searching for the file benefit riders; and (5) the New Contracts contracts that Minnesota Life may issue number, or for an applicant using the do not offer the same fixed-interest to individuals on a ‘‘non-qualified’’ Company name box, at http:// allocation options. Although Credit basis or in connection with certain types www.sec.gov/search/search.htm, or by Enhancement and recapture in the New of retirement plans that receive calling (202) 551–8090. Contracts will be administered in a favorable federal income tax treatment manner that is substantially similar in under the Internal Revenue Code of Applicants’ Representations all material respects to that of the Prior 1986, as amended. The New Contracts 1. Applicants seek the exemptions Contracts contemplated by the 2008 also make available a number of sub- needed to recapture Credit Order. accounts of the Separate Account to Enhancements applied to cumulative 4. Minnesota Life is a stock life which a contract owner may allocate net net purchase payments that reach insurance company organized under the purchase payments and associated certain aggregate amounts in accordance laws of Minnesota. Minnesota Life is Credit Enhancement(s), as described with the formula described below made authorized to sell insurance and below. under: (i) New series (e.g., B Series and annuities in all states (except New 9. A contract owner’s initial purchase L Series) of new deferred variable York), and the District of Columbia. payment must be at least $10,000 annuity contracts, including data pages, Minnesota Life is the depositor and (unless a lower qualified plan limitation riders and endorsements as described sponsor for the Separate Account, as applies). Thereafter, a contract owner below (the ‘‘New Contracts’’) and (ii) those terms have been interpreted by the may choose the amount and frequency any deferred variable annuity contracts, Commission with respect to variable of purchase payments, except that the including data pages, riders and annuity separate accounts. Minnesota minimum subsequent purchase endorsements, substantially similar in Life may establish one or more payment is $500 ($100 for automatic all material respects to the New additional Future Accounts for which it payment plans). A contract owner may Contracts that Minnesota Life may issue will serve as depositor. make transfers of contract value among in the future (‘‘Future Contracts’’) (New 5. The Separate Account is a and between the sub-account options at Contracts and Future Contracts referred segregated investment account under any time. Applicants have reserved the to collectively as the ‘‘Contracts’’). Minnesota law. The Separate Account is right to impose a $10 charge for each Applicants request that the relief under a ‘‘separate account’’ as defined by transfer when transfer requests exceed the order extend to any other separate Section 2(a)(37) of the 1940 Act and is 12 in a single contract year, but are not accounts of Minnesota Life and their registered with the Commission as a currently imposing the charge. successors in interest that support the unit investment trust (File No. 811– 10. The New Contracts offer a contract Contracts (‘‘Future Accounts’’) and any 4294). A registration statement for owner a variety of annuity payment Financial Industry Regulatory Authority interests in the Separate Account options. The contract owner may (‘‘FINRA’’) member broker-dealers offered through the New Contracts has annuitize at any time. If a deferred sales controlling, controlled by, or under been filed with the Commission under charge (‘‘DSC’’) would otherwise apply common control with any Applicant, the Securities Act of 1933, as amended, to New Contract withdrawals at the time whether existing or created in the on Form N–4, File No. 333–189593. of annuitization, the DSC will be waived future, that in the future, may act as 6. The Separate Account is divided for amounts applied to provide annuity principal underwriter for the Contracts into a number of sub-accounts. Each payments. 11. The New Contracts provide for an (‘‘Future Underwriters’’). sub-account invests exclusively in annual administrative charge of $50 that 2. In 2007 and 2008, the Commission shares representing an interest in a Minnesota Life deducts from the New issued orders granting exemptions that separate corresponding investment Contract’s accumulation value on each permit, under certain circumstances, the portfolio of one of several series-type, contract anniversary and upon a full recapture of certain Credit open-end management investment surrender of a New Contract if the Enhancements (collectively, the companies. The assets of the Separate greater of: (a) Contract value or (b) ‘‘Existing Orders’’).1 Applicants wish to Account support one or more varieties of variable annuity contracts, including purchase payments less withdrawals, is 1 See Investment Company Act Release Nos. less than $50,000. For the B Series of the 27960 (Aug. 30, 2007) (notice) and 27979 (Sept. 25, Nos. 28321 (Jun. 26, 2008) (notice) and 28334 (Jul. New Contracts, a daily mortality and 2007) (order); Investment Company Act Release 22, 2008) (order) (the ‘‘2008 Order’’). expense risk charge for the base New

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Contract is deducted from the assets of Account at an annual rate equal to value. The New Contracts have a DSC the Separate Account at an annual rate 1.55% of average account value, which which is applicable on surrender and equal to 1.15% of average account is higher than the Prior Contracts withdrawal of accumulation values. value, which is lower than the Prior contemplated by the 2008 Order. For Credit Enhancements are not recaptured Contracts contemplated by the 2008 each series of the New Contracts, a daily upon surrender or withdrawal. A charge Order. For the L Series of the New administrative charge for the base New may also be assessed depending on the Contracts, a daily mortality and expense Contract is deducted from the assets of type of optional benefit elected, if any. risk charge for the base New Contract is the Separate Account at an annual rate 12. The New Contracts offer a deducted from the assets of the Separate equal to 0.15% of average account standard DSC schedule as follows:

0–1 1–2 2–3 3–4 4–5 5–6 6–7 7–8 Contract years since payment (per- (per- (per- (per- (per- (per- (per- (per- 8+ cent) cent) cent) cent) cent) cent) cent) cent)

B Series Deferred Sales Charge...... 8.0 8.0 7.0 6.0 6.0 5.0 4.0 3.0 0 L Series Deferred Sales Charge ...... 8.0 8.0 7.0 6.0 0 0 0 0 0

The DSC does not apply in any 17. The Contract provides three any additional exemptive relief to the circumstances under which Credit standard annuity options: a life annuity, extent required. Enhancements will be recaptured. a life annuity with a period certain, or 21. Minnesota Life intends to 13. Subject to state availability, a a joint and last survivor annuity. recapture or retain the Credit contract owner may elect to purchase an Minnesota Life may make other options Enhancements only in the following optional living benefit rider. There are available on request. circumstances. First, Minnesota Life currently eight different Guaranteed 18. Minnesota Life will credit the recaptures or retains 100% of the Credit Lifetime Withdrawal Benefit optional contract value allocated to the sub- Enhancements in the event that the riders available (the ‘‘GLWB Riders’’), accounts and the fixed-interest accounts contract owner exercises his or her however, a contract owner may only with a Credit Enhancement when total cancellation right during the ‘‘free look’’ elect a single living benefit on a New cumulative net purchase payments period. Second, Minnesota Life Contract. In the future, Minnesota Life reach the aggregate levels set forth in the recaptures all of the Credit may offer other living benefit riders as following table: Enhancements added to the Contract options under the Contracts. within 12 months prior to the date any amounts are paid out as a death benefit. 14. Minnesota Life will deduct a Credit en- Cumulative net purchase hancement Any Credit Enhancement added to the maximum annual charge ranging from payments percentage Contract more than 12 months prior to 0.25% to 2.25% (current charges range the date any amount is paid out as a from 0.45% to 1.50%) of the greater of $250,000–$499,999.99 ...... 0.25% death benefit would not be recaptured. the contract value or benefit base (as $500,000–$749,999.99 ...... 0.50% Third, Minnesota Life will recapture all described in the applicable GLWB $750,000–$999,999.99 ...... 0.75% of the Credit Enhancements added to Rider) depending on which GLWB Rider $1,000,000 or more ...... 1.00% the Contract within 12 months prior to is elected. One quarter of the GLWB the annuitization date of the Contract. Rider charge will be taken three months 19. The term ‘‘cumulative net Any Credit Enhancement added to the after the GLWB Rider effective date and purchase payments’’ means the total of Contract more than 12 months prior to at the end of every three months all purchase payments applied to the the date of annuitization would not be thereafter. The charge does not apply contract less any amounts previously recaptured. (If only a partial after annuitization. withdrawn from contract value. Similar annuitization were elected, a pro rata to the Prior Contracts contemplated by 15. If a contract owner dies before the portion of the Credit Enhancements the 2008 Order, the amount of the Credit annuity start date, the New Contract added to the Contract within 12 months Enhancement to be credited will be provides for a death benefit payable to of the annuitization date would be calculated as follows: (a) Cumulative net a beneficiary computed as described in recaptured.) the Application. In the future, purchase payments; multiplied by (b) 22. Investment gains attributable to Minnesota Life may offer other optional the applicable Credit Enhancement the Credit Enhancement will not be death benefit riders as options under the percentage from the table above; minus recaptured. Since Minnesota Life does Contracts. (c) any Credit Enhancements previously not recapture the investment gain/loss 16. For the Highest Anniversary Value applied to contract value. attributable to the Credit Enhancement, II Death Benefit, the Premier II Death 20. Minnesota Life will allocate the only the dollar amount of the Credit Benefit, and the MyPath Highest Credit Enhancement for the applicable Enhancement added to the Contract is Anniversary Death Benefit, Minnesota purchase payment among the sub- recaptured in the circumstances Life will deduct a maximum annual accounts and fixed interest accounts the described in the application. charge ranging from 0.30% to 1.00% of contract owner selects in accordance 23. Finally, because it is not the death benefit amount, depending on with a contract owner’s current administratively feasible to track the which optional death benefit option is purchase payment allocation Credit Enhancements in the Separate elected, if any. For the Estate instructions. As disclosed in the Account which may still be subject to Enhancement Benefit II, Minnesota Life prospectus for the New Contracts, recapture, Minnesota Life deducts the will deduct a daily charge from the Minnesota Life reserves the right to daily mortality and expense risk charge assets of the Separate Account at a increase or decrease the amount of the from the entire net asset value of the maximum annual charge ranging from Credit Enhancement or discontinue the Separate Account. As a result, the daily 0.25% to 0.40% of average account Credit Enhancement in the future. In mortality and expense risk charge, and value. such case, Minnesota Life would seek any optional benefit charges paid by any

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contract owner may be greater than that Section 2(a)(32) or 27(i)(2)(A) of the the Credit Enhancement recapture does which he or she would pay without the 1940 Act because the recapture of Credit not diminish the overall value of the Credit Enhancement. Enhancements would not, at any time, Credit Enhancement. deprive a contract owner of his or her 8. Applicants assert that recapture Applicants’ Legal Analysis proportionate share of the current net provision is necessary for Minnesota 1. Applicants request that the assets of the Separate Account. Life to offer the Credit Enhancement Commission, pursuant to Section 6(c) of 6. Applicant’s assert that rule 22c–1 and prevent anti-selection—the risk that the 1940 Act, grant the exemptions set was intended to eliminate or reduce, as a contract owner would make forth below to permit Applicants to far as was reasonably practicable: (1) significant purchase payments into the recapture Credit Enhancements The dilution of the value of outstanding Contract solely to receive a quick profit previously applied to purchase redeemable securities of registered from the Credit Enhancements and then payments under the New Contracts: (1) investment companies through their withdraw his or her money. Applicants In the event a contract owner exercises sale at a price below net asset value or submit it would be unfair to Minnesota his or her right to cancellation/‘‘free their redemption at a price above net Life to permit a contract owner to keep look’’ under the New Contract; (2) if the asset value; or (2) other unfair results, his or her Credit Enhancement upon his Credit Enhancements were added to the including speculative trading practices. or her exercise of the Contract’s ‘‘free Contract within 12 months prior to the Applicants submit that the industry and look’’ provision. Applicants submit it date any amounts are paid out as a regulatory concerns prompting the would also be unfair to Minnesota Life death benefit; and (3) if the Credit adoption of rule 22c–1 were primarily to permit a contract owner to keep his Enhancements were added to the the result of backward pricing, the or her Credit Enhancements paid shortly Contract within 12 months prior to the practice of basing the price of a mutual before death benefits are paid or the date of annuitization or partial fund share on the net asset value per contract is annuitized. Applicants annuitization of the Contract. share determined as of the close of the further submit that because no 2. Section 6(c) of the 1940 Act market on the previous day. Applicants additional DSC applies upon payment authorizes the Commission to exempt submit that the Credit Enhancements do of a death benefit, a death shortly after any person, security, or transaction, or not give rise to either of the two the award of Credit Enhancements any class or classes of persons, concerns that rule 22c–1 was designed would afford a contract owner or a securities, or transactions, from the to address. First, Applicants contend beneficiary a similar profit at Minnesota provisions of the 1940 Act and the rules that the proposed Credit Enhancements Life’s expense. Finally, because no promulgated under the Act, if and to the pose no such threat of dilution. A additional DSC applies on extent that such exemption is necessary contract owner’s interest in his or her annuitization, if a contract owner or appropriate in the public interest and contract value or in the Separate annuitizes his or her contract shortly consistent with the protection of Account would always be offered at a after the award of the Credit investors and the purposes fairly price based on net asset value next Enhancement, such event would afford intended by the policy and provisions of calculated after receipt of the request. a contract owner a similar profit at the 1940 Act. Second, Applicants submit that Minnesota Life’s expense. 3. Appellants submit that the Credit speculative trading practices calculated 9. Applicants state that the Enhancement recapture is not a sales to take advantage of backward pricing Commission’s authority under Section load. Rather, it is a recapture of a Credit will not occur as a result of Minnesota 6(c) of the 1940 Act to grant exemptions Enhancement previously applied to a Life’s recapture of the Credit from various provisions of the 1940 Act contract owner’s purchase payments. Enhancement. Variable annuities are and rules under that Act is broad Minnesota Life provides the Credit designed for long-term investment, and enough to permit orders of exemption Enhancement from its general account by their nature, do not lend themselves that cover classes of unidentified on a guaranteed basis. The Contracts are to the kind of speculative short-term persons. Applicants request an order of designed to be long-term investment trading that rule 22c–1 was designed to the Commission that would exempt vehicles. If a contract owner withdraws prevent. More importantly, the Credit them, Minnesota Life’s successors in his or her money during the free look Enhancement recapture simply does not interest, Future Accounts and Future period, if a death benefit is owed shortly create the opportunity for speculative Underwriters from the provisions of after Credit Enhancements are applied, trading. Sections 2(a)(32) and 27(i)(2)(A) of the or if the Contract is annuitized before 7. Applicants assert that the Credit 1940 Act and rule 22c–1 under the Act this anticipated period, Minnesota Life Enhancement is generally beneficial to a with respect to the Contracts. must recapture the Credit Enhancement contract owner. The recapture tempers Applicants submit that the exemption of subject to recapture in order to avoid a this benefit somewhat, but unless: (1) these classes of persons is appropriate loss. The contract owner exercises his or her in the public interest and consistent 4. Applicants submit that the right to cancel the contract during the with the protection of investors and the proposed recapture of the Credit ‘‘free look’’ period, or (2) Minnesota Life purposes fairly intended by the policy Enhancement would not violate Section applies Credit Enhancements and pays and provisions of the 1940 Act because 2(a)(32) or 27(i)(2)(A) of the 1940 Act or a death benefit during the same 12- all of the potential members of the class rule 22c–1 under the Act. Minnesota month period, or (3) Minnesota Life could obtain the foregoing exemptions Life would grant Credit Enhancements applies Credit Enhancements and a for themselves on the same basis as out of its general account assets. contract owner annuitizes during the Applicants, but only at a cost to each of Applicants submit if Minnesota Life same 12-month period, the contract them that is not justified by any public recaptures any Credit Enhancements or owner retains the ability to avoid the policy purpose. As discussed in the part of a Credit Enhancement in the Credit Enhancement recapture. application, the requested exemptions circumstances described above, it would Applicants submit that as any earnings would only extend to persons that in all merely be retrieving its own assets. on Credit Enhancements applied would material respects are the same as 5. Applicants further submit that the not be subject to recapture and thus Applicants. operation of the proposed Credit would be immediately available to a 10. Applicants represent that any Enhancements would not violate contract owner. Applicants submit that Future Contracts will be substantially

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similar in all material respects to the SECURITIES AND EXCHANGE become the new top-level holding New Contracts, but particularly with COMMISSION company that will, after Closing, own BGM Holdings and DE Holdings, will be respect to the Credit Enhancements and [Release No. 34–71024; File No. SR–BYX– recapture of Credit Enhancements and 2013–039] referred to as ‘‘New BGM.’’ that each factual statement and To effectuate the Combination, the representation about the Credit Self-Regulatory Organizations; BATS Exchange seeks to obtain the Enhancement feature will be equally Y-Exchange, Inc.; Notice of Filing of a Commission’s approval of (i) resolutions true of any Future Contracts. Applicants Proposed Rule Change in Connection of Current BGM’s board of directors (the also represent that each material With the Proposed Business ‘‘Resolutions’’) making certain representation made by them about the Combination Involving BATS Global determinations regarding New BGM and the impact of the Combination on the Separate Account and SFS will be Markets, Inc. and Direct Edge Holdings Exchange; (ii) the proposed Amended equally true of Future Accounts and LLC and Restated Certificate of Incorporation Future Underwriters, to the extent that December 6, 2013. of New BGM (the ‘‘New BGM Charter’’); such representations relate to the issues Pursuant to Section 19(b)(1) of the (iii) the proposed Amended and discussed in this Application. In Securities Exchange Act of 1934 (the Restated Bylaws of New BGM (the ‘‘New particular, each Future Underwriter will ‘‘Act’’),1 and Rule 19b–4 thereunder,2 BGM Bylaws’’); (iv) the proposed be registered as a broker-dealer under notice is hereby given that on November amendments to Current BGM’s Second the Securities Exchange Act of 1934 and 25, 2013, BATS Y-Exchange, Inc. (the Amended and Restated Certificate of be a member of FINRA. ‘‘Exchange’’) filed with the Securities Incorporation (the ‘‘Current BGM 11. Based upon the foregoing, and Exchange Commission Charter,’’ and after such amendments, Applicants submit that recapture of the (‘‘Commission’’) the proposed rule the ‘‘BGM Holdings Charter’’); (v) the proposed Credit Enhancement involves change as described in Items I, II, and proposed amendments to the Amended III below, which Items have been none of the abuses to which provisions and Restated Bylaws of Current BGM prepared by the Exchange. The of the 1940 Act and rules thereunder are (the ‘‘Current BGM Bylaws,’’ and after Commission is publishing this notice to directed. The contract owner will such amendments, the ‘‘BGM Holdings solicit comments on the proposed rule Bylaws’’); (vi) the proposed always retain the investment experience change from interested persons. attributable to the Credit Enhancement amendments to the By-Laws of the Exchange (the ‘‘Exchange Bylaws’’); (vii) and will retain the principal amount in I. Self-Regulatory Organization’s the proposed amendments to Exchange all cases except under the circumstances Statement of the Terms of Substance of Rule 2.3 to reflect the affiliation described in the Application. Further, the Proposed Rule Change between the Exchange and two Applicants assert that Minnesota Life The Exchange filed a proposed rule additional registered national securities should be able to recapture such Credit change (the ‘‘Proposed Rule Change’’) in exchanges; (viii) the proposed Enhancement to limit potential losses connection with the proposed business amendments to Exchange Rule 2.12 to associated with such Credit combination (the ‘‘Combination’’), as reflect the affiliation between the Enhancements. described in more detail below, Exchange and the routing broker for involving its parent company, BATS Conclusions EDGA and EDGX; and (ix) the indirect Global Markets, Inc. and Direct Edge acquisition by an affiliate of the For the reasons set forth in the Holdings LLC (‘‘DE Holdings’’), the Exchange of a Member 3 of the Exchange indirect parent company of EDGX Application, the Applicants assert that and the resulting affiliation between the Exchange, Inc. (‘‘EDGX’’) and EDGA the provisions for recapture of Credit Exchange and the Member of the Exchange, Inc. (‘‘EDGA’’), each a Exchange, as required under Exchange Enhancements under the Contracts do national securities exchange registered not violate Section 2(a)(32) and Rule 2.10. with the Commission. The text of the proposed rule change 27(i)(2)(A) of the Act and rule 22c–1 Upon completion of the Combination under the Act and that the requested is available at the Exchange’s Web site (the ‘‘Closing’’), BATS Global Markets, at http://www.batstrading.com, at the relief is consistent with the standards Inc. and DE Holdings will each become set forth in Section 6(c) of the Act. principal office of the Exchange, and at intermediate holding companies, held the Commission’s Public Reference For the Commission, by the Division of under a single new holding company. Room. Investment Management, pursuant to The new holding company, currently delegated authority. named ‘‘BATS Global Markets Holdings, II. Self-Regulatory Organization’s Statement of the Purpose of, and Elizabeth M. Murphy, Inc.,’’ will at that time change its name to ‘‘BATS Global Markets, Inc.’’ In Statutory Basis for, the Proposed Rule Secretary. addition, the current parent company of Change [FR Doc. 2013–29625 Filed 12–11–13; 8:45 am] the Exchange, BATS Global Markets, In its filing with the Commission, the BILLING CODE 8011–01–P Inc., will at that time change its name Exchange included statements to ‘‘BATS Global Markets Holdings, concerning the purpose of and basis for Inc.’’ the proposed rule change and discussed For ease of reference, this Proposed any comments it received on the Rule Change will refer to the current proposed rule change. The text of these parent company of the Exchange as statements may be examined at the ‘‘Current BGM’’ when referring to the places specified in Item IV below. The entity prior to the Closing, and as ‘‘BGM Exchange has prepared summaries, set Holdings’’ when referring to that entity forth in Sections A, B, and C below, of after the Closing. The entity that will 3 The term ‘‘Member’’ is defined in Exchange 1 15 U.S.C. 78s(b)(1). Rule 1.5(n) as any registered broker or dealer that 2 17 CFR 240.19b–4. has been admitted to membership in the Exchange.

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the most significant parts of such interest in each of Blue Merger Sub Inc., Holdings. Five other firms as well as statements. a Delaware corporation (‘‘Blue Merger various individuals each beneficially Sub’’), and Delta Merger Sub LLC, a own less than five percent of DE A. Self-Regulatory Organization’s Delaware limited liability company Holdings. Statement of the Purpose of, and the (‘‘Delta Merger Sub’’). Each of Blue Statutory Basis for, the Proposed Rule 2. The Combination Change Merger Sub and Delta Merger Sub are currently shell companies with no On August 23, 2013, an Agreement 1. Purpose material assets or operations. and Plan of Merger (the ‘‘Merger Agreement’’) was entered into among The Exchange submits this Proposed Current BGM is itself beneficially Current BGM, New BGM, DE Holdings, Rule Change to seek the Commission’s owned primarily by a consortium of Blue Merger Sub, Delta Merger Sub, and approval of various changes to the several unaffiliated firms, including Cole, Schotz, Meisel, Forman & organizational and governance Members or affiliates of Members of the Leonard, P.A., solely in its capacity as documents of the Exchange and the Exchange. No firm beneficially owns 20 representative of the LLC Members. Exchange’s current and proposed future percent or greater of Current BGM, and Pursuant to and subject to the terms of parent companies, changes to Exchange the only firms beneficially owning ten the Merger Agreement, at the Closing, Rules,4 and related actions that are percent or greater of Current BGM are (i) GETCO Investments, LLC, an affiliate of among other things: necessary in connection with the (i) Blue Merger Sub will be merged Closing of the Combination, as KCG Holdings, Inc., (ii) BGM Holding, L.P., a holding company itself owned by with and into Current BGM, whereupon described below. the separate existence of Blue Merger Other than as described herein and set entities affiliated with the Spectrum Sub will cease and Current BGM will be forth in the attached Exhibits 5A Equity Investors and TA Associates the surviving company (the ‘‘BATS through 5H, the Exchange will continue Management private investment funds, and (iii) Strategic Investments I, Inc., an Merger’’); to conduct its regulated activities (ii) Delta Merger Sub will be merged affiliate of Morgan Stanley.6 Seven other (including operating and regulating its with and into DE Holdings, whereupon firms each beneficially own five percent market and Members) in the manner the separate existence of Delta Merger or greater but less than ten percent of currently conducted, and will not make Sub will cease and DE Holdings will be Current BGM, while seven other firms any changes to its regulated activities in the surviving company (the ‘‘Direct connection with the Combination. as well as various individuals each Edge Merger’’); Except as set forth in this Proposed Rule beneficially own less than five percent (iii) by virtue of the BATS Merger and Change, the Exchange is not proposing of Current BGM. without any action required on the part DE Holdings, a Delaware limited any amendments to its trading and of Current BGM, New BGM, Blue liability company, owns 100 percent of regulatory rules at this time. If the Merger Sub or any holder of Current the equity interest in Direct Edge, Inc., Exchange determines to make any such BGM stock, each outstanding share of a Delaware corporation (‘‘DEI’’). DEI, in changes, it will seek the approval of the Current BGM stock issued and turn, owns 100 percent of the equity Commission to the extent required by outstanding will be converted into the the Act, and the Commission’s rules interest in two registered national right to receive shares of New BGM thereunder, and the Rules of the securities exchanges, EDGX and EDGA, stock, and each outstanding share of Exchange. each a Delaware corporation (together, Blue Merger Sub issued and outstanding the ‘‘DE Exchanges’’). In addition, DE 1. Current Corporate Structures will be converted into one share of Holdings owns 100 percent of the equity Current BGM, such that Current BGM The Exchange and BATS Exchange, interest in Direct Edge ECN LLC d/b/a will become a wholly owned subsidiary Inc. (‘‘BZX’’ and together with the DE Route, a Delaware limited liability of New BGM; and Exchange, the ‘‘BATS Exchanges’’), are company and the routing broker-dealer each Delaware corporations that are (iv) by virtue of the Direct Edge for the DE Exchanges (‘‘DE Route’’). Merger and without any action required national securities exchanges registered As a limited liability company, with the Commission pursuant to on the part of DE Holdings, New BGM, ownership in DE Holdings is Delta Merger Sub, or any LLC Member, Section 6(a) of the Act.5 Each BATS represented by units held by ‘‘LLC Exchange is a direct, wholly owned each LLC Member’s membership Members.’’ Certain of the DE Holdings interests in DE Holdings will be subsidiary of Current BGM, a Delaware LLC Members are Members or affiliates corporation. Current BGM also owns converted into the right to receive of Members of the Exchange. The shares of New BGM stock, and each unit 100 percent of the equity interest in Exchange understands that International BATS Trading, Inc., a Delaware of ownership interest of Delta Merger Securities Exchange Holdings, Inc. (‘‘ISE Sub issued and outstanding will be corporation (‘‘BATS Trading’’) that is a Holdings’’) is the only LLC Member of broker-dealer registered with the converted into one unit of ownership of DE Holdings to beneficially own greater DE Holdings, such that DE Holdings Commission that provides routing than 20 percent of the equity interest in services outbound from and, in certain will become a wholly owned subsidiary DE Holdings. Other than ISE Holdings, of New BGM. instances inbound to, each BATS the only firms beneficially owning ten Upon the Closing, each of Current BGM Exchange. In contemplation of the percent or greater of DE Holdings (but and New BGM will amend and restate Combination, several new entities have in each case less than 20 percent) are their respective certificates of been formed: New BGM, a Delaware Citadel Securities LLC, The Goldman incorporation to, among other things, corporation, is currently a wholly Sachs Group, Inc., and an affiliate of change their names such that New BGM owned subsidiary of Current BGM, and KCG Holdings, Inc. No LLC Member will be renamed ‘‘BATS Global Markets, is currently a shell company with no beneficially owns five percent or greater Inc.’’ and Current BGM will be renamed material assets or operations. New BGM, but less than ten percent of DE in turn, owns 100 percent of the equity ‘‘BATS Global Markets Holdings, Inc.’’ 6 For purposes of this Proposed Rule Change, 3. Post-Closing Corporate Structure 4 The term ‘‘Exchange Rules’’ refers to the rules references to the beneficial ownership of a ‘‘firm’’ of the Exchange. refers to the aggregate beneficial ownership of the As a result of the Combination, New 5 15 U.S.C. 78f(a). firm and its affiliated entities. BGM will own (i) 100 percent of the

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equity interest in BGM Holdings (the 4. Voting and Ownership Limitations of a violation of the BGM Ownership entity previously referred to as ‘‘Current Current BGM; Resolutions Limitation are not recognized by BGM’’), and (ii) 100 percent of the LLC The Current BGM Charter provides Current BGM to the extent of any membership interests in DE Holdings. that (i) no person, either alone or ownership in excess of the BGM BGM Holdings will continue to own 100 together with its ‘‘Related Persons,’’ 9 Ownership Limitation, and purported percent of the equity interest in each may own, directly or indirectly, of voting or voting arrangements in BATS Exchange and BATS Trading. DE record or beneficially, shares violation of the BGM Voting Limitation Holdings will continue to own 100 constituting more than 40 percent of any are not honored by Current BGM to the percent of the equity interest in DE class of its capital stock, and no extent of any voting in excess of the 11 Route 7 and DEI. DEI will, in turn, Exchange Member, either alone or limitation. continue to own 100 percent of the together with its Related Persons, may However, the Current BGM Charter equity interest in each DE Exchange. own, directly or indirectly, of record or provides that each of the BGM Ownership Limitation and the BGM Each of the BATS Exchanges and BATS beneficially, shares constituting more Voting Limitation may be waived Trading, on the one hand, and the DE than 20 percent of any class of its capital stock (collectively, the ‘‘BGM (except with respect to Exchange Exchanges and DE Route, on the other Members and their Related Persons) hand, will continue to operate Ownership Limitation’’), and (ii) subject to certain exceptions, no person, either pursuant to a resolution duly adopted separately. alone or together with its Related by the board of directors of Current New BGM, as the new top-level Persons, at any time, may, directly, BGM if, in connection with taking such holding company for the combined indirectly or pursuant to any of various action, the board of directors states in businesses, will have widely dispersed arrangements, vote or cause the voting such resolution that it is the ownership, divided among the several of shares or give any consent or proxy determination of the board of directors firms and individuals that previously with respect to shares representing more that the waiver: held equity interests in each of Current than 20 percent of the voting power of • Will not impair the ability of each BGM and DE Holdings. Of the firms and its then issued and outstanding capital BATS Exchange to carry out its individuals that are expected to hold stock (the ‘‘BGM Voting Limitation’’).10 functions and responsibilities as an equity interests in New BGM after the Purported transfers that would result in ‘‘exchange’’ under the Act and the rules Closing, none will beneficially own 20 and regulations promulgated percent or greater of New BGM and only 9 The Current BGM Charter generally defines a thereunder; ‘‘Related Person’’ as, with respect to any person, (i) • an affiliate of KCG Holdings, Inc. will is otherwise in the best interests of any ‘‘affiliate’’ of such person (as defined in Rule Current BGM, its stockholders, and each beneficially own ten percent or greater. 12b–2 under the Act); (ii) any other person with BATS Exchange; Seven firms will beneficially own five which such first person has any agreement, arrangement or understanding (whether or not in • will not impair the ability of the percent or greater but less than ten writing) to act together for the purpose of acquiring, Commission to enforce the Act and the percent, while 12 other firms as well as voting, holding or disposing of shares of the capital rules and regulations promulgated various individuals will each stock of Current BGM (provided no person is deemed a Related Person pursuant to clause (ii) thereunder; and beneficially own less than five percent solely as a result of such person’s being or • shall not be effective until it is filed 8 of New BGM. becoming a party to the Investor Rights Agreement with and approved by the entered into by and among Current BGM and the 12 stockholders named therein on January 1, 2008); Commission. 7 As described above, the Combination will result (iii) in the case of a person that is a company, In granting such a waiver, the Current in a change of ownership of both BATS Trading and corporation or similar entity, any executive officer DE Route, each of which is a member of the BGM board of directors has the (as defined under Rule 3b–7 under the Act) or discretion to impose on the person and Financial Industry Regulatory Authority, Inc. director of such person and, in the case of a person (‘‘FINRA’’). The Exchange understands that, that is a partnership or limited liability company, its Related Persons, such conditions and pursuant to NASD Rule 1017, each of BATS any general partner, managing member or manager restrictions that it deems necessary, Trading and DE Route is seeking approval for this of such person, as applicable; (iv) in the case of any appropriate or desirable in furtherance change of ownership from FINRA. person that is a registered broker or dealer that has of the objectives of the Act and the rules 8 ISE Holdings, which will beneficially own been admitted to membership in either of the BATS greater than five percent but less than ten percent Exchanges (for purposes of this definition of and regulations promulgated of New BGM, will receive common stock of New ‘‘Related Person,’’ each such national securities thereunder, and the governance of each BGM designated as Class A Non-Voting Common exchange shall be referred to generally as an BATS Exchange.13 Stock. As set forth in the proposed New BGM ‘‘Exchange’’ and any member of such Exchange, an In addition, notwithstanding the Charter and described below, shares of Class A ‘‘Exchange Member’’), any person that is associated Non-Voting Common Stock are generally non- with the Exchange Member (as determined using above, the Current BGM Charter voting, except with respect to certain actions that the definition of ‘‘person associated with a provides 14 that in any case where a would adversely affect the preferences, rights or member’’ as defined under Section 3(a)(21) of the person, either alone or with its Related powers of the holders of Class A Non-Voting Act); (v) in the case of a person that is a natural Persons, would own or vote more than Common Stock disproportionately relative to person and Exchange Member, any broker or dealer Voting Common Stock or the Class B Non-Voting that is also an Exchange Member with which such the BGM Ownership Limitation or BGM Common Stock. See New BGM Charter, Art. person is associated; (vi) in the case of a person that Voting Limitation, respectively, upon FOURTH, para. (b)(ii). Pursuant to the New BGM is a natural person, any relative or spouse of such consummation of any proposed sale, Charter and the Investor Rights Agreement expected person, or any relative of such spouse who has the assignment or transfer of Current BGM’s to be entered into at Closing and attached as Exhibit same home as such person or who is a director or A to the New BGM Bylaws (the ‘‘Investor Rights officer of Current BGM or any of its parents or capital stock, such a transaction will not Agreement’’), ISE Holdings’ shares of Class A Non- subsidiaries; (vii) in the case of a person that is an become effective until the Current BGM Voting Common Stock may convert to Voting executive office (as defined under Rule 3b–7 under board of directors determines, by Common Stock (i) automatically with respect to any the Act) or a director of a company, corporation or resolution, that such person and its shares transferred to persons other than Related similar entity, such company, corporation or entity, Persons of ISE Holdings; (ii) upon the termination as applicable; and (viii) in the case of a person that 11 of the Investor Rights Agreement; and (iii) is a general partner, managing member or manager See Current BGM Charter, Art. FIFTH, para. (d). automatically with respect to any shares of Class A of a partnership or limited liability company, such 12 See Current BGM Charter, Art. FIFTH, para. Non-Voting Common Stock sold by ISE Holdings in partnership or limited liability company, as (b)(ii)(B). any public offering of the stock of New BGM. See applicable. See Current BGM Charter, Art. FIFTH, 13 Id. New BGM Charter, Art. FOURTH, para. (c); Investor para. (a)(ii). 14 See Current BGM Charter, Art. FIFTH, para. Rights Agreement, Section 2.2(j). 10 See Current BGM Charter, Art. FIFTH, para. (b). (b)(iii).

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Related Persons are not subject to any BGM will not impair the ability of each they have done prior to the ‘‘statutory disqualification,’’ as defined BATS Exchange to carry out its Combination. Thus, each BATS in Section 3(a)(39) of the Act.15 functions and responsibilities as an Exchange will continue to enforce the As described above, upon the Closing ‘‘exchange’’ under the Act and the rules Act, the Commission’s rules thereunder, of the proposed Combination, New BGM and regulations promulgated and each Exchange’s own rules, in the will become the sole owner of Current thereunder, is otherwise in the best manner it does today. Further, the BGM (referred to as ‘‘BGM Holdings’’ interests of Current BGM, its Commission will continue to have upon the Closing and thereafter). stockholders and the BATS Exchanges, plenary regulatory authority over the Additionally, as discussed in more and will not impair the ability of the BATS Exchanges, as is currently the detail below, the Exchange is also Commission to enforce the Act and the case with these entities. seeking the Commission’s approval for rules and regulations promulgated The Exchange also notes that the Current BGM’s proposal to, thereunder; Resolutions reflect the determination by • contemporaneously with the Closing, the acquisition or exercise of the the Current BGM board of directors that amend and restate the Current BGM proposed voting rights by New BGM in the Combination and New BGM’s Charter as the BGM Holdings Charter, Current BGM will not impair the ability resulting ownership and voting rights in and for New BGM to adopt the New of each BATS Exchange to carry out its BGM Holdings are otherwise in the best BGM Charter. Unlike the Current BGM functions and responsibilities as an interests of Current BGM, its Charter, as proposed to be amended, the ‘‘exchange’’ under the Act and the rules stockholders, and the BATS Exchanges. BGM Holdings Charter will not contain and regulations promulgated In addition, the Exchange notes that the BGM Ownership Limitation or the thereunder, that it is otherwise in the notwithstanding the Resolutions and the BGM Voting Limitation.16 While the best interests of the Current BGM, its Combination, the BGM Ownership BGM Ownership Limitation and BGM stockholders and the BATS Exchanges, Limitation and the BGM Voting and that it will not impair the ability of Voting Limitation will not be contained Limitation will remain in place with the Commission to enforce the Act and in the BGM Holdings Charter, the BGM respect to potential future transactions the rules and regulations promulgated Holdings Charter specifies that BGM involving the ultimate parent company Holdings’ sole stockholder will be New thereunder; • of the BATS Exchanges. As described in BGM, and the New BGM Charter will neither New BGM, nor any of its Related Persons, is subject to ‘‘statutory more detail below, the Exchange is also contain substantively identical proposing the adoption of the New BGM ownership and voting limitation disqualification’’ within the meaning of 18 Charter and the New BGM Bylaws, provisions, which will also become Section 3(a)(39) of the Act; and • neither New BGM, nor any of its which are modeled in large part on the effective contemporaneously with the Current BGM Charter and the Current Closing.17 Related Persons (excluding BATS Trading, an Exchange Member whose BGM Bylaws (and include provisions As a result, New BGM’s acquisition of substantially identical to the BGM ownership and voting rights in BGM affiliation with the Exchanges has been approved/permitted by the Commission Ownership Limitation and the BGM Holdings upon Closing would not cause Voting Limitation), creating an New BGM to contravene the BGM pursuant to Rule 2.11 and Rule 2.12 of 19 ownership structure that will continue Ownership Limitation or BGM Voting each Exchange), is an Exchange 20 to provide the Commission with Limitation, because the Current BGM Member. The Exchange has reviewed such appropriate oversight tools to ensure Charter will be contemporaneously Resolutions and requests that the that the Commission will have the amended to eliminate the BGM Commission approve such Resolutions. ability to enforce the Act with respect to Ownership Limitation and the BGM The Exchange believes that the the Exchange, its direct and indirect Voting Limitation, and the New BGM Commission should approve the parent entities, and its directors, Charter will be contemporaneously Resolutions, as the Combination will officers, employees and agents to the amended with respect to New BGM’s not impair the ability of either BATS extent they are involved in the activities stockholders. Exchange to carry out its functions and of the Exchange, and protect the Nevertheless, because the responsibilities as an ‘‘exchange’’ under independence of the Exchange’s self- Combination will result in a change of the Act and the rules and regulations regulatory activities. ownership of Current BGM (in that New promulgated thereunder, or the ability The Exchange therefore requests that BGM will become the sole stockholder of the Commission to enforce the Act the Commission approve the of Current BGM), the Exchange and the and the rules and regulations Resolutions, attached as Exhibit 5A. board of directors of Current BGM each promulgated thereunder. The BATS believe that it is appropriate for the 5. Adoption of New BGM Charter and Exchanges will continue to operate and board of directors of Current BGM to New BGM Bylaws regulate their markets and Members as adopt the Resolutions, attached as New BGM was incorporated on Exhibit 5A, making certain 18 15 U.S.C. 78c(a)(39). August 22, 2013, under the name BATS determinations with respect to New 19 As noted above, BATS Trading is a routing Global Markets Holdings, Inc., by filing BGM and the Combination similar to broker-dealer and an Exchange Member that is a certificate of incorporation with the those that would be necessary to waive affiliated with the Exchange, pursuant to Exchange Secretary of State of Delaware. Upon the BGM Ownership Limitation and Rules 2.11 and 2.12, and a direct subsidiary of incorporation, New BGM also adopted BGM Voting Limitation. Specifically, Current BGM. The same structure will continue to be in place following the Closing and BATS Trading bylaws. New BGM is currently a shell the board of directors of Current BGM will remain a direct subsidiary of BGM Holdings. company, with no material assets or determined that: 20 In addition, the Resolutions contain a operations. Therefore, neither its • The acquisition of the proposed determination that the execution and delivery of the certificate of incorporation nor bylaws ownership by New BGM in Current Merger Agreement by New BGM constituted notice of New BGM’s intention to acquire ownership and currently need or contain any voting rights in excess of the BGM Ownership provisions that would be appropriate for 15 15 U.S.C. 78c(a)(39). Limitation and BGM Voting Limitation, 16 See infra text accompanying note 58. respectively, in writing and not less than 45 days an entity that has direct or indirect 17 See infra text accompanying notes 23 through before the Closing. See Current BGM Charter, Art. ownership in a registered national 27. FIFTH, para. (b)(iv). securities exchange.

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However, in connection with the from owning, directly or indirectly, of fulfilling its self-regulatory obligations Combination, upon the Closing, New record or beneficially, more than 20 and in administering and complying BGM will become (i) the indirect owner percent of shares of any class of capital with the requirements of the Act. (through BGM Holdings) of each of the stock of New BGM.25 As in the Current The provisions of the New BGM BATS Exchanges and BATS Trading, (ii) BGM Charter, purported sales, transfers, Charter differ from those of the Current the indirect owner (through DE assignments, pledges or ownership that BGM Charter in certain limited respects: Holdings and DEI) of each of the DE would result in a violation of the BGM • The total number of shares of Exchanges, and (iii) the indirect owner Ownership Limitation will not be common stock that New BGM will have (through DE Holdings) of DE Route. As recognized by New BGM to the extent authority to issue is 75,000,000, divided a result, the Exchange is proposing that of any ownership in excess of the between 55,000,000 shares designated in connection with New BGM’s limitation, and New BGM shall have the as Voting Common Stock, 10,000,000 acquisition of indirect ownership in the right to redeem the shares in excess of shares designated as Class A Non-Voting Exchange, New BGM would amend and the applicable ownership limit for their Common Stock, and 10,000,000 shares restate each of its certificate of fair market value. In addition, in designated as Class B Non-Voting incorporation and bylaws to adopt contrast to the Current BGM Charter, the Common Stock.30 This represents an provisions designed to protect and New BGM Charter would clarify that increase from the 25,000,000 shares that maintain the integrity of the self- these same non-recognition and Current BGM is authorized to issue regulatory functions of the Exchange redemption rights apply in the case of (divided between 24,500,000 shares and to facilitate the ability of the a purported conversion of shares designated as Voting Common Stock Exchange and the Commission to carry resulting in a violation of the BGM and 500,000 shares designated as Non- out their regulatory and oversight Ownership Limitation, as apply to Voting Common Stock). The increase in obligations under the Act. Each of the purported sales, transfers, assignments, authorized shares is due to the greater New BGM Charter and the New BGM pledges or ownership that result in such number of stockholders that New BGM Bylaws is modeled on, and substantially a violation.26 Similarly, as in the will have following the Combination, as similar to, the Current BGM Charter and Current BGM Charter, purported voting compared to Current BGM, as well as to Current BGM Bylaws, respectively, or voting arrangements in violation of provide an adequate number of except with respect to the differences the BGM Voting Limitation will not be authorized shares to allow for potential described below. honored by New BGM to the extent of future issuances. The rights and any voting in excess of the limitation.27 preferences of the Class A Non-Voting a. New BGM Charter These provisions are designed to Common Stock and Class B Non-Voting The New BGM Charter is proposed to prevent any stockholder from exercising Common Stock are identical in all be adopted as the Amended and undue control over the operation of the respects, except for conversion rights. Restated Certificate of Incorporation of BATS Exchanges or the DE Exchanges Class A Non-Voting Common Stock BATS Global Markets Holdings, Inc. (together, the ‘‘Exchange Subsidiaries’’), converts into Voting Common Stock However, the New BGM Charter will each of which New BGM will indirectly automatically upon transfer to a person effect an amendment to the name of the own following the Combination, and to other than a Related Person of such corporation upon Closing such that it assure that each Exchange Subsidiary holder, upon termination of the Investor will be renamed ‘‘BATS Global Markets, and the Commission are able to carry Rights Agreement, and may be Inc.’’ 21 The change of name is intended out their regulatory obligations under converted into Voting Common Stock at to reflect the fact that New BGM is the Act. any time at the option of the holder.31 succeeding to the business of Current Further, consistent with the Current Class B Non-Voting Common Stock, BGM in all respects, notwithstanding BGM Charter, the New BGM Charter however, may only be converted into the technical change of corporate entity provides that, for so long as New BGM Voting Common Stock following a that will result from the structure of the controls, directly or indirectly, a ‘‘Qualified Transfer.’’ 32 The term Combination. registered national securities exchange, The New BGM Charter, which is before any amendment to the New BGM 30 See New BGM Charter, Art. FOURTH, para. (a). attached as Exhibit 5B, is substantially Charter may be effective, those changes 31 See New BGM Charter, Art. FOURTH, para. (c). similar to the Current BGM Charter, must be submitted to the board of In addition, Class A Non-Voting Common Stock directors of each such exchange, and if held by ISE Holdings will convert automatically if which the Commission has previously ISE Holdings includes any such shares in any found to be consistent with the Act.22 It the amendment is required to be filed public offering of stock of New BGM. contains provisions imposing the BGM with, or filed with and approved by the 32 The Exchange notes that, notwithstanding the Ownership Limitation and the BGM Commission pursuant to Section 19(b) conversion features, neither Class A Non-Voting of the Act, 28 such change shall not be Common Stock nor Class B Non-Voting Common Voting Limitation on any owners or Stock may convert into Voting Common Stock if prospective owners of New BGM.23 In effective until filed with, or filed with 29 such a conversion would cause the stockholder to addition, similar to the Current BGM and approved by, the Commission. own, alone or with its Related Persons, directly or Charter, the New BGM Charter prohibits The Exchange believes that these indirectly, of record or beneficially (i) more than provisions will assist the Exchange in 40% of any class of capital stock of New BGM in a Member of any of New BGM’s contravention of the BGM Ownership Limitation registered national securities exchange (unless a waiver is granted by the board of directors such definition is expanded to refer to any national subsidiaries, either alone or together of New BGM and approved by the Commission), or securities exchange that is a direct or indirect 24 (ii) in the case of an Exchange Member stockholder, with such Member’s Related Persons, subsidiary of New BGM, and (ii) the reference to the more than 20% of any class of capital stock of New Investor Rights Agreement has been revised to refer BGM. See New BGM Charter, Art. FIFTH, para. 21 to the Investor Rights Agreement to be entered into See New BGM Charter, Art. FIRST. (b)(i)(A) and (B). In addition, to the extent that any 22 See Securities Exchange Act Release No. 58375 upon Closing. 25 Class A Non-Voting Common Stock or Class B Non- (August 18, 2008), 73 FR 49498 (August 21, 2008). See New BGM Charter, Art. FIFTH para. Voting Common Stock is converted into Voting (b)(i)(B). 23 See New BGM Charter, Art. FIFTH paras. Common Stock, the stockholder owning the 26 (b)(i)(A) and (C). See New BGM Charter, Art. FIFTH, paras. (d)– converted Voting Common Stock would be subject 24 The New BGM Charter defines ‘‘Related (e). to the BGM Voting Limitation and not permitted, Persons’’ consistent with the definition in the 27 See New BGM Charter, Art. FIFTH, para. (d). either alone or together with its Related Persons, at Current BGM Charter, see supra note 9, except that 28 15 U.S.C. 78s(b). any time, directly, indirectly or pursuant to any of (i) the definition of ‘‘Exchange’’ for purposes of 29 See New BGM Charter, Art. TWELFTH. Continued

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‘‘Qualified Transfer’’ means a sale or refer to ‘‘any national securities for purposes of, and subject to oversight other transfer of Class B Non-Voting exchange registered under Section 6 of pursuant to, the Act.40 Common Stock by a holder of such the Act with the [Commission] that is a The New BGM Bylaws also provide shares: (a) In a widely distributed public direct or indirect subsidiary’’ of New that all books and records of an offering registered pursuant to the BGM.36 The term ‘‘Exchange’’ is used Exchange Subsidiary reflecting Securities Act of 1933; 33 (b) in a private throughout the New BGM Charter to confidential information pertaining to sale or transfer in which the relevant refer to subsidiaries of New BGM that the self-regulatory function of the transferee (together with its Affiliates, as are registered as national securities Exchange Subsidiary (including but not defined below, and other transferees exchanges. This definition differs from limited to disciplinary matters, trading acting in concert with it) acquires no the definition contained in the Current data, trading practices and audit more than two percent of any class of BGM Charter, which defines information) that shall come into the voting shares (as defined in 12 CFR ‘‘Exchange’’ by specific reference to the possession of New BGM shall not be 225.2(q)(3) and determined by giving names of the BATS Exchanges. Because, made available other than to those effect to any such permitted conversion following the Combination, the DE officers, directors, employees and agents of transferred shares of Class B Non- Exchanges will also become indirect of New BGM that have a reasonable Voting Common Stock upon such subsidiaries of New BGM, the definition need to know the contents thereof, and transfer pursuant to Article FOURTH of in the New BGM Charter has been shall be retained in confidence by New the New BGM Charter), (c) to a expanded so as to capture the DE BGM, the members of its board of transferee that (together with its Exchanges in addition to the BATS directors, its officers, employees and Affiliates and other transferees acting in Exchanges. agents, and not used for any non- concert with it) owns or controls more regulatory purposes.41 The New BGM • The New BGM Charter reflects than 50 percent of any class of voting Bylaws, however, specify that the New certain non-substantive differences and shares (as defined in 12 CFR 225.2(q)(3)) BGM Bylaws (including these typographical corrections, including of New BGM without regard to any confidentiality provisions) shall not be transfer of shares from the transferring conforming the spelling of ‘‘Bylaws’’ interpreted so as to limit or impede the holder of shares of Class B Non-Voting throughout the organizational rights of the Commission or an Common Stock, or (d) to New BGM. As documents of New BGM and its Exchange Subsidiary to access and used above, the term ‘‘Affiliate’’ means, proposed subsidiaries. examine such confidential information with respect to any person, any other b. New BGM Bylaws pursuant to the federal securities laws person directly or indirectly controlling, and the rules and regulations controlled by or under common control As with the New BGM Charter, the thereunder, or to limit or impede the with such person, and ‘‘control’’ New BGM Bylaws, which are set forth ability of any officers, directors, (including, with correlative meanings, in Exhibit 5C, contain provisions employees or agents of New BGM to the terms ‘‘controlled by’’ and ‘‘under substantially similar to those of the disclose such confidential information common control with’’) has the meaning Current BGM Bylaws, which the to the Commission or an Exchange set forth in 12 CFR 225.2(e)(1).34 The Commission has previously found to be Subsidiary.42 Exchange understands that certain consistent with the Act.37 This includes In addition, for so long as New BGM persons that will become stockholders provisions that are designed to maintain controls, directly or indirectly, an of New BGM as of the Closing may be, the independence of the self-regulatory Exchange Subsidiary, the directors, or may become, subject to restrictions functions of the Exchange Subsidiaries. officers, employees and agents of New under the Bank Holding Company Act Consistent with the Current BGM BGM are required to give due regard to of 1956 35 on the extent to which they Bylaws, the New BGM Bylaws provide the preservation of the independence of are permitted to own voting stock of that New BGM and its officers, each Exchange Subsidiary’s self- New BGM or certain types of non-voting directors, employees and agents submit regulatory functions, and to its stock convertible into voting stock of to the Commission’s jurisdiction with obligations to investors and the general New BGM. The Exchange understands respect to activities relating to any of the public, and not take any actions which that New BGM’s Class B Non-Voting Exchange Subsidiaries,38 and, for so would interfere with the effectuation of Common Stock is designed to permit a long as New BGM controls, directly or decisions by the board of directors of stockholder that may be subject to such indirectly, such Exchange Subsidiary, such Exchange Subsidiary relating to restrictions to maintain an economic New BGM agrees to provide the regulatory functions (including interest in New BGM, through Commission and each Exchange disciplinary matters) or which would ownership of Class B Non-Voting Subsidiary with access to its books and interfere with such Exchange Common Stock, in excess of its voting records that are related to the operation Subsidiary’s ability to carry out its interest and in compliance with such or administration of the Exchange responsibilities under the Act.43 restrictions, for purposes of the Bank Subsidiary.39 In addition, to the extent Further, the New BGM Bylaws require Holding Company Act of 1956. they are related to the operation or that, for so long as New BGM controls, • The term ‘‘Exchange,’’ as used in administration of an Exchange directly or indirectly, an Exchange the New BGM Charter, is defined to Subsidiary, the books, records, Subsidiary, before any amendment to or premises, officers, directors, agents, and repeal of any provision of the New BGM various arrangements, to vote or cause the voting of employees of New BGM shall be Bylaws may be effective, those changes shares or give any consent or proxy with respect to shares representing more than 20 percent of the deemed to be the books, records, must be submitted to the board of voting power of the then issued and outstanding premises, officers, directors, agents, and directors of each Exchange Subsidiary, capital stock of New BGM (unless a waiver is employees of the Exchange Subsidiary and, if such amendment is required to granted by the board of directors of New BGM and be filed with, or filed with and approved by the Commission). See New BGM Charter, Art. FIFTH, para. (b)(i)(C). 36 See New BGM Charter, Art. FIFTH, para. (a)(ii). 33 15 U.S.C. 77a. 37 See Securities Exchange Act Release No. 58375 40 Id. 34 See New BGM Charter, Art. FOURTH, para. (August 18, 2008), 73 FR 49498 (August 21, 2008). 41 See New BGM Bylaws, Section 14.02. (d)(i). 38 See New BGM Bylaws, Section 14.05. 42 See id. 35 12 U.S.C. 1841 et seq. 39 See New BGM Bylaws, Section 14.03. 43 See New BGM Bylaws, Section 14.01.

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approved by, the Commission before the New BGM. The Current BGM board of [Act] that is a direct or indirect changes may be effective under Section directors currently has 13 members. subsidiary’’ of New BGM.54 The term 19 of the Act and the rules promulgated After the Closing, it is anticipated that ‘‘Exchange’’ is used throughout the New thereunder, then the proposed changes the New BGM board of directors will BGM Bylaws to refer to subsidiaries of shall not be effective until filed with, or consist of the same members as the New BGM that are registered as national filed with and approved by, the Current BGM board, except that the securities exchanges. The Current BGM Commission, as the case may be.44 The New BGM board will be expanded by Bylaws either refer to each BATS Exchange believes that these provisions two members, to include representatives Exchange by name or define will assist the Exchange in fulfilling its of two additional firms that are ‘‘Exchange’’ by specific reference to the self-regulatory obligations and in currently LLC Members of DE Holdings BATS Exchanges. Because, following administering and complying with the but will, by virtue of the Combination, the Combination, the DE Exchanges will requirements of the Act. become stockholders of New BGM. also become indirect subsidiaries of The provisions of the New BGM • Section 5.02(a) of the Current BGM New BGM, the definition in the New Bylaws differ from those of the Current Bylaws sets forth the process for BGM Bylaws has been expanded so as BGM Bylaws in certain limited respects: representatives of Current BGM to to capture the DE Exchanges in addition • The New BGM Bylaws provide for attend meetings of, and vote the shares to the BATS Exchanges. two separate corporate officer positions, of, any corporation, partnership or other • The New BGM Bylaws reflect one known as the Chief Executive entity (including each BATS Exchange) certain non-substantive updates to dates Officer and another known as the in which Current BGM may hold stock, of agreements and cross-references, as President. The Current BGM Bylaws, in partnership, or other equity interests. well as typographical corrections, contrast, provide for a combined This provision parenthetically refers to including conforming the spelling of position known as the President and the BATS Exchanges to reflect the fact ‘‘Bylaws’’ throughout the organizational 45 Chief Executive Officer. Under the that Current BGM is the direct owner of documents of New BGM and its New BGM Bylaws, the Chief Executive each of the BATS Exchanges. However, proposed subsidiaries. Officer will be the chief executive following the Combination, New BGM officer of New BGM and subject to the will instead be the direct owner of each 6. Adoption of BGM Holdings Charter control of the board of directors of New of BGM Holdings and DE Holdings. The and BGM Holdings Bylaws BGM, has general supervision, direction corresponding provision in the New Effective as of the Closing of the and control of the business and affairs BGM Bylaws therefore contains a Combination, BGM Holdings of New BGM,46 while the President will similar parenthetical reference to its (previously referred to as Current BGM) be a senior executive officer with certain ownership of BGM Holdings and DE will continue to hold direct ownership designated powers, among other things, Holdings, rather than the BATS of the BATS Exchanges and BATS to serve as the chief executive officer in Exchanges.49 In addition, the New BGM Trading, but will no longer be the the absence or disability of the Chief Bylaws include a reference to meetings ultimate holding company of the Executive Officer.47 References to of ‘‘members’’ of any ‘‘limited liability corporate structure, itself being a wholly corporate officers throughout the New company’’ in which New BGM holds owned subsidiary of New BGM. As a BGM Bylaws reflect this difference. The equity interests, which terms are not result, provisions of the Current BGM difference in corporate officer included in the corresponding provision Charter and Current BGM Bylaws, designations is intended to facilitate the in the Current BGM Bylaws.50 This is which contemplate an entity that was anticipated executive leadership of New intended to reflect the fact that New the ultimate holding company in the BGM following the Combination. It is BGM will, following the Closing, be the corporate structure, will no longer be anticipated that, following the sole member of DE Holdings, a limited appropriate. The Exchange is therefore Combination, the current President and liability company, while Current BGM proposing the amendment and Chief Executive Officer of Current BGM does not hold equity in any limited restatement of each of the Current BGM will become the Chief Executive Officer liability companies.51 In addition, the Charter (as amended, referred to as the of New BGM, while the current Chief Current BGM Bylaws contain provisions ‘‘BGM Holdings Charter’’) and the Executive Officer of DE Holdings will that relate to Current BGM’s voting of Current BGM Bylaws (as amended, become the President of New BGM. shares in the election of directors, and referred to as the ‘‘BGM Holdings • The New BGM Bylaws provide for Members of the Member Nominating Bylaws’’). Each of the proposed BGM a board of directors consisting of 15 52 Committees, of the BATS Exchanges. Holdings Charter and the BGM Holdings members, or such other number of These provisions will not be applicable Bylaws are modeled on, and members as the board of directors to New BGM and are not included in the substantially similar to, the current determines from time to time. The New BGM Bylaws, as the BATS certificate of incorporation and bylaws, Current BGM Bylaws provide that the Exchanges will be directly owned by respectively, of DEI, which is similarly board of directors will consist of one or 53 BGM Holdings, rather than New BGM. situated as an intermediate holding more members, as determined by • The term ‘‘Exchange,’’ as used in company between DE Holdings and the resolution of the board of directors.48 the New BGM Bylaws, is defined to DE Exchanges. The Commission has The size of the New BGM board is refer to ‘‘any national securities previously found the DEI certificate of proposed to be initially set at 15 in exchange registered with the incorporation and bylaws to be order to reflect the anticipated initial [Commission] under Section 6 of the consistent with the Act.55 membership of the board of directors of Following the Closing, BGM Holdings 49 See New BGM Bylaws, Section 5.02. will be the sole stockholder of the BATS 44 See New BGM Bylaws, Art. XII. 50 Id. Exchanges. Although BGM Holdings 45 Compare New BGM Bylaws, Sections 4.01 and 51 Compare New BGM Bylaws, Section 5.02 with 4.02 with Current BGM Bylaws, Sections 4.01 and Current BGM Bylaws, Section 5.02. will not carry out any regulatory 4.02(c) and (d). 52 See Current BGM Bylaws, Sections 5.02(b) and 46 See New BGM Bylaws, Section 4.02(c). (c). 54 See New BGM Bylaws, Section 10.02. 47 See New BGM Bylaws, Section 4.02(d). 53 Substantially identical provisions are instead 55 See Securities Exchange Act Release No. 62515 48 Compare New BGM Bylaws, Section 3.01 with included in the BGM Holdings Bylaws. See infra (July 16, 2010), 75 FR 43584 (July 26, 2010) (SR– Current BGM Bylaws, Section 3.01. text accompanying note 70. EDGX–2010–02).

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functions, the Exchange notes that its each such exchange, and if the same any suit, action, or proceeding pursuant activities with respect to the operation must be filed with, or filed with and to the U.S. federal securities laws or the of the BATS Exchanges must be approved by, the Commission before the rules or regulations thereunder arising consistent with, and must not interfere changes may be effective under Section out of, or relating to, the activities of with, the self-regulatory obligations of 19 of the Act 60 and the rules such exchange.65 each BATS Exchange. The BGM promulgated thereunder, then such The proposed BGM Holdings Bylaws Holdings Charter and the BGM Holdings proposed changes shall not be effective also contain a number of provisions Bylaws therefore include certain until filed with, or filed with and designed to ensure that the BATS provisions that are designed to maintain approved by, the Commission, as the Exchanges have sufficient access to the the independence of the BATS case may be.61 books and records of BGM Holdings. Exchanges’ self-regulatory functions, Pursuant to the BGM Holdings Bylaws, enable the BATS Exchanges to operate b. BGM Holdings Bylaws the books, records, premises, officers, in a manner that complies with the The proposed BGM Holdings Bylaws, directors, agents, and employees of federal securities laws, including the attached as Exhibit 5E, contain several BGM Holdings are deemed to be the objectives of Sections 6(b) 56 and 19(g) 57 provisions designed to protect the books, records, premises, officers, of the Act, and facilitate the ability of independence of the self-regulatory directors, agents and employees of the each BATS Exchange and the functions of the BATS Exchanges. The BATS Exchanges to the extent they are Commission to fulfill their regulatory proposed BGM Holdings Bylaws require related to the operation or and oversight obligations under the Act. that, for so long as BGM Holdings, administration of such exchange.66 In addition, for as long as BGM Holdings a. BGM Holdings Charter directly or indirectly, controls a BATS Exchange, BGM Holdings’ board of controls, directly or indirectly, the With respect to ownership and directors, officers, employees and agents BATS Exchanges, BGM Holdings’ books control of BGM Holdings, the proposed must give due regard to the preservation and records shall be subject at all times BGM Holdings Charter, attached as of independence of the self-regulatory to inspection and copying by the Exhibit 5D, specifically provides that functions of each BATS Exchange and Commission and the BATS Exchanges, BGM Holdings’ sole stockholder will be not interfere with the effectuation of any provided that such books and records 58 New BGM. This restriction is designed decisions by either of the BATS are related to the operation or to assure that any change to the Exchange boards of directors relating to administration of the BATS ownership or control of the BATS its regulatory functions (including Exchanges.67 Exchanges may only occur through a disciplinary matters) or which would The proposed BGM Holdings Bylaws change in the ownership or control of interfere with the ability of such also provide that, to the fullest extent New BGM. As such, any purported exchange to carry out its responsibilities permitted by law, all books and records change of such ownership or control under the Act.62 The BGM Holdings of the BATS Exchanges reflecting would need to comply with the New Bylaws would further require that BGM confidential information pertaining to BGM Charter and New BGM Bylaws, Holdings comply with the U.S. federal the self-regulatory function of such including the BGM Ownership securities laws and rules and exchange (including disciplinary Limitation and the BGM Voting regulations thereunder and shall matters, trading data, trading practices Limitation (or a Commission-approved cooperate with the Commission and and audit information) that comes into waiver therefrom). each BATS Exchange, as applicable, the possession of BGM Holdings, shall The proposed BGM Holdings Charter pursuant to and to the extent of their be retained in confidence by BGM further specifies that nothing contained respective regulatory authority.63 Holdings and its stockholders, board of therein or in the BGM Holdings Bylaws Pursuant to the BGM Holdings Bylaws, directors, officers, employees and shall be applicable where the agents, and not be used for any non- application of the provision would BGM Holdings’ officers, directors, employees and agents shall be deemed regulatory purposes.68 The proposed interfere with the effectuation of any BGM Holdings Bylaws provide, and all decisions relating to the to agree to (i) comply with the U.S. federal securities laws and the rules and however, that the foregoing shall not regulatory functions of the BATS limit or impede the rights of the Exchanges (including disciplinary regulations thereunder; and (ii) to cooperate with the Commission and Commission or the BATS Exchanges to matters) or the structure of the market access and examine such confidential that each BATS Exchange regulates, or each BATS Exchange in respect of the information pursuant to the federal would interfere with the ability of each Commission’s oversight responsibilities securities laws and the rules and BATS Exchange to carry out its regarding the BATS Exchanges and their regulations thereunder, or limit or responsibilities under the Act or oversee self-regulatory functions and impede the ability of any BGM Holdings the market that each regulates.59 responsibilities of the BATS Exchanges, In addition, the proposed BGM and BGM Holdings will take reasonable stockholders, officers, directors, Holdings Charter provides that for so steps to cause its officers, directors, employees or agents to disclose such long as BGM Holdings controls, directly employees and agents to so cooperate.64 confidential information to the or indirectly, a registered national Furthermore, BGM Holdings and its Commission or either BATS 69 securities exchange, before any officers, directors, employees and agents Exchange. With respect to the election of amendment to or repeal of any will be deemed to irrevocably submit to provision of the BGM Holdings Charter the jurisdiction of the U.S. federal directors of the BATS Exchanges, may be effective, those changes shall be courts, the Commission, and each BATS Current BGM is currently the sole and submitted to the board of directors of Exchange, as applicable, for purposes of direct stockholder of each of the BATS Exchanges. As noted above, while 56 15 U.S.C. 78f(b). 60 15 U.S.C. 78s(b). 65 57 15 U.S.C. 78s(g). 61 See BGM Holdings Charter, Art. Seventh, para. See BGM Holdings Bylaws, Section 7.3. 66 58 See BGM Holdings Charter, Art. SEVENTH, 3. See BGM Holdings Bylaws, Section 5.8(b). para. 4. 62 See BGM Holdings Bylaws, Section 7.1. 67 Id. 59 See BGM Holdings Charter, Art. FIFTH, para. 63 See BGM Holdings Bylaws, Section 7.2. 68 See BGM Holdings Bylaws, Section 5.8(a). 2. 64 Id. 69 Id.

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Current BGM will become BGM and approved by, the Commission, as considered to be an Industry Director, Holdings, it will continue to hold the the case may be.74 but is excluded from being designated direct ownership interest and voting Lastly, while as noted above, the BGM as a member of one of the three classes rights in the BATS Exchanges. Holdings Bylaws are modeled on the of directors for purposes of the Board’s Therefore, the BGM Holdings Bylaws current bylaws of DEI (the ‘‘DEI staggered three-year terms. This are proposed to maintain provisions Bylaws’’), in contrast with the current amendment is meant to clarify, rather relating to its voting of its interests in DEI Bylaws, the proposed BGM than change, current practice. The the BATS Exchanges that are Holdings Bylaws do not contain a Exchange Bylaws require that the Board substantially identical to those provision relating to BGM Holdings’ of Directors be composed of one contained in the Current BGM Bylaws.70 handling of funds derived from the Director who is the Chief Executive In particular, the proposed BGM regulatory operations of its exchange Officer of the Exchange, and a sufficient Holdings Bylaws would continue to subsidiaries (such as regulatory fees, number of Non-Industry Directors provide that at any meeting of the fines and penalties). The Exchange (including Independent Directors), stockholders of either BATS Exchange Bylaws and the bylaws of BZX each Industry Directors and Member held for the purpose of electing prohibit the Exchange and BZX, Representative Directors such that (i) directors and members of such respectively, from distributing any such the number of Non-Industry Directors, exchange’s Member Nominating funds to its stockholder, instead including at least one Independent requiring that such funds only be Committee, or in the event written Director, equals or exceeds the sum of applied to fund the legal and regulatory consents are solicited or otherwise the number of Industry Directors and operations of the respective exchange or sought from the stockholders of such Member Representative Directors, and pay restitution and disgorgement of BATS Exchange with respect thereto, (ii) the number of Member funds intended for customers.75 As a BGM Holdings will cause all Representative Directors equals at least result, BGM Holdings will not be outstanding shares of the BATS 20 percent of the Board of Directors (the permitted to come into possession of Exchange owned by BGM Holdings to ‘‘Exchange Board Composition regulatory funds, as they will remain at be voted in favor of only those Member Requirements’’).77 Because the the respective exchange and used only Representative Directors and nominees definition of ‘‘Industry Director’’ for permitted purposes. The Exchange for the Member Nominating Committee includes a Director that has an therefore believes that including a employment relationship with the nominated in accordance with such provision in the BGM Holdings Bylaws Exchange,78 the Chief Executive Officer exchange’s bylaws, and, with respect to relating to the handling by BGM of the Exchange will always meet the any written consents, BGM Holdings Holdings of such funds is unnecessary definition of ‘‘Industry Director.’’ will only cause to be validly executed and potentially confusing. The Consistent with this definition, and in written consents electing such directors Exchange understands that the DE order to effectuate the Exchange Board and members of the Member Exchanges are each proposing to amend 71 Composition Requirements, the Nominating Committee. The Exchange DEI’s bylaws to eliminate the Exchange considers the Chief Executive believes that this requirement will corresponding provision.76 ensure that BGM Holdings effectuates Officer to be an Industry Director. Were the election of directors and members of 7. Bylaws of the Exchange the Chief Executive Officer to not be the Exchange’s Member Nominating In connection with the Combination, considered for purposes of determining Committee in the manner contemplated the Exchange proposes to amend and composition of the board, the total by the Exchange’s Bylaws, ensuring the restate its Second Amended and number of persons affiliated with the fair representation of members in the Restated By-Laws and adopt the securities industry (including Industry selection of directors and the amended Exchange Bylaws as its Third Directors, Member Representative administration of the Exchange as Amended and Restated Bylaws, Directors and the Chief Executive required by Section 6(b)(3) of the Act.72 attached as Exhibit 5F. The Exchange Officer) could potentially exceed the number of Non-Industry Directors—a Similar to the proposed BGM proposes making the following result that the Exchange believes the Holdings Charter, the proposed BGM amendments to the Exchange Bylaws: • Exchange Board Composition Holdings Bylaws provide that for so Amending Article I, paragraph (cc) Requirements were intended to prevent. long as BGM Holdings controls either of the Exchange Bylaws to reflect the The Exchange therefore proposes to BATS Exchange, before any amendment change of name of the Exchange’s amend Section 2(b) of Article III of the to or repeal of any provision of the BGM stockholder from Current BGM to BGM Exchange Bylaws to explicitly clarify Holdings Bylaws will be effective, those Holdings. This amendment is intended that the Chief Executive Officer shall be changes must be submitted to the board to reflect the change in the Exchange’s considered to be an Industry Director. of directors of each BATS Exchange, corporate holding structure and The Exchange Bylaws separately and if the same must be filed with, or corporate name changes described provide that each of the Non-Industry filed with and approved by, the above as well as prevent any change of ownership of the Exchange other than in Directors and Industry Directors are Commission before the changes may be divided into one of three classes to serve effective under Section 19 of the Act, 73 accordance with the requirements set forth in the organizational documents of staggered three-year terms.79 Unlike and the rules promulgated thereunder, the Exchange’s parent and indirect other Industry Directors, rather than then the proposed changes shall not be parent companies. serving a three-year term, the Chief effective until filed with, or filed with • Amending Section 2(b) and Section Executive Officer of the Exchange serves 3(b) of Article III of the Exchange on the Board of Directors until he or she 70 Compare BGM Holdings Bylaws, Sections Bylaws to clarify that the Chief ceases to be Chief Executive Officer.80 2.15(b) and (c) with Current BGM Bylaws, Sections 5.02(b) and (c). Executive Officer of the Exchange is 71 See BGM Holdings Bylaws, Sections 2.15(b) 77 See Exchange Bylaws, Art. III, Section 2(b). and (c). 74 See BGM Holdings Bylaws, Section 6.4. 78 See Exchange Bylaws, Art. I, para. (o)(vi). 72 15 U.S.C. 78f(b)(3). 75 See e.g., Exchange Bylaws, Art. X, Section 4. 79 See Exchange Bylaws, Art. III, Section 3(b). 73 15 U.S.C. 78s. 76 See DEI Bylaws, Section 4.6(b). 80 See Exchange Bylaws, Art. III, Section 3(a).

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The Exchange is therefore proposing to • Deleting as outdated Section 1 of 9. Exchange Rule 2.12—DE Route as amend Section 3(b) of Article III of the Article XI of the Exchange Bylaws, Inbound Router Exchange Bylaws to explicitly clarify relating to the interpretation of the that the reference to each Industry Exchange Bylaws prior to the BATS Trading provides Members of Director serving a staggered three-year Exchange’s commencement of business the Exchange and BZX with optional term excludes the Chief Executive as a national securities exchange, and routing services to other market centers. Officer. renumbering the remaining sections Thus, in certain circumstances, BATS • Amending Section 4(a), Section 4(c) within Article XI accordingly. Trading provides inbound routing from and Section 4(e) of Article III of the • Expanding the prohibition BZX to the Exchange. Exchange Rule Exchange Bylaws to permit the Director contained in Section 3 of Article XI of 2.12 governs this inbound routing of nomination and election process the Exchange Bylaws (to be renumbered orders by BATS Trading to the (including the Member Representative as Section 2). Currently, Section 3 of Exchange in BATS Trading’s capacity as Director nomination and election Article XI prohibits Current BGM’s a facility of BZX. Recognizing that the process conducted by the Member directors, officers, staff, counsel and Commission has previously expressed Nominating Committee) to be conducted advisors who are not also directors, concern regarding the potential for through either an annual or special officers, staff, counsel or advisors of the conflicts of interest in instances where meeting of stockholders, rather than Exchange from participating in any a member firm is affiliated with an solely through an annual meeting of meetings of the Exchange’s Board of exchange to which it is routing orders, stockholders. Under the current Directors (or any committee thereof) the Exchange has implemented Exchange Bylaws, should one or more pertaining to the self-regulatory function limitations and conditions on BATS vacancies on the Board of Directors of the Exchange (including disciplinary Trading’s affiliation with the Exchange occur, the vacancies would continue matters). Because, following the in order to permit the Exchange to until they can be filled at an annual Combination, the Exchange will be accept inbound orders that BATS meeting. As a result, vacancies that arise owned directly by BGM Holdings and Trading routes in its capacity as a soon after an annual meeting could indirectly by New BGM, instead of only facility of BZX. These conditions and remain for close to a full year. The directly by Current BGM, the Exchange limitations, set forth in Exchange Rule Exchange therefore proposes to amend is proposing to expand this prohibition 2.12, require that: the Exchange Bylaws to add flexibility to cover both its direct and indirect (1) The Exchange must enter into (a) to the governance process around the parent companies. The Exchange a plan pursuant to Rule 17d–2 under the nomination and election of a Director believes that this amendment will Act with a non-affiliated self-regulatory position that may become vacant at a protect the independence of the organization (‘‘SRO’’) to relieve the time that does not coincide with the Exchange’s self-regulatory activities. Exchange of regulatory responsibilities • Correcting certain typographical Exchange’s annual director election for BATS Trading with respect to rules errors, including conforming the process, by permitting the process to that are common rules between the spelling of ‘‘Bylaws’’ throughout the occur at any time via a special meeting Exchange and the non-affiliated SRO, organizational documents of the of stockholders. and (b) a regulatory services contract Exchange and its parent companies. • Amending Section 2(a) of Article V (‘‘Regulatory Contract’’) with a non- of the Exchange Bylaws to clarify that 8. Exchange Rule 2.3—Member affiliated SRO to perform regulatory the Chairman, with the approval of the Eligibility responsibilities for BATS Trading for unique Exchange rules. Board, not only appoints the members Pursuant to Exchange Rule 2.3, in of all committees of the Board, but also order to be eligible for membership in (2) The Regulatory Contract must the chair of each committee. This the Exchange, a registered broker or require the Exchange to provide the amendment is intended to reflect the dealer is required to be a member of at non-affiliated SRO with information, in current committee and committee Chair least one other national securities an easily accessible manner, regarding appointment processes utilized by the association or national securities all exception reports, alerts, complaints, Exchange. exchange. However, membership in the trading errors, cancellations, • Amending Section 6(c) of Article V Exchange’s affiliated national securities investigations, and enforcement matters of the Exchange Bylaws to clarify that exchange, BZX, is not sufficient for (collectively ‘‘Exceptions’’) in which the Regulatory Oversight Committee purposes of eligibility for Exchange BATS Trading is identified as a responsibilities include (i) those with membership. As a result of the participant that has potentially violated regard to each of the Exchange’s Combination, the Exchange will Exchange or Commission Rules, and facilities, as defined in Section 3(a)(2) of additionally become affiliated with the requires that the non-affiliated SRO the Act,81 (ii) assessing the Exchange’s DE Exchanges. The Exchange continues provide a report, at least quarterly, to regulatory performance, (iii) assisting to believe that it is appropriate to limit the Exchange quantifying all Exceptions the Board and committees of the Board its membership to registered broker- in which BATS Trading is identified as in reviewing the regulatory plan and the dealers that are members of at least one a participant that has potentially overall effectiveness of the Exchange’s national securities association or violated Exchange or Commission rules. regulatory functions, and (iii) in national securities exchange that is not (3) The Exchange, on behalf of its consultation with the Chief Executive affiliated with the Exchange. Therefore, parent company, must establish and Officer of the Exchange, establishing the the Exchange proposes to amend maintain procedures and internal goals, assessing the performance, and Exchange Rule 2.3 to specify that a controls reasonably designed to ensure fixing the compensation of the Chief registered broker-dealer will be eligible that BATS Trading does not develop or Regulatory Officer of the Company. for membership only if it is a member implement changes to its system based These amendments are intended to of a national securities association or on non-public information obtained as a reflect the current responsibilities of the national securities exchange other than result of its affiliation with the Regulatory Oversight Committee. BZX, EDGA or EDGX. The proposed Exchange, until such information is amendments to Exchange Rule 2.3 are available generally to similarly situated 81 15 U.S.C. 78c(a)(2). set forth in Exhibit 5G. Members of the Exchange.

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(4) The Exchange may furnish to company. The Exchange therefore proposed amendments to Exchange Rule BATS Trading only the same proposes to delete the incorrect 2.12. The Exchange therefore requests information and on the same terms as reference to BATS Trading. that, pursuant to Exchange Rule 2.10, the Exchange makes available in the the Commission approve the indirect 10. Exchange Rule 2.10—Affiliation normal course of business to other acquisition of DE Route by an affiliate With DE Route users.82 of the Exchange and the resulting Similar to the role of BATS Trading Exchange Rule 2.10 provides that, affiliation between the Exchange and DE with respect to the BATS Exchanges, the subject to certain exceptions, without Route, so long as the requirements Exchange understands that DE Route the prior approval of the Commission, under Exchange Rule 2.12, as proposed provides members of the DE Exchanges (i) the Exchange or any entity with to be amended, are satisfied. with optional routing services to other which the Exchange is affiliated (as market centers, which may include defined in Rule 12b–2 under the Act), 2. Statutory Basis routing from a DE Exchange to the may not directly or indirectly acquire or The Exchange believes that the Exchange. Following the Combination, maintain an ownership interest in a Proposed Rule Change is consistent it is expected that DE Route will Member of the Exchange, and (ii) a with the requirements of the Act and the continue to provide these routing Member of the Exchange may not be or rules and regulations thereunder that services, which may involve routing to become an affiliate of the Exchange, or are applicable to a national securities the Exchange. Because, following the an affiliate of any affiliate of the exchange, and, in particular, with the Combination, DE Route will be affiliated Exchange. requirements of Section 6(b) of the with and potentially routing to the DE Route is currently a Member of the Act.85 In particular, the proposal is Exchange, the Exchange believes that Exchange. As a result of the consistent with Section 6(b)(1) of the the potential conflict of interest Combination, (i) New BGM, an entity Act 86 in that it enables the Exchange to currently addressed by Exchange Rule affiliated with the Exchange, will be so organized as to have the capacity 2.12 with respect to BATS Trading must acquire and maintain an indirect to be able to carry out the purposes of also be addressed with respect to DE ownership interest in DE Route, and (ii) the Act and to comply, and to enforce Route. DE Route will become an affiliate of the compliance by its Members and persons The Exchange is therefore proposing Exchange. Pursuant to Exchange Rule associated with its Members, with the to amend and expand Exchange Rule 2.10, the Exchange is seeking the provisions of the Act, the rules and 2.12 such that substantially the same Commission’s prior approval to permit regulations thereunder, and the Rules of conditions and limitations that this affiliation. the Exchange. The Proposed Rule currently apply to the inbound routing The Exchange notes that the purpose Change is designed to enable the of orders by BATS Trading apply to the of Exchange Rule 2.10 is to prevent or Exchange to continue to have the inbound routing of orders by DE Route. manage potential conflicts of interest authority and ability to effectively fulfill The proposed amendments to Exchange that could arise from the Exchange or its its self-regulatory duties pursuant to the Rule 2.12, as set forth in Exhibit 5H, affiliates having an ownership interest Act and the rules promulgated would provide that, in order for the in an Exchange Member, particularly thereunder. In particular, the Proposed Exchange to accept inbound routed with respect to the Exchange’s Rule Change includes in the New BGM orders from DE Route, the conditions obligation under Section 19(g) of the Act Charter and New BGM Bylaws, like the and limitations currently set forth in to enforce its Members’ compliance Current BGM Charter and Current BGM Exchange Rule 2.12 with respect to with the Act, the Commission’s rules Bylaws, various provisions intended to BATS Trading must also be satisfied thereunder, and Exchange Rules.84 protect and maintain the integrity of the with respect to DE Route. The Exchange believes that it should self-regulatory functions of the The Exchange believes that these be permitted to become affiliated with Exchange upon Closing. For example, proposed amendments will adequately DE Route, notwithstanding DE Route’s the New BGM Bylaws, as described manage the potential for a conflict of Exchange membership. As described above, are drafted to preserve the interest that could arise from DE Route above, as a result of the proposed independence of the Exchange’s self- routing orders to the Exchange. The amendments to Exchange Rule 2.12, the regulatory function and ensure that the Exchange expects to arrange that these Exchange intends on addressing the Exchange is able to obtain information conditions be met prior to the Closing potential conflicts of interests arising it needs from the specified parties to so as to allow DE Route to continue from its expected affiliation with DE detect and deter any fraudulent and routing to the Exchange following the Route by, among other things, entering manipulative acts in its marketplace and Closing without interruption.83 into (i) a plan pursuant to Rule 17d-2 carry out their regulatory In addition, the language in Exchange under the Act with a non-affiliated SRO responsibilities under the Act. In Rule 2.12 leading into the four to relieve the Exchange of regulatory addition, the New BGM Charter and conditions described above incorrectly responsibilities for DE Route with New BGM Bylaws are drafted to make refers to the conditions being respect to rules that are common rules sure that the Exchange’s Board of undertaken by ‘‘each of the Exchange between the Exchange and the non- Directors receives notice of any and BATS Trading.’’ However, by their affiliated SRO, and (ii) a Regulatory amendment to the New BGM Charter terms, the conditions contained in Contract with a non-affiliated SRO to and New BGM Bylaws so that the Exchange Rule 2.12 are undertaken only perform regulatory responsibilities for Exchange’s Board of Directors may by the Exchange and, in one case, the DE Route for unique Exchange rules. review and approve, and the Exchange Exchange on behalf of its parent The Exchange believes that any may make any filings with the potential conflict of interest that would Commission necessary for the Exchange 82 See Securities Exchange Act Release No. 66572 arise as a result of its affiliation with DE to fulfill its regulatory duties under the (March 12, 2012), 77 FR 15152 (March 14, 2012) Route will be mitigated by the same Act. The New BGM Charter also (SR–BYX–2012–006). procedures that the Exchange imposes the BGM Ownership Limitation 83 If such conditions and limitations are not satisfied by Closing, the Exchange will not accept anticipates adopting to satisfy the inbound orders from DE Route until such 85 15 U.S.C. 78f(b). conditions and limitations are satisfied. 84 15 U.S.C. 78s(g). 86 15 U.S.C. 78f(b)(1).

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and BGM Voting Limitation to preclude competition for transaction order flow its Members. Furthermore, the undue influence over or interference with other exchange and non-exchange Exchange’s conclusion that the with the Exchange’s self-regulatory trading centers, as well as potentially in Proposed Rule Change would not result functions and fulfillment of its other areas where the two major in any burden on competition that is not regulatory duties under the Act. exchange operators lead, such as necessary or appropriate in furtherance Moreover, notwithstanding the proprietary market data products and of the purposes of the Act is consistent Proposed Rule Change, including the listings. This enhanced level of with the Commission’s prior change to the ownership structure of the competition among trading centers will conclusions about similar combinations Exchange, the Commission will benefit investors through new or more involving multiple exchanges in a single continue to have regulatory authority competitive product offerings and, corporate family.89 over the Exchange, as is currently the ultimately, lower costs. case, as well as jurisdiction over the Furthermore, the Exchange is not C. Self-Regulatory Organization’s Exchange’s direct and indirect parents proposing any significant changes to its Statement on Comments on the with respect to activities related to the existing operational and trading Proposed Rule Change Received From Exchange.87 As a result, the Proposed structure in connection with the change Members, Participants, or Others Rule Change will facilitate an in ownership; the Exchange will operate The Exchange has neither solicited ownership structure that will provide in essentially the same manner upon nor received written comments on the the Commission with appropriate Closing as it operates today. Therefore, proposed rule change. oversight tools to ensure that the the Exchange believes that it will Commission will have the ability to continue to satisfy the requirements of III. Date of Effectiveness of the enforce the Act with respect to the the Act and the rules and regulations Proposed Rule Change and Timing for Exchange, its direct and indirect parent thereunder that are applicable to a Commission Action entities and their directors, officers, national securities exchange. The Within 45 days of the date of employees and agents to the extent they changes the Exchange is proposing to publication of this notice in the Federal are involved in the activities of the Exchange Rules 2.3 are designed to Register or within such longer period (i) Exchange. extend the membership eligibility as the Commission may designate up to The Exchange also believes that the criteria in a way that is consistent with 90 days of such date if it finds such Proposed Rule Change furthers the the current rule, taking into account the longer period to be appropriate and objectives of Section 6(b)(5) of the Act 88 prospective affiliation with the DE publishes its reasons for so finding or because the Proposed Rule Change Exchanges. The proposed change to (ii) as to which the self-regulatory would be consistent with and facilitate Exchange Rule 2.12 is designed to organization consents, the Commission a governance and regulatory structure address the potential for conflicts of will: that is designed to prevent fraudulent interest due to the prospective (A) By order approve or disapprove and manipulative acts and practices, to affiliation between the Exchange and DE the proposed rule change, or promote just and equitable principles of Route. The Exchange believes that the (B) institute proceedings to determine trade, to foster cooperation and proposed change to its Rules is whether the proposed rule change coordination with persons engaged in consistent with the requirements of the should be disapproved. regulating, clearing, settling, processing Act and the rules and regulations IV. Solicitation of Comments information with respect to, and thereunder. The Exchange believes that facilitating transactions in securities, to the rule change promotes the Interested persons are invited to remove impediments to, and perfect the maintenance of a fair and orderly submit written data, views, and mechanism of a free and open market market, the protection of investors and arguments concerning the foregoing, and a national market system and, in the public interest, and is in the best including whether the proposed rule general, to protect investors and the interests of the Exchange and its change is consistent with the Act. public interest. Members as it would continue to allow Comments may be submitted by any of In addition, the Exchange expects that routing of orders between the four the following methods: the Combination will facilitate affiliated exchanges. Electronic Comments efficiencies and innovation for clients B. Self-Regulatory Organization’s • Use the Commission’s Internet and efficient, transparent and well- Statement on Burden on Competition regulated markets for issuers and comment form (http://www.sec.gov/ clients, thus removing impediments to, The Exchange does not believe that rules/sro.shtml); or • Send an email to rule-comments@ and perfecting the mechanism of a free the Proposed Rule Change would result sec.gov. Please include File Number SR– and open market and a national market in any burden on competition that is not BYX–2013–039 on the subject line. system. The Combination will benefit necessary or appropriate in furtherance investors, the market as a whole, and of the purposes of the Act. Indeed, the Paper Comments Exchange believes that the Proposed shareholders by, among other things, • Send paper comments in triplicate enhancing competition among securities Rule Change will enhance competition among intermarket trading venues, as to Elizabeth M. Murphy, Secretary, venues and reducing costs. In particular, Securities and Exchange Commission, the Combination will result in a third the Exchange believes that the Combination will produce a stronger 100 F Street NE., Washington, DC major exchange operator which will 20549–1090. have more streamlined and efficient and more efficient entity that will have an improved ability to provide operations, including the transition of 89 See, e.g., Securities Exchange Act Release No. the DE Exchanges to a technology innovative products and services. 66071 (December 29, 2011), 77 FR 521 (January 05, platform in common with the BATS Moreover, the Exchange will continue to 2012) (SR–CBOE–2011–107 and SR–NSX–2011–14); Exchanges, thereby intensifying conduct regulated activities (including Securities Exchange Act Release No. 58324 (Aug. 7, operating and regulating its market and 2008), 73 FR 46936 (August 12, 2008) (SR–BSE– 2008–02; SR–BSE–2008–23; SR–BSE–2008–25; SR– 87 See, e.g., New BGM Bylaws, Section 14.05; Members) of the type it currently BSECC–2008–01); Securities Exchange Act Release BGM Holdings Bylaws, Section 7.3. conducts, but will be able to do so in a No. 53382 (Feb. 27, 2006), 71 FR 11251 (March 06, 88 15 U.S.C. 78f(b)(5). more efficient manner to the benefit of 2006) (SR–NYSE–2005–77).

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All submissions should refer to File 27, 2013, C2 Options Exchange, transactions executed by a Permit Number SR–BYX–2013–039. This file Incorporated (the ‘‘Exchange’’ or ‘‘C2’’) Holder, even if the transactions do not number should be included on the filed with the Securities and Exchange take place on the Exchange.3 The ORF subject line if email is used. To help the Commission (‘‘Commission’’) the also is charged for transactions that are Commission process and review your proposed rule change as described in not executed by a Permit Holder but are comments more efficiently, please use Items I, II, and III below, which Items ultimately cleared by a Permit Holder. only one method. The Commission will have been prepared by the Exchange. In the case where a Permit Holder post all comments on the Commission’s The Commission is publishing this executes a transaction and a different Internet Web site (http://www.sec.gov/ notice to solicit comments on the Permit Holder clears the transaction, the rules/sro.shtml). Copies of the proposed rule change from interested ORF is assessed to the Permit Holder submission, all subsequent persons. who executed the transaction. In the amendments, all written statements case where a non-Permit Holder with respect to the proposed rule I. Self-Regulatory Organization’s executes a transaction and a Permit change that are filed with the Statement of the Terms of Substance of Holder clears the transaction, the ORF is Commission, and all written the Proposed Rule Change assessed to the Permit Holder who communications relating to the C2 Options Exchange, Incorporated clears the transaction. The ORF is proposed rule change between the (the ‘‘Exchange’’ or ‘‘C2’’) proposes to collected indirectly from Permit Holders Commission and any person, other than amend the Options Regulatory Fee. The through their clearing firms by OCC on those that may be withheld from the text of the proposed rule change is behalf of the Exchange. public in accordance with the available on the Exchange’s Web site The ORF is designed to recover a provisions of 5 U.S.C. 552, will be (http://www.c2exchange.com/Legal/), at material portion of the costs to the available for Web site viewing and the Exchange’s Office of the Secretary, Exchange of the supervision and printing in the Commission’s Public and at the Commission’s Public regulation of Permit Holder customer Reference Room, 100 F Street NE., Reference Room. options business, including performing Washington, DC 20549, on official routine surveillances, investigations, business days between the hours of II. Self-Regulatory Organization’s examinations, financial monitoring, as 10:00 a.m. and 3:00 p.m. Copies of the Statement of the Purpose of, and well as policy, rulemaking, interpretive filing also will be available for Statutory Basis for, the Proposed Rule and enforcement activities. The inspection and copying at the principal Change Exchange believes that revenue office of the Exchange. All comments In its filing with the Commission, the generated from the ORF, when received will be posted without change; Exchange included statements combined with all of the Exchange’s the Commission does not edit personal concerning the purpose of and basis for other regulatory fees and fines, will identifying information from the proposed rule change and discussed cover a material portion, but not all, of submissions. You should submit only any comments it received on the the Exchange’s regulatory costs. The information that you wish to make proposed rule change. The text of these Exchange notes that its regulatory available publicly. All submissions statements may be examined at the responsibilities with respect to Permit should refer to File Number SR–BYX– places specified in Item IV below. The Holder compliance with options sales 2013–039, and should be submitted on Exchange has prepared summaries, set practice rules have largely been or before January 2, 2014. forth in sections A, B, and C below, of allocated to FINRA under a 17d–2 For the Commission, by the Division of the most significant aspects of such agreement. The ORF is not designed to Trading and Markets, pursuant to delegated statements. cover the cost of that options sales authority.90 practice regulation. A. Self-Regulatory Organization’s Elizabeth M. Murphy, The Exchange will monitor the Statement of the Purpose of, and Secretary. amount of revenue collected from the Statutory Basis for, the Proposed Rule ORF to ensure that it, in combination [FR Doc. 2013–29623 Filed 12–11–13; 8:45 am] Change with its other regulatory fees and fines, BILLING CODE 8011–01–P 1. Purpose does not exceed the Exchange’s total regulatory costs. If the Exchange The Exchange has reevaluated the determines regulatory revenues exceed SECURITIES AND EXCHANGE current amount of the Options COMMISSION regulatory costs, the Exchange will Regulatory Fee (‘‘ORF’’) in connection adjust the ORF by submitting a fee [Release No. 34–71006; File No. SR–C2– with its annual budget review. In light change filing to the Commission. The 2013–040] of increased regulatory costs, including Exchange notifies Permit Holders of the hiring of many new regulatory Self-Regulatory Organizations; C2 adjustments to the ORF via regulatory employees, and expected volume levels circular. Options Exchange, Incorporated; for 2014, the Exchange proposes to Notice of Filing and Immediate increase the ORF from zero to $.0017 2. Statutory Basis Effectiveness of a Proposed Rule per contract. The proposed fee change The Exchange believes the proposed Change Relating to the Options would be operative on January 1, 2014. rule change is consistent with the Regulatory Fee The ORF is assessed by the Exchange December 6, 2013. to each Permit Holder for all options 3 Exchange rules require each Permit Holder to transactions executed or cleared by the record the appropriate account origin code on all Pursuant to Section 19(b)(1) of the orders at the time of entry in order to allow the Securities Exchange Act of 1934 (the Permit Holder that are cleared by The Exchange to properly prioritize and route orders ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 Options Clearing Corporation (‘‘OCC’’) and assess transaction fees pursuant to the rules of notice is hereby given that on November in the customer range (i.e., transactions the Exchange and report resulting transactions to that clear in a customer account at OCC) the OCC. C2 order origin codes are defined in C2 Regulatory Circular RG13–015. The Exchange 90 17 CFR 200.30–3(a)(12). regardless of the marketplace of represents that it has surveillances in place to verify 1 15 U.S.C. 78s(b)(1). execution. In other words, the Exchange that Trading Permit Holders mark orders with the 2 17 CFR 240.19b–4. imposes the ORF on all customer-range correct account origin code.

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Securities Exchange Act of 1934 (the change is not designed to address any only one method. The Commission will ‘‘Act’’) and the rules and regulations competitive issues. Rather, the proposed post all comments on the Commission’s thereunder applicable to the Exchange rule change is designed to help the Internet Web site (http://www.sec.gov/ and, in particular, the requirements of Exchange to adequately fund its rules/sro.shtml). Copies of the Section 6(b) of the Act.4 Specifically, regulatory activities while seeking to submission, all subsequent the Exchange believes the proposed rule ensure that total regulatory revenues do amendments, all written statements change is consistent with Section 6(b)(4) not exceed total regulatory costs. with respect to the proposed rule of the Act,5 which provides that change that are filed with the Exchange rules may provide for the C. Self-Regulatory Organization’s Commission, and all written equitable allocation of reasonable dues, Statement on Comments on the communications relating to the fees, and other charges among its Permit Proposed Rule Change Received From proposed rule change between the Holders and other persons using its Members, Participants, or Others Commission and any person, other than facilities. Additionally, the Exchange The Exchange neither solicited nor those that may be withheld from the believes the proposed rule change is received comments on the proposed public in accordance with the consistent with the Section 6(b)(5)6 rule change. provisions of 5 U.S.C. 552, will be requirement that the rules of an available for Web site viewing and III. Date of Effectiveness of the exchange not be designed to permit printing in the Commission’s Public Proposed Rule Change and Timing for unfair discrimination between Reference Room, 100 F Street NE., Commission Action customers, issuers, brokers, or dealers. Washington, DC 20549, on official The Exchange believes the proposed The foregoing rule change has become business days between the hours of fee change is reasonable because it effective pursuant to Section 19(b)(3)(A) 10:00 a.m. and 3:00 p.m. Copies of such would help the Exchange offset of the Act 8 and paragraph (f) of Rule filing also will be available for increased regulatory expenses, in 19b–4 9 thereunder. At any time within inspection and copying at the principal particular the hiring of many new 60 days of the filing of the proposed rule office of the Exchange. All comments regulatory employees, but would not change, the Commission summarily may received will be posted without change; result in total regulatory revenue temporarily suspend such rule change if the Commission does not edit personal exceeding total regulatory costs. The it appears to the Commission that such identifying information from Exchange believes the ORF is equitable action is necessary or appropriate in the submissions. You should submit only and not unfairly discriminatory in that public interest, for the protection of information that you wish to make it is charged to all Permit Holders on all investors, or otherwise in furtherance of publicly available. All submissions their transactions that clear in the the purposes of the Act. If the should refer to File Number SR–C2– customer range at the OCC. Moreover, Commission takes such action, the 2013–040 and should be submitted on the Exchange believes the ORF ensures Commission will institute proceedings or before January 2, 2014. fairness by assessing higher fees to those to determine whether the proposed rule For the Commission, by the Division of Permit Holders that require more change should be approved or Trading and Markets, pursuant to delegated Exchange regulatory services based on disapproved. authority.10 the amount of customer options IV. Solicitation of Comments Kevin M. O’Neill, business they conduct. Regulating Deputy Secretary. Interested persons are invited to customer trading activity is much more [FR Doc. 2013–29605 Filed 12–11–13; 8:45 am] submit written data, views, and labor intensive and requires greater BILLING CODE 8011–01–P expenditure of human and technical arguments concerning the foregoing, resources than regulating non-customer including whether the proposed rule trading activity, which tends to be more change is consistent with the Act. SECURITIES AND EXCHANGE automated and less labor-intensive. As a Comments may be submitted by any of COMMISSION result, the costs associated with the following methods: [Release No. 34–71020; File No. SR–SCCP– administering the customer component Electronic Comments 2013–01] of the Exchange’s overall regulatory • Use the Commission’s Internet program are materially higher than the Self-Regulatory Organizations; Stock comment form (http://www.sec.gov/ costs associated with administering the Clearing Corporation of Philadelphia; non-customer component (e.g., Permit rules/sro.shtml); or • Send an email to rule-comments@ Notice of Filing of Proposed Rule Holder proprietary transactions) of its Change To Amend the Restated sec.gov. Please include File Number SR– regulatory program.7 Certificate of Incorporation and By- C2–2013–040 on the subject line. B. Self-Regulatory Organization’s Laws of The NASDAQ OMX Group, Inc. Paper Comments Statement on Burden on Competition December 6, 2013. • C2 does not believe that the proposed Send paper comments in triplicate Pursuant to Section 19(b)(1) of the rule change will impose any burden on to Elizabeth M. Murphy, Secretary, Securities Exchange Act of 1934 competition that is not necessary or Securities and Exchange Commission, (‘‘Act’’),1 and Rule 19b–4 thereunder,2 appropriate in furtherance of the 100 F Street NE., Washington, DC notice is hereby given that on November purposes of the Act. The proposed rule 20549–1090. 27, 2013, the Stock Clearing Corporation All submissions should refer to File of Philadelphia (‘‘SCCP’’) filed with the 4 15 U.S.C. 78f(b). Number SR–C2–2013–040. This file Securities and Exchange Commission 5 15 U.S.C. 78f(b)(4). number should be included on the (‘‘SEC’’ or ‘‘Commission’’) the proposed 6 Id. [sic]. subject line if email is used. To help the rule change as described in Items I, II 7 If the Exchange changes its method of funding Commission process and review your and III, below, which Items have been regulation or if circumstances otherwise change in comments more efficiently, please use the future, the Exchange may decide to modify the ORF or assess a separate regulatory fee on Permit 10 17 CFR 200.30–3(a)(12). Holder proprietary transactions if the Exchange 8 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1). deems it advisable. 9 17 CFR 240.19b–4(f). 2 17 CFR 240.19b–4.

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prepared by SCCP. The Commission is cast.’’ The second proposal, which did of Article Fourth,4 Article Fifth,5 Article publishing this notice to solicit not pass but received 49% of the votes Seventh,6 Article Eighth 7 or Article comments on the proposed rule change cast, requested that NASDAQ OMX’s Ninth of the Charter.8 from interested persons. Board take steps to enable stockholders In each of the three provisions having at least one-tenth of NASDAQ I. Self-Regulatory Organization’s described above, NASDAQ OMX OMX’s voting power to call a special Statement of the Terms of Substance of proposes to remove the requirement for meeting of stockholders. the Proposed Rule Change an affirmative vote of at least Following the 2012 annual meeting, 662⁄3% of the total voting power of the SCCP is filing this proposed rule the Nominating & Governance Voting Stock and replace it with a change with respect to amendments of Committee of NASDAQ OMX’s Board voting standard requiring the affirmative the Restated Certificate of Incorporation reviewed the voting results on the two vote of a majority of the outstanding (the ‘‘Charter’’) and By-Laws (the ‘‘By- stockholder proposals and discussed the Voting Stock. In developing this Laws’’) of its parent corporation, The stockholder voting standards and rights proposal, NASDAQ OMX considered NASDAQ OMX Group, Inc. (‘‘NASDAQ contemplated by the Charter and By- the relative weight of the arguments for OMX’’ or the ‘‘Company’’). The Laws. Following this review, the and against supermajority voting proposed amendments will be Nominating & Governance Committee requirements. Historically, implemented on a date designated by recommended to the Board, and the supermajority voting requirements have NASDAQ OMX following approval by Board approved, certain changes to the protected corporations against coercive the Commission. The text of the Charter and By-Laws to address the two takeover tactics by requiring broad proposed rule change is available on stockholder proposals and make other stockholder support for certain types of SCCP’s Web site at http:// changes. NASDAQ OMX now proposes transactions or governance changes. nasdaqomxphlx.cchwallstreet.com/ to make these changes, which are However, in recent years, corporate nasdaqomxphlx/sccp/, at the principal described further below. governance standards have evolved, and office of SCCP, and at the Commission’s many stockholder rights advocates argue Public Reference Room. (ii) Proposed Amendments to Charter that supermajority voting requirements II. Self-Regulatory Organization’s (a) Removal and Replacement of limit stockholders’ participation in Statement of the Purpose of, and Supermajority Voting Requirements corporate governance. NASDAQ OMX Statutory Basis for, the Proposed Rule believes that while it is important to Change To respond to feedback from its protect against coercive takeover tactics, stockholders, NASDAQ OMX proposes In its filing with the Commission, it is also critically important to obtain to replace each supermajority voting stockholder input and respond to SCCP included statements concerning requirement in the Charter with a the purpose of and basis for the stockholder concerns about corporate ‘‘majority of outstanding shares’’ voting governance. proposed rule change and discussed any requirement. The Charter currently comments it received on the proposed includes the following three NASDAQ OMX believes that the rule change. The text of these statements supermajority voting requirements. proposed ‘‘majority of outstanding may be examined at the places specified • shares’’ voting requirement will in Item IV below. SCCP has prepared Removal of Directors. Article Fifth, continue to provide some protection summaries, set forth in sections A, B, Paragraph D provides that, except for against proposals that are harmful to the and C below, of the most significant directors elected by the holders of any stockholders. While this requirement is aspects of such statements. series of preferred stock, any director, or less difficult to satisfy than a the entire Board, may be removed from supermajority voting requirement, it is A. Self-Regulatory Organization’s office at any time, but only by the more difficult to satisfy than a ‘‘majority 2 Statement of the Purpose of, and affirmative vote of at least 66 ⁄3% of the of votes cast’’ requirement, which Statutory Basis for, the Proposed Rule total voting power of the outstanding NASDAQ OMX considered as an Change shares of NASDAQ OMX’s capital stock alternate option. NASDAQ OMX 1. Purpose entitled to vote generally in the election believes that a ‘‘majority of outstanding of directors (the ‘‘Voting Stock’’), voting shares’’ standard is a balanced outcome NASDAQ OMX is proposing to make together as a single class. that responds to stockholder feedback certain amendments to its Charter and • Adoption, Alteration, Amendment while appropriately maintaining By-Laws. and Repeal of By-Laws. Article Eighth, (i) Background Paragraph A provides that the 4 Paragraph C of Article Fourth sets forth the 5% affirmative vote of the holders of at least voting limitation, which provides that holders of At NASDAQ OMX’s 2012 annual NASDAQ OMX’s voting securities may not cast 662⁄3% of the total voting power of the meeting held on May 22, 2012, votes in excess of 5% of NASDAQ OMX’s NASDAQ OMX’s stockholders outstanding Voting Stock, voting outstanding voting securities. To be clear, NASDAQ considered two proposals submitted by together as a single class, shall be OMX is not proposing any change to the 5% voting limitation itself. NASDAQ OMX only proposes that individual stockholders. The first required in order for the stockholders to adopt, alter, amend or repeal any By- any future amendment of the 5% voting limitation proposal, which passed with 68% of the will require the approval of stockholders holding a votes cast, requested that NASDAQ Law. majority of the outstanding shares, rather than OMX’s Board take steps to replace each • Adoption, Alteration, Amendment stockholders holding 662⁄3% of the outstanding and Repeal of Certain Charter shares. supermajority voting standard in the 5 Article Fifth includes certain provisions relating 3 Charter and By-Laws with a voting Provisions. Article Ninth, Paragraph A to the Board, such as Board size and director standard requiring a ‘‘majority of votes provides that the affirmative vote of the elections. holders of at least 662⁄3% of the voting 6 Article Seventh prohibits stockholder action by 3 These provisions, which are described further power of the outstanding Voting Stock, written consent. 7 below, require the affirmative vote of at least 662⁄3% voting together as a single class, shall be Article Eighth establishes the procedures to of the total voting power of the outstanding shares adopt, alter, amend or repeal the By-Laws. of NASDAQ OMX’s capital stock to approve certain required to amend, repeal or adopt any 8 Article Ninth establishes the procedures to actions. provision inconsistent with paragraph C adopt, alter, amend or repeal the Charter.

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NASDAQ OMX’s defensive posture • the phase-out of the classified board the approval of NASDAQ OMX’s against hostile takeovers. structure, which was complete in 2007, stockholders.12 in Article Fifth, Paragraph B. (b) Non-Substantive Changes (iv) Proposed Amendments to the In Article Fifth, Paragraph B, the By-Laws NASDAQ OMX also proposes to proposal also clarifies that the election amend and restate the Charter to make of directors by stockholders shall occur (a) Special Meetings of Stockholders other non-substantive changes. at an annual or special meeting. The Current Section 3.2 of NASDAQ Specifically, the proposal deletes proposal corrects a typographical error OMX’s By-Laws provides that only obsolete references to the following: in Article Fifth, Paragraph A and NASDAQ OMX may call special • The 3.75% Series A Convertible renumbers the provisions of the Charter, meetings of its stockholders.13 To Notes due 2012 and the 3.75% Series B where necessary following the other respond to feedback from its Convertible Notes due 2012, which are amendments. Finally, the proposal stockholders, as discussed above, no longer outstanding, in Article Fourth, amends the introductory and NASDAQ OMX proposes to delete this Paragraph C and Article Eleventh; concluding language of the Charter to provision and replace it with language • a voting trust agreement, which is incorporate language that will be that will allow NASDAQ OMX’s no longer in effect, in Article Fourth, required under Delaware law when the stockholders to call special meetings Paragraph C(3)(b)(iii); amended and restated Charter is filed after following particular procedures. • ownership of NASDAQ OMX with the Secretary of State of the State Similar to the elimination of 10 securities by the National Association of of Delaware. supermajority voting requirements, Securities Dealers, Inc., certain affiliates The amendment and restatement of which is discussed above, the of Hellman & Friedman LLC, and certain the Charter to incorporate these non- implementation of the right of affiliates of Silver Lake, none of which substantive changes will simplify and stockholders to call a special meeting currently own any NASDAQ OMX streamline the document. has received recent attention from securities, in Article Fourth, Paragraph (iii) Proposed Elimination of Certificate investor and corporate governance C(6); 9 and of Designation advocates. These advocates argue that such a right will enable stockholders to NASDAQ OMX proposes to eliminate 9 NASDAQ OMX notes that the remaining text of raise and act on matters that arise Article Fourth, Paragraph C(6) of the Charter its Certificate of Designation, between annual meetings. includes an obsolete cross-reference to Section 6(b) Preferences and Rights of Series A Following discussions with some of of Article Fourth, Paragraph C in the second Convertible Preferred Stock (the ‘‘Series its stockholders, NASDAQ OMX agrees sentence, which begins ‘‘The Board, however, may A Convertible Preferred Stock’’), and all not approve an exemption under Section 6(b) . . .’’ that it is appropriate to allow NASDAQ OMX cannot correct this cross-reference, matters set forth therein. The Series A stockholders who meet certain which should refer to Section 6 without further Convertible Preferred Stock was created procedural requirements to call a reference to a subsection (b), without seeking in 2009 to facilitate the conversion of special meeting. In proposing these further approval of its stockholders, which would certain notes into common stock.11 The require NASDAQ OMX to call and hold a procedural requirements, NASDAQ stockholder meeting. Generally, NASDAQ OMX Company authorized 2 million shares of OMX’s goals are to ensure timely notice holds stockholder meetings, which are time the Series A Convertible Preferred Stock of a meeting request and to gather consuming and expensive, only once or twice a and immediately issued 1.6 million of sufficient information about the year. Moreover, it is atypical of a large public those shares to the converting company like NASDAQ OMX to submit a proposal proposing stockholder(s) and the to its stockholders solely to correct a cross-reference noteholders. proposal. Among other things, this in its Charter. However, NASDAQ OMX believes, In 2010, following stockholder information will ensure that NASDAQ following consultation with outside counsel, that it approval, all 1.6 million issued shares of OMX is able to comply with its is clear, based on the drafting history of this the Series A Convertible Preferred Stock provision, that the intent of the cross-reference is disclosure and other requirements to refer to Section 6 of Article Fourth, Paragraph C were converted into common stock. under applicable law and that NASDAQ of the Charter. In other words, the second sentence Since then, no shares of the Series A OMX, its Board and its stockholders are of Article Fourth, Paragraph C(6) should read: ‘‘The Convertible Preferred Stock have been able to assess the proposal adequately. Board, however, may not approve an exemption outstanding, and the Company has no under Section 6: (i) For a registered broker or dealer The proposed procedural requirements or an Affiliate thereof or (ii) an individual or entity intention to issue further shares of this are set forth below. that is subject to a statutory disqualification under series. First, proposed Section 3.2(a) Section 3(a)(39) of the Exchange Act.’’ Under no As a clean-up matter, the Company provides that special meetings of circumstances will NASDAQ OMX read the seeks to file a certificate of elimination obsolete cross-reference to imply that the Board NASDAQ OMX’s stockholders may only could grant an exemption to the ownership with the Secretary of State of the State be called: (i) At any time by NASDAQ limitation in Article Fourth, Paragraph C(6) of the of Delaware to eliminate the Series A OMX’s Board pursuant to a resolution Charter for a registered broker or dealer or an Convertible Preferred Stock. Under adopted by a majority of the total Affiliate thereof, or an individual or entity that is Delaware law, a certificate of subject to a statutory disqualification under Section number of directors NASDAQ OMX 3(a)(39) of the Exchange Act. NASDAQ OMX also elimination is deemed to be an would have if there were no vacancies; notes that it is proposing amendments to Section amendment to NASDAQ OMX’s and (ii) by NASDAQ OMX’s Corporate 12.5 of the By-Laws to eliminate cross-references to Charter; however, since the amendment Secretary following the receipt of a subsection (b) of Article Fourth, Paragraph C(6) of is limited in scope, it does not require the Charter. Finally, NASDAQ OMX notes that written request in proper form for a there are some differences in language between the special meeting (a ‘‘Special Meeting second sentence of Article Fourth, Paragraph C(6) 10 See Sections 242 and 245 of the DGCL. Request’’) by one or more stockholders. of the Charter and the second sentence of Section 11 See Securities Exchange Act Release No. 60845 Such stockholders (the ‘‘Requisite 12.5 of the By-Laws. To the extent that these (October 20, 2009), 74 FR 55078 (October 26, 2009) differences would cause a difference in (SR–BX–2009–061, SR–NASDAQ–2009–087, SR– interpretation, NASDAQ OMX notes, following Phlx–2009–88); see also Securities Exchange Act 12 See Section 151(g) of the DGCL. consultation with outside counsel, that the Charter Release No. 61000 (November 13, 2009), 74 FR 13 Under Delaware law, special meetings of a language shall prevail. As soon as feasible, 61390 (November 24, 2009) (SR–BSECC–2009–005); corporation’s stockholders may be called by the NASDAQ OMX plans to present a proposal to the see also Securities Exchange Act Release No. 61001 board of directors or by such persons as may be stockholders to conform this provision of the (November 13, 2009), 74 FR 61391 (November 24, authorized by the certificate of incorporation or the Charter to the By-Laws. 2009) (SR–SCCP–2009–04). bylaws. See Section 211(d) of the DGCL.

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Holders’’) must hold of record, in the as determined in good faith by an item of business to be presented at aggregate, at least 15 percent of NASDAQ OMX’s Board); and (ii) such a stockholder’s meeting that has been NASDAQ OMX’s outstanding shares of Special Meeting Requests have been called but not yet held. capital stock entitled to vote on matters dated and delivered to NASDAQ OMX’s The Board may adjourn or reschedule to be brought before the special meeting Corporate Secretary within 60 days of any previously scheduled special (the ‘‘Requisite Percentage’’). Such the earliest dated Special Meeting meeting of the stockholders. NASDAQ shares must be ‘‘Net Long Shares,’’ 14 Request. NASDAQ OMX believes these OMX believes the subject matter and the Requisite Holders must have procedures are reasonable and clear and limitations set forth in proposed Section held the shares continuously for at least notes that they grant only limited 3.2(c) are appropriate in order to comply one year as of the date of the Special discretion to NASDAQ OMX’s Board in with applicable law and to prevent Meeting Request. Whether shares determining whether Special Meeting multiple considerations of the same constitute Net Long Shares shall Requests will be considered together. item of business. NASDAQ OMX ultimately be decided by NASDAQ Pursuant to proposed Section 3.2(b), if believes the time limits set forth in OMX’s Board in its reasonable a Special Meeting Request is in proper proposed Section 3.2(c) are appropriate determination. The intent of the form, NASDAQ OMX’s Board shall to ensure that NASDAQ OMX is not requirement for stockholders to determine the place, if any, date and required to incur the time and expense maintain a ‘‘net long position’’ is to time of the special meeting, and of calling and holding a special meeting limit the ability to call a special meeting NASDAQ OMX’s Corporate Secretary of stockholders immediately prior to an to stockholders that have long-term shall call the special meeting within 120 upcoming annual meeting of record and economic positions in days after the date the Special Meeting stockholders or if a Similar Item of NASDAQ OMX. Request was delivered. However, business already has been presented at Proposed Section 3.2(a) also sets forth NASDAQ OMX’s Board may, in lieu of a recent stockholders’ meeting. the procedures for determining whether calling a special meeting, present an To be in proper form, a Special a special meeting has been requested by identical or substantially similar item of Meeting Request must comply with Requisite Holders representing in business (a ‘‘Similar Item’’),15 as certain requirements, as described aggregate at least the Requisite determined in good faith by NASDAQ further below.16 NASDAQ OMX’s Board Percentage if multiple Special Meeting OMX’s Board, for stockholder approval will have the sole discretion to Requests are delivered to NASDAQ at any other meeting of the stockholders determine whether a Special Meeting OMX’s Corporate Secretary. Multiple that is held not less than 120 days after Request is in proper form.17 Proposed requests will be considered together the delivery of the Special Meeting Section 3.2(d) sets forth the only if: (i) Each Special Meeting Request Request. The intent of this provision is requirements for a Special Meeting identifies substantially the same to save NASDAQ OMX the time and Request to be in proper form. These purpose or purposes of the special expense of calling and holding a special proposed requirements will ensure that meeting and substantially the same meeting if NASDAQ OMX intends to NASDAQ OMX has sufficient matters proposed to be acted on at the hold a separate stockholders’ meeting information to comply with its requested special meeting (in each case within 120 days. In fixing the place, if disclosure requirements under any, date and time for any special applicable law and that the Requisite 14 For purposes of determining Requisite Holders meeting, NASDAQ OMX’s Board may Holders maintain a sufficient ownership under proposed Section 3.2, ‘‘Net Long Shares’’ consider such factors as it deems level through the date of the special shall be limited to the number of shares beneficially relevant in its business judgment, meeting. Specifically, a Special Meeting owned, directly or indirectly, by any stockholder or including the nature of the matters to be beneficial owner that constitute such person’s ‘‘net Request shall: long position’’ as defined in Rule 14e–4 under the considered, the facts and circumstances • Be in writing, signed by each Act, provided that (A) for the purposes of this surrounding any request for a meeting Requesting Person 18 and delivered to definition, references in the rule to ‘‘the date the and any plan of the Board to call an NASDAQ OMX’s Corporate Secretary at tender offer is first publicly announced or otherwise annual meeting or a special meeting. made known by the bidder to the holders of the NASDAQ OMX’s principal executive security to be acquired’’ shall be the date of the Proposed Section 3.2(c) sets forth offices; relevant Special Meeting Request and all dates in certain limitations on Special Meeting • set forth certain information with the one year period prior thereto, the ‘‘highest Requests. Specifically, a Special respect to (i) each person the Requesting tender offer price or stated amount of the Meeting Request will not be valid if: Person proposes to nominate for consideration offered for the subject security’’ shall • It relates to an item of business that refer to the closing sales price of NASDAQ OMX’s director, (ii) any business the capital stock on NASDAQ on such date (or, if such is not a proper subject for stockholder Requesting Person proposes to bring date is not a trading day, the next succeeding action under applicable law; • before the meeting and (iii) each trading day), the ‘‘person whose securities are the it is delivered during the period 19 subject of the offer’’ shall refer to NASDAQ OMX, Requesting Person; and commencing 90 days prior to the one- • include (i) an agreement by each a ‘‘subject security’’ shall refer to the issued and year anniversary of the date of the outstanding voting stock of NASDAQ OMX; and (B) Requisite Holder to immediately deliver the net long position of such stockholder shall be immediately preceding annual meeting written notice to NASDAQ OMX’s reduced by any shares as to which such person does and ending on the date of the next not have the right to vote or direct the vote at the annual meeting; 16 See proposed Section 3.2(a) of the By-Laws. proposed special meeting or as to which such • a Similar Item was presented at any person has entered into a derivative or other 17 Id. agreement, arrangement or understanding that meeting of stockholders held within 120 18 ‘‘Requesting Person’’ means (i) each Requisite hedges or transfers, in whole or in part, directly or days prior to the date on which the Holder, (ii) the beneficial owner or beneficial indirectly, any of the economic consequences of Special Meeting Request was delivered; owners, if different, on whose behalf the Special ownership of such shares. In addition, to the extent or Meeting Request is being delivered to NASDAQ any affiliates of the stockholder or beneficial owner • a Similar Item is included in OMX’s Corporate Secretary and (iii) any affiliate or are acting in concert with the stockholder or associate of such stockholder or beneficial owner. beneficial owner with respect to the calling of the NASDAQ OMX’s notice of meeting as See proposed Section 3.2(e) of the By-Laws. special meeting, the determination of Net Long 19 The information required is the same Shares may include the effect of aggregating the Net 15 Under proposed Section 3.2(b) of the By-Laws, information required from Proposing Persons with Long Shares (including any negative number) of the election of directors shall be deemed a ‘‘Similar respect to nominations or items of business to be such affiliate or affiliates. See proposed Section Item’’ with respect to all items of business involving brought before an annual meeting of stockholders 3.2(a) of the By-Laws. the nomination, election or removal of directors. and is described in detail in Section (iv)(b) below.

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Corporate Secretary in the case of any supplement must be delivered to Generally, the proposed amendments disposition, on or prior to the record NASDAQ OMX’s Corporate Secretary no add requirements for extensive date for the special meeting, of any later than the eighth business day prior disclosures by proposing stockholders shares of NASDAQ OMX’s capital stock to the date for the special meeting or, if about themselves, any proposed held of record by such Requisite Holder practical, any adjournment or nominees for director and any proposed and (ii) an acknowledgement that (1) postponement thereof (and, if not items of business to be brought before a any such disposition shall be deemed a practicable, on the first practicable date meeting. The specific amendments are revocation of the Special Meeting prior to the date to which the special discussed in detail below. Request to the extent of such disposition meeting has been adjourned or First, Section 3.1(a) of the By-Laws and (2) if, following such deemed postponed). currently states that nominations of revocation, the Requisite Holders hold Proposed Section 3.2(h) will allow the persons for election to NASDAQ OMX’s of record, in the aggregate, less than the Requisite Holders to revoke a Special Board and the proposal of other Requisite Percentage of the voting Meeting Request by written revocation business to be considered by the power of all outstanding shares of delivered to NASDAQ OMX at any time stockholders at an annual meeting of NASDAQ OMX’s capital stock entitled prior to the special meeting requested. stockholders may be made only: (i) to vote generally in the election of However, NASDAQ OMX’s Board will Pursuant to the Company’s notice of directors, NASDAQ OMX shall have no have the discretion to determine meeting (or any supplement thereto); (ii) obligation to hold the special meeting. whether or not to proceed with the by or at the direction of NASDAQ Proposed Section 3.2(f) provides that special meeting. The Board might wish OMX’s Board or its Nominating & at any special meeting of the to continue with the special meeting if, Governance Committee; or (iii) by any stockholders, the only business to be for example, the Company has already stockholder of the Company that meets conducted or considered will have been spent the time and expense required to certain requirements. These specified in the notice of meeting (or call the meeting or if the agenda for the requirements state that the stockholder any supplement thereto) given by or at meeting includes items other than those must: (i) Be a stockholder of record at the direction of NASDAQ OMX’s Board proposed in the Special Meeting the time of delivery of notice to the or Corporate Secretary, as the case may Request. Company of nominees or other business be. In any event, however, NASDAQ Finally, NASDAQ OMX proposes to to be conducted at the meeting; (ii) be OMX’s Board may submit its own designate as Section 3.2(i) existing text entitled to vote at the meeting; and (iii) proposal or proposals for consideration that sets forth the requirements for comply with the notice procedures set at a special meeting. Except as stockholders to submit nominees for forth in the By-Laws. NASDAQ OMX otherwise allowed under proposed election as directors at certain proposes to add a parenthetical to the Section 3.2, stockholders will not be stockholder meetings. NASDAQ OMX requirement that a stockholder must be permitted to propose business to be further proposes to make a minor a stockholder of record to clarify that a brought before a special meeting of the change to this text to clarify that nomination or proposal of other stockholders. NASDAQ OMX believes NASDAQ OMX’s Board, rather than the business may be made on behalf of a these provisions are reasonable and Company itself, will call a special beneficial owner, if different from the necessary to limit the items of business meeting on behalf of the Company. stockholder of record, only if the that may be considered at a special (b) Annual Meetings of Stockholders beneficial owner is the beneficial owner meeting to those that were proposed by of NASDAQ OMX shares. This the Company, the Board or stockholders Section 3.1 of NASDAQ OMX’s By- modification will clarify that both that comply with the requirements and Laws, which is the ‘‘advance notice’’ record and beneficial owners of procedures set forth in the By-Laws. provision,20 requires stockholders to NASDAQ OMX stock have the right to Proposed Section 3.2(g) will require notify NASDAQ OMX, during a propose nominees or business to be the Requisite Holders giving a Special specified period in advance of an considered at an annual meeting. Meeting Request to further update and annual meeting, of their intention to NASDAQ OMX further proposes that a supplement the request, if necessary, so nominate one or more persons for stockholder who proposes nominees or that the information in the request is election to the Board or to present a business to be considered at an annual true and correct as of the record date for business proposal for consideration by meeting must hold shares in the the special meeting and as of the 10th the stockholders at the meeting. While Company at the time of the meeting, in business day prior to the special designing the proposed procedural addition to the time of delivery of the meeting or any adjournment or requirements for stockholders to call a required notice to the Company. This postponement thereof. This requirement special meeting, as outlined above, will ensure that a stockholder retains an will ensure that NASDAQ OMX, its NASDAQ OMX evaluated the existing interest in the Company until the Board and its other stockholders are procedural requirements for meeting at which the stockholder’s notified of changes to the information stockholders to bring business before an nominee or other business is they will consider in assessing a annual meeting. NASDAQ OMX is considered. Finally, NASDAQ OMX proposed item of business prior to the therefore proposing changes to some of proposes to number the procedural special meeting. In the case of an update these procedures to enhance them and requirements for stockholders who and supplement required to be made as conform them, in some cases, to the propose nominees or business to make of the record date, the update and procedures relating to special meetings. them easier to understand. supplement must be delivered to Currently, Section 3.1(b) of the By- NASDAQ OMX’s Corporate Secretary no 20 ‘‘Advance notice’’ provisions allow Laws sets forth the requirements for a stockholder(s) to bring business before an annual later than the fifth business day after the meeting of stockholders, but set forth procedural stockholder’s notice to NASDAQ OMX record date for the special meeting. In requirements to ensure that companies and boards of nominations or other business to be the case of an update and supplement have sufficient information about the proposal and considered at an annual meeting. required to be made as of the 10th the proposing stockholder(s), as well as adequate NASDAQ OMX proposes certain time to consider the proposal, by requiring the business day prior to the special proposing stockholder(s) to give advance notice of amendments to this section to ensure meeting or any adjournment or the intention to bring the proposal before the that NASDAQ OMX has sufficient postponement thereof, the update and annual meeting. information about such nominations or

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other business proposed by a election as a director. NASDAQ OMX are reasonable and necessary in order to stockholder to enable the Company, the proposes changes to this section to use assist the Company in evaluating Board and the other stockholders to the defined term ‘‘Proposing Person’’ director eligibility, independence and assess a position on the nominations or instead of stockholder,23 to require potential conflicts of interest. other business. The additional information with respect to nominees Section 3.1(b)(ii) of the By-Laws information requirements will also for reelection as well as nominees for currently sets forth the information that ensure that NASDAQ OMX can make election, to correct a reference to the Act a stockholder must provide to NASDAQ adequate disclosures to its stockholders and to add numbering and other OMX about any business, other than and comply with requirements under organizational changes to make the nominations for director, that the applicable law. requirements easier to read and stockholder proposes to bring before an Specifically, NASDAQ OMX proposes understand. NASDAQ OMX also annual meeting. NASDAQ OMX an amendment to the first paragraph of proposes to require the same proposes changes to this section to this section to require a stockholder information with respect to a proposed require that the description of the who provides a notice relating to a nominee that will be required with proposed business be reasonably nomination to include with the notice, respect to a Proposing Person, as detailed, to use the defined term a completed and signed questionnaire, discussed further below. In addition, ‘‘Proposing Person’’ instead of representation and agreement relating to NASDAQ OMX proposes to add two stockholder and beneficial owner in the nominee(s) for director.21 NASDAQ new informational requirements for certain places and to add numbering, OMX also proposes to require a proposed nominees, including: reordering and other organizational stockholder who provides a notice to • A description of all direct and changes to make the requirements easier further update and supplement the indirect compensation and other to read and understand. NASDAQ OMX notice, if necessary, so that the material monetary agreements, also proposes to add a new requirement information in the notice is true and arrangements and understandings for a stockholder to provide a correct as of the record date for the during the past three years, and any reasonably detailed description of all annual meeting and as of the 10th other material relationships, between or contracts, agreements, arrangements and business day prior to the annual among any Proposing Person, on the one understandings between or among any meeting or any adjournment or hand, and such proposed nominee and of the Proposing Persons or between or postponement thereof.22 This any of his or her respective affiliates and among any Proposing Person in requirement will ensure that NASDAQ associates, on the other hand, including, connection with the proposal. NASDAQ OMX, its Board and its other without limitation, all information that OMX believes this information will be stockholders are notified of changes to would be required to be disclosed useful in assessing the aims and the information they will consider in pursuant to Item 404 under Regulation incentives of Proposing Persons in assessing a proposed item of business S–K if such Requesting Person were the proposing business before an annual prior to the annual meeting. In the case ‘‘registrant’’ for purposes of such rule meeting. Section 3.1(b)(iii) of the By-Laws of an update and supplement required and the proposed nominee were a currently sets forth the information that to be made as of the record date, the director or executive officer of such a stockholder who proposes nominee(s) update and supplement must be registrant; and for director or other business to be put delivered to NASDAQ OMX’s Corporate • a completed and signed forth before an annual meeting must Secretary no later than the fifth business questionnaire, representation and provide to NASDAQ OMX about such day after the record date for the annual agreement.24 meeting. In the case of an update and stockholder and the beneficial owner, if Finally, NASDAQ OMX proposes to any, on whose behalf the nomination or supplement required to be made as of add a catch-all provision to Section the 10th business day prior to the proposal is made. NASDAQ OMX 3.1(b)(i) of the By-Laws that will allow proposes changes to this section to use annual meeting or any adjournment or the Company to require any proposed postponement thereof, the update and the defined term ‘‘Proposing Person’’ nominee to furnish such other instead of stockholder and beneficial supplement must be delivered to information (i) as the Company may NASDAQ OMX’s Corporate Secretary no owner in certain places and to add reasonably require to determine the numbering, reordering and other later than the eighth business day prior eligibility of such proposed nominee to to the date for the annual meeting or, if organizational changes to make the serve as a director or (ii) that could be requirements easier to read and practicable, any adjournment or material to a reasonable stockholder’s understand. postponement thereof (and, if not understanding of the independence, or Relating to the existing requirement in practicable, on the first practicable date lack of independence, of such proposed Section 3.1(b)(iii)(B) that a proposing prior to the date to which the annual nominee. NASDAQ OMX believes that stockholder describe the class or series meeting has been adjourned or all of the new information requirements and number of shares of NASDAQ OMX postponed). included in proposed Section 3.1(b)(i) capital stock owned beneficially and of Section 3.1(b)(i) of the By-Laws record by such stockholder and the currently sets forth the information that 23 ‘‘Proposing Person’’ means (i) the stockholder beneficial owner, NASDAQ OMX a stockholder must provide to NASDAQ providing the notice of business or the notice of the proposes to add a parenthetical stating OMX about each person whom the nomination, as applicable, proposed to be brought that beneficial ownership shall be stockholder proposes to nominate for before an annual meeting, (ii) any beneficial owner or beneficial owners, if different, on whose behalf determined within the meaning of Rule such business is proposed to be brought before the 13d-3 under the Act. NASDAQ OMX 21 The contents of and rationale for the meeting or the notice of the nomination proposed questionnaire, representation and agreement are to be made at the meeting is made, as applicable, also proposes to state that a Proposing discussed further in Section (iv)(c) below. and (iii) any affiliate or associate (each within the Person shall in all events be deemed to 22 NASDAQ OMX notes that this proposal is meaning of Rule 12b–2 under the Act for purposes beneficially own any shares of any class similar to proposed Section 3.2(g) of the By-Laws, of the By-Laws) of such stockholder or beneficial or series of NASDAQ OMX’s capital which requires updates and supplements to a owner. See proposed Section 3.1(c) of the By-Laws. stockholder notice relating to a special meeting. 24 The contents of and rationale for the stock as to which such person has a This proposed change is discussed further in questionnaire, representation and agreement are right to acquire beneficial ownership at Section (iv)(a) above. discussed further in Section (iv)(c) below. any time in the future. These proposed

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changes merely clarify how the concept • any proxy (other than a revocable bargaining agreement or consulting of beneficial ownership will be proxy or consent given in response to a agreement); 31 interpreted under this section of the By- solicitation made pursuant to, and in • any pending or threatened litigation Laws. accordance with, Section 14(a) of the in which the Proposing Person is a party Current Section 3.1(b)(iii)(D) requires Act by way of a solicitation statement or material participant involving proposing stockholders to describe to filed on Schedule 14A), agreement, NASDAQ OMX or any of its officers or NASDAQ OMX any agreement, arrangement, understanding or directors, or any affiliate of NASDAQ arrangement or understanding relationship pursuant to which the OMX; 32 (including any derivative or short Proposing Person has or shares a right • any material transaction occurring, positions, profit interests, options, to vote any shares of any class or series in whole or in part, during the then warrants, convertible securities, stock of NASDAQ OMX; 26 immediately preceding 12-month period appreciation or similar rights, hedging • any proportionate interest in between such Proposing Person, on the transactions, and borrowed or loaned NASDAQ OMX shares or Synthetic one hand, and NASDAQ OMX, any shares) that has been entered into as of Equity Interest held, directly or affiliate of NASDAQ OMX or any the date of the notice by the stockholder indirectly, by a general or limited principal competitor of NASDAQ OMX, and the beneficial owners with respect partnership in which the Proposing on the other hand; 33 and • to NASDAQ OMX’s stock. Given the Person is a general partner or, directly any other information relating to increased complexity of such or indirectly, beneficially owns an the Proposing Person required to be transactions in today’s marketplace, interest in a general partner; 27 disclosed in a proxy statement or other NASDAQ OMX proposes to replace the • any agreement, arrangement, filings required to be made in current language with a similar understanding or relationship, connection with solicitations of proxies requirement for disclosure of any including any repurchase or similar so- for, as applicable, the proposal and/or Synthetic Equity Interest,25 without called ‘‘stock borrowing’’ agreement or for the election of directors in an regard to whether: (i) The derivative, arrangement, entered into or engaged in, election contest pursuant to and in swap or other transaction or series of directly or indirectly, by the Proposing accordance with Section 14(a) of the Act transactions conveys any voting rights Person, the purpose or effect of which and the rules and regulations 34 in such shares to the Proposing Person; is to mitigate loss to, reduce the promulgated thereunder. (ii) the derivative, swap or other economic risk (of ownership or (c) Questionnaire, Representation and transaction or series of transactions is otherwise) of shares of any class or Agreement for Director-Nominees series of NASDAQ OMX by, manage the required to be, or is capable of being, NASDAQ OMX proposes to add a risk of share price changes for, or settled through delivery of such shares; new Section 3.5 to its By-Laws to or (iii) the Proposing Person may have increase or decrease the voting power require nominees for director to deliver entered into other transactions that of, the Proposing Person with respect to to NASDAQ OMX, in accordance with hedge or mitigate the economic effect of shares of any class or series of NASDAQ the time periods prescribed for delivery such derivative, swap or other OMX, or that provides, directly or of a stockholder’s notice: (i) A written transaction or series of transactions. indirectly, the opportunity to profit questionnaire with respect to the This proposed provision will assist from any decrease in the price or value background and qualifications of the NASDAQ OMX, its Board and its other of shares of any class or series of nominee; and (ii) a written stockholders in understanding a NASDAQ OMX (any of the foregoing, a representation and agreement as to Proposing Person’s full economic ‘‘Short Interest’’); 28 • certain matters. Specifically, the written interests in NASDAQ OMX and possible any performance-related fees (other representation and agreement will aims and incentives in submitting the than an asset-based fee) to which the provide that the nominee: proposed business for consideration at Proposing Person is entitled based on • is not and will not become a party an annual meeting. any increase or decrease in the price or to (i) any agreement as to how the For this same reason, NASDAQ OMX value of shares of any class or series of nominee will act or vote on any issue also proposes to add several new NASDAQ OMX, or any Synthetic Equity or question (a ‘‘Voting Commitment’’) disclosures that a Proposing Person Interest or Short Interest; 29 • that has not been fully disclosed to must include in a notice to NASDAQ any significant equity interest or NASDAQ OMX or (ii) any Voting OMX regarding nominees or other any Synthetic Equity Interest or Short Commitment that could limit or business to be conducted at an annual Interest in any principal competitor of interfere with the nominee’s fiduciary meeting. These include disclosures NASDAQ OMX held by the Proposing duties under applicable law; regarding: Person; 30 • is not and will not become a party • any direct or indirect interest of the to any agreement with any person other 25 ‘‘Synthetic Equity Interest’’ shall mean any Proposing Person in any contract with than NASDAQ OMX with respect to any derivative, swap or other transaction (including any NASDAQ OMX, any affiliate of short positions, profit interest, options, warrants, NASDAQ OMX or any principal 31 convertible securities, stock appreciation or similar See proposed Section 3.1(b)(iii)(J) of the By- rights) or series of transactions engaged in, directly competitor of NASDAQ OMX Laws. or indirectly, by a Proposing Person, the purpose or (including, in any such case, any 32 See proposed Section 3.1(b)(iii)(K) of the By- effect of which is to give the Proposing Person employment agreement, collective Laws. economic risk similar to ownership of shares of any 33 See proposed Section 3.1(b)(iii)(L) of the By- class or series of NASDAQ OMX, including due to Laws. 26 See proposed Section 3.1(b)(iii)(E) of the By- the fact that the value of such derivative, swap or 34 See proposed Section 3.1(b)(iii)(M) of the By- Laws. other transaction or series of transactions is Laws. NASDAQ OMX also proposes to include an 27 determined by reference to the price, value or See proposed Section 3.1(b)(iii)(F) of the By- exception to each of the aforementioned disclosure volatility of any shares of any class or series of Laws. requirements for any disclosures with respect to the NASDAQ OMX, or which derivative, swap or other 28 See proposed Section 3.1(b)(iii)(G) of the By- ordinary course business activities of any broker, transaction or series of transactions provides, Laws. dealer, commercial bank, trust company or other directly or indirectly, the opportunity to profit from 29 See proposed Section 3.1(b)(iii)(H) of the By- nominee who is a Proposing Person solely as a any increase in the price or value of shares of any Laws. result of being the stockholder directed to prepare class or series of NASDAQ OMX. See proposed 30 See proposed Section 3.1(b)(iii)(I) of the By- and submit the notice required by the By-Laws on Section 3.1(b)(iii)(D) of the By-Laws. Laws. behalf of a beneficial owner.

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direct or indirect compensation, voting power of the Voting Stock, voting by telegram, telefax, cable, radio or reimbursement or indemnification in together as a single class.36 wireless and subsequently confirmed in connection with service or action as a To conform with the proposed writing or by electronic transmission). director of NASDAQ OMX that has not changes to the Charter, NASDAQ OMX NASDAQ OMX proposes amendments been fully disclosed to NASDAQ OMX; proposes to replace each of these to Sections 4.12(a) and (b) to provide • would be in compliance, if elected, supermajority voting requirements with that both notices and waivers of such and will comply, with the provisions of a voting standard requiring the notices can be given by email or other NASDAQ OMX’s By-Laws relating to affirmative vote of a majority of the means of written electronic qualifications of directors, conflicts of outstanding Voting Stock. As discussed transmission. These amendments are interest and contracts and transactions above with respect to the analogous intended merely to expand the means involving directors; and Charter amendments, NASDAQ OMX through which notices and waivers of • in such proposed nominee’s believes that a ‘‘majority of outstanding notices may be given, and the individual capacity and on behalf of any shares’’ standard reflects a balanced amendments do not affect any of the person on whose behalf the nomination approach that responds to stockholder other procedural requirements of is made, would be in compliance, if feedback while appropriately Sections 4.12(a) and (b). In addition, the elected, and will comply, with maintaining NASDAQ OMX’s defensive proposed amendments reflect current NASDAQ OMX’s Corporate Governance posture against hostile takeovers. practices, as a substantial amount of Guidelines, Board of Director Code of communications between NASDAQ (e) Procedures for Filling Board OMX and its directors, outside of Board Conduct and Code of Ethics, including Vacancies all applicable, publicly disclosed meetings, occurs through electronic conflict of interest, confidentiality, stock Section 4.8 of the By-Laws sets forth means. the procedures to fill a director position ownership and insider trading policies (g) Composition of the Management that has become vacant, whether and guidelines. Compensation Committee because of death, disability, The requirements of proposed Section disqualification, removal or resignation. As required by the Dodd-Frank Wall 3.5 of the By-Laws, which will apply to Under the current provisions, if such a Street Reform and Consumer Protection both the Company’s and stockholders’ vacancy occurs, the Nominating & Act and Rule 10C–1 under the Exchange nominees for director, will ensure that 37 Governance Committee of the Board Act, NASDAQ recently amended its NASDAQ OMX has the necessary shall nominate, and the Board shall listing rules relating to compensation information about nominees to fulfill its 38 elect by majority vote, a person to fill committees. Since NASDAQ OMX is public disclosure requirements. The the vacancy. In light of the addition of listed on NASDAQ, it must comply with requirements also will ensure that a right for stockholders to call a special these listing rules just like any other nominees will comply with the legal meeting, as discussed above, NASDAQ listed company. NASDAQ OMX obligations, policies and procedures OMX proposes amendments to Section therefore proposes amendments to applicable to all NASDAQ OMX 4.8 to state explicitly that vacancies on Section 4.13(f) of the By-Laws, which directors. the Board are to be filled by a majority relates to the composition of the (d) Removal and Replacement of vote of the Board, and not by Management Compensation Committee Supermajority Voting Provisions stockholders. In addition, to prescribe of NASDAQ OMX’s Board, to conform procedures in case multiple Board to the recent amendments to NASDAQ’s Consistent with the proposed vacancies occur at the same time, the listing rules. Specifically, NASDAQ amendments to remove and replace the proposed amendments state that a Board OMX proposes to state that the supermajority voting provisions in the vacancy shall be filled by the majority Management Compensation Committee Charter discussed above, NASDAQ of the directors, even if there is less than must consist of at least two members OMX proposes to amend each provision a quorum, or by the sole remaining and that each member shall meet the of the By-Laws that currently requires a director, if there is only one director eligibility requirements set forth in the supermajority vote of stockholders to remaining on the Board. The proposed rules of The NASDAQ Stock Market. instead require a ‘‘majority of votes amendments do not change any of the outstanding.’’ NASDAQ OMX’s By-Laws (h) No Amendment or Repeal of Certain other procedures for filling Board currently include the following two By-Law Amendments vacancies. supermajority voting requirements, each While current Section 11.1 of the By- of which conforms with an analogous (f) Use of Electronic Means for Certain Laws provides for alteration, provision in the Charter. Notices and Related Waivers amendment, repeal and adoption of By- • Removal of Directors. Section 4.6 Currently, Section 4.12(a) of the By- Laws by the stockholders, current provides that any or all of the directors Laws provides that notice of any Section 11.2 provides for alteration, may be removed from office at any time meeting of the Board shall be deemed amendment, repeal and adoption of By- by the affirmative vote of at least 662⁄3% duly given to a director if, among other Laws by the Board. These two sections of the total voting power of the Voting methods, the notice is sent to the operate as alternate means to alter, Stock, voting together as a single class.35 director at the address last made known amend, repeal or adopt By-Laws. In • Adoption, Alteration, Amendment in writing to NASDAQ OMX by and Repeal of By-Laws. Section 11.1 telegraph, telefax, cable, radio or 37 See Public Law 111–203, 124 Stat. 1376 (2010) provides that the By-Laws may be and 17 CFR 240.10C–1. wireless. Section 4.12(b) of the By-Laws 38 See Securities Exchange Act Release No. 68640 altered amended or repealed, or new By- provides that such notice of a board (January 11, 2013), 78 FR 4554 (January 22, 2013) Laws may be adopted, at any meeting of meeting need not be given to any (SR–NASDAQ–2012–109). Among other things, the the stockholders by the affirmative vote director if waived by the director in amendments require each NASDAQ-listed company, with certain exceptions, to have a of the holders of at least 662⁄3% of the writing or by electronic transmission (or compensation committee of its board of directors, consisting of a minimum of two independent 35 This provision is analogous to Article Fifth, 36 This provision is analogous to Article Eighth, directors who meet additional eligibility Paragraph D of the Charter, which is discussed Paragraph A of the Charter, which is discussed requirements relating to compensatory fees and under Section (ii)(a) above. under Section (ii)(a) above. affiliation.

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other words, the stockholders may alter, directors and administration of its stockholders is a stockholder-friendly amend, repeal or adopt By-Laws affairs, as well as the affairs of SCCP. provision that is intended to prevent the without any action by the Board, and Specifically, in response to feedback Board from subsequently overriding vice versa. NASDAQ OMX proposes to from its existing investors, NASDAQ stockholders’ wishes. Finally, the add a proviso to Section 11.2 to state OMX is proposing changes to its Charter remaining changes are clarifying in that no By-Law adopted by the to replace each supermajority voting nature, and they conform NASDAQ stockholders shall be amended or requirement with a ‘‘majority of OMX’s governance documents to repealed by the Board if the By-Law so outstanding shares’’ voting standard. current practices and applicable rules adopted so provides. This is a NASDAQ OMX believes this approach and make them clearer and easier to stockholder-friendly provision that is will strike an appropriate balance understand. intended to prevent the Board from between responding to stockholder feedback and protecting the Company B. Self-Regulatory Organization’s subsequently overriding stockholder Statement on Burden on Competition action to amend or repeal the By-Laws. and its investors against hostile takeovers. In addition, the clarifying Because the proposed rule change (i) Non-Substantive Changes changes to the Charter will make the relates to the governance of NASDAQ Charter more concise and easier to The remaining proposed By-Law OMX and not to the operations of SCCP, understand. Both sets of changes to the SCCP does not believe that the proposed amendments are non-substantive Charter were approved by NASDAQ changes, which will simplify and rule change will impose any burden on OMX’s investors at the most recent competition not necessary or streamline the document. Specifically, annual meeting of stockholders. NASDAQ OMX proposes minor changes appropriate in furtherance of the NASDAQ OMX also proposes to purposes of the Act. to Section 3.3 to incorporate the new eliminate the Certificate of Designation defined term ‘‘Proposing Person,’’ to use relating to the Series A Convertible C. Self-Regulatory Organization’s the term ‘‘nomination’’ rather than Preferred Stock, which is no longer Statement on Comments on the ‘‘nominee’’ for consistency and to outstanding. This proposed change will Proposed Rule Change Received From correct two cross-references. NASDAQ enhance the clarity of NASDAQ OMX’s Members, Participants, or Others OMX also proposes to delete obsolete Charter. No written comments were either references to the 3.75% Series A Finally, NASDAQ OMX proposes solicited or received. Convertible Notes due 2012 and the changes to its By-Laws: (i) To Series B Convertible Notes due 2012, implement a stockholder right to call a III. Date of Effectiveness of the which are no longer outstanding, in special meeting; (ii) to enhance the Proposed Rule Change and Timing for Section 12.7. ‘‘advance notice’’ procedures; (iii) to Commission Action In addition, NASDAQ OMX proposes require certain information and agreements from director-nominees; (iv) Within 45 days of the date of to correct typographical errors and/or publication of this notice in the Federal delete obsolete cross-references in to remove and replace the supermajority voting provisions to conform to the Register or within such longer period (i) Article I(f), Section 4.3, Section 9.4(b), as the Commission may designate up to Section 12.5 and Section 12.6. Finally, Charter amendments; (v) to clarify the procedures for filling Board vacancies; 90 days of such date if it finds such NASDAQ OMX proposes to renumber longer period to be appropriate and and reorganize the provisions of the By- (vi) to allow the use of electronic means for certain notices and waivers; (vii) to publishes its reasons for so finding or Laws, where necessary following the (ii) as to which SCCP consents, the other amendments. conform the composition requirements for the Management Compensation Commission shall: (a) By order approve 2. Statutory Basis Committee of NASDAQ OMX’s Board or disapprove such proposed rule with the NASDAQ listing rules; (vii)[sic] change, or (b) institute proceedings to SCCP believes that its proposal is to prevent the Board from amending or determine whether the proposed rule consistent with Section 17A(b)(3)(C) of repealing By-Law amendments change should be disapproved. the Act,39 in that it assures a fair approved by the stockholders; and IV. Solicitation of Comments representation of shareholders and (viii)[sic] to make other non-substantive participants in the selection of directors changes. Interested persons are invited to and administration of its affairs. While The proposals relating to the submit written data, views, and the proposals relate to the stockholder right to call a special arguments concerning the foregoing, organizational documents of NASDAQ meeting and to remove and replace the including whether the proposed rule OMX, rather than SCCP, SCCP is wholly supermajority voting requirements are change is consistent with the Act. owned by NASDAQ OMX, and responsive to feedback from NASDAQ Comments may be submitted by any of therefore, NASDAQ OMX’s stockholders OMX’s stockholders. The additional the following methods: have an indirect stake in SCCP. In procedural requirements relating to Electronic Comments addition, the participants in SCCP, to special and annual meetings will state the extent any exist, could purchase clearly and explicitly the procedures • Use the Commission’s Internet stock in NASDAQ OMX in the open stockholders must follow to propose comment form (http://www.sec.gov/ market, just like any other stockholder. business at such meetings. The rules/sro.shtml); or The proposals respond directly to requirement for certain information and • Send an email to rule- feedback from existing NASDAQ OMX agreements from director-nominees will [email protected]. Please include File stockholders about their participation in ensure that nominees provide adequate Number SR–SCCP–2013–01 on the NASDAQ OMX’s governance. As a information about themselves and also subject line. result, NASDAQ OMX believes that the comply with applicable law and certain Paper Comments proposals assure a fair representation of NASDAQ OMX policies and procedures its stockholders in the selection of relating to the Board. The prohibition on • Send paper comments in triplicate the Board amending or repealing By- to Elizabeth M. Murphy, Secretary, 39 15 U.S.C. 78q–1(b)(3)(C). Law amendments approved by the Securities and Exchange Commission,

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100 F Street NE., Washington, DC SECURITIES AND EXCHANGE become the new top-level holding 20549–1090. COMMISSION company that will, after Closing, own BGM Holdings and DE Holdings, will be All submissions should refer to File [Release No. 34–71023; File No. SR–BATS– 2013–059] referred to as ‘‘New BGM.’’ Number SR–SCCP–2013–01. This file To effectuate the Combination, the number should be included on the Self-Regulatory Organizations; BATS Exchange seeks to obtain the subject line if email is used. To help the Exchange, Inc.; Notice of Filing of a Commission’s approval of (i) resolutions Commission process and review your Proposed Rule Change in Connection of Current BGM’s board of directors (the comments more efficiently, please use With the Proposed Business ‘‘Resolutions’’) making certain only one method. The Commission will Combination Involving BATS Global determinations regarding New BGM and post all comments on the Commission’s Markets, Inc. and Direct Edge Holdings the impact of the Combination on the Internet Web site (http://www.sec.gov/ LLC Exchange; (ii) the proposed Amended rules/sro.shtml). and Restated Certificate of Incorporation December 6, 2013. Copies of the submission, all of New BGM (the ‘‘New BGM Charter’’); Pursuant to Section 19(b)(1) of the subsequent amendments, all written (iii) the proposed Amended and Securities Exchange Act of 1934 (the Restated Bylaws of New BGM (the ‘‘New statements with respect to the proposed ‘‘Act’’),1 and Rule 19b–4 thereunder,2 rule change that are filed with the BGM Bylaws’’); (iv) the proposed notice is hereby given that on November amendments to Current BGM’s Second Commission, and all written 25, 2013, BATS Exchange, Inc. (the Amended and Restated Certificate of communications relating to the ‘‘Exchange’’) filed with the Securities Incorporation (the ‘‘Current BGM proposed rule change between the and Exchange Commission Charter,’’ and after such amendments, Commission and any person, other than (‘‘Commission’’) the proposed rule the ‘‘BGM Holdings Charter’’); (v) the those that may be withheld from the change as described in Items I, II and III proposed amendments to the Amended public in accordance with the below, which Items have been prepared and Restated Bylaws of Current BGM provisions of 5 U.S.C. 552, will be by the Exchange. The Commission is (the ‘‘Current BGM Bylaws,’’ and after available for Web site viewing and publishing this notice to solicit such amendments, the ‘‘BGM Holdings printing in the Commission’s Public comments on the proposed rule change Bylaws’’); (vi) the proposed Reference Room, 100 F Street NE., from interested persons. amendments to the By-Laws of the Washington, DC 20549, on official I. Self-Regulatory Organization’s Exchange (the ‘‘Exchange Bylaws’’); (vii) business days between the hours of Statement of the Terms of Substance of the proposed amendments to Exchange 10:00 a.m. and 3:00 p.m. Copies of the the Proposed Rule Change Rule 2.3 to reflect the affiliation filing also will be available for between the Exchange and two inspection and copying at the principal The Exchange filed a proposed rule additional registered national securities change (the ‘‘Proposed Rule Change’’) in office of SCCP. All comments received exchanges; (viii) the proposed connection with the proposed business will be posted without change; the amendments to Exchange Rule 2.12 to combination (the ‘‘Combination’’), as reflect the affiliation between the Commission does not edit personal described in more detail below, identifying information from Exchange and the routing broker for involving its parent company, BATS EDGA and EDGX; and (ix) the indirect submissions. You should submit only Global Markets, Inc. and Direct Edge information that you wish to make acquisition by an affiliate of the Holdings LLC (‘‘DE Holdings’’), the 3 available publicly. Exchange of a Member of the Exchange indirect parent company of EDGX and the resulting affiliation between the All submissions should refer to File Exchange, Inc. (‘‘EDGX’’) and EDGA Exchange and the Member of the Number SR–SCCP–2013–01 and should Exchange, Inc. (‘‘EDGA’’), each a Exchange, as required under Exchange be submitted on or before January 2, national securities exchange registered Rule 2.10. 2014. with the Commission. The text of the proposed rule change Upon completion of the Combination For the Commission, by the Division of is available at the Exchange’s Web site (the ‘‘Closing’’), BATS Global Markets, at http://www.batstrading.com, at the Trading and Markets, pursuant to delegated Inc. and DE Holdings will each become 40 principal office of the Exchange, and at authority. intermediate holding companies, held Kevin M. O’Neill, the Commission’s Public Reference under a single new holding company. Room. Deputy Secretary. The new holding company, currently [FR Doc. 2013–29617 Filed 12–11–13; 8:45 am] named ‘‘BATS Global Markets Holdings, II. Self-Regulatory Organization’s BILLING CODE 8011–01–P Inc.,’’ will at that time change its name Statement of the Purpose of, and to ‘‘BATS Global Markets, Inc.’’ In Statutory Basis for, the Proposed Rule addition, the current parent company of Change the Exchange, BATS Global Markets, In its filing with the Commission, the Inc., will at that time change its name Exchange included statements to ‘‘BATS Global Markets Holdings, concerning the purpose of and basis for Inc.’’ the proposed rule change and discussed For ease of reference, this Proposed any comments it received on the Rule Change will refer to the current proposed rule change. The text of these parent company of the Exchange as statements may be examined at the ‘‘Current BGM’’ when referring to the places specified in Item IV below. The entity prior to the Closing, and as ‘‘BGM Exchange has prepared summaries, set Holdings’’ when referring to that entity forth in Sections A, B, and C below, of after the Closing. The entity that will 3 The term ‘‘Member’’ is defined in Exchange 1 15 U.S.C. 78s(b)(1). Rule 1.5(n) as any registered broker or dealer that 40 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. has been admitted to membership in the Exchange.

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the most significant parts of such in turn, owns 100 percent of the equity but less than ten percent of DE statements. interest in each of Blue Merger Sub Inc., Holdings. Five other firms as well as a Delaware corporation (‘‘Blue Merger various individuals each beneficially A. Self-Regulatory Organization’s Sub’’), and Delta Merger Sub LLC, a Statement of the Purpose of, and the own less than five percent of DE Delaware limited liability company Statutory Basis for, the Proposed Rule Holdings. Change (‘‘Delta Merger Sub’’). Each of Blue Merger Sub and Delta Merger Sub are 2. The Combination 1. Purpose currently shell companies with no On August 23, 2013, an Agreement The Exchange submits this Proposed material assets or operations. and Plan of Merger (the ‘‘Merger Rule Change to seek the Commission’s Current BGM is itself beneficially Agreement’’) was entered into among approval of various changes to the owned primarily by a consortium of Current BGM, New BGM, DE Holdings, organizational and governance several unaffiliated firms, including Blue Merger Sub, Delta Merger Sub, and documents of the Exchange and the Members or affiliates of Members of the Cole, Schotz, Meisel, Forman & Exchange’s current and proposed future Exchange. No firm beneficially owns 20 Leonard, P.A., solely in its capacity as percent or greater of Current BGM, and parent companies, changes to Exchange representative of the LLC Members. 4 the only firms beneficially owning ten Rules, and related actions that are Pursuant to and subject to the terms of percent or greater of Current BGM are (i) necessary in connection with the the Merger Agreement, at the Closing, GETCO Investments, LLC, an affiliate of Closing of the Combination, as among other things: described below. KCG Holdings, Inc., (ii) BGM Holding, Other than as described herein and set L.P., a holding company itself owned by (i) Blue Merger Sub will be merged forth in the attached Exhibits 5A entities affiliated with the Spectrum with and into Current BGM, whereupon through 5H, the Exchange will continue Equity Investors and TA Associates the separate existence of Blue Merger to conduct its regulated activities Management private investment funds, Sub will cease and Current BGM will be (including operating and regulating its and (iii) Strategic Investments I, Inc., an the surviving company (the ‘‘BATS market and Members) in the manner affiliate of Morgan Stanley.6 Seven other Merger’’); currently conducted, and will not make firms each beneficially own five percent (ii) Delta Merger Sub will be merged any changes to its regulated activities in or greater but less than ten percent of with and into DE Holdings, whereupon connection with the Combination. Current BGM, while seven other firms the separate existence of Delta Merger Except as set forth in this Proposed Rule as well as various individuals each Sub will cease and DE Holdings will be Change, the Exchange is not proposing beneficially own less than five percent the surviving company (the ‘‘Direct any amendments to its trading and of Current BGM. Edge Merger’’); regulatory rules at this time. If the DE Holdings, a Delaware limited (iii) by virtue of the BATS Merger and Exchange determines to make any such liability company, owns 100 percent of changes, it will seek the approval of the the equity interest in Direct Edge, Inc., without any action required on the part Commission to the extent required by a Delaware corporation (‘‘DEI’’). DEI, in of Current BGM, New BGM, Blue the Act, and the Commission’s rules turn, owns 100 percent of the equity Merger Sub or any holder of Current thereunder, and the Rules of the interest in two registered national BGM stock, each outstanding share of Exchange. securities exchanges, EDGX and EDGA, Current BGM stock issued and each a Delaware corporation (together, outstanding will be converted into the 1. Current Corporate Structures the ‘‘DE Exchanges’’). In addition, DE right to receive shares of New BGM The Exchange and BATS Y-Exchange, Holdings owns 100 percent of the equity stock, and each outstanding share of Inc. (‘‘BYX’’ and together with the interest in Direct Edge ECN LLC d/b/a Blue Merger Sub issued and outstanding Exchange, the ‘‘BATS Exchanges’’), are DE Route, a Delaware limited liability will be converted into one share of each Delaware corporations that are company and the routing broker-dealer Current BGM, such that Current BGM national securities exchanges registered for the DE Exchanges (‘‘DE Route’’). will become a wholly owned subsidiary with the Commission pursuant to As a limited liability company, of New BGM; and Section 6(a) of the Act.5 Each BATS ownership in DE Holdings is (iv) by virtue of the Direct Edge Exchange is a direct, wholly owned represented by units held by ‘‘LLC Merger and without any action required subsidiary of Current BGM, a Delaware Members.’’ Certain of the DE Holdings on the part of DE Holdings, New BGM, corporation. Current BGM also owns LLC Members are Members or affiliates Delta Merger Sub, or any LLC Member, 100 percent of the equity interest in of Members of the Exchange. The each LLC Member’s membership BATS Trading, Inc., a Delaware Exchange understands that International interests in DE Holdings will be corporation (‘‘BATS Trading’’) that is a Securities Exchange Holdings, Inc. (‘‘ISE converted into the right to receive broker-dealer registered with the Holdings’’) is the only LLC Member of shares of New BGM stock, and each unit Commission that provides routing DE Holdings to beneficially own greater of ownership interest of Delta Merger services outbound from and, in certain than 20 percent of the equity interest in Sub issued and outstanding will be instances inbound to, each BATS DE Holdings. Other than ISE Holdings, converted into one unit of ownership of Exchange. In contemplation of the the only firms beneficially owning ten DE Holdings, such that DE Holdings Combination, several new entities have percent or greater of DE Holdings (but will become a wholly owned subsidiary been formed: New BGM, a Delaware in each case less than 20 percent) are of New BGM. corporation, is currently a wholly Citadel Securities LLC, The Goldman Upon the Closing, each of Current owned subsidiary of Current BGM, and Sachs Group, Inc., and an affiliate of BGM and New BGM will amend and is currently a shell company with no KCG Holdings, Inc. No LLC Member restate their respective certificates of material assets or operations. New BGM, beneficially owns five percent or greater incorporation to, among other things, change their names such that New BGM 4 The term ‘‘Exchange Rules’’ refers to the rules 6 For purposes of this Proposed Rule Change, of the Exchange, including those for equities and references to the beneficial ownership of a ‘‘firm’’ will be renamed ‘‘BATS Global Markets, options. refers to the aggregate beneficial ownership of the Inc.’’ and Current BGM will be renamed 5 15 U.S.C. 78f(a). firm and its affiliated entities. ‘‘BATS Global Markets Holdings, Inc.’’

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3. Post-Closing Corporate Structure 4. Voting and Ownership Limitations of a violation of the BGM Ownership As a result of the Combination, New Current BGM; Resolutions Limitation are not recognized by BGM will own (i) 100 percent of the The Current BGM Charter provides Current BGM to the extent of any equity interest in BGM Holdings (the that (i) no person, either alone or ownership in excess of the BGM entity previously referred to as ‘‘Current together with its ‘‘Related Persons,’’ 9 Ownership Limitation, and purported BGM’’), and (ii) 100 percent of the LLC may own, directly or indirectly, of voting or voting arrangements in membership interests in DE Holdings. record or beneficially, shares violation of the BGM Voting Limitation BGM Holdings will continue to own 100 constituting more than 40 percent of any are not honored by Current BGM to the percent of the equity interest in each class of its capital stock, and no extent of any voting in excess of the BATS Exchange and BATS Trading. DE Exchange Member, either alone or limitation.11 Holdings will continue to own 100 together with its Related Persons, may However, the Current BGM Charter percent of the equity interest in DE own, directly or indirectly, of record or provides that each of the BGM Route 7 and DEI. DEI will, in turn, beneficially, shares constituting more Ownership Limitation and the BGM continue to own 100 percent of the than 20 percent of any class of its Voting Limitation may be waived equity interest in each DE Exchange. capital stock (collectively, the ‘‘BGM (except with respect to Exchange Each of the BATS Exchanges and BATS Ownership Limitation’’), and (ii) subject Members and their Related Persons) Trading, on the one hand, and the DE to certain exceptions, no person, either pursuant to a resolution duly adopted Exchanges and DE Route, on the other alone or together with its Related by the board of directors of Current hand, will continue to operate Persons, at any time, may, directly, BGM if, in connection with taking such separately. indirectly or pursuant to any of various action, the board of directors states in New BGM, as the new top-level arrangements, vote or cause the voting such resolution that it is the holding company for the combined of shares or give any consent or proxy determination of the board of directors businesses, will have widely dispersed with respect to shares representing more that the waiver: ownership, divided among the several than 20 percent of the voting power of • Will not impair the ability of each firms and individuals that previously its then issued and outstanding capital BATS Exchange to carry out its held equity interests in each of Current stock (the ‘‘BGM Voting Limitation’’).10 functions and responsibilities as an BGM and DE Holdings. Of the firms and Purported transfers that would result in ‘‘exchange’’ under the Act and the rules individuals that are expected to hold and regulations promulgated equity interests in New BGM after the 9 The Current BGM Charter generally defines a thereunder; Closing, none will beneficially own 20 ‘‘Related Person’’ as, with respect to any person, (i) • is otherwise in the best interests of percent or greater of New BGM and only any ‘‘affiliate’’ of such person (as defined in Rule Current BGM, its stockholders, and each 12b–2 under the Act); (ii) any other person with an affiliate of KCG Holdings, Inc. will which such first person has any agreement, BATS Exchange; beneficially own ten percent or greater. arrangement or understanding (whether or not in • will not impair the ability of the Seven firms will beneficially own five writing) to act together for the purpose of acquiring, Commission to enforce the Act and the percent or greater but less than ten voting, holding or disposing of shares of the capital rules and regulations promulgated stock of Current BGM (provided no person is percent, while 12 other firms as well as deemed a Related Person pursuant to clause (ii) thereunder; and various individuals will each solely as a result of such person’s being or • shall not be effective until it is filed beneficially own less than five percent becoming a party to the Investor Rights Agreement with and approved by the of New BGM.8 entered into by and among Current BGM and the Commission.12 stockholders named therein on January 1, 2008); (iii) in the case of a person that is a company, In granting such a waiver, the Current 7 As described above, the Combination will result corporation or similar entity, any executive officer BGM board of directors has the in a change of ownership of both BATS Trading and (as defined under Rule 3b–7 under the Act) or discretion to impose on the person and DE Route, each of which is a member of the director of such person and, in the case of a person Financial Industry Regulatory Authority, Inc. that is a partnership or limited liability company, its Related Persons, such conditions and (‘‘FINRA’’). The Exchange understands that, any general partner, managing member or manager restrictions that it deems necessary, pursuant to NASD Rule 1017, each of BATS of such person, as applicable; (iv) in the case of any appropriate or desirable in furtherance Trading and DE Route is seeking approval for this person that is a registered broker or dealer that has of the objectives of the Act and the rules change of ownership from FINRA. been admitted to membership in either of the BATS 8 ISE Holdings, which will beneficially own Exchanges (for purposes of this definition of and regulations promulgated greater than five percent but less than ten percent ‘‘Related Person,’’ each such national securities thereunder, and the governance of each of New BGM, will receive common stock of New exchange shall be referred to generally as an BATS Exchange.13 BGM designated as Class A Non-Voting Common ‘‘Exchange’’ and any member of such Exchange, an In addition, notwithstanding the Stock. As set forth in the proposed New BGM ‘‘Exchange Member’’), any person that is associated Charter and described below, shares of Class A with the Exchange Member (as determined using above, the Current BGM Charter 14 Non-Voting Common Stock are generally non- the definition of ‘‘person associated with a provides that in any case where a voting, except with respect to certain actions that member’’ as defined under Section 3(a)(21) of the person, either alone or with its Related would adversely affect the preferences, rights or Act); (v) in the case of a person that is a natural Persons, would own or vote more than powers of the holders of Class A Non-Voting person and Exchange Member, any broker or dealer Common Stock disproportionately relative to that is also an Exchange Member with which such the BGM Ownership Limitation or BGM Voting Common Stock or the Class B Non-Voting person is associated; (vi) in the case of a person that Voting Limitation, respectively, upon Common Stock. See New BGM Charter, Art. is a natural person, any relative or spouse of such FOURTH, para. (b)(ii). Pursuant to the New BGM consummation of any proposed sale, person, or any relative of such spouse who has the Charter and the Investor Rights Agreement expected assignment or transfer of Current BGM’s to be entered into at Closing and attached as Exhibit same home as such person or who is a director or officer of Current BGM or any of its parents or capital stock, such a transaction will not A to the New BGM Bylaws (the ‘‘Investor Rights become effective until the Current BGM Agreement’’), ISE Holdings’ shares of Class A Non- subsidiaries; (vii) in the case of a person that is an Voting Common Stock may convert to Voting executive office (as defined under Rule 3b–7 under board of directors determines, by Common Stock (i) automatically with respect to any the Act) or a director of a company, corporation or resolution, that such person and its shares transferred to persons other than Related similar entity, such company, corporation or entity, Persons of ISE Holdings; (ii) upon the termination as applicable; and (viii) in the case of a person that 11 See Current BGM Charter, Art. FIFTH, para. (d). of the Investor Rights Agreement; and (iii) is a general partner, managing member or manager 12 automatically with respect to any shares of Class A of a partnership or limited liability company, such See Current BGM Charter, Art. FIFTH, para. Non-Voting Common Stock sold by ISE Holdings in partnership or limited liability company, as (b)(ii)(B). any public offering of the stock of New BGM. See applicable. See Current BGM Charter, Art. FIFTH, 13 Id. New BGM Charter, Art. FOURTH, para. (c); Investor para. (a)(ii). 14 See Current BGM Charter, Art. FIFTH, para. Rights Agreement, Section 2.2(j). 10 See Current BGM Charter, Art. FIFTH, para. (b). (b)(iii).

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Related Persons are not subject to any BGM will not impair the ability of each they have done prior to the ‘‘statutory disqualification,’’ as defined BATS Exchange to carry out its Combination. Thus, each BATS in Section 3(a)(39) of the Act.15 functions and responsibilities as an Exchange will continue to enforce the As described above, upon the Closing ‘‘exchange’’ under the Act and the rules Act, the Commission’s rules thereunder, of the proposed Combination, New BGM and regulations promulgated and each Exchange’s own rules, in the will become the sole owner of Current thereunder, is otherwise in the best manner it does today. Further, the BGM (referred to as ‘‘BGM Holdings’’ interests of Current BGM, its Commission will continue to have upon the Closing and thereafter). stockholders and the BATS Exchanges, plenary regulatory authority over the Additionally, as discussed in more and will not impair the ability of the BATS Exchanges, as is currently the detail below, the Exchange is also Commission to enforce the Act and the case with these entities. seeking the Commission’s approval for rules and regulations promulgated The Exchange also notes that the Current BGM’s proposal to, thereunder; Resolutions reflect the determination by • contemporaneously with the Closing, the acquisition or exercise of the the Current BGM board of directors that amend and restate the Current BGM proposed voting rights by New BGM in the Combination and New BGM’s Charter as the BGM Holdings Charter, Current BGM will not impair the ability resulting ownership and voting rights in and for New BGM to adopt the New of each BATS Exchange to carry out its BGM Holdings are otherwise in the best BGM Charter. Unlike the Current BGM functions and responsibilities as an interests of Current BGM, its Charter, as proposed to be amended, the ‘‘exchange’’ under the Act and the rules stockholders, and the BATS Exchanges. BGM Holdings Charter will not contain and regulations promulgated In addition, the Exchange notes that the BGM Ownership Limitation or the thereunder, that it is otherwise in the notwithstanding the Resolutions and the BGM Voting Limitation.16 While the best interests of the Current BGM, its Combination, the BGM Ownership BGM Ownership Limitation and BGM stockholders and the BATS Exchanges, Limitation and the BGM Voting and that it will not impair the ability of Voting Limitation will not be contained Limitation will remain in place with the Commission to enforce the Act and in the BGM Holdings Charter, the BGM respect to potential future transactions the rules and regulations promulgated Holdings Charter specifies that BGM involving the ultimate parent company Holdings’ sole stockholder will be New thereunder; • of the BATS Exchanges. As described in BGM, and the New BGM Charter will neither New BGM, nor any of its Related Persons, is subject to ‘‘statutory more detail below, the Exchange is also contain substantively identical proposing the adoption of the New BGM ownership and voting limitation disqualification’’ within the meaning of 18 Charter and the New BGM Bylaws, provisions, which will also become Section 3(a)(39) of the Act; and • neither New BGM, nor any of its which are modeled in large part on the effective contemporaneously with the Current BGM Charter and the Current Closing.17 Related Persons (excluding BATS Trading, an Exchange Member whose BGM Bylaws (and include provisions As a result, New BGM’s acquisition of substantially identical to the BGM ownership and voting rights in BGM affiliation with the Exchanges has been approved/permitted by the Commission Ownership Limitation and the BGM Holdings upon Closing would not cause Voting Limitation), creating an New BGM to contravene the BGM pursuant to Rule 2.11 and Rule 2.12 of 19 ownership structure that will continue Ownership Limitation or BGM Voting each Exchange), is an Exchange 20 to provide the Commission with Limitation, because the Current BGM Member. The Exchange has reviewed such appropriate oversight tools to ensure Charter will be contemporaneously Resolutions and requests that the that the Commission will have the amended to eliminate the BGM Commission approve such Resolutions. ability to enforce the Act with respect to Ownership Limitation and the BGM The Exchange believes that the the Exchange, its direct and indirect Voting Limitation, and the New BGM Commission should approve the parent entities, and its directors, Charter will be contemporaneously Resolutions, as the Combination will officers, employees and agents to the amended with respect to New BGM’s not impair the ability of either BATS extent they are involved in the activities stockholders. Exchange to carry out its functions and of the Exchange, and protect the Nevertheless, because the responsibilities as an ‘‘exchange’’ under independence of the Exchange’s self- Combination will result in a change of the Act and the rules and regulations regulatory activities. ownership of Current BGM (in that New promulgated thereunder, or the ability The Exchange therefore requests that BGM will become the sole stockholder of the Commission to enforce the Act the Commission approve the of Current BGM), the Exchange and the and the rules and regulations Resolutions, attached as Exhibit 5A. board of directors of Current BGM each promulgated thereunder. The BATS believe that it is appropriate for the 5. Adoption of New BGM Charter and Exchanges will continue to operate and board of directors of Current BGM to New BGM Bylaws regulate their markets and Members as adopt the Resolutions, attached as New BGM was incorporated on Exhibit 5A, making certain 18 15 U.S.C. 78c(a)(39). August 22, 2013, under the name BATS determinations with respect to New 19 As noted above, BATS Trading is a routing Global Markets Holdings, Inc., by filing BGM and the Combination similar to broker-dealer and an Exchange Member that is a certificate of incorporation with the those that would be necessary to waive affiliated with the Exchange, pursuant to Exchange Secretary of State of Delaware. Upon the BGM Ownership Limitation and Rules 2.11 and 2.12, and a direct subsidiary of incorporation, New BGM also adopted BGM Voting Limitation. Specifically, Current BGM. The same structure will continue to be in place following the Closing and BATS Trading bylaws. New BGM is currently a shell the board of directors of Current BGM will remain a direct subsidiary of BGM Holdings. company, with no material assets or determined that: 20 In addition, the Resolutions contain a operations. Therefore, neither its • The acquisition of the proposed determination that the execution and delivery of the certificate of incorporation nor bylaws ownership by New BGM in Current Merger Agreement by New BGM constituted notice of New BGM’s intention to acquire ownership and currently need or contain any voting rights in excess of the BGM Ownership provisions that would be appropriate for 15 15 U.S.C. 78c(a)(39). Limitation and BGM Voting Limitation, 16 See infra text accompanying note 58. respectively, in writing and not less than 45 days an entity that has direct or indirect 17 See infra text accompanying notes 23 through before the Closing. See Current BGM Charter, Art. ownership in a registered national 27. FIFTH, para. (b)(iv). securities exchange.

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However, in connection with the from owning, directly or indirectly, of fulfilling its self-regulatory obligations Combination, upon the Closing, New record or beneficially, more than 20 and in administering and complying BGM will become (i) the indirect owner percent of shares of any class of capital with the requirements of the Act. (through BGM Holdings) of each of the stock of New BGM.25 As in the Current The provisions of the New BGM BATS Exchanges and BATS Trading, (ii) BGM Charter, purported sales, transfers, Charter differ from those of the Current the indirect owner (through DE assignments, pledges or ownership that BGM Charter in certain limited respects: Holdings and DEI) of each of the DE would result in a violation of the BGM • The total number of shares of Exchanges, and (iii) the indirect owner Ownership Limitation will not be common stock that New BGM will have (through DE Holdings) of DE Route. As recognized by New BGM to the extent authority to issue is 75,000,000, divided a result, the Exchange is proposing that of any ownership in excess of the between 55,000,000 shares designated in connection with New BGM’s limitation, and New BGM shall have the as Voting Common Stock, 10,000,000 acquisition of indirect ownership in the right to redeem the shares in excess of shares designated as Class A Non-Voting Exchange, New BGM would amend and the applicable ownership limit for their Common Stock, and 10,000,000 shares restate each of its certificate of fair market value. In addition, in designated as Class B Non-Voting incorporation and bylaws to adopt contrast to the Current BGM Charter, the Common Stock.30 This represents an provisions designed to protect and New BGM Charter would clarify that increase from the 25,000,000 shares that maintain the integrity of the self- these same non-recognition and Current BGM is authorized to issue regulatory functions of the Exchange redemption rights apply in the case of (divided between 24,500,000 shares and to facilitate the ability of the a purported conversion of shares designated as Voting Common Stock Exchange and the Commission to carry resulting in a violation of the BGM and 500,000 shares designated as Non- out their regulatory and oversight Ownership Limitation, as apply to Voting Common Stock). The increase in obligations under the Act. Each of the purported sales, transfers, assignments, authorized shares is due to the greater New BGM Charter and the New BGM pledges or ownership that result in such number of stockholders that New BGM Bylaws is modeled on, and substantially a violation.26 Similarly, as in the will have following the Combination, as similar to, the Current BGM Charter and Current BGM Charter, purported voting compared to Current BGM, as well as to Current BGM Bylaws, respectively, or voting arrangements in violation of provide an adequate number of except with respect to the differences the BGM Voting Limitation will not be authorized shares to allow for potential described below. honored by New BGM to the extent of future issuances. The rights and any voting in excess of the limitation.27 preferences of the Class A Non-Voting a. New BGM Charter These provisions are designed to Common Stock and Class B Non-Voting The New BGM Charter is proposed to prevent any stockholder from exercising Common Stock are identical in all be adopted as the Amended and undue control over the operation of the respects, except for conversion rights. Restated Certificate of Incorporation of BATS Exchanges or the DE Exchanges Class A Non-Voting Common Stock BATS Global Markets Holdings, Inc. (together, the ‘‘Exchange Subsidiaries’’), converts into Voting Common Stock However, the New BGM Charter will each of which New BGM will indirectly automatically upon transfer to a person effect an amendment to the name of the own following the Combination, and to other than a Related Person of such corporation upon Closing such that it assure that each Exchange Subsidiary holder, upon termination of the Investor will be renamed ‘‘BATS Global Markets, and the Commission are able to carry Rights Agreement, and may be Inc.’’ 21 The change of name is intended out their regulatory obligations under converted into Voting Common Stock at to reflect the fact that New BGM is the Act. any time at the option of the holder.31 succeeding to the business of Current Further, consistent with the Current Class B Non-Voting Common Stock, BGM in all respects, notwithstanding BGM Charter, the New BGM Charter however, may only be converted into the technical change of corporate entity provides that, for so long as New BGM Voting Common Stock following a that will result from the structure of the controls, directly or indirectly, a ‘‘Qualified Transfer.’’ 32 The term Combination. registered national securities exchange, The New BGM Charter, which is before any amendment to the New BGM 30 See New BGM Charter, Art. FOURTH, para. (a). attached as Exhibit 5B, is substantially Charter may be effective, those changes 31 See New BGM Charter, Art. FOURTH, para. (c). similar to the Current BGM Charter, must be submitted to the board of In addition, Class A Non-Voting Common Stock directors of each such exchange, and if held by ISE Holdings will convert automatically if which the Commission has previously ISE Holdings includes any such shares in any found to be consistent with the Act.22 It the amendment is required to be filed public offering of stock of New BGM. contains provisions imposing the BGM with, or filed with and approved by the 32 The Exchange notes that, notwithstanding the Ownership Limitation and the BGM Commission pursuant to Section 19(b) conversion features, neither Class A Non-Voting of the Act,28 such change shall not be Common Stock nor Class B Non-Voting Common Voting Limitation on any owners or Stock may convert into Voting Common Stock if prospective owners of New BGM.23 In effective until filed with, or filed with 29 such a conversion would cause the stockholder to addition, similar to the Current BGM and approved by, the Commission. own, alone or with its Related Persons, directly or Charter, the New BGM Charter prohibits The Exchange believes that these indirectly, of record or beneficially (i) more than provisions will assist the Exchange in 40% of any class of capital stock of New BGM in a Member of any of New BGM’s contravention of the BGM Ownership Limitation registered national securities exchange (unless a waiver is granted by the board of directors such definition is expanded to refer to any national subsidiaries, either alone or together of New BGM and approved by the Commission), or securities exchange that is a direct or indirect 24 (ii) in the case of an Exchange Member stockholder, with such Member’s Related Persons, subsidiary of New BGM, and (ii) the reference to the more than 20% of any class of capital stock of New Investor Rights Agreement has been revised to refer BGM. See New BGM Charter, Art. FIFTH, para. 21 to the Investor Rights Agreement to be entered into See New BGM Charter, Art. FIRST. (b)(i)(A) and (B). In addition, to the extent that any 22 See Securities Exchange Act Release No. 58375 upon Closing. 25 Class A Non-Voting Common Stock or Class B Non- (August 18, 2008), 73 FR 49498 (August 21, 2008). See New BGM Charter, Art. FIFTH para. Voting Common Stock is converted into Voting (b)(i)(B). 23 See New BGM Charter, Art. FIFTH paras. Common Stock, the stockholder owning the 26 (b)(i)(A) and (C). See New BGM Charter, Art. FIFTH, paras. (d)– converted Voting Common Stock would be subject 24 The New BGM Charter defines ‘‘Related (e). to the BGM Voting Limitation and not permitted, Persons’’ consistent with the definition in the 27 See New BGM Charter, Art. FIFTH, para. (d). either alone or together with its Related Persons, at Current BGM Charter, see supra note 9, except that 28 15 U.S.C. 78s(b). any time, directly, indirectly or pursuant to any of (i) the definition of ‘‘Exchange’’ for purposes of 29 See New BGM Charter, Art. TWELFTH. Continued

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‘‘Qualified Transfer’’ means a sale or refer to ‘‘any national securities for purposes of, and subject to oversight other transfer of Class B Non-Voting exchange registered under Section 6 of pursuant to, the Act.40 Common Stock by a holder of such the Act with the [Commission] that is a The New BGM Bylaws also provide shares: (a) In a widely distributed public direct or indirect subsidiary’’ of New that all books and records of an offering registered pursuant to the BGM.36 The term ‘‘Exchange’’ is used Exchange Subsidiary reflecting Securities Act of 1933; 33 (b) in a private throughout the New BGM Charter to confidential information pertaining to sale or transfer in which the relevant refer to subsidiaries of New BGM that the self-regulatory function of the transferee (together with its Affiliates, as are registered as national securities Exchange Subsidiary (including but not defined below, and other transferees exchanges. This definition differs from limited to disciplinary matters, trading acting in concert with it) acquires no the definition contained in the Current data, trading practices and audit more than two percent of any class of BGM Charter, which defines information) that shall come into the voting shares (as defined in 12 CFR ‘‘Exchange’’ by specific reference to the possession of New BGM shall not be 225.2(q)(3) and determined by giving names of the BATS Exchanges. Because, made available other than to those effect to any such permitted conversion following the Combination, the DE officers, directors, employees and agents of transferred shares of Class B Non- Exchanges will also become indirect of New BGM that have a reasonable Voting Common Stock upon such subsidiaries of New BGM, the definition need to know the contents thereof, and transfer pursuant to Article FOURTH of in the New BGM Charter has been shall be retained in confidence by New the New BGM Charter), (c) to a expanded so as to capture the DE BGM, the members of its board of transferee that (together with its Exchanges in addition to the BATS directors, its officers, employees and Affiliates and other transferees acting in Exchanges. agents, and not used for any non- concert with it) owns or controls more regulatory purposes.41 The New BGM • The New BGM Charter reflects than 50 percent of any class of voting Bylaws, however, specify that the New certain non-substantive differences and shares (as defined in 12 CFR 225.2(q)(3)) BGM Bylaws (including these typographical corrections, including of New BGM without regard to any confidentiality provisions) shall not be transfer of shares from the transferring conforming the spelling of ‘‘Bylaws’’ interpreted so as to limit or impede the holder of shares of Class B Non-Voting throughout the organizational rights of the Commission or an Common Stock, or (d) to New BGM. As documents of New BGM and its Exchange Subsidiary to access and used above, the term ‘‘Affiliate’’ means, proposed subsidiaries. examine such confidential information with respect to any person, any other b. New BGM Bylaws pursuant to the federal securities laws person directly or indirectly controlling, and the rules and regulations controlled by or under common control As with the New BGM Charter, the thereunder, or to limit or impede the with such person, and ‘‘control’’ New BGM Bylaws, which are set forth ability of any officers, directors, (including, with correlative meanings, in Exhibit 5C, contain provisions employees or agents of New BGM to the terms ‘‘controlled by’’ and ‘‘under substantially similar to those of the disclose such confidential information common control with’’) has the meaning Current BGM Bylaws, which the to the Commission or an Exchange set forth in 12 CFR 225.2(e)(1).34 The Commission has previously found to be Subsidiary.42 Exchange understands that certain consistent with the Act.37 This includes In addition, for so long as New BGM persons that will become stockholders provisions that are designed to maintain controls, directly or indirectly, an of New BGM as of the Closing may be, the independence of the self-regulatory Exchange Subsidiary, the directors, or may become, subject to restrictions functions of the Exchange Subsidiaries. officers, employees and agents of New under the Bank Holding Company Act Consistent with the Current BGM BGM are required to give due regard to of 1956 35 on the extent to which they Bylaws, the New BGM Bylaws provide the preservation of the independence of are permitted to own voting stock of that New BGM and its officers, each Exchange Subsidiary’s self- New BGM or certain types of non-voting directors, employees and agents submit regulatory functions, and to its stock convertible into voting stock of to the Commission’s jurisdiction with obligations to investors and the general New BGM. The Exchange understands respect to activities relating to any of the public, and not take any actions which that New BGM’s Class B Non-Voting Exchange Subsidiaries,38 and, for so would interfere with the effectuation of Common Stock is designed to permit a long as New BGM controls, directly or decisions by the board of directors of stockholder that may be subject to such indirectly, such Exchange Subsidiary, such Exchange Subsidiary relating to restrictions to maintain an economic New BGM agrees to provide the regulatory functions (including interest in New BGM, through Commission and each Exchange disciplinary matters) or which would ownership of Class B Non-Voting Subsidiary with access to its books and interfere with such Exchange Common Stock, in excess of its voting records that are related to the operation Subsidiary’s ability to carry out its interest and in compliance with such or administration of the Exchange responsibilities under the Act.43 restrictions, for purposes of the Bank Subsidiary.39 In addition, to the extent Further, the New BGM Bylaws require Holding Company Act of 1956. they are related to the operation or that, for so long as New BGM controls, • The term ‘‘Exchange,’’ as used in administration of an Exchange directly or indirectly, an Exchange the New BGM Charter, is defined to Subsidiary, the books, records, Subsidiary, before any amendment to or premises, officers, directors, agents, and repeal of any provision of the New BGM various arrangements, to vote or cause the voting of employees of New BGM shall be Bylaws may be effective, those changes shares or give any consent or proxy with respect to shares representing more than 20 percent of the deemed to be the books, records, must be submitted to the board of voting power of the then issued and outstanding premises, officers, directors, agents, and directors of each Exchange Subsidiary, capital stock of New BGM (unless a waiver is employees of the Exchange Subsidiary and, if such amendment is required to granted by the board of directors of New BGM and be filed with, or filed with and approved by the Commission). See New BGM Charter, Art. FIFTH, para. (b)(i)(C). 36 See New BGM Charter, Art. FIFTH, para. (a)(ii). 33 15 U.S.C. 77a. 37 See Securities Exchange Act Release No. 58375 40 Id. 34 See New BGM Charter, Art. FOURTH, para. (August 18, 2008), 73 FR 49498 (August 21, 2008). 41 See New BGM Bylaws, Section 14.02. (d)(i). 38 See New BGM Bylaws, Section 14.05. 42 See id. 35 12 U.S.C. 1841 et seq. 39 See New BGM Bylaws, Section 14.03. 43 See New BGM Bylaws, Section 14.01.

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approved by, the Commission before the New BGM. The Current BGM board of [Act] that is a direct or indirect changes may be effective under Section directors currently has 13 members. subsidiary’’ of New BGM.54 The term 19 of the Act and the rules promulgated After the Closing, it is anticipated that ‘‘Exchange’’ is used throughout the New thereunder, then the proposed changes the New BGM board of directors will BGM Bylaws to refer to subsidiaries of shall not be effective until filed with, or consist of the same members as the New BGM that are registered as national filed with and approved by, the Current BGM board, except that the securities exchanges. The Current BGM Commission, as the case may be.44 The New BGM board will be expanded by Bylaws either refer to each BATS Exchange believes that these provisions two members, to include representatives Exchange by name or define will assist the Exchange in fulfilling its of two additional firms that are ‘‘Exchange’’ by specific reference to the self-regulatory obligations and in currently LLC Members of DE Holdings BATS Exchanges. Because, following administering and complying with the but will, by virtue of the Combination, the Combination, the DE Exchanges will requirements of the Act. become stockholders of New BGM. also become indirect subsidiaries of The provisions of the New BGM • Section 5.02(a) of the Current BGM New BGM, the definition in the New Bylaws differ from those of the Current Bylaws sets forth the process for BGM Bylaws has been expanded so as BGM Bylaws in certain limited respects: representatives of Current BGM to to capture the DE Exchanges in addition • The New BGM Bylaws provide for attend meetings of, and vote the shares to the BATS Exchanges. two separate corporate officer positions, of, any corporation, partnership or other • The New BGM Bylaws reflect one known as the Chief Executive entity (including each BATS Exchange) certain non-substantive updates to dates Officer and another known as the in which Current BGM may hold stock, of agreements and cross-references, as President. The Current BGM Bylaws, in partnership, or other equity interests. well as typographical corrections, contrast, provide for a combined This provision parenthetically refers to including conforming the spelling of position known as the President and the BATS Exchanges to reflect the fact ‘‘Bylaws’’ throughout the organizational 45 Chief Executive Officer. Under the that Current BGM is the direct owner of documents of New BGM and its New BGM Bylaws, the Chief Executive each of the BATS Exchanges. However, proposed subsidiaries. Officer will be the chief executive following the Combination, New BGM officer of New BGM and subject to the will instead be the direct owner of each 6. Adoption of BGM Holdings Charter control of the board of directors of New of BGM Holdings and DE Holdings. The and BGM Holdings Bylaws BGM, has general supervision, direction corresponding provision in the New Effective as of the Closing of the and control of the business and affairs BGM Bylaws therefore contains a Combination, BGM Holdings of New BGM,46 while the President will similar parenthetical reference to its (previously referred to as Current BGM) be a senior executive officer with certain ownership of BGM Holdings and DE will continue to hold direct ownership designated powers, among other things, Holdings, rather than the BATS of the BATS Exchanges and BATS to serve as the chief executive officer in Exchanges.49 In addition, the New BGM Trading, but will no longer be the the absence or disability of the Chief Bylaws include a reference to meetings ultimate holding company of the Executive Officer.47 References to of ‘‘members’’ of any ‘‘limited liability corporate structure, itself being a wholly corporate officers throughout the New company’’ in which New BGM holds owned subsidiary of New BGM. As a BGM Bylaws reflect this difference. The equity interests, which terms are not result, provisions of the Current BGM difference in corporate officer included in the corresponding provision Charter and Current BGM Bylaws, designations is intended to facilitate the in the Current BGM Bylaws.50 This is which contemplate an entity that was anticipated executive leadership of New intended to reflect the fact that New the ultimate holding company in the BGM following the Combination. It is BGM will, following the Closing, be the corporate structure, will no longer be anticipated that, following the sole member of DE Holdings, a limited appropriate. The Exchange is therefore Combination, the current President and liability company, while Current BGM proposing the amendment and Chief Executive Officer of Current BGM does not hold equity in any limited restatement of each of the Current BGM will become the Chief Executive Officer liability companies.51 In addition, the Charter (as amended, referred to as the of New BGM, while the current Chief Current BGM Bylaws contain provisions ‘‘BGM Holdings Charter’’) and the Executive Officer of DE Holdings will that relate to Current BGM’s voting of Current BGM Bylaws (as amended, become the President of New BGM. shares in the election of directors, and referred to as the ‘‘BGM Holdings • The New BGM Bylaws provide for Members of the Member Nominating Bylaws’’). Each of the proposed BGM a board of directors consisting of 15 52 Committees, of the BATS Exchanges. Holdings Charter and the BGM Holdings members, or such other number of These provisions will not be applicable Bylaws are modeled on, and members as the board of directors to New BGM and are not included in the substantially similar to, the current determines from time to time. The New BGM Bylaws, as the BATS certificate of incorporation and bylaws, Current BGM Bylaws provide that the Exchanges will be directly owned by respectively, of DEI, which is similarly board of directors will consist of one or 53 BGM Holdings, rather than New BGM. situated as an intermediate holding more members, as determined by • The term ‘‘Exchange,’’ as used in company between DE Holdings and the resolution of the board of directors.48 the New BGM Bylaws, is defined to DE Exchanges. The Commission has The size of the New BGM board is refer to ‘‘any national securities previously found the DEI certificate of proposed to be initially set at 15 in exchange registered with the incorporation and bylaws to be order to reflect the anticipated initial [Commission] under Section 6 of the consistent with the Act.55 membership of the board of directors of Following the Closing, BGM Holdings 49 See New BGM Bylaws, Section 5.02. will be the sole stockholder of the BATS 44 See New BGM Bylaws, Art. XII. 50 Id. Exchanges. Although BGM Holdings 45 Compare New BGM Bylaws, Sections 4.01 and 51 Compare New BGM Bylaws, Section 5.02 with 4.02 with Current BGM Bylaws, Sections 4.01 and Current BGM Bylaws, Section 5.02. will not carry out any regulatory 4.02(c) and (d). 52 See Current BGM Bylaws, Sections 5.02(b) and 46 See New BGM Bylaws, Section 4.02(c). (c). 54 See New BGM Bylaws, Section 10.02. 47 See New BGM Bylaws, Section 4.02(d). 53 Substantially identical provisions are instead 55 See Securities Exchange Act Release No. 62515 48 Compare New BGM Bylaws, Section 3.01 with included in the BGM Holdings Bylaws. See infra (July 16, 2010), 75 FR 43584 (July 26, 2010) Current BGM Bylaws, Section 3.01. text accompanying note 70. (SR–EDGX–2010–02).

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functions, the Exchange notes that its each such exchange, and if the same any suit, action, or proceeding pursuant activities with respect to the operation must be filed with, or filed with and to the U.S. federal securities laws or the of the BATS Exchanges must be approved by, the Commission before the rules or regulations thereunder arising consistent with, and must not interfere changes may be effective under Section out of, or relating to, the activities of with, the self-regulatory obligations of 19 of the Act 60 and the rules such exchange.65 each BATS Exchange. The BGM promulgated thereunder, then such The proposed BGM Holdings Bylaws Holdings Charter and the BGM Holdings proposed changes shall not be effective also contain a number of provisions Bylaws therefore include certain until filed with, or filed with and designed to ensure that the BATS provisions that are designed to maintain approved by, the Commission, as the Exchanges have sufficient access to the the independence of the BATS case may be.61 books and records of BGM Holdings. Exchanges’ self-regulatory functions, Pursuant to the BGM Holdings Bylaws, enable the BATS Exchanges to operate b. BGM Holdings Bylaws the books, records, premises, officers, in a manner that complies with the The proposed BGM Holdings Bylaws, directors, agents, and employees of federal securities laws, including the attached as Exhibit 5E, contain several BGM Holdings are deemed to be the objectives of Sections 6(b) 56 and 19(g) 57 provisions designed to protect the books, records, premises, officers, of the Act, and facilitate the ability of independence of the self-regulatory directors, agents and employees of the each BATS Exchange and the functions of the BATS Exchanges. The BATS Exchanges to the extent they are Commission to fulfill their regulatory proposed BGM Holdings Bylaws require related to the operation or and oversight obligations under the Act. that, for so long as BGM Holdings, administration of such exchange.66 In addition, for as long as BGM Holdings a. BGM Holdings Charter directly or indirectly, controls a BATS Exchange, BGM Holdings’ board of controls, directly or indirectly, the With respect to ownership and directors, officers, employees and agents BATS Exchanges, BGM Holdings’ books control of BGM Holdings, the proposed must give due regard to the preservation and records shall be subject at all times BGM Holdings Charter, attached as of independence of the self-regulatory to inspection and copying by the Exhibit 5D, specifically provides that functions of each BATS Exchange and Commission and the BATS Exchanges, BGM Holdings’ sole stockholder will be not interfere with the effectuation of any provided that such books and records 58 New BGM. This restriction is designed decisions by either of the BATS are related to the operation or to assure that any change to the Exchange boards of directors relating to administration of the BATS ownership or control of the BATS its regulatory functions (including Exchanges.67 Exchanges may only occur through a disciplinary matters) or which would The proposed BGM Holdings Bylaws change in the ownership or control of interfere with the ability of such also provide that, to the fullest extent New BGM. As such, any purported exchange to carry out its responsibilities permitted by law, all books and records change of such ownership or control under the Act.62 The BGM Holdings of the BATS Exchanges reflecting would need to comply with the New Bylaws would further require that BGM confidential information pertaining to BGM Charter and New BGM Bylaws, Holdings comply with the U.S. federal the self-regulatory function of such including the BGM Ownership securities laws and rules and exchange (including disciplinary Limitation and the BGM Voting regulations thereunder and shall matters, trading data, trading practices Limitation (or a Commission-approved cooperate with the Commission and and audit information) that comes into waiver therefrom). each BATS Exchange, as applicable, the possession of BGM Holdings, shall The proposed BGM Holdings Charter pursuant to and to the extent of their be retained in confidence by BGM further specifies that nothing contained respective regulatory authority.63 Holdings and its stockholders, board of therein or in the BGM Holdings Bylaws Pursuant to the BGM Holdings Bylaws, directors, officers, employees and shall be applicable where the agents, and not be used for any non- application of the provision would BGM Holdings’ officers, directors, employees and agents shall be deemed regulatory purposes.68 The proposed interfere with the effectuation of any BGM Holdings Bylaws provide, and all decisions relating to the to agree to (i) comply with the U.S. federal securities laws and the rules and however, that the foregoing shall not regulatory functions of the BATS limit or impede the rights of the Exchanges (including disciplinary regulations thereunder; and (ii) to cooperate with the Commission and Commission or the BATS Exchanges to matters) or the structure of the market access and examine such confidential that each BATS Exchange regulates, or each BATS Exchange in respect of the information pursuant to the federal would interfere with the ability of each Commission’s oversight responsibilities securities laws and the rules and BATS Exchange to carry out its regarding the BATS Exchanges and their regulations thereunder, or limit or responsibilities under the Act or oversee self-regulatory functions and impede the ability of any BGM Holdings the market that each regulates.59 responsibilities of the BATS Exchanges, In addition, the proposed BGM and BGM Holdings will take reasonable stockholders, officers, directors, Holdings Charter provides that for so steps to cause its officers, directors, employees or agents to disclose such long as BGM Holdings controls, directly employees and agents to so cooperate.64 confidential information to the or indirectly, a registered national Furthermore, BGM Holdings and its Commission or either BATS 69 securities exchange, before any officers, directors, employees and agents Exchange. With respect to the election of amendment to or repeal of any will be deemed to irrevocably submit to provision of the BGM Holdings Charter the jurisdiction of the U.S. federal directors of the BATS Exchanges, may be effective, those changes shall be courts, the Commission, and each BATS Current BGM is currently the sole and submitted to the board of directors of Exchange, as applicable, for purposes of direct stockholder of each of the BATS Exchanges. As noted above, while 56 15 U.S.C. 78f(b). 60 15 U.S.C. 78s(b). 65 57 15 U.S.C. 78s(g). 61 See BGM Holdings Charter, Art. SEVENTH, See BGM Holdings Bylaws, Section 7.3. 66 58 See BGM Holdings Charter, Art. SEVENTH, para. 3. See BGM Holdings Bylaws, Section 5.8(b). para. 4. 62 See BGM Holdings Bylaws, Section 7.1. 67 Id. 59 See BGM Holdings Charter, Art. FIFTH, para. 63 See BGM Holdings Bylaws, Section 7.2. 68 See BGM Holdings Bylaws, Section 5.8(a). 2. 64 Id. 69 Id.

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Current BGM will become BGM and approved by, the Commission, as considered to be an Industry Director, Holdings, it will continue to hold the the case may be.74 but is excluded from being designated direct ownership interest and voting Lastly, while as noted above, the BGM as a member of one of the three classes rights in the BATS Exchanges. Holdings Bylaws are modeled on the of directors for purposes of the Board’s Therefore, the BGM Holdings Bylaws current bylaws of DEI (the ‘‘DEI staggered three-year terms. This are proposed to maintain provisions Bylaws’’), in contrast with the current amendment is meant to clarify, rather relating to its voting of its interests in DEI Bylaws, the proposed BGM than change, current practice. The the BATS Exchanges that are Holdings Bylaws do not contain a Exchange Bylaws require that the Board substantially identical to those provision relating to BGM Holdings’ of Directors be composed of one contained in the Current BGM Bylaws.70 handling of funds derived from the Director who is the Chief Executive In particular, the proposed BGM regulatory operations of its exchange Officer of the Exchange, and a sufficient Holdings Bylaws would continue to subsidiaries (such as regulatory fees, number of Non-Industry Directors provide that at any meeting of the fines and penalties). The Exchange (including Independent Directors), stockholders of either BATS Exchange Bylaws and the bylaws of BYX each Industry Directors and Member held for the purpose of electing prohibit the Exchange and BYX, Representative Directors such that (i) directors and members of such respectively, from distributing any such the number of Non-Industry Directors, exchange’s Member Nominating funds to its stockholder, instead including at least one Independent requiring that such funds only be Committee, or in the event written Director, equals or exceeds the sum of applied to fund the legal and regulatory consents are solicited or otherwise the number of Industry Directors and operations of the respective exchange or sought from the stockholders of such Member Representative Directors, and pay restitution and disgorgement of BATS Exchange with respect thereto, (ii) the number of Member funds intended for customers.75 As a BGM Holdings will cause all Representative Directors equals at least result, BGM Holdings will not be outstanding shares of the BATS 20 percent of the Board of Directors (the permitted to come into possession of Exchange owned by BGM Holdings to ‘‘Exchange Board Composition regulatory funds, as they will remain at be voted in favor of only those Member Requirements’’).77 Because the the respective exchange and used only Representative Directors and nominees definition of ‘‘Industry Director’’ for permitted purposes. The Exchange for the Member Nominating Committee includes a Director that has an therefore believes that including a employment relationship with the nominated in accordance with such provision in the BGM Holdings Bylaws Exchange,78 the Chief Executive Officer exchange’s bylaws, and, with respect to relating to the handling by BGM of the Exchange will always meet the any written consents, BGM Holdings Holdings of such funds is unnecessary definition of ‘‘Industry Director.’’ will only cause to be validly executed and potentially confusing. The Consistent with this definition, and in written consents electing such directors Exchange understands that the DE order to effectuate the Exchange Board and members of the Member Exchanges are each proposing to amend 71 Composition Requirements, the Nominating Committee. The Exchange DEI’s bylaws to eliminate the Exchange considers the Chief Executive believes that this requirement will corresponding provision.76 ensure that BGM Holdings effectuates Officer to be an Industry Director. Were the election of directors and members of 7. Bylaws of the Exchange the Chief Executive Officer to not be the Exchange’s Member Nominating In connection with the Combination, considered for purposes of determining Committee in the manner contemplated the Exchange proposes to amend and composition of the board, the total by the Exchange’s Bylaws, ensuring the restate its Second Amended and number of persons affiliated with the fair representation of members in the Restated By-Laws and adopt the securities industry (including Industry selection of directors and the amended Exchange Bylaws as its Third Directors, Member Representative administration of the Exchange as Amended and Restated Bylaws, Directors and the Chief Executive required by Section 6(b)(3) of the Act.72 attached as Exhibit 5F. The Exchange Officer) could potentially exceed the number of Non-Industry Directors—a Similar to the proposed BGM proposes making the following result that the Exchange believes the Holdings Charter, the proposed BGM amendments to the Exchange Bylaws: • Exchange Board Composition Holdings Bylaws provide that for so Amending Article I, paragraph (cc) Requirements were intended to prevent. long as BGM Holdings controls either of the Exchange Bylaws to reflect the The Exchange therefore proposes to BATS Exchange, before any amendment change of name of the Exchange’s amend Section 2(b) of Article III of the to or repeal of any provision of the BGM stockholder from Current BGM to BGM Exchange Bylaws to explicitly clarify Holdings Bylaws will be effective, those Holdings. This amendment is intended that the Chief Executive Officer shall be changes must be submitted to the board to reflect the change in the Exchange’s considered to be an Industry Director. of directors of each BATS Exchange, corporate holding structure and The Exchange Bylaws separately and if the same must be filed with, or corporate name changes described provide that each of the Non-Industry filed with and approved by, the above as well as prevent any change of ownership of the Exchange other than in Directors and Industry Directors are Commission before the changes may be divided into one of three classes to serve effective under Section 19 of the Act,73 accordance with the requirements set forth in the organizational documents of staggered three-year terms.79 Unlike and the rules promulgated thereunder, the Exchange’s parent and indirect other Industry Directors, rather than then the proposed changes shall not be parent companies. serving a three-year term, the Chief effective until filed with, or filed with • Amending Section 2(b) and Section Executive Officer of the Exchange serves 3(b) of Article III of the Exchange on the Board of Directors until he or she 70 Compare BGM Holdings Bylaws, Sections Bylaws to clarify that the Chief ceases to be Chief Executive Officer.80 2.15(b) and (c) with Current BGM Bylaws, Sections 5.02(b) and (c). Executive Officer of the Exchange is 71 See BGM Holdings Bylaws, Sections 2.15(b) 77 See Exchange Bylaws, Art. III, Section 2(b). and (c). 74 See BGM Holdings Bylaws, Section 6.4. 78 See Exchange Bylaws, Art. I, para. (o)(vi). 72 15 U.S.C. 78f(b)(3). 75 See e.g., Exchange Bylaws, Art. X, Section 4. 79 See Exchange Bylaws, Art. III, Section 3(b). 73 15 U.S.C. 78s. 76 See DEI Bylaws, Section 4.6(b). 80 See Exchange Bylaws, Art. III, Section 3(a).

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The Exchange is therefore proposing to • Deleting as outdated Section 1 of 9. Exchange Rule 2.12—DE Route as amend Section 3(b) of Article III of the Article XI of the Exchange Bylaws, Inbound Router Exchange Bylaws to explicitly clarify relating to the interpretation of the that the reference to each Industry Exchange Bylaws prior to the BATS Trading provides Members of Director serving a staggered three-year Exchange’s commencement of business the Exchange and BYX with optional term excludes the Chief Executive as a national securities exchange, and routing services to other market centers. Officer. renumbering the remaining sections Thus, in certain circumstances, BATS • Amending Section 4(a), Section 4(c) within Article XI accordingly. Trading provides inbound routing from and Section 4(e) of Article III of the • Expanding the prohibition BYX to the Exchange. Exchange Rule Exchange Bylaws to permit the Director contained in Section 3 of Article XI of 2.12 governs this inbound routing of nomination and election process the Exchange Bylaws (to be renumbered orders by BATS Trading to the (including the Member Representative as Section 2). Currently, Section 3 of Exchange in BATS Trading’s capacity as Director nomination and election Article XI prohibits Current BGM’s a facility of BYX. Recognizing that the process conducted by the Member directors, officers, staff, counsel and Commission has previously expressed Nominating Committee) to be conducted advisors who are not also directors, concern regarding the potential for through either an annual or special officers, staff, counsel or advisors of the conflicts of interest in instances where meeting of stockholders, rather than Exchange from participating in any a member firm is affiliated with an solely through an annual meeting of meetings of the Exchange’s Board of exchange to which it is routing orders, stockholders. Under the current Directors (or any committee thereof) the Exchange has implemented Exchange Bylaws, should one or more pertaining to the self-regulatory function limitations and conditions on BATS vacancies on the Board of Directors of the Exchange (including disciplinary Trading’s affiliation with the Exchange occur, the vacancies would continue matters). Because, following the in order to permit the Exchange to until they can be filled at an annual Combination, the Exchange will be accept inbound orders that BATS meeting. As a result, vacancies that arise owned directly by BGM Holdings and Trading routes in its capacity as a soon after an annual meeting could indirectly by New BGM, instead of only facility of BYX. These conditions and remain for close to a full year. The directly by Current BGM, the Exchange limitations, set forth in Exchange Rule Exchange therefore proposes to amend is proposing to expand this prohibition 2.12, require that: the Exchange Bylaws to add flexibility to cover both its direct and indirect (1) The Exchange must enter into (a) to the governance process around the parent companies. The Exchange a plan pursuant to Rule 17d–2 under the nomination and election of a Director believes that this amendment will Act with a non-affiliated self-regulatory position that may become vacant at a protect the independence of the organization (‘‘SRO’’) to relieve the time that does not coincide with the Exchange’s self-regulatory activities. Exchange of regulatory responsibilities • Correcting certain typographical Exchange’s annual director election for BATS Trading with respect to rules errors, including conforming the process, by permitting the process to that are common rules between the spelling of ‘‘Bylaws’’ throughout the occur at any time via a special meeting Exchange and the non-affiliated SRO, organizational documents of the of stockholders. and (b) a regulatory services contract Exchange and its parent companies. • Amending Section 2(a) of Article V (‘‘Regulatory Contract’’) with a non- of the Exchange Bylaws to clarify that 8. Exchange Rule 2.3—Member affiliated SRO to perform regulatory the Chairman, with the approval of the Eligibility responsibilities for BATS Trading for unique Exchange rules. Board, not only appoints the members Pursuant to Exchange Rule 2.3, in of all committees of the Board, but also order to be eligible for membership in (2) The Regulatory Contract must the chair of each committee. This the Exchange, a registered broker or require the Exchange to provide the amendment is intended to reflect the dealer is required to be a member of at non-affiliated SRO with information, in current committee and committee Chair least one other national securities an easily accessible manner, regarding appointment processes utilized by the association or national securities all exception reports, alerts, complaints, Exchange. exchange. However, membership in the trading errors, cancellations, • Amending Section 6(c) of Article V Exchange’s affiliated national securities investigations, and enforcement matters of the Exchange Bylaws to clarify that exchange, BYX, is not sufficient for (collectively ‘‘Exceptions’’) in which the Regulatory Oversight Committee purposes of eligibility for Exchange BATS Trading is identified as a responsibilities include (i) those with membership. As a result of the participant that has potentially violated regard to each of the Exchange’s Combination, the Exchange will Exchange or Commission Rules, and facilities, as defined in Section 3(a)(2) of additionally become affiliated with the requires that the non-affiliated SRO the Act,81 (ii) assessing the Exchange’s DE Exchanges. The Exchange continues provide a report, at least quarterly, to regulatory performance, (iii) assisting to believe that it is appropriate to limit the Exchange quantifying all Exceptions the Board and committees of the Board its membership to registered broker- in which BATS Trading is identified as in reviewing the regulatory plan and the dealers that are members of at least one a participant that has potentially overall effectiveness of the Exchange’s national securities association or violated Exchange or Commission rules. regulatory functions, and (iii) in national securities exchange that is not (3) The Exchange, on behalf of its consultation with the Chief Executive affiliated with the Exchange. Therefore, parent company, must establish and Officer of the Exchange, establishing the the Exchange proposes to amend maintain procedures and internal goals, assessing the performance, and Exchange Rule 2.3 to specify that a controls reasonably designed to ensure fixing the compensation of the Chief registered broker-dealer will be eligible that BATS Trading does not develop or Regulatory Officer of the Company. for membership only if it is a member implement changes to its system based These amendments are intended to of a national securities association or on non-public information obtained as a reflect the current responsibilities of the national securities exchange other than result of its affiliation with the Regulatory Oversight Committee. BYX, EDGA or EDGX. The proposed Exchange, until such information is amendments to Exchange Rule 2.3 are available generally to similarly situated 81 15 U.S.C. 78c(a)(2). set forth in Exhibit 5G. Members of the Exchange.

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(4) The Exchange may furnish to company. The Exchange therefore proposed amendments to Exchange Rule BATS Trading only the same proposes to delete the incorrect 2.12. The Exchange therefore requests information and on the same terms as reference to BATS Trading. that, pursuant to Exchange Rule 2.10, the Exchange makes available in the the Commission approve the indirect 10. Exchange Rule 2.10—Affiliation normal course of business to other acquisition of DE Route by an affiliate With DE Route users.82 of the Exchange and the resulting Similar to the role of BATS Trading Exchange Rule 2.10 provides that, affiliation between the Exchange and DE with respect to the BATS Exchanges, the subject to certain exceptions, without Route, so long as the requirements Exchange understands that DE Route the prior approval of the Commission, under Exchange Rule 2.12, as proposed provides members of the DE Exchanges (i) the Exchange or any entity with to be amended, are satisfied. with optional routing services to other which the Exchange is affiliated (as market centers, which may include defined in Rule 12b–2 under the Act), 2. Statutory Basis routing from a DE Exchange to the may not directly or indirectly acquire or The Exchange believes that the Exchange. Following the Combination, maintain an ownership interest in a Proposed Rule Change is consistent it is expected that DE Route will Member of the Exchange, and (ii) a with the requirements of the Act and the continue to provide these routing Member of the Exchange may not be or rules and regulations thereunder that services, which may involve routing to become an affiliate of the Exchange, or are applicable to a national securities the Exchange. Because, following the an affiliate of any affiliate of the exchange, and, in particular, with the Combination, DE Route will be affiliated Exchange. requirements of Section 6(b) of the with and potentially routing to the DE Route is currently a Member of the Act.85 In particular, the proposal is Exchange, the Exchange believes that Exchange. As a result of the consistent with Section 6(b)(1) of the the potential conflict of interest Combination, (i) New BGM, an entity Act 86 in that it enables the Exchange to currently addressed by Exchange Rule affiliated with the Exchange, will be so organized as to have the capacity 2.12 with respect to BATS Trading must acquire and maintain an indirect to be able to carry out the purposes of also be addressed with respect to DE ownership interest in DE Route, and (ii) the Act and to comply, and to enforce Route. DE Route will become an affiliate of the compliance by its Members and persons The Exchange is therefore proposing Exchange. Pursuant to Exchange Rule associated with its Members, with the to amend and expand Exchange Rule 2.10, the Exchange is seeking the provisions of the Act, the rules and 2.12 such that substantially the same Commission’s prior approval to permit regulations thereunder, and the Rules of conditions and limitations that this affiliation. the Exchange. The Proposed Rule currently apply to the inbound routing The Exchange notes that the purpose Change is designed to enable the of orders by BATS Trading apply to the of Exchange Rule 2.10 is to prevent or Exchange to continue to have the inbound routing of orders by DE Route. manage potential conflicts of interest authority and ability to effectively fulfill The proposed amendments to Exchange that could arise from the Exchange or its its self-regulatory duties pursuant to the Rule 2.12, as set forth in Exhibit 5H, affiliates having an ownership interest Act and the rules promulgated would provide that, in order for the in an Exchange Member, particularly thereunder. In particular, the Proposed Exchange to accept inbound routed with respect to the Exchange’s Rule Change includes in the New BGM orders from DE Route, the conditions obligation under Section 19(g) of the Act Charter and New BGM Bylaws, like the and limitations currently set forth in to enforce its Members’ compliance Current BGM Charter and Current BGM Exchange Rule 2.12 with respect to with the Act, the Commission’s rules Bylaws, various provisions intended to BATS Trading must also be satisfied thereunder, and Exchange Rules.84 protect and maintain the integrity of the with respect to DE Route. The Exchange believes that it should self-regulatory functions of the The Exchange believes that these be permitted to become affiliated with Exchange upon Closing. For example, proposed amendments will adequately DE Route, notwithstanding DE Route’s the New BGM Bylaws, as described manage the potential for a conflict of Exchange membership. As described above, are drafted to preserve the interest that could arise from DE Route above, as a result of the proposed independence of the Exchange’s self- routing orders to the Exchange. The amendments to Exchange Rule 2.12, the regulatory function and ensure that the Exchange expects to arrange that these Exchange intends on addressing the Exchange is able to obtain information conditions be met prior to the Closing potential conflicts of interests arising it needs from the specified parties to so as to allow DE Route to continue from its expected affiliation with DE detect and deter any fraudulent and routing to the Exchange following the Route by, among other things, entering manipulative acts in its marketplace and Closing without interruption.83 into (i) a plan pursuant to Rule 17d–2 carry out their regulatory In addition, the language in Exchange under the Act with a non-affiliated SRO responsibilities under the Act. In Rule 2.12 leading into the four to relieve the Exchange of regulatory addition, the New BGM Charter and conditions described above incorrectly responsibilities for DE Route with New BGM Bylaws are drafted to make refers to the conditions being respect to rules that are common rules sure that the Exchange’s Board of undertaken by ‘‘each of the Exchange between the Exchange and the non- Directors receives notice of any and BATS Trading.’’ However, by their affiliated SRO, and (ii) a Regulatory amendment to the New BGM Charter terms, the conditions contained in Contract with a non-affiliated SRO to and New BGM Bylaws so that the Exchange Rule 2.12 are undertaken only perform regulatory responsibilities for Exchange’s Board of Directors may by the Exchange and, in one case, the DE Route for unique Exchange rules. review and approve, and the Exchange Exchange on behalf of its parent The Exchange believes that any may make any filings with the potential conflict of interest that would Commission necessary for the Exchange 82 See Securities Exchange Act Release No. 66571 arise as a result of its affiliation with DE to fulfill its regulatory duties under the (March 12, 2012), 77 FR 15153 (March 14, 2012) Route will be mitigated by the same Act. The New BGM Charter also (SR–BATS–2012–013). procedures that the Exchange imposes the BGM Ownership Limitation 83 If such conditions and limitations are not satisfied by Closing, the Exchange will not accept anticipates adopting to satisfy the inbound orders from DE Route until such 85 15 U.S.C. 78f(b). conditions and limitations are satisfied. 84 15 U.S.C. 78s(g). 86 15 U.S.C. 78f(b)(1).

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and BGM Voting Limitation to preclude competition for transaction order flow its Members. Furthermore, the undue influence over or interference with other exchange and non-exchange Exchange’s conclusion that the with the Exchange’s self-regulatory trading centers, as well as potentially in Proposed Rule Change would not result functions and fulfillment of its other areas where the two major in any burden on competition that is not regulatory duties under the Act. exchange operators lead, such as necessary or appropriate in furtherance Moreover, notwithstanding the proprietary market data products and of the purposes of the Act is consistent Proposed Rule Change, including the listings. This enhanced level of with the Commission’s prior change to the ownership structure of the competition among trading centers will conclusions about similar combinations Exchange, the Commission will benefit investors through new or more involving multiple exchanges in a single continue to have regulatory authority competitive product offerings and, corporate family.89 over the Exchange, as is currently the ultimately, lower costs. case, as well as jurisdiction over the Furthermore, the Exchange is not C. Self-Regulatory Organization’s Exchange’s direct and indirect parents proposing any significant changes to its Statement on Comments on the with respect to activities related to the existing operational and trading Proposed Rule Change Received From Exchange.87 As a result, the Proposed structure in connection with the change Members, Participants, or Others Rule Change will facilitate an in ownership; the Exchange will operate The Exchange has neither solicited ownership structure that will provide in essentially the same manner upon nor received written comments on the the Commission with appropriate Closing as it operates today. Therefore, proposed rule change. oversight tools to ensure that the the Exchange believes that it will Commission will have the ability to continue to satisfy the requirements of III. Date of Effectiveness of the enforce the Act with respect to the the Act and the rules and regulations Proposed Rule Change and Timing for Exchange, its direct and indirect parent thereunder that are applicable to a Commission Action entities and their directors, officers, national securities exchange. The Within 45 days of the date of employees and agents to the extent they changes the Exchange is proposing to publication of this notice in the Federal are involved in the activities of the Exchange Rules 2.3 are designed to Register or within such longer period (i) Exchange. extend the membership eligibility as the Commission may designate up to The Exchange also believes that the criteria in a way that is consistent with 90 days of such date if it finds such Proposed Rule Change furthers the the current rule, taking into account the longer period to be appropriate and objectives of Section 6(b)(5) of the Act 88 prospective affiliation with the DE publishes its reasons for so finding or because the Proposed Rule Change Exchanges. The proposed change to (ii) as to which the self-regulatory would be consistent with and facilitate Exchange Rule 2.12 is designed to organization consents, the Commission a governance and regulatory structure address the potential for conflicts of will: that is designed to prevent fraudulent interest due to the prospective (A) by order approve or disapprove and manipulative acts and practices, to affiliation between the Exchange and DE the proposed rule change, or promote just and equitable principles of Route. The Exchange believes that the (B) institute proceedings to determine trade, to foster cooperation and proposed change to its Rules is whether the proposed rule change coordination with persons engaged in consistent with the requirements of the should be disapproved. regulating, clearing, settling, processing Act and the rules and regulations IV. Solicitation of Comments information with respect to, and thereunder. The Exchange believes that facilitating transactions in securities, to the rule change promotes the Interested persons are invited to remove impediments to, and perfect the maintenance of a fair and orderly submit written data, views, and mechanism of a free and open market market, the protection of investors and arguments concerning the foregoing, and a national market system and, in the public interest, and is in the best including whether the proposed rule general, to protect investors and the interests of the Exchange and its change is consistent with the Act. public interest. Members as it would continue to allow Comments may be submitted by any of In addition, the Exchange expects that routing of orders between the four the following methods: the Combination will facilitate affiliated exchanges. Electronic Comments efficiencies and innovation for clients B. Self-Regulatory Organization’s • Use the Commission’s Internet and efficient, transparent and well- Statement on Burden on Competition regulated markets for issuers and comment form (http://www.sec.gov/ clients, thus removing impediments to, The Exchange does not believe that rules/sro.shtml); or • Send an email to rule-comments@ and perfecting the mechanism of a free the Proposed Rule Change would result sec.gov. Please include File Number SR– and open market and a national market in any burden on competition that is not BATS–2013–059 on the subject line. system. The Combination will benefit necessary or appropriate in furtherance investors, the market as a whole, and of the purposes of the Act. Indeed, the Paper Comments Exchange believes that the Proposed shareholders by, among other things, • Send paper comments in triplicate enhancing competition among securities Rule Change will enhance competition among intermarket trading venues, as to Elizabeth M. Murphy, Secretary, venues and reducing costs. In particular, Securities and Exchange Commission, the Combination will result in a third the Exchange believes that the Combination will produce a stronger 100 F Street NE., Washington, DC major exchange operator which will 20549–1090. have more streamlined and efficient and more efficient entity that will have an improved ability to provide operations, including the transition of 89 See, e.g., Securities Exchange Act Release No. the DE Exchanges to a technology innovative products and services. 66071 (December 29, 2011), 77 FR 521 (January 05, platform in common with the BATS Moreover, the Exchange will continue to 2012) (SR–CBOE–2011–107 and SR–NSX–2011–14); Exchanges, thereby intensifying conduct regulated activities (including Securities Exchange Act Release No. 58324 (Aug. 7, operating and regulating its market and 2008), 73 FR 46936 (August 12, 2008) (SR–BSE– 2008–02; SR–BSE–2008–23; SR–BSE–2008–25; SR– 87 See, e.g., New BGM Bylaws, Section 14.05; Members) of the type it currently BSECC–2008–01); Securities Exchange Act Release BGM Holdings Bylaws, Section 7.3. conducts, but will be able to do so in a No. 53382 (Feb. 27, 2006), 71 FR 11251 (March 06, 88 15 U.S.C. 78f(b)(5). more efficient manner to the benefit of 2006) (SR–NYSE–2005–77).

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All submissions should refer to File 27, 2013, The NASDAQ Stock Market Charter and By-Laws 3 with a voting Number SR–BATS–2013–059. This file LLC (‘‘Nasdaq’’ or ‘‘Exchange’’) filed standard requiring a ‘‘majority of votes number should be included on the with the Securities and Exchange cast.’’ The second proposal, which did subject line if email is used. To help the Commission (‘‘SEC’’ or ‘‘Commission’’) not pass but received 49% of the votes Commission process and review your the proposed rule change as described cast, requested that NASDAQ OMX’s comments more efficiently, please use in Items I, II, and III below, which Items Board take steps to enable stockholders only one method. The Commission will have been prepared by the Exchange. having at least one-tenth of NASDAQ post all comments on the Commission’s The Commission is publishing this OMX’s voting power to call a special Internet Web site (http://www.sec.gov/ notice to solicit comments on the meeting of stockholders. rules/sro.shtml). Copies of the proposed rule change from interested Following the 2012 annual meeting, submission, all subsequent persons. the Nominating & Governance amendments, all written statements I. Self-Regulatory Organization’s Committee of NASDAQ OMX’s Board with respect to the proposed rule Statement of the Terms of Substance of reviewed the voting results on the two change that are filed with the the Proposed Rule Change stockholder proposals and discussed the Commission, and all written stockholder voting standards and rights communications relating to the The Exchange is filing this proposed contemplated by the Charter and By- proposed rule change between the rule change with respect to amendments Laws. Following this review, the Commission and any person, other than of the Restated Certificate of Nominating & Governance Committee those that may be withheld from the Incorporation (the ‘‘Charter’’) and By- recommended to the Board, and the public in accordance with the Laws (the ‘‘By-Laws’’) of its parent Board approved, certain changes to the provisions of 5 U.S.C. 552, will be corporation, The NASDAQ OMX Group, Charter and By-Laws to address the two available for Web site viewing and Inc. (‘‘NASDAQ OMX’’ or the stockholder proposals and make other printing in the Commission’s Public ‘‘Company’’). The proposed changes. NASDAQ OMX now proposes Reference Room, 100 F Street NE., amendments will be implemented on a to make these changes, which are Washington, DC 20549, on official date designated by NASDAQ OMX described further below. business days between the hours of following approval by the Commission. 10:00 a.m. and 3:00 p.m. Copies of the The text of the proposed rule change is (ii) Proposed Amendments to Charter filing also will be available for available on the Exchange’s Web site at (a) Removal and Replacement of inspection and copying at the principal http://nasdaq.cchwallstreet.com, at the Supermajority Voting Requirements office of the Exchange. All comments principal office of the Exchange, and at To respond to feedback from its received will be posted without change; the Commission’s Public Reference stockholders, NASDAQ OMX proposes the Commission does not edit personal Room. to replace each supermajority voting identifying information from II. Self-Regulatory Organization’s requirement in the Charter with a submissions. You should submit only Statement of the Purpose of, and ‘‘majority of outstanding shares’’ voting information that you wish to make Statutory Basis for, the Proposed Rule requirement. The Charter currently available publicly. All submissions Change should refer to File Number SR–BATS– includes the following three 2013–059, and should be submitted on In its filing with the Commission, the supermajority voting requirements. • Removal of Directors. Article Fifth, or before January 2, 2014. Exchange included statements concerning the purpose of and basis for Paragraph D provides that, except for For the Commission, by the Division of the proposed rule change and discussed directors elected by the holders of any Trading and Markets, pursuant to delegated series of preferred stock, any director, or authority.90 any comments it received on the proposed rule change. The text of these the entire Board, may be removed from Elizabeth M. Murphy, statements may be examined at the office at any time, but only by the Secretary. places specified in Item IV below. The affirmative vote of at least 662⁄3% of the [FR Doc. 2013–29622 Filed 12–11–13; 8:45 am] Exchange has prepared summaries, set total voting power of the outstanding BILLING CODE 8011–01–P forth in sections A, B, and C below, of shares of NASDAQ OMX’s capital stock the most significant aspects of such entitled to vote generally in the election statements. of directors (the ‘‘Voting Stock’’), voting SECURITIES AND EXCHANGE together as a single class. COMMISSION A. Self-Regulatory Organization’s • Adoption, Alteration, Amendment Statement of the Purpose of, and and Repeal of By-Laws. Article Eighth, [Release No. 34–71013; File No. SR– Statutory Basis for, the Proposed Rule NASDAQ–2013–148] Paragraph A provides that the Change affirmative vote of the holders of at least Self-Regulatory Organizations; The 1. Purpose 662⁄3% of the total voting power of the NASDAQ Stock Market LLC; Notice of NASDAQ OMX is proposing to make outstanding Voting Stock, voting Filing of Proposed Rule Change To together as a single class, shall be Amend the Restated Certificate of certain amendments to its Charter and By-Laws. required in order for the stockholders to Incorporation and By-Laws of The adopt, alter, amend or repeal any By- NASDAQ OMX Group, Inc. (i) Background Law. • December 6, 2013. At NASDAQ OMX’s 2012 annual Adoption, Alteration, Amendment Pursuant to Section 19(b)(1) of the meeting held on May 22, 2012, and Repeal of Certain Charter Securities Exchange Act of 1934 NASDAQ OMX’s stockholders Provisions. Article Ninth, Paragraph A (‘‘Act’’),1 and Rule 19b–4 thereunder,2 considered two proposals submitted by provides that the affirmative vote of the notice is hereby given that on November individual stockholders. The first proposal, which passed with 68% of the 3 These provisions, which are described further below, require the affirmative vote of at least 662⁄3% 90 17 CFR 200.30–3(a)(12). votes cast, requested that NASDAQ of the total voting power of the outstanding shares 1 15 U.S.C. 78s(b)(1). OMX’s Board take steps to replace each of NASDAQ OMX’s capital stock to approve certain 2 17 CFR 240.19b–4. supermajority voting standard in the actions.

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holders of at least 662⁄3% of the voting believes that a ‘‘majority of outstanding • the phase-out of the classified board power of the outstanding Voting Stock, shares’’ standard is a balanced outcome structure, which was complete in 2007, voting together as a single class, shall be that responds to stockholder feedback in Article Fifth, Paragraph B. required to amend, repeal or adopt any while appropriately maintaining In Article Fifth, Paragraph B, the provision inconsistent with paragraph C NASDAQ OMX’s defensive posture proposal also clarifies that the election of Article Fourth,4 Article Fifth,5 Article against hostile takeovers. of directors by stockholders shall occur Seventh,6 Article Eighth 7 or Article at an annual or special meeting. The (b) Non-Substantive Changes Ninth of the Charter.8 proposal corrects a typographical error In each of the three provisions NASDAQ OMX also proposes to in Article Fifth, Paragraph A and described above, NASDAQ OMX amend and restate the Charter to make renumbers the provisions of the Charter, proposes to remove the requirement for other non-substantive changes. where necessary following the other an affirmative vote of at least 662⁄3% of Specifically, the proposal deletes amendments. Finally, the proposal the total voting power of the Voting obsolete references to the following: amends the introductory and Stock and replace it with a voting • The 3.75% Series A Convertible concluding language of the Charter to standard requiring the affirmative vote Notes due 2012 and the 3.75% Series B incorporate language that will be of a majority of the outstanding Voting Convertible Notes due 2012, which are required under Delaware law when the Stock. In developing this proposal, no longer outstanding, in Article Fourth, amended and restated Charter is filed NASDAQ OMX considered the relative Paragraph C and Article Eleventh; with the Secretary of State of the State weight of the arguments for and against • a voting trust agreement, which is of Delaware.10 supermajority voting requirements. no longer in effect, in Article Fourth, The amendment and restatement of Historically, supermajority voting Paragraph C(3)(b)(iii); the Charter to incorporate these non- • requirements have protected ownership of NASDAQ OMX substantive changes will simplify and corporations against coercive takeover securities by the National Association of streamline the document. tactics by requiring broad stockholder Securities Dealers, Inc., certain affiliates (iii) Proposed Elimination of Certificate support for certain types of transactions of Hellman & Friedman LLC, and certain of Designation or governance changes. However, in affiliates of Silver Lake, none of which recent years, corporate governance currently own any NASDAQ OMX NASDAQ OMX proposes to eliminate standards have evolved, and many securities, in Article Fourth, Paragraph its Certificate of Designation, stockholder rights advocates argue that C(6); 9 and Preferences and Rights of Series A supermajority voting requirements limit Convertible Preferred Stock (the ‘‘Series stockholders’ participation in corporate 9 NASDAQ OMX notes that the remaining text of A Convertible Preferred Stock’’), and all Article Fourth, Paragraph C(6) of the Charter matters set forth therein. The Series A governance. NASDAQ OMX believes includes an obsolete cross-reference to Section 6(b) that while it is important to protect of Article Fourth, Paragraph C in the second Convertible Preferred Stock was created against coercive takeover tactics, it is sentence, which begins ‘‘The Board, however, may in 2009 to facilitate the conversion of also critically important to obtain not approve an exemption under Section certain notes into common stock.11 The 6(b). . . .’’ NASDAQ OMX cannot correct this Company authorized 2 million shares of stockholder input and respond to cross-reference, which should refer to Section 6 stockholder concerns about corporate without further reference to a subsection (b), the Series A Convertible Preferred Stock governance. without seeking further approval of its and immediately issued 1.6 million of NASDAQ OMX believes that the stockholders, which would require NASDAQ OMX those shares to the converting to call and hold a stockholder meeting. Generally, noteholders. proposed ‘‘majority of outstanding NASDAQ OMX holds stockholder meetings, which shares’’ voting requirement will are time consuming and expensive, only once or In 2010, following stockholder continue to provide some protection twice a year. Moreover, it is atypical of a large approval, all 1.6 million issued shares of against proposals that are harmful to the public company like NASDAQ OMX to submit a the Series A Convertible Preferred Stock proposal to its stockholders solely to correct a cross- were converted into common stock. stockholders. While this requirement is reference in its Charter. However, NASDAQ OMX less difficult to satisfy than a believes, following consultation with outside Since then, no shares of the Series A supermajority voting requirement, it is counsel, that it is clear, based on the drafting Convertible Preferred Stock have been more difficult to satisfy than a ‘‘majority history of this provision, that the intent of the cross- outstanding, and the Company has no reference is to refer to Section 6 of Article Fourth, intention to issue further shares of this of votes cast’’ requirement, which Paragraph C of the Charter. In other words, the NASDAQ OMX considered as an second sentence of Article Fourth, Paragraph C(6) series. alternate option. NASDAQ OMX should read: ‘‘The Board, however, may not As a clean-up matter, the Company approve an exemption under Section 6: (i) for a seeks to file a certificate of elimination registered broker or dealer or an Affiliate thereof or 4 Paragraph C of Article Fourth sets forth the 5% with the Secretary of State of the State (ii) an individual or entity that is subject to a voting limitation, which provides that holders of statutory disqualification under Section 3(a)(39) of of Delaware to eliminate the Series A NASDAQ OMX’s voting securities may not cast the Exchange Act.’’ Under no circumstances will Convertible Preferred Stock. Under votes in excess of 5% of NASDAQ OMX’s NASDAQ OMX read the obsolete cross-reference to outstanding voting securities. To be clear, NASDAQ Delaware law, a certificate of imply that the Board could grant an exemption to OMX is not proposing any change to the 5% voting elimination is deemed to be an the ownership limitation in Article Fourth, limitation itself. NASDAQ OMX only proposes that Paragraph C(6) of the Charter for a registered broker any future amendment of the 5% voting limitation or dealer or an Affiliate thereof, or an individual or outside counsel, that the Charter language shall will require the approval of stockholders holding a entity that is subject to a statutory disqualification prevail. As soon as feasible, NASDAQ OMX plans majority of the outstanding shares, rather than under Section 3(a)(39) of the Exchange Act. to present a proposal to the stockholders to conform stockholders holding 662⁄3% of the outstanding NASDAQ OMX also notes that it is proposing this provision of the Charter to the By-Laws. shares. amendments to Section 12.5 of the By-Laws to 10 See Sections 242 and 245 of the DGCL. 5 Article Fifth includes certain provisions relating eliminate cross-references to subsection (b) of 11 See Securities Exchange Act Release No. 60845 to the Board, such as Board size and director Article Fourth, Paragraph C(6) of the Charter. (October 20, 2009), 74 FR 55078 (October 26, 2009) elections. Finally, NASDAQ OMX notes that there are some (SR–BX–2009–061, SR–NASDAQ–2009–087, SR– 6 Article Seventh prohibits stockholder action by differences in language between the second Phlx–2009–88); see also Securities Exchange Act written consent. sentence of Article Fourth, Paragraph C(6) of the Release No. 61000 (November 13, 2009), 74 FR 7 Article Eighth establishes the procedures to Charter and the second sentence of Section 12.5 of 61390 (November 24, 2009) (SR–BSECC–2009–005); adopt, alter, amend or repeal the By-Laws. the By-Laws. To the extent that these differences see also Securities Exchange Act Release No. 61001 8 Article Ninth establishes the procedures to would cause a difference in interpretation, (November 13, 2009), 74 FR 61391 (November 24, adopt, alter, amend or repeal the Charter. NASDAQ OMX notes, following consultation with 2009) (SR–SCCP–2009–04).

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amendment to NASDAQ OMX’s special meeting (a ‘‘Special Meeting meeting and substantially the same Charter; however, since the amendment Request’’) by one or more stockholders. matters proposed to be acted on at the is limited in scope, it does not require Such stockholders (the ‘‘Requisite requested special meeting (in each case the approval of NASDAQ OMX’s Holders’’) must hold of record, in the as determined in good faith by stockholders.12 aggregate, at least 15 percent of NASDAQ OMX’s Board); and (ii) such NASDAQ OMX’s outstanding shares of Special Meeting Requests have been (iv) Proposed Amendments to the By- capital stock entitled to vote on matters dated and delivered to NASDAQ OMX’s Laws to be brought before the special meeting Corporate Secretary within 60 days of (a) Special Meetings of Stockholders (the ‘‘Requisite Percentage’’). Such the earliest dated Special Meeting 14 Current Section 3.2 of NASDAQ shares must be ‘‘Net Long Shares,’’ Request. NASDAQ OMX believes these OMX’s By-Laws provides that only and the Requisite Holders must have procedures are reasonable and clear and NASDAQ OMX may call special held the shares continuously for at least notes that they grant only limited meetings of its stockholders.13 To one year as of the date of the Special discretion to NASDAQ OMX’s Board in respond to feedback from its Meeting Request. Whether shares determining whether Special Meeting stockholders, as discussed above, constitute Net Long Shares shall Requests will be considered together. NASDAQ OMX proposes to delete this ultimately be decided by NASDAQ Pursuant to proposed Section 3.2(b), if provision and replace it with language OMX’s Board in its reasonable a Special Meeting Request is in proper that will allow NASDAQ OMX’s determination. The intent of the form, NASDAQ OMX’s Board shall stockholders to call special meetings requirement for stockholders to determine the place, if any, date and after following particular procedures. maintain a ‘‘net long position’’ is to time of the special meeting, and Similar to the elimination of limit the ability to call a special meeting NASDAQ OMX’s Corporate Secretary supermajority voting requirements, to stockholders that have long-term shall call the special meeting within 120 which is discussed above, the record and economic positions in days after the date the Special Meeting implementation of the right of NASDAQ OMX. Request was delivered. However, stockholders to call a special meeting Proposed Section 3.2(a) also sets forth NASDAQ OMX’s Board may, in lieu of has received recent attention from the procedures for determining whether calling a special meeting, present an investor and corporate governance a special meeting has been requested by identical or substantially similar item of advocates. These advocates argue that Requisite Holders representing in business (a ‘‘Similar Item’’),15 as such a right will enable stockholders to aggregate at least the Requisite determined in good faith by NASDAQ raise and act on matters that arise Percentage if multiple Special Meeting OMX’s Board, for stockholder approval between annual meetings. Requests are delivered to NASDAQ at any other meeting of the stockholders Following discussions with some of OMX’s Corporate Secretary. Multiple that is held not less than 120 days after its stockholders, NASDAQ OMX agrees requests will be considered together the delivery of the Special Meeting that it is appropriate to allow only if: (i) Each Special Meeting Request Request. The intent of this provision is stockholders who meet certain identifies substantially the same to save NASDAQ OMX the time and procedural requirements to call a purpose or purposes of the special expense of calling and holding a special special meeting. In proposing these meeting if NASDAQ OMX intends to 14 procedural requirements, NASDAQ For purposes of determining Requisite Holders hold a separate stockholders’ meeting under proposed Section 3.2, ‘‘Net Long Shares’’ within 120 days. In fixing the place, if OMX’s goals are to ensure timely notice shall be limited to the number of shares beneficially of a meeting request and to gather owned, directly or indirectly, by any stockholder or any, date and time for any special sufficient information about the beneficial owner that constitute such person’s ‘‘net meeting, NASDAQ OMX’s Board may proposing stockholder(s) and the long position’’ as defined in Rule 14e–4 under the consider such factors as it deems Act, provided that (A) for the purposes of this relevant in its business judgment, proposal. Among other things, this definition, references in the rule to ‘‘the date the information will ensure that NASDAQ tender offer is first publicly announced or otherwise including the nature of the matters to be OMX is able to comply with its made known by the bidder to the holders of the considered, the facts and circumstances disclosure and other requirements security to be acquired’’ shall be the date of the surrounding any request for a meeting relevant Special Meeting Request and all dates in and any plan of the Board to call an under applicable law and that NASDAQ the one year period prior thereto, the ‘‘highest OMX, its Board and its stockholders are tender offer price or stated amount of the annual meeting or a special meeting. able to assess the proposal adequately. consideration offered for the subject security’’ shall Proposed Section 3.2(c) sets forth The proposed procedural requirements refer to the closing sales price of NASDAQ OMX’s certain limitations on Special Meeting capital stock on NASDAQ on such date (or, if such Requests. Specifically, a Special are set forth below. date is not a trading day, the next succeeding First, proposed Section 3.2(a) trading day), the ‘‘person whose securities are the Meeting Request will not be valid if: • provides that special meetings of subject of the offer’’ shall refer to NASDAQ OMX, It relates to an item of business that NASDAQ OMX’s stockholders may only a ‘‘subject security’’ shall refer to the issued and is not a proper subject for stockholder outstanding voting stock of NASDAQ OMX; and (B) be called: (i) At any time by NASDAQ action under applicable law; the net long position of such stockholder shall be • OMX’s Board pursuant to a resolution reduced by any shares as to which such person does it is delivered during the period adopted by a majority of the total not have the right to vote or direct the vote at the commencing 90 days prior to the one- number of directors NASDAQ OMX proposed special meeting or as to which such year anniversary of the date of the person has entered into a derivative or other immediately preceding annual meeting would have if there were no vacancies; agreement, arrangement or understanding that and (ii) by NASDAQ OMX’s Corporate hedges or transfers, in whole or in part, directly or and ending on the date of the next Secretary following the receipt of a indirectly, any of the economic consequences of annual meeting; • written request in proper form for a ownership of such shares. In addition, to the extent a Similar Item was presented at any any affiliates of the stockholder or beneficial owner meeting of stockholders held within 120 are acting in concert with the stockholder or 12 See Section 151(g) of the DGCL. beneficial owner with respect to the calling of the days prior to the date on which the 13 Under Delaware law, special meetings of a special meeting, the determination of Net Long corporation’s stockholders may be called by the Shares may include the effect of aggregating the Net 15 Under proposed Section 3.2(b) of the By-Laws, board of directors or by such persons as may be Long Shares (including any negative number) of the election of directors shall be deemed a ‘‘Similar authorized by the certificate of incorporation or the such affiliate or affiliates. See proposed Section Item’’ with respect to all items of business involving bylaws. See Section 211(d) of the DGCL. 3.2(a) of the By-Laws. the nomination, election or removal of directors.

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Special Meeting Request was delivered; • include (i) an agreement by each record date for the special meeting. In or Requisite Holder to immediately deliver the case of an update and supplement • a Similar Item is included in written notice to NASDAQ OMX’s required to be made as of the 10th NASDAQ OMX’s notice of meeting as Corporate Secretary in the case of any business day prior to the special an item of business to be presented at disposition, on or prior to the record meeting or any adjournment or a stockholder’s meeting that has been date for the special meeting, of any postponement thereof, the update and called but not yet held. shares of NASDAQ OMX’s capital stock supplement must be delivered to The Board may adjourn or reschedule held of record by such Requisite Holder NASDAQ OMX’s Corporate Secretary no any previously scheduled special and (ii) an acknowledgement that (1) later than the eighth business day prior meeting of the stockholders. NASDAQ any such disposition shall be deemed a to the date for the special meeting or, if OMX believes the subject matter revocation of the Special Meeting practical, any adjournment or limitations set forth in proposed Section Request to the extent of such disposition postponement thereof (and, if not 3.2(c) are appropriate in order to comply and (2) if, following such deemed practicable, on the first practicable date with applicable law and to prevent revocation, the Requisite Holders hold prior to the date to which the special multiple considerations of the same of record, in the aggregate, less than the meeting has been adjourned or item of business. NASDAQ OMX Requisite Percentage of the voting postponed). believes the time limits set forth in power of all outstanding shares of Proposed Section 3.2(h) will allow the proposed Section 3.2(c) are appropriate NASDAQ OMX’s capital stock entitled Requisite Holders to revoke a Special to ensure that NASDAQ OMX is not to vote generally in the election of Meeting Request by written revocation required to incur the time and expense directors, NASDAQ OMX shall have no delivered to NASDAQ OMX at any time of calling and holding a special meeting obligation to hold the special meeting. prior to the special meeting requested. of stockholders immediately prior to an Proposed Section 3.2(f) provides that However, NASDAQ OMX’s Board will upcoming annual meeting of at any special meeting of the have the discretion to determine stockholders or if a Similar Item of stockholders, the only business to be whether or not to proceed with the business already has been presented at conducted or considered will have been special meeting. The Board might wish a recent stockholders’ meeting. specified in the notice of meeting (or to continue with the special meeting if, for example, the Company has already To be in proper form, a Special any supplement thereto) given by or at the direction of NASDAQ OMX’s Board spent the time and expense required to Meeting Request must comply with or Corporate Secretary, as the case may call the meeting or if the agenda for the certain requirements, as described be. In any event, however, NASDAQ meeting includes items other than those further below.16 NASDAQ OMX’s Board OMX’s Board may submit its own proposed in the Special Meeting will have the sole discretion to proposal or proposals for consideration Request. determine whether a Special Meeting at a special meeting. Except as Finally, NASDAQ OMX proposes to Request is in proper form.17 Proposed otherwise allowed under proposed designate as Section 3.2(i) existing text Section 3.2(d) sets forth the Section 3.2, stockholders will not be that sets forth the requirements for requirements for a Special Meeting permitted to propose business to be stockholders to submit nominees for Request to be in proper form. These brought before a special meeting of the election as directors at certain proposed requirements will ensure that stockholders. NASDAQ OMX believes stockholder meetings. NASDAQ OMX NASDAQ OMX has sufficient these provisions are reasonable and further proposes to make a minor information to comply with its necessary to limit the items of business change to this text to clarify that disclosure requirements under that may be considered at a special NASDAQ OMX’s Board, rather than the applicable law and that the Requisite meeting to those that were proposed by Company itself, will call a special Holders maintain a sufficient ownership the Company, the Board or stockholders meeting on behalf of the Company. level through the date of the special that comply with the requirements and (b) Annual Meetings of Stockholders meeting. Specifically, a Special Meeting procedures set forth in the By-Laws. Request shall: Proposed Section 3.2(g) will require Section 3.1 of NASDAQ OMX’s By- • Be in writing, signed by each the Requisite Holders giving a Special Laws, which is the ‘‘advance notice’’ Requesting Person 18 and delivered to Meeting Request to further update and provision,20 requires stockholders to NASDAQ OMX’s Corporate Secretary at supplement the request, if necessary, so notify NASDAQ OMX, during a NASDAQ OMX’s principal executive that the information in the request is specified period in advance of an offices; true and correct as of the record date for annual meeting, of their intention to • set forth certain information with the special meeting and as of the 10th nominate one or more persons for respect to (i) each person the Requesting business day prior to the special election to the Board or to present a Person proposes to nominate for meeting or any adjournment or business proposal for consideration by director, (ii) any business the postponement thereof. This requirement the stockholders at the meeting. While Requesting Person proposes to bring will ensure that NASDAQ OMX, its designing the proposed procedural before the meeting and (iii) each Board and its other stockholders are requirements for stockholders to call a Requesting Person; 19 and notified of changes to the information special meeting, as outlined above, they will consider in assessing a NASDAQ OMX evaluated the existing 16 See proposed Section 3.2(a) of the By-Laws. proposed item of business prior to the procedural requirements for 17 Id. special meeting. In the case of an update 18 ‘‘Requesting Person’’ means (i) each Requisite 20 ‘‘Advance notice’’ provisions allow Holder, (ii) the beneficial owner or beneficial and supplement required to be made as stockholder(s) to bring business before an annual owners, if different, on whose behalf the Special of the record date, the update and meeting of stockholders, but set forth procedural Meeting Request is being delivered to NASDAQ supplement must be delivered to requirements to ensure that companies and boards OMX’s Corporate Secretary and (iii) any affiliate or NASDAQ OMX’s Corporate Secretary no have sufficient information about the proposal and associate of such stockholder or beneficial owner. the proposing stockholder(s), as well as adequate See proposed Section 3.2(e) of the By-Laws. later than the fifth business day after the time to consider the proposal, by requiring the 19 The information required is the same proposing stockholder(s) to give advance notice of information required from Proposing Persons with brought before an annual meeting of stockholders the intention to bring the proposal before the respect to nominations or items of business to be and is described in detail in Section (iv)(b) below. annual meeting.

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stockholders to bring business before an of nominations or other business to be meeting has been adjourned or annual meeting. NASDAQ OMX is considered at an annual meeting. postponed). therefore proposing changes to some of NASDAQ OMX proposes certain Section 3.1(b)(i) of the By-Laws these procedures to enhance them and amendments to this section to ensure currently sets forth the information that conform them, in some cases, to the that NASDAQ OMX has sufficient a stockholder must provide to NASDAQ procedures relating to special meetings. information about such nominations or OMX about each person whom the Generally, the proposed amendments other business proposed by a stockholder proposes to nominate for add requirements for extensive stockholder to enable the Company, the election as a director. NASDAQ OMX disclosures by proposing stockholders Board and the other stockholders to proposes changes to this section to use about themselves, any proposed assess a position on the nominations or the defined term ‘‘Proposing Person’’ nominees for director and any proposed other business. The additional instead of stockholder,23 to require items of business to be brought before a information requirements will also information with respect to nominees meeting. The specific amendments are ensure that NASDAQ OMX can make for reelection as well as nominees for discussed in detail below. adequate disclosures to its stockholders election, to correct a reference to the Act First, Section 3.1(a) of the By-Laws and comply with requirements under and to add numbering and other currently states that nominations of applicable law. organizational changes to make the persons for election to NASDAQ OMX’s requirements easier to read and Specifically, NASDAQ OMX proposes Board and the proposal of other understand. NASDAQ OMX also an amendment to the first paragraph of business to be considered by the proposes to require the same this section to require a stockholder stockholders at an annual meeting of information with respect to a proposed who provides a notice relating to a stockholders may be made only: (i) nominee that will be required with nomination to include with the notice, Pursuant to the Company’s notice of respect to a Proposing Person, as a completed and signed questionnaire, meeting (or any supplement thereto); (ii) discussed further below. In addition, representation and agreement relating to by or at the direction of NASDAQ NASDAQ OMX proposes to add two the nominee(s) for director.21 NASDAQ OMX’s Board or its Nominating & new informational requirements for Governance Committee; or (iii) by any OMX also proposes to require a proposed nominees, including: stockholder of the Company that meets stockholder who provides a notice to • A description of all direct and certain requirements. These further update and supplement the indirect compensation and other requirements state that the stockholder notice, if necessary, so that the material monetary agreements, must: (i) Be a stockholder of record at information in the notice is true and arrangements and understandings the time of delivery of notice to the correct as of the record date for the during the past three years, and any Company of nominees or other business annual meeting and as of the 10th other material relationships, between or to be conducted at the meeting; (ii) be business day prior to the annual among any Proposing Person, on the one entitled to vote at the meeting; and (iii) meeting or any adjournment or 22 hand, and such proposed nominee and comply with the notice procedures set postponement thereof. This any of his or her respective affiliates and forth in the By-Laws. NASDAQ OMX requirement will ensure that NASDAQ associates, on the other hand, including, proposes to add a parenthetical to the OMX, its Board and its other without limitation, all information that requirement that a stockholder must be stockholders are notified of changes to would be required to be disclosed a stockholder of record to clarify that a the information they will consider in pursuant to Item 404 under Regulation nomination or proposal of other assessing a proposed item of business S–K if such Requesting Person were the business may be made on behalf of a prior to the annual meeting. In the case ‘‘registrant’’ for purposes of such rule beneficial owner, if different from the of an update and supplement required and the proposed nominee were a stockholder of record, only if the to be made as of the record date, the director or executive officer of such beneficial owner is the beneficial owner update and supplement must be registrant; and of NASDAQ OMX shares. This delivered to NASDAQ OMX’s Corporate • a completed and signed modification will clarify that both Secretary no later than the fifth business questionnaire, representation and record and beneficial owners of day after the record date for the annual agreement.24 NASDAQ OMX stock have the right to meeting. In the case of an update and propose nominees or business to be Finally, NASDAQ OMX proposes to supplement required to be made as of add a catch-all provision to Section considered at an annual meeting. the 10th business day prior to the NASDAQ OMX further proposes that a 3.1(b)(i) of the By-Laws that will allow annual meeting or any adjournment or the Company to require any proposed stockholder who proposes nominees or postponement thereof, the update and business to be considered at an annual nominee to furnish such other supplement must be delivered to information (i) as the Company may meeting must hold shares in the NASDAQ OMX’s Corporate Secretary no Company at the time of the meeting, in reasonably require to determine the later than the eighth business day prior eligibility of such proposed nominee to addition to the time of delivery of the to the date for the annual meeting or, if required notice to the Company. This practicable, any adjournment or 23 ‘‘Proposing Person’’ means (i) the stockholder will ensure that a stockholder retains an postponement thereof (and, if not providing the notice of business or the notice of the interest in the Company until the practicable, on the first practicable date nomination, as applicable, proposed to be brought meeting at which the stockholder’s prior to the date to which the annual before an annual meeting, (ii) any beneficial owner nominee or other business is or beneficial owners, if different, on whose behalf such business is proposed to be brought before the considered. Finally, NASDAQ OMX 21 The contents of and rationale for the meeting or the notice of the nomination proposed proposes to number the procedural questionnaire, representation and agreement are to be made at the meeting is made, as applicable, requirements for stockholders who discussed further in Section (iv)(c) below. and (iii) any affiliate or associate (each within the propose nominees or business to make 22 NASDAQ OMX notes that this proposal is meaning of Rule 12b–2 under the Act for purposes them easier to understand. similar to proposed Section 3.2(g) of the By-Laws, of the By-Laws) of such stockholder or beneficial which requires updates and supplements to a owner. See proposed Section 3.1(c) of the By-Laws. Currently, Section 3.1(b) of the By- stockholder notice relating to a special meeting. 24 The contents of and rationale for the Laws sets forth the requirements for a This proposed change is discussed further in questionnaire, representation and agreement are stockholder’s notice to NASDAQ OMX Section (iv)(a) above. discussed further in Section (iv)(c) below.

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serve as a director or (ii) that could be also proposes to state that a Proposing For this same reason, NASDAQ OMX material to a reasonable stockholder’s Person shall in all events be deemed to also proposes to add several new understanding of the independence, or beneficially own any shares of any class disclosures that a Proposing Person lack of independence, of such proposed or series of NASDAQ OMX’s capital must include in a notice to NASDAQ nominee. NASDAQ OMX believes that stock as to which such person has a OMX regarding nominees or other all of the new information requirements right to acquire beneficial ownership at business to be conducted at an annual included in proposed Section 3.1(b)(i) any time in the future. These proposed meeting. These include disclosures are reasonable and necessary in order to changes merely clarify how the concept regarding: assist the Company in evaluating of beneficial ownership will be • Any proxy (other than a revocable director eligibility, independence and interpreted under this section of the By- proxy or consent given in response to a potential conflicts of interest. Laws. Section 3.1(b)(ii) of the By-Laws solicitation made pursuant to, and in currently sets forth the information that Current Section 3.1(b)(iii)(D) requires accordance with, Section 14(a) of the a stockholder must provide to NASDAQ proposing stockholders to describe to Act by way of a solicitation statement OMX about any business, other than NASDAQ OMX any agreement, filed on Schedule 14A), agreement, nominations for director, that the arrangement or understanding arrangement, understanding or stockholder proposes to bring before an (including any derivative or short relationship pursuant to which the annual meeting. NASDAQ OMX positions, profit interests, options, Proposing Person has or shares a right proposes changes to this section to warrants, convertible securities, stock to vote any shares of any class or series require that the description of the appreciation or similar rights, hedging of NASDAQ OMX; 26 proposed business be reasonably transactions, and borrowed or loaned • any proportionate interest in detailed, to use the defined term shares) that has been entered into as of NASDAQ OMX shares or Synthetic ‘‘Proposing Person’’ instead of the date of the notice by the stockholder Equity Interest held, directly or stockholder and beneficial owner in and the beneficial owners with respect indirectly, by a general or limited certain places and to add numbering, to NASDAQ OMX’s stock. Given the partnership in which the Proposing reordering and other organizational increased complexity of such Person is a general partner or, directly changes to make the requirements easier transactions in today’s marketplace, or indirectly, beneficially owns an to read and understand. NASDAQ OMX NASDAQ OMX proposes to replace the interest in a general partner; 27 current language with a similar also proposes to add a new requirement • for a stockholder to provide a requirement for disclosure of any any agreement, arrangement, reasonably detailed description of all Synthetic Equity Interest,25 without understanding or relationship, contracts, agreements, arrangements and regard to whether: (i) The derivative, including any repurchase or similar so- understandings between or among any swap or other transaction or series of called ‘‘stock borrowing’’ agreement or of the Proposing Persons or between or transactions conveys any voting rights arrangement, entered into or engaged in, among any Proposing Person in in such shares to the Proposing Person; directly or indirectly, by the Proposing connection with the proposal. NASDAQ (ii) the derivative, swap or other Person, the purpose or effect of which OMX believes this information will be transaction or series of transactions is is to mitigate loss to, reduce the useful in assessing the aims and required to be, or is capable of being, economic risk (of ownership or incentives of Proposing Persons in settled through delivery of such shares; otherwise) of shares of any class or proposing business before an annual or (iii) the Proposing Person may have series of NASDAQ OMX by, manage the meeting. entered into other transactions that risk of share price changes for, or Section 3.1(b)(iii) of the By-Laws hedge or mitigate the economic effect of increase or decrease the voting power currently sets forth the information that such derivative, swap or other of, the Proposing Person with respect to a stockholder who proposes nominee(s) transaction or series of transactions. shares of any class or series of NASDAQ for director or other business to be put This proposed provision will assist OMX, or that provides, directly or forth before an annual meeting must NASDAQ OMX, its Board and its other indirectly, the opportunity to profit provide to NASDAQ OMX about such stockholders in understanding a from any decrease in the price or value stockholder and the beneficial owner, if Proposing Person’s full economic of shares of any class or series of any, on whose behalf the nomination or interests in NASDAQ OMX and possible NASDAQ OMX (any of the foregoing, a proposal is made. NASDAQ OMX aims and incentives in submitting the ‘‘Short Interest’’); 28 proposes changes to this section to use proposed business for consideration at • any performance-related fees (other the defined term ‘‘Proposing Person’’ an annual meeting. than an asset-based fee) to which the instead of stockholder and beneficial Proposing Person is entitled based on owner in certain places and to add 25 ‘‘Synthetic Equity Interest’’ shall mean any any increase or decrease in the price or numbering, reordering and other derivative, swap or other transaction (including any value of shares of any class or series of organizational changes to make the short positions, profit interest, options, warrants, convertible securities, stock appreciation or similar NASDAQ OMX, or any Synthetic Equity requirements easier to read and 29 understand. rights) or series of transactions engaged in, directly Interest or Short Interest; or indirectly, by a Proposing Person, the purpose or • any significant equity interest or Relating to the existing requirement in effect of which is to give the Proposing Person Section 3.1(b)(iii)(B) that a proposing economic risk similar to ownership of shares of any any Synthetic Equity Interest or Short stockholder describe the class or series class or series of NASDAQ OMX, including due to Interest in any principal competitor of and number of shares of NASDAQ OMX the fact that the value of such derivative, swap or other transaction or series of transactions is 26 capital stock owned beneficially and of determined by reference to the price, value or See proposed Section 3.1(b)(iii)(E) of the By- record by such stockholder and the volatility of any shares of any class or series of Laws. beneficial owner, NASDAQ OMX NASDAQ OMX, or which derivative, swap or other 27 See proposed Section 3.1(b)(iii)(F) of the By- proposes to add a parenthetical stating transaction or series of transactions provides, Laws. directly or indirectly, the opportunity to profit from 28 See proposed Section 3.1(b)(iii)(G) of the By- that beneficial ownership shall be any increase in the price or value of shares of any Laws. determined within the meaning of Rule class or series of NASDAQ OMX. See proposed 29 See proposed Section 3.1(b)(iii)(H) of the By- 13d-3 under the Act. NASDAQ OMX Section 3.1(b)(iii)(D) of the By-Laws. Laws.

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NASDAQ OMX held by the Proposing • Is not and will not become a party of the total voting power of the Voting Person; 30 to (i) any agreement as to how the Stock, voting together as a single class.35 • any direct or indirect interest of the nominee will act or vote on any issue • Adoption, Alteration, Amendment Proposing Person in any contract with or question (a ‘‘Voting Commitment’’) and Repeal of By-Laws. Section 11.1 NASDAQ OMX, any affiliate of that has not been fully disclosed to provides that the By-Laws may be NASDAQ OMX or any principal NASDAQ OMX or (ii) any Voting altered amended or repealed, or new By- competitor of NASDAQ OMX Commitment that could limit or Laws may be adopted, at any meeting of (including, in any such case, any interfere with the nominee’s fiduciary the stockholders by the affirmative vote employment agreement, collective duties under applicable law; of the holders of at least 662⁄3% of the bargaining agreement or consulting • is not and will not become a party voting power of the Voting Stock, voting 36 agreement); 31 to any agreement with any person other together as a single class. • any pending or threatened litigation than NASDAQ OMX with respect to any To conform with the proposed in which the Proposing Person is a party direct or indirect compensation, changes to the Charter, NASDAQ OMX proposes to replace each of these or material participant involving reimbursement or indemnification in supermajority voting requirements with NASDAQ OMX or any of its officers or connection with service or action as a a voting standard requiring the directors, or any affiliate of NASDAQ director of NASDAQ OMX that has not affirmative vote of a majority of the OMX; 32 been fully disclosed to NASDAQ OMX; • outstanding Voting Stock. As discussed any material transaction occurring, • would be in compliance, if elected, in whole or in part, during the then above with respect to the analogous and will comply, with the provisions of Charter amendments, NASDAQ OMX immediately preceding 12-month period NASDAQ OMX’s By-Laws relating to believes that a ‘‘majority of outstanding between such Proposing Person, on the qualifications of directors, conflicts of shares’’ standard reflects a balanced one hand, and NASDAQ OMX, any interest and contracts and transactions approach that responds to stockholder affiliate of NASDAQ OMX or any involving directors; and feedback while appropriately principal competitor of NASDAQ OMX, • in such proposed nominee’s maintaining NASDAQ OMX’s defensive on the other hand; 33 and • individual capacity and on behalf of any posture against hostile takeovers. any other information relating to person on whose behalf the nomination (e) Procedures for Filling Board the Proposing Person required to be is made, would be in compliance, if Vacancies disclosed in a proxy statement or other elected, and will comply, with filings required to be made in NASDAQ OMX’s Corporate Governance Section 4.8 of the By-Laws sets forth connection with solicitations of proxies Guidelines, Board of Director Code of the procedures to fill a director position for, as applicable, the proposal and/or Conduct and Code of Ethics, including that has become vacant, whether for the election of directors in an all applicable, publicly disclosed because of death, disability, election contest pursuant to and in conflict of interest, confidentiality, stock disqualification, removal or resignation. accordance with Section 14(a) of the Act ownership and insider trading policies Under the current provisions, if such a and the rules and regulations and guidelines. vacancy occurs, the Nominating & promulgated thereunder.34 The requirements of proposed Section Governance Committee of the Board (c) Questionnaire, Representation and 3.5 of the By-Laws, which will apply to shall nominate, and the Board shall Agreement for Director-Nominees both the Company’s and stockholders’ elect by majority vote, a person to fill nominees for director, will ensure that the vacancy. In light of the addition of NASDAQ OMX proposes to add a a right for stockholders to call a special new Section 3.5 to its By-Laws to NASDAQ OMX has the necessary information about nominees to fulfill its meeting, as discussed above, NASDAQ require nominees for director to deliver OMX proposes amendments to Section to NASDAQ OMX, in accordance with public disclosure requirements. The requirements also will ensure that 4.8 to state explicitly that vacancies on the time periods prescribed for delivery the Board are to be filled by a majority of a stockholder’s notice: (i) A written nominees will comply with the legal obligations, policies and procedures vote of the Board, and not by questionnaire with respect to the stockholders. In addition, to prescribe background and qualifications of the applicable to all NASDAQ OMX directors. procedures in case multiple Board nominee; and (ii) a written vacancies occur at the same time, the representation and agreement as to (d) Removal and Replacement of proposed amendments state that a Board certain matters. Specifically, the written Supermajority Voting Provisions vacancy shall be filled by the majority representation and agreement will of the directors, even if there is less than Consistent with the proposed provide that the nominee: a quorum, or by the sole remaining amendments to remove and replace the director, if there is only one director supermajority voting provisions in the 30 See proposed Section 3.1(b)(iii)(I) of the By- remaining on the Board. The proposed Charter discussed above, NASDAQ Laws. amendments do not change any of the 31 OMX proposes to amend each provision See proposed Section 3.1(b)(iii)(J) of the By- other procedures for filling Board Laws. of the By-Laws that currently requires a 32 vacancies. See proposed Section 3.1(b)(iii)(K) of the By- supermajority vote of stockholders to Laws. instead require a ‘‘majority of votes (f) Use of Electronic Means for Certain 33 See proposed Section 3.1(b)(iii)(L) of the By- Laws. outstanding.’’ NASDAQ OMX’s By-Laws Notices and Related Waivers 34 See proposed Section 3.1(b)(iii)(M) of the By- currently include the following two Currently, Section 4.12(a) of the By- Laws. NASDAQ OMX also proposes to include an supermajority voting requirements, each Laws provides that notice of any exception to each of the aforementioned disclosure of which conforms with an analogous requirements for any disclosures with respect to the ordinary course business activities of any broker, provision in the Charter. 35 This provision is analogous to Article Fifth, dealer, commercial bank, trust company or other • Removal of Directors. Section 4.6 Paragraph D of the Charter, which is discussed nominee who is a Proposing Person solely as a provides that any or all of the directors under Section (ii)(a) above. result of being the stockholder directed to prepare 36 This provision is analogous to Article Eighth, and submit the notice required by the By-Laws on may be removed from office at any time Paragraph A of the Charter, which is discussed 2 behalf of a beneficial owner. by the affirmative vote of at least 66 ⁄3% under Section (ii)(a) above.

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meeting of the Board shall be deemed (h) No Amendment or Repeal of Certain changes to its Charter to replace each duly given to a director if, among other By-Law Amendments supermajority voting requirement with a methods, the notice is sent to the While current Section 11.1 of the By- ‘‘majority of outstanding shares’’ voting director at the address last made known Laws provides for alteration, standard. NASDAQ OMX believes this in writing to NASDAQ OMX by amendment, repeal and adoption of By- approach will strike an appropriate telegraph, telefax, cable, radio or Laws by the stockholders, current balance between responding to wireless. Section 4.12(b) of the By-Laws Section 11.2 provides for alteration, stockholder feedback and protecting the provides that such notice of a board amendment, repeal and adoption of By- Company and its investors against meeting need not be given to any Laws by the Board. These two sections hostile takeovers. In addition, the director if waived by the director in operate as alternate means to alter, clarifying changes to the Charter will writing or by electronic transmission (or amend, repeal or adopt By-Laws. In protect investors by making the Charter by telegram, telefax, cable, radio or other words, the stockholders may alter, more concise and easier to understand. wireless and subsequently confirmed in amend, repeal or adopt By-Laws Both sets of changes to the Charter were writing or by electronic transmission). without any action by the Board, and approved by NASDAQ OMX’s investors NASDAQ OMX proposes amendments vice versa. NASDAQ OMX proposes to at the most recent annual meeting of to Sections 4.12(a) and (b) to provide add a proviso to Section 11.2 to state stockholders. that both notices and waivers of such that no By-Law adopted by the NASDAQ OMX also proposes to notices can be given by email or other stockholders shall be amended or eliminate the Certificate of Designation means of written electronic repealed by the Board if the By-Law so relating to the Series A Convertible transmission. These amendments are adopted so provides. This is a Preferred Stock, which is no longer intended merely to expand the means stockholder-friendly provision that is outstanding. This proposed change will through which notices and waivers of intended to prevent the Board from protect investors by enhancing the notices may be given, and the subsequently overriding stockholder clarity of NASDAQ OMX’s Charter. Finally, NASDAQ OMX proposes amendments do not affect any of the action to amend or repeal the By-Laws. other procedural requirements of changes to its By-Laws: (i) To Sections 4.12(a) and (b). In addition, the (i) Non-Substantive Changes implement a stockholder right to call a proposed amendments reflect current The remaining proposed By-Law special meeting; (ii) to enhance the practices, as a substantial amount of amendments are non-substantive ‘‘advance notice’’ procedures; (iii) to communications between NASDAQ changes, which will simplify and require certain information and OMX and its directors, outside of Board streamline the document. Specifically, agreements from director-nominees; (iv) meetings, occurs through electronic NASDAQ OMX proposes minor changes to remove and replace the supermajority means. to Section 3.3 to incorporate the new voting provisions to conform to the defined term ‘‘Proposing Person,’’ to use Charter amendments; (v) to clarify the (g) Composition of the Management the term ‘‘nomination’’ rather than procedures for filling Board vacancies; Compensation Committee ‘‘nominee’’ for consistency and to (vi) to allow the use of electronic means correct two cross-references. NASDAQ for certain notices and waivers; (vii) to As required by the Dodd-Frank Wall conform the composition requirements Street Reform and Consumer Protection OMX also proposes to delete obsolete references to the 3.75% Series A for the Management Compensation Act and Rule 10C–1 under the Exchange Committee of NASDAQ OMX’s Board Act,37 NASDAQ recently amended its Convertible Notes due 2012 and the Series B Convertible Notes due 2012, with the NASDAQ listing rules; (vii) listing rules relating to compensation [sic] to prevent the Board from committees.38 Since NASDAQ OMX is which are no longer outstanding, in Section 12.7. amending or repealing By-Law listed on NASDAQ, it must comply with In addition, NASDAQ OMX proposes amendments approved by the these listing rules just like any other to correct typographical errors and/or stockholders; and (viii) [sic] to make listed company. NASDAQ OMX delete obsolete cross-references in other non-substantive changes. therefore proposes amendments to Article I(f), Section 4.3, Section 9.4(b), The proposals relating to the Section 4.13(f) of the By-Laws, which Section 12.5 and Section 12.6. Finally, stockholder right to call a special relates to the composition of the NASDAQ OMX proposes to renumber meeting and to remove and replace the Management Compensation Committee and reorganize the provisions of the By- supermajority voting requirements are of NASDAQ OMX’s Board, to conform Laws, where necessary following the responsive to feedback from NASDAQ to the recent amendments to NASDAQ’s other amendments. OMX’s stockholders. The additional listing rules. Specifically, NASDAQ procedural requirements relating to OMX proposes to state that the 2. Statutory Basis special and annual meetings will protect Management Compensation Committee The Exchange believes that its investors by stating clearly and must consist of at least two members proposal is consistent with Section 6(b) explicitly the procedures stockholders and that each member shall meet the of the Act,39 in general, and furthers the must follow to propose business at such eligibility requirements set forth in the objectives of Section 6(b)(5) of the Act,40 meetings. The requirement for certain rules of The NASDAQ Stock Market. in particular, in that it is designed to information and agreements from promote just and equitable principles of director-nominees will enhance investor 37 See Public Law 111–203, 124 Stat. 1376 (2010) trade, to remove impediments to and protection by ensuring that nominees and 17 CFR 240.10C–1. perfect the mechanism of a free and provide adequate information about 38 See Securities Exchange Act Release No. 68640 themselves and also comply with (January 11, 2013), 78 FR 4554 (January 22, 2013) open market and a national market (SR–NASDAQ–2012–109). Among other things, the system, and, in general to protect applicable law and certain NASDAQ amendments require each NASDAQ-listed investors and the public interest. OMX policies and procedures relating to company, with certain exceptions, to have a In response to feedback from its the Board. The prohibition on the Board compensation committee of its board of directors, investors, NASDAQ OMX is proposing amending or repealing By-Law consisting of a minimum of two independent directors who meet additional eligibility amendments approved by the requirements relating to compensatory fees and 39 15 U.S.C. 78f(b). stockholders is a stockholder-friendly affiliation. 40 15 U.S.C. 78f(b)(5). provision that is intended to prevent the

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Board from subsequently overriding All submissions should refer to File thereunder,2 notice is hereby given that stockholders’ wishes. Finally, the Number SR–NASDAQ–2013–148. This on November 26, 2013, Miami remaining changes are clarifying in file number should be included on the International Securities Exchange LLC nature, and they enhance investor subject line if email is used. To help the (‘‘MIAX’’ or ‘‘Exchange’’) filed with the protection by conforming NASDAQ Commission process and review your Securities and Exchange Commission OMX’s governance documents to comments more efficiently, please use (‘‘Commission’’) a proposed rule change current practices and applicable rules only one method. The Commission will as described in Items I, II, and III below, and by making them clearer and easier post all comments on the Commission’s which Items have been prepared by the to understand. Internet Web site (http://www.sec.gov/ Exchange. The Commission is rules/sro.shtml). Copies of the publishing this notice to solicit B. Self-Regulatory Organization’s submission, all subsequent comments on the proposed rule change Statement on Burden on Competition amendments, all written statements from interested persons. Because the proposed rule change with respect to the proposed rule I. Self-Regulatory Organization’s relates to the governance of NASDAQ change that are filed with the Statement of the Terms of Substance of OMX and not to the operations of the Commission, and all written the Proposed Rule Change Exchange, the Exchange does not communications relating to the believe that the proposed rule change proposed rule change between the The Exchange is filing a proposal to will impose any burden on competition Commission and any person, other than amend Exchange Rules 307 and 309 to not necessary or appropriate in those that may be withheld from the extend the pilot program that eliminates furtherance of the purposes of the Act. public in accordance with the the position and exercise limits for provisions of 5 U.S.C. 552, will be physically-settled options on the SPDR C. Self-Regulatory Organization’s S&P 500 ETF Trust (‘‘SPY Pilot Statement on Comments on the available for Web site viewing and printing in the Commission’s Public Program’’). Proposed Rule Change Received From The text of the proposed rule change Reference Room, 100 F Street NE., Members, Participants or Others is available on the Exchange’s Web site Washington, DC 20549, on official at http://www.miaxoptions.com/filter/ No written comments were either business days between the hours of wotitle/rule_filing, at MIAX’s principal solicited or received. 10:00 a.m. and 3:00 p.m. Copies of such office, and at the Commission’s Public filing also will be available for III. Date of Effectiveness of the Reference Room. Proposed Rule Change and Timing for inspection and copying at the principal Commission Action offices of the Exchange. All comments II. Self-Regulatory Organization’s received will be posted without change; Statement of the Purpose of, and Within 45 days of the date of the Commission does not edit personal Statutory Basis for, the Proposed Rule publication of this notice in the Federal identifying information from Change Register or within such longer period (i) submissions. You should submit only In its filing with the Commission, the as the Commission may designate up to information that you wish to make 90 days of such date if it finds such Exchange included statements available publicly. All submissions concerning the purpose of and basis for longer period to be appropriate and should refer to File Number publishes its reasons for so finding or the proposed rule change and discussed SR–NASDAQ–2013–148, and should be any comments it received on the (ii) as to which the Exchange consents, submitted on or before January 2, 2014. the Commission shall: (a) By order proposed rule change. The text of these approve or disapprove such proposed For the Commission, by the Division of statements may be examined at the rule change, or (b) institute proceedings Trading and Markets, pursuant to delegated places specified in Item IV below. The authority.41 to determine whether the proposed rule Exchange has prepared summaries, set change should be disapproved. Kevin M. O’Neill, forth in sections A, B, and C below, of Deputy Secretary. the most significant aspects of such IV. Solicitation of Comments [FR Doc. 2013–29611 Filed 12–11–13; 8:45 am] statements. Interested persons are invited to BILLING CODE 8011–01–P A. Self-Regulatory Organization’s submit written data, views, and Statement of the Purpose of, and arguments concerning the foregoing, Statutory Basis for, the Proposed Rule including whether the proposed rule SECURITIES AND EXCHANGE Change change is consistent with the Act. COMMISSION 1. Purpose Comments may be submitted by any of [Release No. 34–71014; File No. SR–MIAX– the following methods: 2013–53] The Exchange proposes to amend Exchange Rule 307, Commentary .01, Electronic Comments Self-Regulatory Organizations: Miami Position Limits, and Exchange Rule 309, • Use the Commission’s Internet International Securities Exchange LLC; Commentary .01, Exercise limits, to comment form (http://www.sec.gov/ Notice of Filing and Immediate extend the duration of the SPY Pilot rules/sro.shtml); or Effectiveness of a Proposed Rule Program through December 15, 2014. • Send an email to rule-comments@ Change for the Extension of a Pilot There are no substantive changes being sec.gov. Please include File Number Program for SPY Position and Exercise proposed to the SPY Pilot Program. SR–NASDAQ–2013–148 on the subject Limits In proposing to extend the SPY Pilot line. Program, the Exchange affirms its December 6, 2013. consideration of several factors that Paper Comments Pursuant to the provisions of Section support the proposal to establish the • Send paper comments in triplicate 19(b)(1) of the Securities Exchange Act SPY Pilot Program, which include: (1) to Elizabeth M. Murphy, Secretary, of 1934 (‘‘Act’’) 1 and Rule 19b–4 The liquidity of the option and the Securities and Exchange Commission, underlying security; (2) the market 100 F Street NE., Washington, DC 41 17 CFR 200.30–3(a)(12). 20549–1090. 1 15 U.S.C. 78s(b)(1). 2 17 CFR 240.19b–4.

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capitalization of the underlying security furthers the objectives of Section At any time within 60 days of the and the securities that make up the S&P 6(b)(5) 4 of the Act in particular, in that filing of the proposed rule change, the 500 Index; (3) options reporting it is designed to prevent fraudulent and Commission summarily may requirements; and (4) financial manipulative acts and practices, to temporarily suspend such rule change if requirements imposed by MIAX and the promote just and equitable principles of it appears to the Commission that such Commission. trade, to foster cooperation and action is necessary or appropriate in the The Pilot Report for the SPY Pilot coordination with persons engaged in public interest, for the protection of Program is not due until on or before facilitating transactions in securities, to investors, or otherwise in furtherance of January 5, 2014. However, because not remove impediments to and perfect the the purposes of the Act. If the all self-regulatory organizations mechanisms of a free and open market Commission takes such action, the (‘‘SROs’’) have adopted similar rules and a national market system and, in Commission shall institute proceedings eliminating position and exercise limits general, to protect investors and the to determine whether the proposed rule for SPY options and because market public interest. should be approved or disapproved. participants that are members of such Specifically, the Exchange believes SROs are required to comply with the that extending the SPY Pilot Program IV. Solicitation of Comments more restrictive SPY option position promotes just and equitable principles Interested persons are invited to and exercise limits, no market of trade by permitting market submit written data, views, and participants have availed themselves of participants, including market makers, arguments concerning the foregoing, the SPY Pilot Program. As a result, there institutional investors and retail including whether the proposed rule is not sufficient data to compile a investors, to establish greater positions change is consistent with the Act. meaningful Pilot Report at this time to when pursuing their investment goals Comments may be submitted by any of file with this current extension request. and needs. the following methods: The Exchange believes that it is Electronic Comments appropriate to extend the SPY Pilot B. Self-Regulatory Organization’s Program for an additional thirteen Statement on Burden on Competition • Use the Commission’s Internet months to provide time for other SROs The Exchange does not believe that comment form (http://www.sec.gov/ to adopt similar pilot programs that the proposed rule change will impose rules/sro.shtml); or • eliminate positions and exercise limits any burden on competition that is not Send an email to rule-comments@ for SPY options. In that event (and in a necessary or appropriate in furtherance sec.gov. Please include File Number SR– year’s time), the Exchange will be able of the purposes of the Act. The MIAX–2013–53 on the subject line. to either extend the SPY Pilot Program, proposed rule change is not designed to Paper Comments adopt the SPY Pilot Program on a address any aspect of competition, • permanent basis, or terminate the SPY whether between the Exchange and its Send paper comments in triplicate Pilot Program. competitors, or among market to Elizabeth M. Murphy, Secretary, The Exchange represents that the Pilot participants. Instead, the proposed rule Securities and Exchange Commission, Report would be submitted within thirty change is designed to allow the SPY 100 F Street NE., Washington, DC (30) days of the end of the first twelve Pilot Program to continue while other 20549–1090. months of the extended SPY Pilot SROs adopt similar provisions. All submissions should refer to File Program time period and would cover Number SR–MIAX–2013–53. This file C. Self-Regulatory Organization’s number should be included on the the twelve months that just ended. The Statement on Comments on the Pilot Report will compare the impact of subject line if email is used. To help the Proposed Rule Change Received From Commission process and review your the pilot program, if any, on the Members, Participants, or Others volumes of SPY options and the comments more efficiently, please use volatility in the price of the underlying Written comments were neither only one method. The Commission will SPY contract, particularly at expiration. solicited nor received. post all comments on the Commission’s The Pilot Report also will detail the size III. Date of Effectiveness of the Internet Web site (http://www.sec.gov/ and different types of strategies Proposed Rule Change and Timing for rules/sro.shtml). Copies of the employed with respect to positions Commission Action submission, all subsequent established in SPY options; note amendments, all written statements Because the foregoing proposed rule whether any problems, in the with respect to the proposed rule change does not: (i) Significantly affect underlying SPY ETF or otherwise, arose change that are filed with the the protection of investors or the public as a result of the no-limit approach; and Commission, and all written interest; (ii) impose any significant include any other information that may communications relating to the burden on competition; and (iii) become proposed rule change between the be useful in evaluating the effectiveness operative for 30 days after the date of of the pilot program. In preparing the Commission and any person, other than the filing, or such shorter time as the those that may be withheld from the Pilot Report, the Exchange will utilize Commission may designate, it has various data elements such as volume public in accordance with the become effective pursuant to 19(b)(3)(A) provisions of 5 U.S.C. 552, will be and open interest. In addition the 5 6 of the Act and Rule 19b–4(f)(6) available for Web site viewing and Exchange would make available to thereunder. Commission staff data elements relating printing in the Commission’s Public Reference Room, 100 F Street NE., to the effectiveness of the SPY Pilot 4 15 U.S.C. 78f(b)(5). Washington, DC 20549, on official Program. 5 15 U.S.C. 78s(b)(3)(A). business days between the hours of 2. Statutory Basis 6 17 CFR 240.19b–4(f)(6). In addition, Rule 19b– 4(f)(6) requires a self-regulatory organization to give 10:00 a.m. and 3:00 p.m. Copies of the The Exchange believes that its the Commission written notice of its intent to file filing also will be available for proposed rule change is consistent with the proposed rule change at least five business days inspection and copying at the principal 3 prior to the date of filing of the proposed rule Section 6(b) of the Act in general, and change, or such shorter time as designated by the office of the Exchange. All comments Commission. The Exchange has satisfied this received will be posted without change; 3 15 U.S.C. 78f(b). requirement. the Commission does not edit personal

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identifying information from any comments it received on the delivered to the Member Firm that submissions. You should submit only proposed rule change. The text of these submits the order to the Exchange. information that you wish to make statements may be examined at the available publicly. All submissions places specified in Item IV below. The Percentage Thresholds of Per should refer to File Number SR–MIAX– National Customer Volume in Exchange has prepared summaries, set Multiply-Listed Options Classes Contract 2013–53 and should be submitted on or forth in sections A, B, and C below, of Listed on MIAX (Monthly) Credit before January 2, 2014. For the the most significant aspects of such Commission, by the Division of Trading statements. 0.00%–0.25% ...... $0.00 and Markets, pursuant to delegated Above 0.25%–0.35% ...... $0.10 authority.7 A. Self-Regulatory Organization’s Above 0.35%–0.75% ...... $0.15 Statement of the Purpose of, and Above 0.75%–1.50% ...... $0.17 Elizabeth Murphy, Statutory Basis for, the Proposed Rule Above 1.50% ...... $0.18 Secretary. Change [FR Doc. 2013–29618 Filed 12–11–13; 8:45 am] The Exchange will aggregate the BILLING CODE 8011–01–P 1. Purpose contracts resulting from Priority Customer orders transmitted and The Exchange proposes to modify its executed electronically on the Exchange SECURITIES AND EXCHANGE current Priority Customer Rebate from affiliated Members for purposes of COMMISSION Program (the ‘‘Program’’) to (i) lower the the thresholds above, provided there is volume thresholds of the four highest at least 75% common ownership [Release No. 34–71009; File No. SR–MIAX– volume tiers; and (ii) increase the per between the firms as reflected on each 2013–56] contract credit for the three highest firm’s Form BD, Schedule A. In the volume tiers. The new terms of the Self-Regulatory Organizations; Miami event of a MIAX System outage or other Program will be implemented for a International Securities Exchange LLC; interruption of electronic trading on period beginning December 1, 2013 and Notice of Filing and Immediate MIAX, the Exchange will adjust the ending December 31, 2013.3 The Effectiveness of a Proposed Rule national customer volume in multiply- Program currently applies to the period Change To Amend the MIAX Fee listed options for the duration of the beginning July 1, 2013 and ending Schedule outage. A Member may request to November 30, 2013.4 The Program is receive its credit under the Priority December 6, 2013. based on the substantially similar fees of Customer Rebate Program as a separate Pursuant to the provisions of Section another competing options exchange.5 direct payment. 19(b)(1) of the Securities Exchange Act Under the Program, the Exchange shall In addition, the rebate payments will of 1934 (‘‘Act’’) 1 and Rule 19b–4 credit each Member the per contract be calculated from the first executed thereunder,2 notice is hereby given that amount set forth in the table below contract at the applicable threshold per on November 29, 2013, Miami resulting from each Priority Customer 6 contract credit with the rebate payments International Securities Exchange LLC order transmitted by that Member which made at the highest achieved volume (‘‘MIAX’’ or ‘‘Exchange’’) filed with the is executed on the Exchange in all tier for each contract traded in that Securities and Exchange Commission multiply-listed option classes month. For example, if Member Firm (‘‘Commission’’) a proposed rule change (excluding mini-options and executions XYZ, Inc. (‘‘XYZ’’) has enough Priority as described in Items I, II, and III below, related to contracts that are routed to Customer contracts to achieve 2.5% of which Items have been prepared by the one or more exchanges in connection the national customer volume in Exchange. The Commission is with the Options Order Protection and multiply-listed option contracts during publishing this notice to solicit Locked/Crossed Market Plan referenced the month of October, XYZ will receive comments on the proposed rule change in Rule 1400), provided the Member a credit of $0.18 for each Priority from interested persons. meets certain volume thresholds in a Customer contract executed in the I. Self-Regulatory Organization’s month as described below. The volume month of October [sic]. The purpose of the Program is to Statement of the Terms of Substance of thresholds are calculated based on the encourage Members to direct greater the Proposed Rule Change customer average daily volume over the course of the month. Volume will be Priority Customer trade volume to the The Exchange is filing a proposal to recorded for and credits will be Exchange. Increased Priority Customer amend its Fee Schedule. volume will provide for greater The text of the proposed rule change 3 The Exchange notes that at the end of the liquidity, which benefits all market is available on the Exchange’s Web site period, the Program will expire unless the Exchange participants. The practice of at http://www.miaxoptions.com/filter/ files another 19b-4 Rule Filing to amend its fees. incentivizing increased retail customer _ 4 wotitle/rule filing, at MIAX’s principal See Securities Exchange Act Release Nos. 70769 order flow in order to attract office, and at the Commission’s Public (October 29, 2013), 78 FR 66094 (November 4, 2013); 70523 (September 26, 2013), 78 FR 60966 professional liquidity providers Reference Room. (October 2, 2013) (SR–MIAX–2013–47); 69947 (July (Market-Makers) is, and has been, II. Self-Regulatory Organization’s 9, 2013), 78 FR 42138 (July 15, 2013) (SR–MIAX– commonly practiced in the options 2013–31). markets. As such, marketing fee Statement of the Purpose of, and 5 See Chicago Board Options Exchange, 7 Statutory Basis for, the Proposed Rule Incorporated (‘‘CBOE’’) Fees Schedule, p. 4. See programs, and customer posting 8 Change also Securities Exchange Act Release Nos. 66054 incentive programs, are based on (December 23, 2011), 76 FR 82332 (December 30, attracting public customer order flow. In its filing with the Commission, the 2011) (SR–CBOE–2011–120); 68887 (February 8, The Program similarly intends to attract Exchange included statements 2013), 78 FR 10647 (February 14, 2013) (SR–CBOE– Priority Customer order flow, which concerning the purpose of and basis for 2013–017). the proposed rule change and discussed 6 The term ‘‘Priority Customer’’ means a person or entity that (i) is not a broker or dealer in 7 See MIAX Fee Schedule, Section 1(b). securities, and (ii) does not place more than 390 8 See NYSE Arca, Inc. Fees Schedule, page 4 7 17 CFR 200.30–3(a)(12). orders in listed options per day on average during (section titled ‘‘Customer Monthly Posting Credit 1 15 U.S.C. 78s(b)(1). a calendar month for its own beneficial accounts(s). Tiers and Qualifications for Executions in Penny 2 17 CFR 240.19b–4. See MIAX Rule 100. Pilot Issues’’).

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will increase liquidity, thereby same as for standard options. This, trading opportunities and tighter providing greater trading opportunities coupled with the lower per-contract spreads. Similarly, offering increasing and tighter spreads for other market transaction fees charged to other market credits for executing higher percentages participants and causing a participants, makes it impractical to of total national customer volume corresponding increase in order flow offer Members a credit for Priority (increased credit rates at increased from such other market participants. Customer mini-option volume that they volume tiers) is equitable and not The specific volume thresholds of the transact. Providing rebates to Priority unfairly discriminatory because such Program’s tiers were set based upon Customer executions that occur on other increased rates and tiers encourage business determinations and an analysis trading venues would be inconsistent Members to direct increased amounts of of current volume levels. The volume with the proposal. Therefore, routed Priority Customer contracts to the thresholds are intended to incentivize away volume is excluded from the Exchange. The resulting increased firms that route some Priority Customer Program in order to promote the volume and liquidity will benefit those orders to the Exchange to increase the underlying goal of the proposal, which Members who receive the lower tier number of orders that are sent to the is to increase liquidity and execution levels, or do not qualify for the Program Exchange to achieve the next threshold volume on the Exchange. at all, by providing more trading and to incent new participants to send The credits paid out as part of the opportunities and tighter spreads. Priority Customer orders as well. program will be drawn from the general Limiting the Program to multiply- Increasing the number of orders sent to revenues of the Exchange.11 The listed options classes listed on MIAX is the Exchange will in turn provide Exchange calculates volume thresholds reasonable because those parties trading tighter and more liquid markets, and on a monthly basis. heavily in multiply-listed classes will therefore attract more business overall. The proposed changes will become now begin to receive a credit for such Similarly, the different credit rates at operative on December 1, 2013. trading, and is equitable and not unfairly discriminatory because the the different tier levels were based on an 2. Statutory Basis analysis of revenue and volume levels Exchange does not trade any singly- and are intended to provide increasing The Exchange believes that its listed products at this time. If at such ‘‘rewards’’ for increasing the volume of proposal to amend its fee schedule is time the Exchange develops proprietary 12 trades sent to the Exchange. The specific consistent with Section 6(b) of the Act products, the Exchange anticipates amounts of the tiers and rates were set in general, and furthers the objectives of having to devote a lot of resources to 13 in order to encourage suppliers of Section 6(b)(4) of the Act in develop them, and therefore would need Priority Customer order flow to reach particular, in that it is an equitable to retain funds collected in order to for higher tiers. allocation of reasonable fees and other recoup those expenditures. The Exchange proposes limiting the charges among Exchange members. The Exchange believes that the B. Self-Regulatory Organization’s Program to multiply-listed options Statement on Burden on Competition classes on MIAX because MIAX does proposed Priority Customer Rebate not compete with other exchanges for Program is fair, equitable and not MIAX does not believe that the order flow in the proprietary, singly- unreasonably discriminatory. The proposed rule change will impose any listed products.9 In addition, the Program is reasonably designed because burden on competition not necessary or Exchange does not trade any singly- it will incent providers of Priority appropriate in furtherance of the purposes of the Act. The Exchange listed products at this time, but may Customer order flow to send that believes that the proposed change develop such products in the future. If Priority Customer order flow to the would increase both intermarket and at such time the Exchange develops Exchange in order to receive a credit in intramarket competition by incenting proprietary products, the Exchange a manner that enables the Exchange to Members to direct their Priority anticipates having to devote a lot of improve its overall competitiveness and Customer orders to the Exchange, which resources to develop them, and strengthen its market quality for all will enhance the quality of quoting and therefore would need to retain funds market participants. The proposed increase the volume of contracts traded collected in order to recoup those rebate program is fair and equitable and here. To the extent that there is expenditures. not unreasonably discriminatory additional competitive burden on non- The Exchange proposes excluding because it will apply equally to all Priority Customers, the Exchange mini-options and executions related to Priority Customer orders. All similarly believes that this is appropriate because contracts that are routed to one or more situated Priority Customer orders are the rebate program should incent exchanges in connection with the subject to the same rebate schedule, and Members to direct additional order flow Options Order Protection and Locked/ access to the Exchange is offered on to the Exchange and thus provide Crossed Market Plan referenced in terms that are not unfairly additional liquidity that enhances the Exchange Rule 1400 from the Program. discriminatory. In addition, the Program quality of its markets and increases the The Exchange notes these exclusions are is equitable and not unfairly volume of contracts traded here. To the nearly identical to the ones made by discriminatory because, while only 10 Priority Customer order flow qualifies extent that this purpose is achieved, all CBOE. Mini-options contracts are the Exchange’s market participants excluded from the Program because the for the Program, an increase in Priority Customer order flow will bring greater should benefit from the improved cost to the Exchange to process quotes, market liquidity. Enhanced market orders and trades in mini-options is the volume and liquidity, which benefit all market participants by providing more quality and increased transaction volume that results from the anticipated 9 If a multiply-listed options class is not listed on MIAX, then the trading volume in that options class 11 Despite providing credits under the Program, increase in order flow directed to the will be omitted from the calculation of national the Exchange represents that it will continue to Exchange will benefit all market customer volume in multiply-listed options classes. have adequate resources to fund its regulatory participants and improve competition 10 See CBOE Fee Schedule, page 4. CBOE also program and fulfill its responsibilities as a self- on the Exchange. The Exchange notes excludes QCC trades from their rebate program. regulatory organization while the Program will be CBOE excluded QCC trades because a bulk of those in effect. that it operates in a highly competitive trades on CBOE are facilitation orders which are 12 15 U.S.C. 78f(b). market in which market participants can charged at the $0.00 fee rate on their exchange. 13 15 U.S.C. 78f(b)(4). readily favor competing venues if they

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deem fee levels at a particular venue to proposed rule change, the Commission submissions. You should submit only be excessive. In such an environment, summarily may temporarily suspend information that you wish to make the Exchange must continually adjust its such rule change if it appears to the available publicly. All submissions fees to remain competitive with other Commission that such action is should refer to File Number SR–MIAX– exchanges and to attract order flow to necessary or appropriate in the public 2013–56 and should be submitted on or the Exchange. The Exchange believes interest, for the protection of investors, before January 2, 2014. that the proposed rule change reflects or otherwise in furtherance of the For the Commission, by the Division of this competitive environment because it purposes of the Act. If the Commission Trading and Markets, pursuant to delegated reduces the Exchange’s fees in a manner takes such action, the Commission shall authority.15 that encourages market participants to institute proceedings to determine Kevin M. O’Neill, direct their customer order flow, to whether the proposed rule should be Deputy Secretary. provide liquidity, and to attract approved or disapproved. [FR Doc. 2013–29608 Filed 12–11–13; 8:45 am] additional transaction volume to the Exchange. Given the robust competition IV. Solicitation of Comments BILLING CODE 8011–01–P for volume among options markets, Interested persons are invited to many of which offer the same products, submit written data, views, and SECURITIES AND EXCHANGE implementing a volume based customer arguments concerning the foregoing, COMMISSION rebate program to attract order flow like including whether the proposed rule the one being proposed in this filing is change is consistent with the Act. [Release No. 34–71017; File No. SR– consistent with the above-mentioned Comments may be submitted by any of NASDAQ–2013–134] goals of the Act. This is especially true the following methods: Self-Regulatory Organizations; The for the smaller options markets, such as Electronic Comments NASDAQ Stock Market LLC; Notice of MIAX, which is competing for volume Filing and Immediate Effectiveness of with much larger exchanges that • Use the Commission’s Internet a Proposed Rule Change to Modify the dominate the options trading industry. comment form (http://www.sec.gov/ Listing of Additional Shares Fees As a new exchange, MIAX has a rules/sro.shtml); or Payable by Non-U.S. Companies nominal percentage of the average daily • Send an email to rule-comments@ trading volume in options, so it is sec.gov. Please include File Number December 6, 2013. unlikely that the customer rebate SR–MIAX–2013–56 on the subject line. Pursuant to Section 19(b)(1) of the program could cause any competitive Paper Comments Securities Exchange Act of 1934 harm to the options market or to market 1 2 • Send paper comments in triplicate (‘‘Act’’), and Rule 19b–4 thereunder, participants. Rather, the customer rebate notice is hereby given that on November program is a modest attempt by a small to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 29, 2013, The NASDAQ Stock Market options market to attract order volume LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed away from larger competitors by 100 F Street NE., Washington, DC 20549–1090. with the Securities and Exchange adopting an innovative pricing strategy. Commission (‘‘SEC’’ or ‘‘Commission’’) The Exchange notes that if the rebate All submissions should refer to File Number SR–MIAX–2013–56. This file the proposed rule change as described program resulted in a modest percentage in Items I, II, and III below, which Items increase in the average daily trading number should be included on the subject line if email is used. To help the have been prepared by NASDAQ. The volume in options executing on MIAX, Commission is publishing this notice to while such percentage would represent Commission process and review your comments more efficiently, please use solicit comments on the proposed rule a large volume increase for MIAX, it change from interested persons. would represent a minimal reduction in only one method. The Commission will volume of its larger competitors in the post all comments on the Commission’s I. Self-Regulatory Organization’s industry. The Exchange believes that the Internet Web site (http://www.sec.gov/ Statement of the Terms of Substance of proposal will help further competition, rules/sro.shtml). the Proposed Rule Change Copies of the submission, all because market participants will have NASDAQ is proposing to modify the subsequent amendments, all written yet another additional option in listing of additional shares fees payable statements with respect to the proposed determining where to execute orders by non-U.S. companies. rule change that are filed with the and post liquidity if they factor the The text of the proposed rule change Commission, and all written benefits of a customer rebate program is available on the Exchange’s Web site communications relating to the into the determination. at http://nasdaq.cchwallstreet.com, at proposed rule change between the the principal office of the Exchange, and C. Self-Regulatory Organization’s Commission and any person, other than at the Commission’s Public Reference Statement on Comments on the those that may be withheld from the Room. Proposed Rule Change Received From public in accordance with the Members, Participants, or Others provisions of 5 U.S.C. 552, will be II. Self-Regulatory Organization’s Written comments were neither available for Web site viewing and Statement of the Purpose of, and solicited nor received. printing in the Commission’s Public Statutory Basis for, the Proposed Rule Reference Room, 100 F Street NE., Change III. Date of Effectiveness of the Washington, DC 20549, on official In its filing with the Commission, the Proposed Rule Change and Timing for business days between the hours of Exchange included statements Commission Action 10:00 a.m. and 3:00 p.m. Copies of the concerning the purpose of and basis for The foregoing rule change has become filing also will be available for the proposed rule change. The text of effective pursuant to Section inspection and copying at the principal these statements may be examined at 19(b)(3)(A)(ii) of the Act.14 At any time office of the Exchange. All comments within 60 days of the filing of the received will be posted without change; 15 17 CFR 200.30–3(a)(12). the Commission does not edit personal 1 15 U.S.C. 78s(b)(1). 14 15 U.S.C. 78s(b)(3)(A)(ii). identifying information from 2 17 CFR 240.19b–4.

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the places specified in Item IV below. reports as a domestic company 7 and is 2014.11 Following effectiveness, if a The Exchange has prepared summaries, typically not primarily traded on company ceases to be a Foreign Private set forth in sections A, B, and C below, another marketplace. As such, NASDAQ Issuer, it will be assessed the listing of of the most significant aspects of such believes it is appropriate to treat these additional shares fee based on its new statements. companies the same as domestic status effective with the start of its next companies for purposes of the listing of fiscal year, when it is also required to A. Self-Regulatory Organization’s additional shares fee because they are start filing Forms 10–Q and 10–K.12 If a Statement of the Purpose of, and subject to the same rules and generally company becomes a Foreign Private Statutory Basis for, the Proposed Rule trade primarily on NASDAQ. Issuer, it similarly will become subject Change Second, NASDAQ proposes to to the fee applicable to Foreign Private 1. Purpose increase the listing of additional shares Issuers at the beginning of its next fiscal NASDAQ’s listing of additional shares fee applicable to Foreign Private Issuers year. from $5,000 to $7,500 per year effective fees are designed, in part, to offset the 2. Statutory Basis costs of NASDAQ’s regulatory program January 1, 2014. As under the current associated with oversight of listed rule, no fee would be charged for NASDAQ believes that the proposed companies, including the review of issuances of up to 49,999 shares per rule change is consistent with the share issuances for compliance with the year. NASDAQ believes this change provisions of Section 6 of the Act,13 in shareholder approval and voting rights would reduce the current disparity in general and with Sections 6(b)(4) and (5) rules, the regulatory review of entities the listing of additional shares fees paid of the Act,14 in particular, in that it and individuals that purchase a by Foreign Private Issuers, which also provides for the equitable allocation of significant interest in a listed company benefit from NASDAQ’s regulatory reasonable dues, fees, and other charges in a transaction with the company, and program, and other companies, while among its members, issuers and other NASDAQ’s efforts to increase the still recognizing that those Foreign persons using its facilities, and does not transparency of interpretations of its Private Issuers generally also trade on unfairly discriminate between rules. Currently, the applicable fees another marketplace and are subject to customers, issuers, brokers or dealers. an exemption from many of NASDAQ’s depend on whether the company is a NASDAQ believes that the proposed domestic or non-U.S. company. corporate governance rules. While the proposed $7,500 per year fee would fees are reasonable and not unfairly Domestic companies pay a fee of $0.01 discriminatory because they will better per share, subject to a minimum exceed the $5,000 minimum fee applicable to companies that are not allocate costs of NASDAQ’s regulatory quarterly fee of $5,000, for any amount program across the listed companies of shares in excess of 49,999 shares Foreign Private Issuers, NASDAQ believes that this higher fee is that benefit from that program. issued during a quarter, and a maximum NASDAQ believes that the proposed fee of $65,000 per year.3 In contrast, appropriate given that fee [sic] for Foreign Private Issuers is assessed $2,500 increase in the listing of non-U.S. companies pay a flat fee of additional shares fee applicable to $5,000 for any amount of shares in annually, instead of quarterly, and that Foreign Private Issuers are not subject to Foreign Private Issuers is reasonable and excess of 49,999 shares issued during a an equitable allocation of a portion of year.4 There is no fee for issuances of up per share fees, which can range as high as $65,000 per year.8 the costs of NASDAQ’s regulatory to 49,999 shares per quarter for program, which benefits these domestic companies and up to 49,999 NASDAQ will implement these changes on January 1, 2014.9 A foreign companies. While the proposed $7,500 shares per year for non-U.S. companies. per year fee would exceed the $5,000 NASDAQ proposes to make two company that is not a Foreign Private Issuer will first owe the $0.01 per share minimum quarterly fee applicable to changes to the listing of additional companies that are not Foreign Private shares fees payable by non-U.S. listing of additional shares fee for the change in shares outstanding during its Issuers, NASDAQ believes that this companies. First, NASDAQ proposes to higher fee is appropriate given that modify the rule such that a foreign first fiscal quarter beginning on or after January 1, 2014.10 A Foreign Private Foreign Private Issuers are not subject to company that is not a Foreign Private per share fees, which can range as high Issuer 5 pays the same listing of Issuer will be subject to the new $7,500 fee for the change in its shares as $65,000 per year. In addition, additional shares fees as a domestic continuing a separate, lower fee for company. For purposes of NASDAQ’s outstanding starting with its first fiscal year beginning on or after January 1, Foreign Private Issuers remains a other rules, a foreign company that is reasonable and equitable allocation of

not a Foreign Private Issuer is treated 7 fees because Foreign Private Issuers 6 Under SEC Rule 13a–13(b)(2), 17 CFR 240.13a– the same as a domestic company. 13(b)(2), a Foreign Private Issuer is not required to generally trade on another marketplace Further, unlike a Foreign Private Issuer, file quarterly reports with the Commission. and have exemptions available to many a foreign company that is not a Foreign 8 NASDAQ also proposes to make non- of NASDAQ’s governance rules, Private Issuer files the same quarterly substantive changes to replace the term ‘‘issuer’’ with the defined term ‘‘Company’’ throughout the rules and to improve readability of the rule text. 11 A Foreign Private Issuer with a December 31st 3 Rules 5910(b)(1) and 5920(b)(1). 9 Until January 1, 2014, the online NASDAQ rule fiscal year will first pay the new fee for shares 4 Rules 5910(b)(2) and 5920(b)(2). book will reflect the currently effective fees with a issued between January 1, 2014 and December 31, 5 ‘‘Foreign Private Issuer’’ is defined in Rule 3b– note indicating that this fee change is pending and 2014 and will be billed for those share issuances 4 under the Act, 17 CFR 240.3b–4. See Rule will become effective on January 1, 2014. The based on the Form 20–F filed in 2015. 5005(a)(18). A foreign company that is not a Foreign online NASDAQ rule book will also contain a link 12 A foreign company is required to determine Private Issuer would be considered a ‘‘foreign to the text of the revised rule. whether it is a Foreign Private Issuer on an annual issuer’’ under Rule 3b–4. A foreign issuer is also 10 For example, a company with a December 31st basis as of the end of its second fiscal quarter. If defined to include a foreign government that issues year end would first owe the fee under Rule the company determines that it is no longer a securities. 5910(b)(1) or Rule 5920(b)(1) for the change in its Foreign Private Issuer, it must transition to 6 For example, while a Foreign Private Issuer can shares outstanding during its first quarter, as reflect domestic reporting status beginning on the first day rely on an exemption from most of NASDAQ’s [sic] in the difference between the shares of the next fiscal year. SEC Rule 3b–4(e), 17 CFR corporate governance requirements under Rule outstanding reported on its Form 10–K for the year 240.3b–4(e). 5615(a)(3), a foreign company that is not a Foreign ended December 31, 2013, and its Form 10–Q for 13 15 U.S.C. 78f. Private Issuer is not eligible for that exemption. the quarter ended March 31, 2014. 14 15 U.S.C. 78f(b)(4) and (5).

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including the shareholder approval and C. Self-Regulatory Organization’s provisions of 5 U.S.C. 552, will be voting rights rules. Statement on Comments on the available for Web site viewing and NASDAQ also believes that it is Proposed Rule Change Received From printing in the Commission’s Public reasonable and not unfairly Members, Participants, or Others Reference Room, 100 F Street NE., discriminatory to charge a foreign No written comments were either Washington, DC 20549, on official company that is not a Foreign Private solicited or received. business days between the hours of Issuer the same fee as a domestic 10:00 a.m. and 3:00 p.m. Copies of the company. The listing situation of a III. Date of Effectiveness of the filing also will be available for foreign company that is not a Foreign Proposed Rule Change and Timing for inspection and copying at the principal Private Issuer is more similar to a Commission Action office of the Exchange. All comments domestic company than it is to a The foregoing rule change has become received will be posted without change; Foreign Private Issuer in that a Foreign effective pursuant to Section 19(b)(3)(A) the Commission does not edit personal Private Issuer often will trade on of the Act 17 and paragraph (f) of Rule identifying information from another marketplace and is subject to 19b–4 thereunder.18 At any time within submissions. You should submit only exemptions from many of NASDAQ’s 60 days of the filing of the proposed rule information that you wish to make corporate governance rules. On the change, the Commission summarily may available publicly. All submissions other hand foreign companies that are temporarily suspend such rule change if should refer to File Number SR– not Foreign Private Issuers, like it appears to the Commission that such NASDAQ–2013–134 and should be domestic companies, do not typically action is necessary or appropriate in the submitted on or before January 2, 2014 trade on other marketplaces and are not public interest, for the protection of For the Commission, by the Division of eligible to exemptions from the investors, or otherwise in furtherance of Trading and Markets, pursuant to delegated governance requirements. Similarly, a the purposes of the Act. authority.19 Elizabeth M. Murphy, Foreign Private Issuer receives different IV. Solicitation of Comments treatment under the Commission’s rules Secretary. than a foreign company that is not a Interested persons are invited to [FR Doc. 2013–29619 Filed 12–11–13; 8:45 am] 15 submit written data, views, and Foreign Private Issuer. BILLING CODE 8011–01–P Finally, NASDAQ believes that the arguments concerning the foregoing, proposed fees are consistent with the including whether the proposed rule investor protection objectives of Section change is consistent with the Act. SECURITIES AND EXCHANGE 6(b)(5) of the Act 16 in that they are Comments may be submitted by any of COMMISSION the following methods: designed to promote just and equitable [Release No. 34–71019; File No. SR– principles of trade, to remove Electronic Comments BSECC–2013–001] impediments to a free and open market • Use the Commission’s Internet Self-Regulatory Organizations; Boston and national market system, and in comment form (http://www.sec.gov/ Stock Exchange Clearing Corporation; general to protect investors and the rules/sro.shtml; or public interest. Specifically, the fees are • Send an email to rule-comments@ Notice of Filing of Proposed Rule designed to ensure that there are sec.gov. Please include File Number SR– Change To Amend the Restated adequate resources for NASDAQ’s NASDAQ–2013–134 on the subject line. Certificate of Incorporation and By- listing compliance program, which Laws of The NASDAQ OMX Group, Inc. helps to assure that listing standards are Paper Comments December 6, 2013. properly enforced and investors are • Send paper comments in triplicate protected. Pursuant to Section 19(b)(1) of the to Elizabeth M. Murphy, Secretary, Securities Exchange Act of 1934 B. Self-Regulatory Organization’s Securities and Exchange Commission, (‘‘Act’’) 1, and Rule 19b-4 thereunder,2 Statement on Burden on Competition 100 F Street NE., Washington, DC notice is hereby given that on November 20549–1090. NASDAQ does not believe that the 27, 2013, the Boston Stock Exchange All submissions should refer to File Clearing Corporation (‘‘BSECC’’) filed proposed rule change will result in any Number SR–NASDAQ–2013–134. This burden on competition that is not with the Securities and Exchange file number should be included on the Commission (‘‘SEC’’ or ‘‘Commission’’) necessary or appropriate in furtherance subject line if email is used. To help the of the purposes of the Act, as amended. the proposed rule change as described Commission process and review your in Items I, II and III, below, which Items The market for listing services is comments more efficiently, please use extremely competitive and listed have been prepared by BSECC. The only one method. The Commission will Commission is publishing this notice to companies may freely choose alternative post all comments on the Commission’s venues based on the aggregate fees solicit comments on the proposed rule Internet Web site (http://www.sec.gov/ change from interested persons. assessed, and the value provided by rules/sro.shtml). Copies of the each listing. This rule proposal does not submission, all subsequent I. Self-Regulatory Organization’s burden competition with other listing amendments, all written statements Statement of the Terms of Substance of venues, which are similarly free to set with respect to the proposed rule the Proposed Rule Change their fees. For these reasons, NASDAQ change that are filed with the BSECC is filing this proposed rule does not believe that the proposed rule Commission, and all written change with respect to amendments of change will result in any burden on communications relating to the the Restated Certificate of Incorporation competition for listings. proposed rule change between the (the ‘‘Charter’’) and By-Laws (the ‘‘By- Commission and any person, other than Laws’’) of its parent corporation, The 15 For example, a Foreign Private Issuer is not those that may be withheld from the NASDAQ OMX Group, Inc. (‘‘NASDAQ required to file quarterly reports and is exempt from the proxy rules. See SEC Rules 13a–13(b)(2), 17 CFR public in accordance with the 240.13a–13(b)(2), and 3a12–3(b), 17 CFR 240.3a12– 19 17 CFR 200.30–3(a)(12). 3(b). 17 15 U.S.C. 78s(b)(3)(A). 1 15 U.S.C. 78s(b)(1). 16 15 U.S.C. 78f(b)(5). 18 17 CFR 240.19b–4(f). 2 17 CFR 240.19b-4.

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OMX’’ or the ‘‘Company’’). The Nominating & Governance Committee Seventh,6 Article Eighth,7 or Article proposed amendments will be recommended to the Board, and the Ninth of the Charter.8 implemented on a date designated by Board approved, certain changes to the In each of the three provisions NASDAQ OMX following approval by Charter and By-Laws to address the two described above, NASDAQ OMX the Commission. The text of the stockholder proposals and make other proposes to remove the requirement for proposed rule change is available on changes. NASDAQ OMX now proposes an affirmative vote of at least 662⁄3% of BSECC’s Web site at http:// to make these changes, which are the total voting power of the Voting nasdaqomxbx.cchwallstreet.com, at the described further below. Stock and replace it with a voting principal office of BSECC, and at the standard requiring the affirmative vote Commission’s Public Reference Room. (ii) Proposed Amendments to Charter of a majority of the outstanding Voting Stock. In developing this proposal, II. Self-Regulatory Organization’s (a) Removal and Replacement of NASDAQ OMX considered the relative Statement of the Purpose of, and Supermajority Voting Requirements weight of the arguments for and against Statutory Basis for, the Proposed Rule To respond to feedback from its supermajority voting requirements. Change stockholders, NASDAQ OMX proposes Historically, supermajority voting In its filing with the Commission, to replace each supermajority voting requirements have protected BSECC included statements concerning requirement in the Charter with a corporations against coercive takeover the purpose of and basis for the ‘‘majority of outstanding shares’’ voting tactics by requiring broad stockholder proposed rule change and discussed any requirement. The Charter currently support for certain types of transactions comments it received on the proposed includes the following three or governance changes. However, in rule change. The text of these statements supermajority voting requirements. recent years, corporate governance may be examined at the places specified standards have evolved, and many • Removal of Directors. Article Fifth, in Item IV below. BSECC has prepared stockholder rights advocates argue that summaries, set forth in sections A, B, Paragraph D provides that, except for supermajority voting requirements limit and C below, of the most significant directors elected by the holders of any stockholders’ participation in corporate aspects of such statements. series of preferred stock, any director, or governance. NASDAQ OMX believes the entire Board, may be removed from A. Self-Regulatory Organization’s that while it is important to protect office at any time, but only by the against coercive takeover tactics, it is Statement of the Purpose of, and 2 affirmative vote of at least 66 ⁄3% of the also critically important to obtain Statutory Basis for, the Proposed Rule total voting power of the outstanding Change stockholder input and respond to shares of NASDAQ OMX’s capital stock stockholder concerns about corporate 1. Purpose entitled to vote generally in the election governance. NASDAQ OMX is proposing to make of directors (the ‘‘Voting Stock’’), voting NASDAQ OMX believes that the certain amendments to its Charter and together as a single class. proposed ‘‘majority of outstanding By-Laws. • Adoption, Alteration, Amendment shares’’ voting requirement will and Repeal of By-Laws. Article Eighth, continue to provide some protection (i) Background Paragraph A provides that the against proposals that are harmful to the At NASDAQ OMX’s 2012 annual affirmative vote of the holders of at least stockholders. While this requirement is meeting held on May 22, 2012, 662⁄3% of the total voting power of the less difficult to satisfy than a NASDAQ OMX’s stockholders outstanding Voting Stock, voting supermajority voting requirement, it is considered two proposals submitted by together as a single class, shall be more difficult to satisfy than a ‘‘majority individual stockholders. The first required in order for the stockholders to of votes cast’’ requirement, which proposal, which passed with 68% of the adopt, alter, amend or repeal any By- NASDAQ OMX considered as an votes cast, requested that NASDAQ Law. alternate option. NASDAQ OMX OMX’s Board take steps to replace each believes that a ‘‘majority of outstanding • Adoption, Alteration, Amendment supermajority voting standard in the shares’’ standard is a balanced outcome Charter and By-Laws 3 with a voting and Repeal of Certain Charter that responds to stockholder feedback standard requiring a ‘‘majority of votes Provisions. Article Ninth, Paragraph A while appropriately maintaining cast.’’ The second proposal, which did provides that the affirmative vote of the NASDAQ OMX’s defensive posture 2 not pass but received 49% of the votes holders of at least 66 ⁄3% of the voting against hostile takeovers. power of the outstanding Voting Stock, cast, requested that NASDAQ OMX’s (b) Non-Substantive Changes Board take steps to enable stockholders voting together as a single class, shall be having at least one-tenth of NASDAQ required to amend, repeal or adopt any NASDAQ OMX also proposes to OMX’s voting power to call a special provision inconsistent with paragraph C amend and restate the Charter to make meeting of stockholders. of Article Fourth,4 Article Fifth,5 Article other non-substantive changes. Following the 2012 annual meeting, Specifically, the proposal deletes the Nominating & Governance 4 Paragraph C of Article Fourth sets forth the 5% obsolete references to the following: Committee of NASDAQ OMX’s Board voting limitation, which provides that holders of • The 3.75% Series A Convertible NASDAQ OMX’s voting securities may not cast reviewed the voting results on the two votes in excess of 5% of NASDAQ OMX’s Notes due 2012 and the 3.75% Series B stockholder proposals and discussed the outstanding voting securities. To be clear, NASDAQ Convertible Notes due 2012, which are stockholder voting standards and rights OMX is not proposing any change to the 5% voting no longer outstanding, in Article Fourth, contemplated by the Charter and By- limitation itself. NASDAQ OMX only proposes that Paragraph C and Article Eleventh; any future amendment of the 5% voting limitation Laws. Following this review, the will require the approval of stockholders holding a majority of the outstanding shares, rather than 6 Article Seventh prohibits stockholder action by 3 These provisions, which are described further stockholders holding 662⁄3% of the outstanding written consent. below, require the affirmative vote of at least shares. 7 Article Eighth establishes the procedures to 662⁄3% of the total voting power of the outstanding 5 Article Fifth includes certain provisions relating adopt, alter, amend or repeal the By-Laws. shares of NASDAQ OMX’s capital stock to approve to the Board, such as Board size and director 8 Article Ninth establishes the procedures to certain actions. elections. adopt, alter, amend or repeal the Charter.

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• a voting trust agreement, which is required under Delaware law when the respond to feedback from its no longer in effect, in Article Fourth, amended and restated Charter is filed stockholders, as discussed above, Paragraph C(3)(b)(iii); with the Secretary of State of the State NASDAQ OMX proposes to delete this • ownership of NASDAQ OMX of Delaware.10 provision and replace it with language securities by the National Association of The amendment and restatement of that will allow NASDAQ OMX’s Securities Dealers, Inc., certain affiliates the Charter to incorporate these non- stockholders to call special meetings of Hellman & Friedman LLC, and certain substantive changes will simplify and after following particular procedures. affiliates of Silver Lake, none of which streamline the document. Similar to the elimination of currently own any NASDAQ OMX supermajority voting requirements, (iii) Proposed Elimination of Certificate securities, in Article Fourth, Paragraph which is discussed above, the C(6); 9 and of Designation implementation of the right of • the phase-out of the classified board NASDAQ OMX proposes to eliminate stockholders to call a special meeting structure, which was complete in 2007, its Certificate of Designation, has received recent attention from in Article Fifth, Paragraph B. Preferences and Rights of Series A investor and corporate governance In Article Fifth, Paragraph B, the Convertible Preferred Stock (the ‘‘Series advocates. These advocates argue that proposal also clarifies that the election A Convertible Preferred Stock’’), and all such a right will enable stockholders to of directors by stockholders shall occur matters set forth therein. The Series A raise and act on matters that arise at an annual or special meeting. The Convertible Preferred Stock was created between annual meetings. proposal corrects a typographical error in 2009 to facilitate the conversion of Following discussions with some of in Article Fifth, Paragraph A and certain notes into common stock.11 The its stockholders, NASDAQ OMX agrees renumbers the provisions of the Charter, Company authorized 2 million shares of that it is appropriate to allow where necessary following the other the Series A Convertible Preferred Stock stockholders who meet certain amendments. Finally, the proposal and immediately issued 1.6 million of procedural requirements to call a amends the introductory and those shares to the converting special meeting. In proposing these concluding language of the Charter to noteholders. procedural requirements, NASDAQ incorporate language that will be In 2010, following stockholder OMX’s goals are to ensure timely notice approval, all 1.6 million issued shares of of a meeting request and to gather 9 NASDAQ OMX notes that the remaining text of the Series A Convertible Preferred Stock sufficient information about the Article Fourth, Paragraph C(6) of the Charter proposing stockholder(s) and the includes an obsolete cross-reference to Section 6(b) were converted into common stock. of Article Fourth, Paragraph C in the second Since then, no shares of the Series A proposal. Among other things, this sentence, which begins ‘‘The Board, however, may Convertible Preferred Stock have been information will ensure that NASDAQ not approve an exemption under Section 6(b). . . .’’ outstanding, and the Company has no OMX is able to comply with its NASDAQ OMX cannot correct this cross-reference, disclosure and other requirements which should refer to Section 6 without further intention to issue further shares of this reference to a subsection (b), without seeking series. under applicable law and that NASDAQ further approval of its stockholders, which would As a clean-up matter, the Company OMX, its Board and its stockholders are require NASDAQ OMX to call and hold a seeks to file a certificate of elimination able to assess the proposal adequately. stockholder meeting. Generally, NASDAQ OMX The proposed procedural requirements holds stockholder meetings, which are time with the Secretary of State of the State consuming and expensive, only once or twice a of Delaware to eliminate the Series A are set forth below. year. Moreover, it is atypical of a large public Convertible Preferred Stock. Under First, proposed Section 3.2(a) company like NASDAQ OMX to submit a proposal Delaware law, a certificate of provides that special meetings of to its stockholders solely to correct a cross-reference NASDAQ OMX’s stockholders may only in its Charter. However, NASDAQ OMX believes, elimination is deemed to be an following consultation with outside counsel, that it amendment to NASDAQ OMX’s be called: (i) At any time by NASDAQ is clear, based on the drafting history of this Charter; however, since the amendment OMX’s Board pursuant to a resolution provision, that the intent of the cross-reference is is limited in scope, it does not require adopted by a majority of the total to refer to Section 6 of Article Fourth, Paragraph C number of directors NASDAQ OMX of the Charter. In other words, the second sentence the approval of NASDAQ OMX’s of Article Fourth, Paragraph C(6) should read: ‘‘The stockholders.12 would have if there were no vacancies; Board, however, may not approve an exemption and (ii) by NASDAQ OMX’s Corporate under Section 6: (i) for a registered broker or dealer (iv) Proposed Amendments to the By- Secretary following the receipt of a or an Affiliate thereof or (ii) an individual or entity Laws written request in proper form for a that is subject to a statutory disqualification under special meeting (a ‘‘Special Meeting Section 3(a)(39) of the Exchange Act.’’ Under no (a) Special Meetings of Stockholders Request’’) by one or more stockholders. circumstances will NASDAQ OMX read the Current Section 3.2 of NASDAQ obsolete cross-reference to imply that the Board Such stockholders (the ‘‘Requisite could grant an exemption to the ownership OMX’s By-Laws provides that only Holders’’) must hold of record, in the limitation in Article Fourth, Paragraph C(6) of the NASDAQ OMX may call special aggregate, at least 15 percent of Charter for a registered broker or dealer or an meetings of its stockholders.13 To Affiliate thereof, or an individual or entity that is NASDAQ OMX’s outstanding shares of subject to a statutory disqualification under Section capital stock entitled to vote on matters 10 3(a)(39) of the Exchange Act. NASDAQ OMX also See Sections 242 and 245 of the DGCL. to be brought before the special meeting notes that it is proposing amendments to Section 11 See Securities Exchange Act Release No. 60845 (October 20, 2009), 74 FR 55078 (October 26, 2009) (the ‘‘Requisite Percentage’’). Such 12.5 of the By-Laws to eliminate cross-references to 14 subsection (b) of Article Fourth, Paragraph C(6) of (SR–BX–2009–061, SR–NASDAQ–2009–087, shares must be ‘‘Net Long Shares,’’ the Charter. Finally, NASDAQ OMX notes that SR–Phlx–2009–88); see also Securities Exchange there are some differences in language between the Act Release No. 61000 (November 13, 2009), 74 FR 14 For purposes of determining Requisite Holders second sentence of Article Fourth, Paragraph C(6) 61390 (November 24, 2009) (SR–BSECC–2009–005); under proposed Section 3.2, ‘‘Net Long Shares’’ of the Charter and the second sentence of Section see also Securities Exchange Act Release No. 61001 shall be limited to the number of shares beneficially 12.5 of the By-Laws. To the extent that these (November 13, 2009), 74 FR 61391 (November 24, owned, directly or indirectly, by any stockholder or differences would cause a difference in 2009) (SR–SCCP–2009–04). beneficial owner that constitute such person’s ‘‘net interpretation, NASDAQ OMX notes, following 12 See Section 151(g) of the DGCL. long position’’ as defined in Rule 14e–4 under the consultation with outside counsel, that the Charter 13 Under Delaware law, special meetings of a Act, provided that (A) for the purposes of this language shall prevail. As soon as feasible, corporation’s stockholders may be called by the definition, references in the rule to ‘‘the date the NASDAQ OMX plans to present a proposal to the board of directors or by such persons as may be tender offer is first publicly announced or otherwise stockholders to conform this provision of the authorized by the certificate of incorporation or the made known by the bidder to the holders of the Charter to the By-Laws. bylaws. See Section 211(d) of the DGCL. Continued

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and the Requisite Holders must have determine the place, if any, date and to ensure that NASDAQ OMX is not held the shares continuously for at least time of the special meeting, and required to incur the time and expense one year as of the date of the Special NASDAQ OMX’s Corporate Secretary of calling and holding a special meeting Meeting Request. Whether shares shall call the special meeting within 120 of stockholders immediately prior to an constitute Net Long Shares shall days after the date the Special Meeting upcoming annual meeting of ultimately be decided by NASDAQ Request was delivered. However, stockholders or if a Similar Item of OMX’s Board in its reasonable NASDAQ OMX’s Board may, in lieu of business already has been presented at determination. The intent of the calling a special meeting, present an a recent stockholders’ meeting. requirement for stockholders to identical or substantially similar item of To be in proper form, a Special maintain a ‘‘net long position’’ is to business (a ‘‘Similar Item’’),15 as Meeting Request must comply with limit the ability to call a special meeting determined in good faith by NASDAQ certain requirements, as described to stockholders that have long-term OMX’s Board, for stockholder approval further below.16 NASDAQ OMX’s Board record and economic positions in at any other meeting of the stockholders will have the sole discretion to NASDAQ OMX. that is held not less than 120 days after determine whether a Special Meeting Proposed Section 3.2(a) also sets forth the delivery of the Special Meeting Request is in proper form.17 Proposed the procedures for determining whether Request. The intent of this provision is Section 3.2(d) sets forth the a special meeting has been requested by to save NASDAQ OMX the time and requirements for a Special Meeting Requisite Holders representing in expense of calling and holding a special Request to be in proper form. These aggregate at least the Requisite meeting if NASDAQ OMX intends to proposed requirements will ensure that Percentage if multiple Special Meeting hold a separate stockholders’ meeting NASDAQ OMX has sufficient Requests are delivered to NASDAQ within 120 days. In fixing the place, if information to comply with its OMX’s Corporate Secretary. Multiple any, date and time for any special disclosure requirements under requests will be considered together meeting, NASDAQ OMX’s Board may applicable law and that the Requisite only if: (i) Each Special Meeting Request consider such factors as it deems Holders maintain a sufficient ownership identifies substantially the same relevant in its business judgment, level through the date of the special purpose or purposes of the special including the nature of the matters to be meeting. Specifically, a Special Meeting meeting and substantially the same considered, the facts and circumstances Request shall: • matters proposed to be acted on at the surrounding any request for a meeting Be in writing, signed by each requested special meeting (in each case and any plan of the Board to call an Requesting Person 18 and delivered to as determined in good faith by annual meeting or a special meeting. NASDAQ OMX’s Corporate Secretary at NASDAQ OMX’s Board); and (ii) such Proposed Section 3.2(c) sets forth NASDAQ OMX’s principal executive Special Meeting Requests have been offices; certain limitations on Special Meeting • dated and delivered to NASDAQ OMX’s Requests. Specifically, a Special set forth certain information with Corporate Secretary within 60 days of Meeting Request will not be valid if: respect to (i) each person the Requesting the earliest dated Special Meeting • It relates to an item of business that Person proposes to nominate for Request. NASDAQ OMX believes these is not a proper subject for stockholder director, (ii) any business the procedures are reasonable and clear and action under applicable law; Requesting Person proposes to bring notes that they grant only limited • it is delivered during the period before the meeting and (iii) each Requesting Person; 19 and discretion to NASDAQ OMX’s Board in commencing 90 days prior to the one- • determining whether Special Meeting year anniversary of the date of the include (i) an agreement by each Requests will be considered together. immediately preceding annual meeting Requisite Holder to immediately deliver Pursuant to proposed Section 3.2(b), if and ending on the date of the next written notice to NASDAQ OMX’s a Special Meeting Request is in proper annual meeting; Corporate Secretary in the case of any form, NASDAQ OMX’s Board shall • a Similar Item was presented at any disposition, on or prior to the record meeting of stockholders held within 120 date for the special meeting, of any security to be acquired’’ shall be the date of the days prior to the date on which the shares of NASDAQ OMX’s capital stock relevant Special Meeting Request and all dates in Special Meeting Request was delivered; held of record by such Requisite Holder the one year period prior thereto, the ‘‘highest or and (ii) an acknowledgement that (1) tender offer price or stated amount of the any such disposition shall be deemed a consideration offered for the subject security’’ shall • a Similar Item is included in refer to the closing sales price of NASDAQ OMX’s NASDAQ OMX’s notice of meeting as revocation of the Special Meeting capital stock on NASDAQ on such date (or, if such an item of business to be presented at Request to the extent of such disposition date is not a trading day, the next succeeding a stockholder’s meeting that has been and (2) if, following such deemed trading day), the ‘‘person whose securities are the revocation, the Requisite Holders hold subject of the offer’’ shall refer to NASDAQ OMX, called but not yet held. a ‘‘subject security’’ shall refer to the issued and The Board may adjourn or reschedule of record, in the aggregate, less than the outstanding voting stock of NASDAQ OMX; and (B) any previously scheduled special Requisite Percentage of the voting the net long position of such stockholder shall be power of all outstanding shares of reduced by any shares as to which such person does meeting of the stockholders. NASDAQ not have the right to vote or direct the vote at the OMX believes the subject matter 16 proposed special meeting or as to which such limitations set forth in proposed Section See proposed Section 3.2(a) of the By-Laws. 17 person has entered into a derivative or other 3.2(c) are appropriate in order to comply Id. agreement, arrangement or understanding that 18 ‘‘Requesting Person’’ means (i) each Requisite hedges or transfers, in whole or in part, directly or with applicable law and to prevent Holder, (ii) the beneficial owner or beneficial indirectly, any of the economic consequences of multiple considerations of the same owners, if different, on whose behalf the Special ownership of such shares. In addition, to the extent item of business. NASDAQ OMX Meeting Request is being delivered to NASDAQ any affiliates of the stockholder or beneficial owner believes the time limits set forth in OMX’s Corporate Secretary and (iii) any affiliate or are acting in concert with the stockholder or associate of such stockholder or beneficial owner. beneficial owner with respect to the calling of the proposed Section 3.2(c) are appropriate See proposed Section 3.2(e) of the By-Laws. special meeting, the determination of Net Long 19 The information required is the same Shares may include the effect of aggregating the Net 15 Under proposed Section 3.2(b) of the By-Laws, information required from Proposing Persons with Long Shares (including any negative number) of the election of directors shall be deemed a ‘‘Similar respect to nominations or items of business to be such affiliate or affiliates. See proposed Section Item’’ with respect to all items of business involving brought before an annual meeting of stockholders 3.2(a) of the By-Laws. the nomination, election or removal of directors. and is described in detail in Section (iv)(b) below.

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NASDAQ OMX’s capital stock entitled prior to the special meeting requested. stockholders may be made only: (i) to vote generally in the election of However, NASDAQ OMX’s Board will Pursuant to the Company’s notice of directors, NASDAQ OMX shall have no have the discretion to determine meeting (or any supplement thereto); (ii) obligation to hold the special meeting. whether or not to proceed with the by or at the direction of NASDAQ Proposed Section 3.2(f) provides that special meeting. The Board might wish OMX’s Board or its Nominating & at any special meeting of the to continue with the special meeting if, Governance Committee; or (iii) by any stockholders, the only business to be for example, the Company has already stockholder of the Company that meets conducted or considered will have been spent the time and expense required to certain requirements. These specified in the notice of meeting (or call the meeting or if the agenda for the requirements state that the stockholder any supplement thereto) given by or at meeting includes items other than those must: (i) Be a stockholder of record at the direction of NASDAQ OMX’s Board proposed in the Special Meeting the time of delivery of notice to the or Corporate Secretary, as the case may Request. Company of nominees or other business be. In any event, however, NASDAQ Finally, NASDAQ OMX proposes to to be conducted at the meeting; (ii) be OMX’s Board may submit its own designate as Section 3.2(i) existing text entitled to vote at the meeting; and (iii) proposal or proposals for consideration that sets forth the requirements for comply with the notice procedures set at a special meeting. Except as stockholders to submit nominees for forth in the By-Laws. NASDAQ OMX otherwise allowed under proposed election as directors at certain proposes to add a parenthetical to the Section 3.2, stockholders will not be stockholder meetings. NASDAQ OMX requirement that a stockholder must be permitted to propose business to be further proposes to make a minor a stockholder of record to clarify that a brought before a special meeting of the change to this text to clarify that nomination or proposal of other stockholders. NASDAQ OMX believes NASDAQ OMX’s Board, rather than the business may be made on behalf of a these provisions are reasonable and Company itself, will call a special beneficial owner, if different from the necessary to limit the items of business meeting on behalf of the Company. stockholder of record, only if the that may be considered at a special (b) Annual Meetings of Stockholders beneficial owner is the beneficial owner meeting to those that were proposed by of NASDAQ OMX shares. This the Company, the Board or stockholders Section 3.1 of NASDAQ OMX’s By- modification will clarify that both that comply with the requirements and Laws, which is the ‘‘advance notice’’ record and beneficial owners of procedures set forth in the By-Laws. provision,20 requires stockholders to NASDAQ OMX stock have the right to Proposed Section 3.2(g) will require notify NASDAQ OMX, during a propose nominees or business to be the Requisite Holders giving a Special specified period in advance of an considered at an annual meeting. Meeting Request to further update and annual meeting, of their intention to NASDAQ OMX further proposes that a supplement the request, if necessary, so nominate one or more persons for stockholder who proposes nominees or that the information in the request is election to the Board or to present a business to be considered at an annual true and correct as of the record date for business proposal for consideration by meeting must hold shares in the the special meeting and as of the 10th the stockholders at the meeting. While Company at the time of the meeting, in business day prior to the special designing the proposed procedural addition to the time of delivery of the meeting or any adjournment or requirements for stockholders to call a required notice to the Company. This postponement thereof. This requirement special meeting, as outlined above, will ensure that a stockholder retains an will ensure that NASDAQ OMX, its NASDAQ OMX evaluated the existing interest in the Company until the Board and its other stockholders are procedural requirements for meeting at which the stockholder’s notified of changes to the information stockholders to bring business before an nominee or other business is they will consider in assessing a annual meeting. NASDAQ OMX is considered. Finally, NASDAQ OMX proposed item of business prior to the therefore proposing changes to some of proposes to number the procedural special meeting. In the case of an update these procedures to enhance them and requirements for stockholders who and supplement required to be made as conform them, in some cases, to the propose nominees or business to make of the record date, the update and procedures relating to special meetings. them easier to understand. supplement must be delivered to Generally, the proposed amendments Currently, Section 3.1(b) of the By- NASDAQ OMX’s Corporate Secretary no add requirements for extensive Laws sets forth the requirements for a later than the fifth business day after the disclosures by proposing stockholders stockholder’s notice to NASDAQ OMX record date for the special meeting. In about themselves, any proposed of nominations or other business to be the case of an update and supplement nominees for director and any proposed considered at an annual meeting. required to be made as of the 10th items of business to be brought before a NASDAQ OMX proposes certain business day prior to the special meeting. The specific amendments are amendments to this section to ensure meeting or any adjournment or discussed in detail below. that NASDAQ OMX has sufficient postponement thereof, the update and First, Section 3.1(a) of the By-Laws information about such nominations or supplement must be delivered to currently states that nominations of other business proposed by a NASDAQ OMX’s Corporate Secretary no persons for election to NASDAQ OMX’s stockholder to enable the Company, the later than the eighth business day prior Board and the proposal of other Board and the other stockholders to to the date for the special meeting or, if business to be considered by the assess a position on the nominations or practical, any adjournment or stockholders at an annual meeting of other business. The additional postponement thereof (and, if not information requirements will also practicable, on the first practicable date 20 ‘‘Advance notice’’ provisions allow ensure that NASDAQ OMX can make stockholder(s) to bring business before an annual prior to the date to which the special meeting of stockholders, but set forth procedural adequate disclosures to its stockholders meeting has been adjourned or requirements to ensure that companies and boards and comply with requirements under postponed). have sufficient information about the proposal and applicable law. Proposed Section 3.2(h) will allow the the proposing stockholder(s), as well as adequate Specifically, NASDAQ OMX proposes time to consider the proposal, by requiring the Requisite Holders to revoke a Special proposing stockholder(s) to give advance notice of an amendment to the first paragraph of Meeting Request by written revocation the intention to bring the proposal before the this section to require a stockholder delivered to NASDAQ OMX at any time annual meeting. who provides a notice relating to a

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nomination to include with the notice, for reelection as well as nominees for ‘‘Proposing Person’’ instead of a completed and signed questionnaire, election, to correct a reference to the Act stockholder and beneficial owner in representation and agreement relating to and to add numbering and other certain places and to add numbering, the nominee(s) for director.21 NASDAQ organizational changes to make the reordering and other organizational OMX also proposes to require a requirements easier to read and changes to make the requirements easier stockholder who provides a notice to understand. NASDAQ OMX also to read and understand. NASDAQ OMX further update and supplement the proposes to require the same also proposes to add a new requirement notice, if necessary, so that the information with respect to a proposed for a stockholder to provide a information in the notice is true and nominee that will be required with reasonably detailed description of all correct as of the record date for the respect to a Proposing Person, as contracts, agreements, arrangements and annual meeting and as of the 10th discussed further below. In addition, understandings between or among any business day prior to the annual NASDAQ OMX proposes to add two of the Proposing Persons or between or meeting or any adjournment or new informational requirements for among any Proposing Person in postponement thereof.22 This proposed nominees, including: connection with the proposal. NASDAQ requirement will ensure that NASDAQ • A description of all direct and OMX believes this information will be OMX, its Board and its other indirect compensation and other useful in assessing the aims and stockholders are notified of changes to material monetary agreements, incentives of Proposing Persons in the information they will consider in arrangements and understandings proposing business before an annual assessing a proposed item of business during the past three years, and any meeting. prior to the annual meeting. In the case other material relationships, between or Section 3.1(b)(iii) of the By-Laws of an update and supplement required among any Proposing Person, on the one currently sets forth the information that to be made as of the record date, the hand, and such proposed nominee and a stockholder who proposes nominee(s) update and supplement must be any of his or her respective affiliates and for director or other business to be put delivered to NASDAQ OMX’s Corporate associates, on the other hand, including, forth before an annual meeting must Secretary no later than the fifth business without limitation, all information that provide to NASDAQ OMX about such day after the record date for the annual would be required to be disclosed stockholder and the beneficial owner, if meeting. In the case of an update and pursuant to Item 404 under Regulation any, on whose behalf the nomination or supplement required to be made as of S–K if such Requesting Person were the proposal is made. NASDAQ OMX the 10th business day prior to the ‘‘registrant’’ for purposes of such rule proposes changes to this section to use annual meeting or any adjournment or and the proposed nominee were a the defined term ‘‘Proposing Person’’ postponement thereof, the update and director or executive officer of such instead of stockholder and beneficial supplement must be delivered to registrant; and owner in certain places and to add NASDAQ OMX’s Corporate Secretary no • a completed and signed numbering, reordering and other later than the eighth business day prior questionnaire, representation and organizational changes to make the to the date for the annual meeting or, if agreement.24 requirements easier to read and practicable, any adjournment or Finally, NASDAQ OMX proposes to understand. postponement thereof (and, if not add a catch-all provision to Section Relating to the existing requirement in practicable, on the first practicable date 3.1(b)(i) of the By-Laws that will allow Section 3.1(b)(iii)(B) that a proposing prior to the date to which the annual the Company to require any proposed stockholder describe the class or series meeting has been adjourned or nominee to furnish such other and number of shares of NASDAQ OMX postponed). information (i) as the Company may capital stock owned beneficially and of Section 3.1(b)(i) of the By-Laws reasonably require to determine the record by such stockholder and the currently sets forth the information that eligibility of such proposed nominee to beneficial owner, NASDAQ OMX a stockholder must provide to NASDAQ serve as a director or (ii) that could be proposes to add a parenthetical stating OMX about each person whom the material to a reasonable stockholder’s that beneficial ownership shall be stockholder proposes to nominate for understanding of the independence, or determined within the meaning of Rule election as a director. NASDAQ OMX lack of independence, of such proposed 13d-3 under the Act. NASDAQ OMX proposes changes to this section to use nominee. NASDAQ OMX believes that also proposes to state that a Proposing the defined term ‘‘Proposing Person’’ all of the new information requirements Person shall in all events be deemed to instead of stockholder,23 to require included in proposed Section 3.1(b)(i) beneficially own any shares of any class information with respect to nominees are reasonable and necessary in order to or series of NASDAQ OMX’s capital assist the Company in evaluating stock as to which such person has a 21 The contents of and rationale for the director eligibility, independence and right to acquire beneficial ownership at questionnaire, representation and agreement are potential conflicts of interest. any time in the future. These proposed discussed further in Section (iv)(c) below. changes merely clarify how the concept 22 NASDAQ OMX notes that this proposal is Section 3.1(b)(ii) of the By-Laws similar to proposed Section 3.2(g) of the By-Laws, currently sets forth the information that of beneficial ownership will be which requires updates and supplements to a a stockholder must provide to NASDAQ interpreted under this section of the By- stockholder notice relating to a special meeting. Laws. This proposed change is discussed further in OMX about any business, other than nominations for director, that the Current Section 3.1(b)(iii)(D) requires Section (iv)(a) above. proposing stockholders to describe to 23 ‘‘Proposing Person’’ means (i) the stockholder stockholder proposes to bring before an NASDAQ OMX any agreement, providing the notice of business or the notice of the annual meeting. NASDAQ OMX nomination, as applicable, proposed to be brought arrangement or understanding proposes changes to this section to before an annual meeting, (ii) any beneficial owner (including any derivative or short require that the description of the or beneficial owners, if different, on whose behalf positions, profit interests, options, such business is proposed to be brought before the proposed business be reasonably warrants, convertible securities, stock meeting or the notice of the nomination proposed detailed, to use the defined term to be made at the meeting is made, as applicable, appreciation or similar rights, hedging and (iii) any affiliate or associate (each within the transactions, and borrowed or loaned meaning of Rule 12b–2 under the Act for purposes 24 The contents of and rationale for the of the By-Laws) of such stockholder or beneficial questionnaire, representation and agreement are shares) that has been entered into as of owner. See proposed Section 3.1(c) of the By-Laws. discussed further in Section (iv)(c) below. the date of the notice by the stockholder

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and the beneficial owners with respect indirectly, by a general or limited one hand, and NASDAQ OMX, any to NASDAQ OMX’s stock. Given the partnership in which the Proposing affiliate of NASDAQ OMX or any increased complexity of such Person is a general partner or, directly principal competitor of NASDAQ OMX, transactions in today’s marketplace, or indirectly, beneficially owns an on the other hand; 33 and NASDAQ OMX proposes to replace the interest in a general partner; 27 • any other information relating to current language with a similar • any agreement, arrangement, the Proposing Person required to be requirement for disclosure of any understanding or relationship, disclosed in a proxy statement or other Synthetic Equity Interest,25 without including any repurchase or similar so- filings required to be made in regard to whether: (i) The derivative, called ‘‘stock borrowing’’ agreement or connection with solicitations of proxies swap or other transaction or series of arrangement, entered into or engaged in, for, as applicable, the proposal and/or transactions conveys any voting rights directly or indirectly, by the Proposing for the election of directors in an in such shares to the Proposing Person; Person, the purpose or effect of which election contest pursuant to and in (ii) the derivative, swap or other is to mitigate loss to, reduce the accordance with Section 14(a) of the Act transaction or series of transactions is economic risk (of ownership or and the rules and regulations required to be, or is capable of being, otherwise) of shares of any class or promulgated thereunder.34 settled through delivery of such shares; series of NASDAQ OMX by, manage the (c) Questionnaire, Representation and or (iii) the Proposing Person may have risk of share price changes for, or Agreement for Director-Nominees entered into other transactions that increase or decrease the voting power hedge or mitigate the economic effect of of, the Proposing Person with respect to NASDAQ OMX proposes to add a such derivative, swap or other shares of any class or series of NASDAQ new Section 3.5 to its By-Laws to transaction or series of transactions. OMX, or that provides, directly or require nominees for director to deliver This proposed provision will assist indirectly, the opportunity to profit to NASDAQ OMX, in accordance with NASDAQ OMX, its Board and its other from any decrease in the price or value the time periods prescribed for delivery stockholders in understanding a of shares of any class or series of of a stockholder’s notice: (i) A written Proposing Person’s full economic NASDAQ OMX (any of the foregoing, a questionnaire with respect to the interests in NASDAQ OMX and possible ‘‘Short Interest’’); 28 background and qualifications of the aims and incentives in submitting the • any performance-related fees (other nominee; and (ii) a written proposed business for consideration at than an asset-based fee) to which the representation and agreement as to an annual meeting. Proposing Person is entitled based on certain matters. Specifically, the written For this same reason, NASDAQ OMX any increase or decrease in the price or representation and agreement will also proposes to add several new provide that the nominee: value of shares of any class or series of • disclosures that a Proposing Person NASDAQ OMX, or any Synthetic Equity Is not and will not become a party must include in a notice to NASDAQ Interest or Short Interest; 29 to (i) any agreement as to how the OMX regarding nominees or other • any significant equity interest or nominee will act or vote on any issue business to be conducted at an annual any Synthetic Equity Interest or Short or question (a ‘‘Voting Commitment’’) meeting. These include disclosures Interest in any principal competitor of that has not been fully disclosed to regarding: NASDAQ OMX held by the Proposing NASDAQ OMX or (ii) any Voting • Any proxy (other than a revocable Person; 30 Commitment that could limit or proxy or consent given in response to a • any direct or indirect interest of the interfere with the nominee’s fiduciary solicitation made pursuant to, and in Proposing Person in any contract with duties under applicable law; accordance with, Section 14(a) of the • is not and will not become a party NASDAQ OMX, any affiliate of Act by way of a solicitation statement to any agreement with any person other NASDAQ OMX or any principal filed on Schedule 14A), agreement, than NASDAQ OMX with respect to any competitor of NASDAQ OMX arrangement, understanding or direct or indirect compensation, (including, in any such case, any relationship pursuant to which the reimbursement or indemnification in employment agreement, collective Proposing Person has or shares a right connection with service or action as a bargaining agreement or consulting to vote any shares of any class or series 31 director of NASDAQ OMX that has not 26 agreement); of NASDAQ OMX; • been fully disclosed to NASDAQ OMX; • any proportionate interest in any pending or threatened litigation • would be in compliance, if elected, NASDAQ OMX shares or Synthetic in which the Proposing Person is a party and will comply, with the provisions of Equity Interest held, directly or or material participant involving NASDAQ OMX’s By-Laws relating to NASDAQ OMX or any of its officers or qualifications of directors, conflicts of 25 ‘‘Synthetic Equity Interest’’ shall mean any directors, or any affiliate of NASDAQ 32 interest and contracts and transactions derivative, swap or other transaction (including any OMX; involving directors; and short positions, profit interest, options, warrants, • any material transaction occurring, • convertible securities, stock appreciation or similar in such proposed nominee’s rights) or series of transactions engaged in, directly in whole or in part, during the then individual capacity and on behalf of any or indirectly, by a Proposing Person, the purpose or immediately preceding 12-month period person on whose behalf the nomination effect of which is to give the Proposing Person between such Proposing Person, on the is made, would be in compliance, if economic risk similar to ownership of shares of any class or series of NASDAQ OMX, including due to 27 See proposed Section 3.1(b)(iii)(F) of the By- 33 See proposed Section 3.1(b)(iii)(L) of the By- the fact that the value of such derivative, swap or Laws. other transaction or series of transactions is Laws. 28 See proposed Section 3.1(b)(iii)(G) of the By- determined by reference to the price, value or 34 See proposed Section 3.1(b)(iii)(M) of the By- Laws. volatility of any shares of any class or series of Laws. NASDAQ OMX also proposes to include an 29 NASDAQ OMX, or which derivative, swap or other See proposed Section 3.1(b)(iii)(H) of the By- exception to each of the aforementioned disclosure transaction or series of transactions provides, Laws. requirements for any disclosures with respect to the directly or indirectly, the opportunity to profit from 30 See proposed Section 3.1(b)(iii)(I) of the By- ordinary course business activities of any broker, any increase in the price or value of shares of any Laws. dealer, commercial bank, trust company or other class or series of NASDAQ OMX. See proposed 31 See proposed Section 3.1(b)(iii)(J) of the By- nominee who is a Proposing Person solely as a Section 3.1(b)(iii)(D) of the By-Laws. Laws. result of being the stockholder directed to prepare 26 See proposed Section 3.1(b)(iii)(E) of the By- 32 See proposed Section 3.1(b)(iii)(K) of the By- and submit the notice required by the By-Laws on Laws. Laws. behalf of a beneficial owner.

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elected, and will comply, with feedback while appropriately OMX and its directors, outside of Board NASDAQ OMX’s Corporate Governance maintaining NASDAQ OMX’s defensive meetings, occurs through electronic Guidelines, Board of Director Code of posture against hostile takeovers. means. Conduct and Code of Ethics, including (e) Procedures for Filling Board (g) Composition of the Management all applicable, publicly disclosed Vacancies Compensation Committee conflict of interest, confidentiality, stock ownership and insider trading policies Section 4.8 of the By-Laws sets forth As required by the Dodd-Frank Wall and guidelines. the procedures to fill a director position Street Reform and Consumer Protection The requirements of proposed Section that has become vacant, whether Act and Rule 10C–1 under the Exchange 3.5 of the By-Laws, which will apply to because of death, disability, Act,37 NASDAQ recently amended its both the Company’s and stockholders’ disqualification, removal or resignation. listing rules relating to compensation nominees for director, will ensure that Under the current provisions, if such a committees.38 Since NASDAQ OMX is NASDAQ OMX has the necessary vacancy occurs, the Nominating & listed on NASDAQ, it must comply with information about nominees to fulfill its Governance Committee of the Board these listing rules just like any other public disclosure requirements. The shall nominate, and the Board shall listed company. NASDAQ OMX requirements also will ensure that elect by majority vote, a person to fill therefore proposes amendments to nominees will comply with the legal the vacancy. In light of the addition of Section 4.13(f) of the By-Laws, which obligations, policies and procedures a right for stockholders to call a special relates to the composition of the applicable to all NASDAQ OMX meeting, as discussed above, NASDAQ Management Compensation Committee directors. OMX proposes amendments to Section of NASDAQ OMX’s Board, to conform 4.8 to state explicitly that vacancies on to the recent amendments to NASDAQ’s (d) Removal and Replacement of the Board are to be filled by a majority listing rules. Specifically, NASDAQ Supermajority Voting Provisions vote of the Board, and not by OMX proposes to state that the Consistent with the proposed stockholders. In addition, to prescribe Management Compensation Committee amendments to remove and replace the procedures in case multiple Board must consist of at least two members supermajority voting provisions in the vacancies occur at the same time, the and that each member shall meet the Charter discussed above, NASDAQ proposed amendments state that a Board eligibility requirements set forth in the OMX proposes to amend each provision vacancy shall be filled by the majority rules of The NASDAQ Stock Market. of the By-Laws that currently requires a of the directors, even if there is less than supermajority vote of stockholders to a quorum, or by the sole remaining (h) No Amendment or Repeal of Certain instead require a ‘‘majority of votes director, if there is only one director By-Law Amendments outstanding.’’ NASDAQ OMX’s By-Laws remaining on the Board. The proposed While current Section 11.1 of the By- currently include the following two amendments do not change any of the Laws provides for alteration, supermajority voting requirements, each other procedures for filling Board amendment, repeal and adoption of By- of which conforms with an analogous vacancies. Laws by the stockholders, current provision in the Charter. Section 11.2 provides for alteration, • Removal of Directors. Section 4.6 (f) Use of Electronic Means for Certain Notices and Related Waivers amendment, repeal and adoption of By- provides that any or all of the directors Laws by the Board. These two sections may be removed from office at any time Currently, Section 4.12(a) of the By- operate as alternate means to alter, by the affirmative vote of at least 662⁄3% Laws provides that notice of any amend, repeal or adopt By-Laws. In of the total voting power of the Voting meeting of the Board shall be deemed other words, the stockholders may alter, Stock, voting together as a single class.35 duly given to a director if, among other amend, repeal or adopt By-Laws • Adoption, Alteration, Amendment methods, the notice is sent to the without any action by the Board, and and Repeal of By-Laws. Section 11.1 director at the address last made known vice versa. NASDAQ OMX proposes to provides that the By-Laws may be in writing to NASDAQ OMX by add a proviso to Section 11.2 to state altered amended or repealed, or new By- telegraph, telefax, cable, radio or that no By-Law adopted by the Laws may be adopted, at any meeting of wireless. Section 4.12(b) of the By-Laws stockholders shall be amended or the stockholders by the affirmative vote provides that such notice of a board repealed by the Board if the By-Law so 2 of the holders of at least 66 ⁄3% of the meeting need not be given to any adopted so provides. This is a voting power of the Voting Stock, voting director if waived by the director in stockholder-friendly provision that is 36 together as a single class. writing or by electronic transmission (or intended to prevent the Board from To conform with the proposed by telegram, telefax, cable, radio or subsequently overriding stockholder changes to the Charter, NASDAQ OMX wireless and subsequently confirmed in action to amend or repeal the By-Laws. proposes to replace each of these writing or by electronic transmission). supermajority voting requirements with NASDAQ OMX proposes amendments (i) Non-Substantive Changes a voting standard requiring the to Sections 4.12(a) and (b) to provide The remaining proposed By-Law affirmative vote of a majority of the that both notices and waivers of such amendments are non-substantive outstanding Voting Stock. As discussed notices can be given by email or other changes, which will simplify and above with respect to the analogous means of written electronic Charter amendments, NASDAQ OMX transmission. These amendments are 37 See Public Law 111–203, 124 Stat. 1376 (2010) believes that a ‘‘majority of outstanding intended merely to expand the means and 17 CFR 240.10C–1. shares’’ standard reflects a balanced through which notices and waivers of 38 See Securities Exchange Act Release No. 68640 approach that responds to stockholder (January 11, 2013), 78 FR 4554 (January 22, 2013) notices may be given, and the (SR–NASDAQ–2012–109). Among other things, the amendments do not affect any of the amendments require each NASDAQ-listed 35 This provision is analogous to Article Fifth, other procedural requirements of company, with certain exceptions, to have a Paragraph D of the Charter, which is discussed Sections 4.12(a) and (b). In addition, the compensation committee of its board of directors, under Section (ii)(a) above. consisting of a minimum of two independent 36 This provision is analogous to Article Eighth, proposed amendments reflect current directors who meet additional eligibility Paragraph A of the Charter, which is discussed practices, as a substantial amount of requirements relating to compensatory fees and under Section (ii)(a) above. communications between NASDAQ affiliation.

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streamline the document. Specifically, OMX’s investors at the most recent burden on competition not necessary or NASDAQ OMX proposes minor changes annual meeting of stockholders. appropriate in furtherance of the to Section 3.3 to incorporate the new NASDAQ OMX also proposes to purposes of the Act. defined term ‘‘Proposing Person,’’ to use eliminate the Certificate of Designation C. Self-Regulatory Organization’s the term ‘‘nomination’’ rather than relating to the Series A Convertible Statement on Comments on the ‘‘nominee’’ for consistency and to Preferred Stock, which is no longer Proposed Rule Change Received From correct two cross-references. NASDAQ outstanding. This proposed change will Members, Participants, or Others OMX also proposes to delete obsolete enhance the clarity of NASDAQ OMX’s references to the 3.75% Series A Charter. No written comments were either Convertible Notes due 2012 and the Finally, NASDAQ OMX proposes solicited or received. changes to its By-Laws: (i) To Series B Convertible Notes due 2012, III. Date of Effectiveness of the which are no longer outstanding, in implement a stockholder right to call a special meeting; (ii) to enhance the Proposed Rule Change and Timing for Section 12.7. Commission Action In addition, NASDAQ OMX proposes ‘‘advance notice’’ procedures; (iii) to to correct typographical errors and/or require certain information and Within 45 days of the date of delete obsolete cross-references in agreements from director-nominees; (iv) publication of this notice in the Federal Article I(f), Section 4.3, Section 9.4(b), to remove and replace the supermajority Register or within such longer period (i) Section 12.5 and Section 12.6. Finally, voting provisions to conform to the as the Commission may designate up to NASDAQ OMX proposes to renumber Charter amendments; (v) to clarify the 90 days of such date if it finds such and reorganize the provisions of the By- procedures for filling Board vacancies; longer period to be appropriate and Laws, where necessary following the (vi) to allow the use of electronic means publishes its reasons for so finding or other amendments. for certain notices and waivers; (vii) to (ii) as to which BSECC consents, the conform the composition requirements Commission shall: (a) By order approve 2. Statutory Basis for the Management Compensation or disapprove such proposed rule BSECC believes that its proposal is Committee of NASDAQ OMX’s Board change, or (b) institute proceedings to consistent with Section 17A(b)(3)(C) of with the NASDAQ listing rules; (vii)[sic] determine whether the proposed rule the Act,39 in that it assures a fair to prevent the Board from amending or change should be disapproved. repealing By-Law amendments representation of shareholders and approved by the stockholders; and IV. Solicitation of Comments participants in the selection of directors (viii)[sic] to make other non-substantive Interested persons are invited to and administration of its affairs. While changes. submit written data, views, and the proposals relate to the The proposals relating to the arguments concerning the foregoing, organizational documents of NASDAQ stockholder right to call a special including whether the proposed rule OMX, rather than BSECC, BSECC is meeting and to remove and replace the change is consistent with the Act. indirectly wholly owned by NASDAQ supermajority voting requirements are Comments may be submitted by any of OMX, and therefore, NASDAQ OMX’s responsive to feedback from NASDAQ the following methods: stockholders have an indirect stake in OMX’s stockholders. The additional BSECC. In addition, the participants in procedural requirements relating to Electronic Comments BSECC, to the extent any exist, could special and annual meetings will state • Use the Commission’s Internet purchase stock in NASDAQ OMX in the clearly and explicitly the procedures comment form (http://www.sec.gov/ open market, just like any other stockholders must follow to propose rules/sro.shtml); or stockholder. The proposals respond business at such meetings. The • Send an email to rule- directly to feedback from existing requirement for certain information and [email protected]. Please include File NASDAQ OMX stockholders about their agreements from director-nominees will Number SR–BSECC–2013–001 on the participation in NASDAQ OMX’s ensure that nominees provide adequate subject line. governance. As a result, NASDAQ OMX information about themselves and also Paper Comments believes that the proposals assure a fair comply with applicable law and certain • representation of its stockholders in the NASDAQ OMX policies and procedures Send paper comments in triplicate selection of directors and administration relating to the Board. The prohibition on to Elizabeth M. Murphy, Secretary, of its affairs, as well as the affairs of the Board amending or repealing By- Securities and Exchange Commission, BSECC. Law amendments approved by the 100 F Street NE., Washington, DC Specifically, in response to feedback stockholders is a stockholder-friendly 20549–1090. from its existing investors, NASDAQ provision that is intended to prevent the All submissions should refer to File OMX is proposing changes to its Charter Board from subsequently overriding Number SR–BSECC–2013–001. This file to replace each supermajority voting stockholders’ wishes. Finally, the number should be included on the requirement with a ‘‘majority of remaining changes are clarifying in subject line if email is used. To help the outstanding shares’’ voting standard. nature, and they conform NASDAQ Commission process and review your NASDAQ OMX believes this approach OMX’s governance documents to comments more efficiently, please use will strike an appropriate balance current practices and applicable rules only one method. The Commission will between responding to stockholder and make them clearer and easier to post all comments on the Commission’s feedback and protecting the Company understand. Internet Web site (http://www.sec.gov/ and its investors against hostile rules/sro.shtml). takeovers. In addition, the clarifying B. Self-Regulatory Organization’s Copies of the submission, all changes to the Charter will make the Statement on Burden on Competition subsequent amendments, all written Charter more concise and easier to Because the proposed rule change statements with respect to the proposed understand. Both sets of changes to the relates to the governance of NASDAQ rule change that are filed with the Charter were approved by NASDAQ OMX and not to the operations of Commission, and all written BSECC, BSECC does not believe that the communications relating to the 39 15 U.S.C. 78q–1(b)(3)(C). proposed rule change will impose any proposed rule change between the

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Commission and any person, other than I. Self-Regulatory Organization’s executions are further capped at $25,000 those that may be withheld from the Statement of the Terms of the Substance per month per initiating firm. The fee public in accordance with the of the Proposed Rule Change cap generally applies to all strategy provisions of 5 U.S.C. 552, will be The Exchange proposes to amend the executions executed in standard option available for Web site viewing and NYSE Amex Options Fee Schedule contracts (as opposed to mini option printing in the Commission’s Public (‘‘Fee Schedule’’) to include FLEX contracts) on the same trading day in Reference Room, 100 F Street NE., Option transactions in the strategy the same option class. However, several Washington, DC 20549, on official execution fee cap. The Exchange types of transactions are excluded from business days between the hours of proposes to implement the fee change the fee cap, including transactions in 6 10:00 a.m. and 3:00 p.m. Copies of the effective December 1, 2013.4 The text of FLEX Options. filing also will be available for the proposed rule change is available on The Exchange proposes to eliminate inspection and copying at the principal the Exchange’s Web site at the exclusion of FLEX Option office of BSECC. All comments received www.nyse.com, at the principal office of transactions from the strategy execution will be posted without change; the the Exchange, and at the Commission’s fee cap. As a result, a FLEX Option Commission does not edit personal Public Reference Room. transaction that is part of a strategy identifying information from execution and that is not otherwise submissions. You should submit only II. Self-Regulatory Organization’s excluded would be included in the fee information that you wish to make Statement of the Purpose of, and cap. The proposed change is designed to available publicly. Statutory Basis for, the Proposed Rule encourage ATP Holders to engage in Change both additional FLEX Option All submissions should refer to File transactions and strategy executions on Number SR–BSECC–2013–001 and In its filing with the Commission, the the Exchange. The proposed change is should be submitted on or before self-regulatory organization included also designed to compete with other January 2, 2014. statements concerning the purpose of, and basis for, the proposed rule change markets that apply similar fee caps but For the Commission, by the Division of and discussed any comments it received that do not exclude FLEX Option Trading and Markets, pursuant to delegated transactions from such fee caps.7 authority.40 on the proposed rule change. The text of those statements may be examined at The proposed change is not otherwise intended to address any other issues, Kevin M. O’Neill, the places specified in Item IV below. The Exchange has prepared summaries, and the Exchange is not aware of any Deputy Secretary. set forth in sections A, B, and C below, problems that ATP Holders would have [FR Doc. 2013–29616 Filed 12–11–13; 8:45 am] of the most significant parts of such in complying with the proposed change. BILLING CODE 8011–01–P statements. 2. Statutory Basis A. Self-Regulatory Organization’s The Exchange believes that the SECURITIES AND EXCHANGE Statement of the Purpose of, and proposed rule change is consistent with COMMISSION Statutory Basis for, the Proposed Rule Section 6(b) of the Act,8 in general, and Change furthers the objectives of Sections 6(b)(4) and (5) of the Act,9 in particular, [Release No. 34–71015; File No. SR– 1. Purpose NYSEMKT–2013–98] because it provides for the equitable The Exchange proposes to amend the allocation of reasonable dues, fees, and Self-Regulatory Organizations; NYSE Fee Schedule to include FLEX Option MKT LLC; Notice of Filing and transactions in the strategy execution position that shares the same strike and expiration. Immediate Effectiveness of Proposed fee cap. The Exchange proposes to A ‘‘conversion’’ is established by combining a long implement the fee change effective position in the underlying security with a long put Rule Change Amending the NYSE and a short call position that shares the same strike Amex Options Fee Schedule To December 1, 2013. and expiration. A ‘‘box spread’’ is defined as Include FLEX Option Transactions in A $750 cap currently applies to transactions involving a long call option and a short the Strategy Execution Fee Cap transaction fees for strategy executions put option at one strike, combined with a short call involving (a) reversals and conversions, option and long put at a different strike, to create December 6, 2013. synthetic long and synthetic short stock positions, (b) box spreads, (c) short stock interest respectively. A ‘‘short stock interest spread’’ is Pursuant to Section 19(b)(1) 1 of the spreads, (d) merger spreads, and (e) jelly defined as transactions done to achieve a short Securities Exchange Act of 1934 (the rolls.5 Transaction fees for strategy stock interest arbitrage involving the purchase, sale 2 3 and exercise of in-the-money options of the same ‘‘Act’’) and Rule 19b–4 thereunder, class. A ‘‘merger spread’’ is defined as transactions notice is hereby given that, on 4 The Exchange notes that it has previously filed with the Securities and Exchange Commission a done to achieve a merger arbitrage involving the November 26, 2013, NYSE MKT LLC proposed rule change to amend the Fee Schedule purchase, sale and exercise of options of the same (the ‘‘Exchange’’ or ‘‘NYSE MKT’’) filed relating to co-location fees (File No. SR– class and expiration date, each executed prior to the NYSEMKT–2013–97). Exhibit 5 to SR–NYSEMKT– date on which shareholders of record are required with the Securities and Exchange to elect their respective form of consideration, i.e., Commission (the ‘‘Commission’’) the 2013–97 specified an effective date for the revised Fee Schedule of December 3, 2013 (changed from cash or stock. A ‘‘jelly roll’’ is created by entering proposed rule change as described in November 8, 2013). Exhibit 5 to the instant into two separate positions simultaneously. One Items I, II, and III below, which Items proposed rule change specifies an effective date of position involves buying a put and selling a call December 1, 2013 (changed from November 8, with the same strike price and expiration. The have been prepared by the self- second position involves selling a put and buying regulatory organization. The 2013). On December 1, 2013, the Exchange will update the Fee Schedule to reflect the fee change a call, with the same strike price, but with a Commission is publishing this notice to reflected in the instant proposed rule change, with different expiration from the first position. solicit comments on the proposed rule an effective date of December 1, 2013. On December 6 A FLEX Option is a customized options change from interested persons. 3, 2013, the Exchange, subject to effectiveness of contract. See, e.g., NYSE Amex Options Rule 900G. SR–NYSEMKT–2013–97, will further update the 7 For example, the Exchange understands that the Fee Schedule to reflect the changes set forth in SR– Chicago Board Options Exchange, Incorporated 40 17 CFR 200.30–3(a)(12). NYSEMKT–2013–97, with an effective date of (‘‘CBOE’’) includes FLEX Option transactions in 1 15 U.S.C. 78s(b)(1). December 3, 2013. certain of the fee caps that apply on that market. 2 15 U.S.C. 78a. 5 A ‘‘reversal’’ is established by combining a short 8 15 U.S.C. 78f(b). 3 17 CFR 240.19b–4. security position with a short put and a long call 9 15 U.S.C. 78f(b)(4) and (5).

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other charges among its members, respect to pricing for FLEX Option Number SR–NYSEMKT–2013–98 on the issuers and other persons using its transactions and strategy executions. subject line. facilities and does not unfairly Finally, the Exchange notes that it discriminate between customers, operates in a highly competitive market Paper Comments issuers, brokers or dealers. in which market participants can • Send paper comments in triplicate The Exchange believes that the readily favor competing venues if they to Elizabeth M. Murphy, Secretary, deem fee levels at a particular venue to proposed change is reasonable because Securities and Exchange Commission, be excessive. In such an environment, including FLEX Option transactions in 100 F Street NE., Washington, DC the Exchange must continually review, the strategy execution fee cap may 20549–1090. encourage ATP Holders to execute and consider adjusting, its fees and additional FLEX Options and strategy credits to remain competitive with other All submissions should refer to File executions on the Exchange. The exchanges. For the reasons described Number SR–NYSEMKT–2013–98. This proposed change would therefore result above, the Exchange believes that the file number should be included on the in greater amounts of liquidity on the proposed rule change reflects this subject line if email is used. To help the Exchange, which should benefit the competitive environment. Commission process and review your quality of the Exchange’s market and C. Self-Regulatory Organization’s comments more efficiently, please use investors, generally. This proposed Statement on Comments on the only one method. The Commission will change is further reasonable because the Proposed Rule Change Received from post all comments on the Commission’s Exchange understands that other option Members, Participants, or Others Internet Web site (http://www.sec.gov/ markets similarly include FLEX Option rules/sro.shtml). Copies of the transactions in certain fee caps No written comments were solicited or received with respect to the proposed submission, all subsequent applicable to strategy executions on amendments, all written statements 10 rule change. such other markets. The Exchange with respect to the proposed rule believes that the proposed change is III. Date of Effectiveness of the change that are filed with the equitable and not unfairly Proposed Rule Change and Timing for Commission, and all written discriminatory because FLEX Options Commission Action communications relating to the are not differentiated from other transactions for purposes of other The foregoing rule change is effective proposed rule change between the pricing categories within the Fee upon filing pursuant to Section Commission and any person, other than 12 Schedule. The proposed change would 19(b)(3)(A) of the Act and those that may be withheld from the 13 therefore eliminate a potential subparagraph (f)(2) of Rule 19b–4 public in accordance with the disincentive for ATP Holders to transact thereunder, because it establishes a due, provisions of 5 U.S.C. 552, will be in FLEX Options on the Exchange while fee, or other charge imposed by the available for Web site viewing and at the same time encouraging ATP Exchange. printing in the Commission’s Public Holders to engage in additional strategy At any time within 60 days of the Reference Room at 100 F Street NE., executions. filing of such proposed rule change, the Washington, DC 20549–1090 on official Finally, the Exchange believes that it Commission summarily may business days between the hours of is subject to significant competitive temporarily suspend such rule change if 10:00 a.m. and 3:00 p.m. Copies of such forces, as described below in the it appears to the Commission that such filing also will be available for Exchange’s statement regarding the action is necessary or appropriate in the inspection and copying at the principal public interest, for the protection of burden on competition. office of the Exchange. All comments investors, or otherwise in furtherance of For these reasons, the Exchange received will be posted without change; the purposes of the Act. If the believes that the proposal is consistent Commission takes such action, the the Commission does not edit personal with the Act. Commission shall institute proceedings identifying information from B. Self-Regulatory Organization’s under Section 19(b)(2)(B) 14 of the Act to submissions. You should submit only Statement on Burden on Competition determine whether the proposed rule information that you wish to make change should be approved or available publicly. All submissions In accordance with Section 6(b)(8) of should refer to File Number SR– 11 disapproved. the Act, the Exchange does not believe NYSEMKT–2013–98, and should be that the proposed rule change will IV. Solicitation of Comments submitted on or before January 2, 2014. impose any burden on competition that Interested persons are invited to For the Commission, by the Division of is not necessary or appropriate in submit written data, views, and furtherance of the purposes of the Act. Trading and Markets, pursuant to delegated arguments concerning the foregoing, authority.15 The proposed change could increase including whether the proposed rule Kevin M. O’Neill, competition on the Exchange by change is consistent with the Act. including FLEX Option transactions in Comments may be submitted by any of Deputy Secretary. the strategy execution fee cap. This the following methods: [FR Doc. 2013–29614 Filed 12–11–13; 8:45 am] could result in ATP Holders engaging in BILLING CODE 8011–01–P both additional FLEX Option Electronic Comments transactions and strategy executions in • Use the Commission’s Internet order to reach the fee cap levels. The comment form (http://www.sec.gov/ proposed change could also increase rules/sro.shtml); or competition between the Exchange and • Send an email to rule- other option markets by making the [email protected]. Please include File Exchange a more desirable market with 12 15 U.S.C. 78s(b)(3)(A). 10 See supra note 7. 13 17 CFR 240.19b–4(f)(2). 11 15 U.S.C. 78f(b)(8). 14 15 U.S.C. 78s(b)(2)(B). 15 17 CFR 200.30–3(a)(12).

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SECURITIES AND EXCHANGE concerning the purpose of and basis for adjusted in connection with this COMMISSION the proposed rule change and discussed proposed rule change. any comments it received on the The Exchange believes it is [Release No. 34–71025; File No. SR–BOX– appropriate to adjust the calculation of 2013–55] proposed rule change. The text of these statements may be examined at the monthly ADV for these days because a Self-Regulatory Organizations; BOX places specified in Item IV below. The Participant will have artificially low Options Exchange LLC; Notice of Exchange has prepared summaries, set trading volume if the market is not open Filing and Immediate Effectiveness of forth in Sections A, B, and C below, of for the entire trading day. In the a Proposed Rule Change to Amend the the most significant aspects of such corresponding monthly ADV Fee Schedule to Permit the Exchange statements. calculation, the numerator for the to Exclude from Its Average Daily calculation (trading volume) will A. Self-Regulatory Organization’s decrease, while the denominator (the Volume Calculations Any Trading Day Statement of the Purpose of, and on Which the Exchange Is Closed for number of trading days) will remain the Statutory Basis for, Proposed Rule same and not reflect the irregularity that Trading Due To an Early Closing Or a Change Market-Wide Trading Halt caused the decrease. This would result 1. Purpose in a lower monthly ADV for the December 6, 2013. Participant and could mean that the The Exchange proposes to amend the Pursuant to Section 19(b)(1) under the Participant is not eligible for a higher Fee Schedule for trading on BOX to Securities Exchange Act of 1934 (the volume tier, and corresponding lower permit the Exchange to adjust the ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 fee. Accordingly, giving the Exchange average daily volume (‘‘ADV’’) notice is hereby given that on November the ability to exclude these days from calculation for any trading day on 27, 2013, BOX Options Exchange LLC the monthly ADV calculation will which the Exchange is closed for trading (the ‘‘Exchange’’) filed with the ensure this scenario no longer occurs. due to an early closing or a market-wide Securities and Exchange Commission trading halt. 2. Statutory Basis (the ‘‘Commission’’) the proposed rule In Section I (Exchange Fees) of the The Exchange believes that the change as described in Items I, II, and BOX Fee Schedule, the Exchange III below, which Items have been proposal is consistent with the provides volume-based incentives for requirements of Section 6(b) of the Act, prepared by the Exchange. The certain transaction fees. In Section I.A Exchange filed the proposed rule change in general, and Section 6(b)(4) and the Exchange provides a volume-based 6(b)(5) of the Act,5 in particular, in that pursuant to Section 19(b)(3)(A)(ii) of the incentive to Initiating Participants that 3 4 it provides for the equitable allocation Act, and Rule 19b–4(f)(2) thereunder, submit Primary Improvement Orders, which renders the proposal effective of reasonable dues, fees, and other Facilitation Orders, or Solicitation charges among BOX Participants and upon filing with the Commission. The Orders and, on a daily basis, trade a Commission is publishing this notice to other persons using its facilities and monthly ADV of more than 5,000 does not unfairly discriminate between solicit comments on the proposed rule contracts in Auction Transactions on change from interested persons. customers, issuers, brokers or dealers. BOX. Similarly, in Section I.B. the The Exchange believes that it is I. Self-Regulatory Organization’s Exchange provides a volume-based equitable and reasonable to adjust the Statement of the Terms of Substance of incentive on all standard transaction monthly ADV calculations for any the Proposed Rule Change fees to Market Makers that, on a daily trading day on which the Exchange is basis, trade a monthly ADV of more The Exchange is filing with the closed for trading due to an early than 5,000 contracts on BOX. In both Securities and Exchange Commission closing or a market-wide trading halt Sections the Participant’s monthly ADV (‘‘Commission’’) a proposed rule change because it preserves the Exchange’s is calculated at the end of each month. to amend the Fee Schedule for trading intent behind adopting volume based The Exchange is proposing to amend on the BOX Market LLC (‘‘BOX’’) fees. The proposed change is non- the BOX Fee Schedule to permit the options facility the Fee Schedule to discriminatory because it applies Exchange to adjust the ADV calculation permit the Exchange to adjust the equally to all Participants and to all for any trading day where the market is average daily volume calculation for any volume tiers. not open for the entire trading day. trading day on which the Exchange is Specifically, in these situations the B. Self-Regulatory Organization’s closed for trading due to an early Exchange could count any day when the Statement on Burden on Competition closing or a market-wide trading halt. market closes early due to a holiday The Exchange does not believe that The text of the proposed rule change is observance as a half day in the the proposed rule change will impose available from the principal office of the calculation, or exclude from the any burden on competition not Exchange, at the Commission’s Public calculation any day where the Exchange necessary or appropriate in furtherance Reference Room and also on the declares a trading halt in all securities of the purposes of the Act. With respect Exchange’s Internet Web site at http:// or honors a market-wide trading halt to monthly ADV calculations, the boxexchange.com. declared by another market. For Exchange notes that there are very few II. Self-Regulatory Organization’s example, this would have allowed the instances where this change will Statement of the Purpose of, and Exchange to exclude August 22, 2013 actually be invoked, and when invoked, Statutory Basis for, the Proposed Rule when trading was halted in Nasdaq- the Exchange believes the rule will have Change listed securities for three hours across little or no impact on trading decisions In its filing with the Commission, the all exchanges. The Exchange is not or execution quality. To the contrary, Exchange included statements proposing any changes to the monthly the Exchange believes that the proposed ADV thresholds required to achieve modification to its ADV calculation is 1 15 U.S.C. 78s(b)(1). each volume tier and will issue an pro-competitive and will result in lower 2 17 CFR 240.19b–4. information circular to inform total costs to Participants, a positive 3 15 U.S.C. 78s(b)(3)(A)(ii). Participants of any trading day where 4 17 CFR 240.19b–4(f)(2). the monthly ADV calculations will be 5 15 U.S.C. 78f(b)(4) and (5).

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outcome of competitive markets. All submissions should refer to File 27, 2013, NASDAQ OMX BX, Inc. (‘‘BX’’ Moreover, other options exchanges have Number SR–BOX–2013–55. This file or ‘‘Exchange’’) filed with the Securities adopted rules that are similar to the number should be included on the and Exchange Commission (‘‘SEC’’ or change in ADV calculation being subject line if email is used. To help the ‘‘Commission’’) the proposed rule proposed by the Exchange.6 Commission process and review your change as described in Items I, II, and comments more efficiently, please use III below, which Items have been C. Self-Regulatory Organization’s only one method. The Commission will prepared by the Exchange. The Statement on Comments on the post all comments on the Commission’s Commission is publishing this notice to Proposed Rule Change Received From Internet Web site (http://www.sec.gov/ solicit comments on the proposed rule Members, Participants or Others rules/sro.shtml). Copies of the change from interested persons. No written comments were either submission, all subsequent I. Self-Regulatory Organization’s solicited or received. amendments, all written statements with respect to the proposed rule Statement of the Terms of Substance of III. Date of Effectiveness of the change that are filed with the the Proposed Rule Change Proposed Rule Change and Timing for Commission, and all written The Exchange is filing this proposed Commission Action communications relating to the rule change with respect to amendments The foregoing rule change has become proposed rule change between the of the Restated Certificate of effective pursuant to Section Commission and any person, other than Incorporation (the ‘‘Charter’’) and By- 19(b)(3)(A)(ii) of the Exchange Act 7 and those that may be withheld from the Laws (the ‘‘By-Laws’’) of its parent Rule 19b–4(f)(2) thereunder,8 because it public in accordance with the corporation, The NASDAQ OMX Group, establishes or changes a due or fee. provisions of 5 U.S.C. 552, will be Inc. (‘‘NASDAQ OMX’’ or the At any time within 60 days of the available for Web site viewing and ‘‘Company’’). The proposed filing of the proposed rule change, the printing in the Commission’s Public amendments will be implemented on a Commission summarily may Reference Room, 100 F Street NE., date designated by NASDAQ OMX temporarily suspend the rule change if Washington, DC 20549, on official following approval by the Commission. it appears to the Commission that the business days between the hours of The text of the proposed rule change is action is necessary or appropriate in the 10:00 a.m. and 3:00 p.m. Copies of such available on the Exchange’s Web site at public interest, for the protection of filing also will be available for http://nasdaqomxbx.cchwallstreet.com, investors, or would otherwise further inspection and copying at the principal at the principal office of the Exchange, the purposes of the Act. If the office of the Exchange. All comments and at the Commission’s Public Commission takes such action, the received will be posted without change; Reference Room. Commission shall institute proceedings the Commission does not edit personal identifying information from II. Self-Regulatory Organization’s to determine whether the proposed rule Statement of the Purpose of, and should be approved or disapproved. submissions. You should submit only information that you wish to make Statutory Basis for, the Proposed Rule IV. Solicitation of Comments available publicly. All submissions Change Interested persons are invited to should refer to File Number SR–BOX– In its filing with the Commission, the submit written data, views and 2013–55 and should be submitted on or Exchange included statements arguments concerning the foregoing, before January 2, 2014. concerning the purpose of and basis for including whether the proposed rule For the Commission, by the Division of the proposed rule change and discussed change is consistent with the Act. Trading and Markets, pursuant to delegated any comments it received on the Comments may be submitted by any of authority.9 proposed rule change. The text of these the following methods: Elizabeth M. Murphy, statements may be examined at the Secretary. places specified in Item IV below. The Electronic Comments [FR Doc. 2013–29624 Filed 12–11–13; 8:45 am] Exchange has prepared summaries, set • Use the Commission’s Internet BILLING CODE 8011–01–P forth in sections A, B, and C below, of comment form (http://www.sec.gov/ the most significant aspects of such rules/sro.shtml); or statements. • SECURITIES AND EXCHANGE Send an email to rule-comments@ A. Self-Regulatory Organization’s COMMISSION sec.gov. Please include File Number SR– Statement of the Purpose of, and BOX–2013–55 on the subject line. [Release No. 34–71011; File No. SR–BX– Statutory Basis for, the Proposed Rule Paper Comments 2013–057] Change • Send paper comments in triplicate Self-Regulatory Organizations; 1. Purpose to Elizabeth M. Murphy, Secretary, NASDAQ OMX BX, Inc.; Notice of Filing NASDAQ OMX is proposing to make Securities and Exchange Commission, of Proposed Rule Change To Amend certain amendments to its Charter and 100 F Street NE., Washington, DC the Restated Certificate of By-Laws. 20549–1090. Incorporation and By-Laws of the NASDAQ OMX Group, Inc. (i) Background 6 See Securities Exchange Act Release Nos. 70472 December 6, 2013. At NASDAQ OMX’s 2012 annual (September 23, 2013), 78 FR 59738 (September 27, meeting held on May 22, 2012, 2013)(Notice of Filing and Immediate Effectiveness Pursuant to Section 19(b)(1) of the of SR–PHLX–2013–93); 70470 (September 23, 2013) Securities Exchange Act of 1934 NASDAQ OMX’s stockholders 78 FR 59740 (September 27, 2013)(Notice of Filing (‘‘Act’’),1 and Rule 19b–4 thereunder,2 considered two proposals submitted by and Immediate Effectiveness of SR–NASDAQ– notice is hereby given that on November individual stockholders. The first 2013–117); and 70657 (October 10, 2013), 78 FR proposal, which passed with 68% of the 62899 (October 22, 2013)(Notice of Filing and Immediate Effectiveness of SR–ISE–2013–51). 9 17 CFR 200.30–3(a)(12). votes cast, requested that NASDAQ 7 15 U.S.C. 78s(b)(3)(A)(ii). 1 15 U.S.C. 78s(b)(1). OMX’s Board take steps to replace each 8 17 CFR 240.19b–4(f)(2). 2 17 CFR 240.19b–4. supermajority voting standard in the

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Charter and By-Laws 3 with a voting holders of at least 662⁄3% of the voting believes that a ‘‘majority of outstanding standard requiring a ‘‘majority of votes power of the outstanding Voting Stock, shares’’ standard is a balanced outcome cast.’’ The second proposal, which did voting together as a single class, shall be that responds to stockholder feedback not pass but received 49% of the votes required to amend, repeal or adopt any while appropriately maintaining cast, requested that NASDAQ OMX’s provision inconsistent with paragraph C NASDAQ OMX’s defensive posture Board take steps to enable stockholders of Article Fourth,4 Article Fifth,5 Article against hostile takeovers. having at least one-tenth of NASDAQ Seventh,6 Article Eighth 7 or Article (b) Non-Substantive Changes OMX’s voting power to call a special Ninth of the Charter.8 meeting of stockholders. In each of the three provisions NASDAQ OMX also proposes to Following the 2012 annual meeting, described above, NASDAQ OMX amend and restate the Charter to make the Nominating & Governance proposes to remove the requirement for other non-substantive changes. Committee of NASDAQ OMX’s Board an affirmative vote of at least 66 2⁄3% of Specifically, the proposal deletes reviewed the voting results on the two the total voting power of the Voting obsolete references to the following: stockholder proposals and discussed the Stock and replace it with a voting • The 3.75% Series A Convertible stockholder voting standards and rights standard requiring the affirmative vote Notes due 2012 and the 3.75% Series B contemplated by the Charter and By- of a majority of the outstanding Voting Convertible Notes due 2012, which are Laws. Following this review, the Stock. In developing this proposal, no longer outstanding, in Article Fourth, Nominating & Governance Committee NASDAQ OMX considered the relative Paragraph C and Article Eleventh; recommended to the Board, and the weight of the arguments for and against • a voting trust agreement, which is Board approved, certain changes to the supermajority voting requirements. no longer in effect, in Article Fourth, Charter and By-Laws to address the two Historically, supermajority voting Paragraph C(3)(b)(iii); • stockholder proposals and make other requirements have protected ownership of NASDAQ OMX changes. NASDAQ OMX now proposes corporations against coercive takeover securities by the National Association of to make these changes, which are tactics by requiring broad stockholder Securities Dealers, Inc., certain affiliates described further below. support for certain types of transactions of Hellman & Friedman LLC, and certain or governance changes. However, in affiliates of Silver Lake, none of which (ii) Proposed Amendments to Charter recent years, corporate governance currently own any NASDAQ OMX (a) Removal and Replacement of standards have evolved, and many securities, in Article Fourth, Paragraph Supermajority Voting Requirements stockholder rights advocates argue that C(6); 9 and To respond to feedback from its supermajority voting requirements limit stockholders’ participation in corporate 9 NASDAQ OMX notes that the remaining text of stockholders, NASDAQ OMX proposes Article Fourth, Paragraph C(6) of the Charter to replace each supermajority voting governance. NASDAQ OMX believes includes an obsolete cross-reference to Section 6(b) requirement in the Charter with a that while it is important to protect of Article Fourth, Paragraph C in the second ‘‘majority of outstanding shares’’ voting against coercive takeover tactics, it is sentence, which begins ‘‘The Board, however, may also critically important to obtain not approve an exemption under Section 6(b). . . .’’ requirement. The Charter currently NASDAQ OMX cannot correct this cross-reference, includes the following three stockholder input and respond to which should refer to Section 6 without further supermajority voting requirements. stockholder concerns about corporate reference to a subsection (b), without seeking • Removal of Directors. Article Fifth, governance. further approval of its stockholders, which would NASDAQ OMX believes that the require NASDAQ OMX to call and hold a Paragraph D provides that, except for stockholder meeting. Generally, NASDAQ OMX directors elected by the holders of any proposed ‘‘majority of outstanding holds stockholder meetings, which are time series of preferred stock, any director, or shares’’ voting requirement will consuming and expensive, only once or twice a the entire Board, may be removed from continue to provide some protection year. Moreover, it is atypical of a large public against proposals that are harmful to the company like NASDAQ OMX to submit a proposal office at any time, but only by the to its stockholders solely to correct a cross-reference affirmative vote of at least 662⁄3% of the stockholders. While this requirement is in its Charter. However, NASDAQ OMX believes, total voting power of the outstanding less difficult to satisfy than a following consultation with outside counsel, that it shares of NASDAQ OMX’s capital stock supermajority voting requirement, it is is clear, based on the drafting history of this more difficult to satisfy than a ‘‘majority provision, that the intent of the cross-reference is entitled to vote generally in the election to refer to Section 6 of Article Fourth, Paragraph C of directors (the ‘‘Voting Stock’’), voting of votes cast’’ requirement, which of the Charter. In other words, the second sentence together as a single class. NASDAQ OMX considered as an of Article Fourth, Paragraph C(6) should read: ‘‘The • Adoption, Alteration, Amendment alternate option. NASDAQ OMX Board, however, may not approve an exemption under Section 6: (i) for a registered broker or dealer and Repeal of By-Laws. Article Eighth, or an Affiliate thereof or (ii) an individual or entity 4 Paragraph C of Article Fourth sets forth the 5% Paragraph A provides that the that is subject to a statutory disqualification under voting limitation, which provides that holders of Section 3(a)(39) of the Exchange Act.’’ Under no affirmative vote of the holders of at least NASDAQ OMX’s voting securities may not cast circumstances will NASDAQ OMX read the 662⁄3% of the total voting power of the votes in excess of 5% of NASDAQ OMX’s obsolete cross-reference to imply that the Board outstanding voting securities. To be clear, NASDAQ outstanding Voting Stock, voting could grant an exemption to the ownership OMX is not proposing any change to the 5% voting together as a single class, shall be limitation in Article Fourth, Paragraph C(6) of the limitation itself. NASDAQ OMX only proposes that Charter for a registered broker or dealer or an required in order for the stockholders to any future amendment of the 5% voting limitation Affiliate thereof, or an individual or entity that is adopt, alter, amend or repeal any By- will require the approval of stockholders holding a subject to a statutory disqualification under Section majority of the outstanding shares, rather than Law. 3(a)(39) of the Exchange Act. NASDAQ OMX also stockholders holding 662⁄3% of the outstanding • Adoption, Alteration, Amendment notes that it is proposing amendments to Section shares. and Repeal of Certain Charter 12.5 of the By-Laws to eliminate cross-references to 5 Article Fifth includes certain provisions relating Provisions. Article Ninth, Paragraph A subsection (b) of Article Fourth, Paragraph C(6) of to the Board, such as Board size and director the Charter. Finally, NASDAQ OMX notes that provides that the affirmative vote of the elections. there are some differences in language between the 6 Article Seventh prohibits stockholder action by second sentence of Article Fourth, Paragraph C(6) 3 These provisions, which are described further written consent. of the Charter and the second sentence of Section 7 below, require the affirmative vote of at least 662⁄3% Article Eighth establishes the procedures to 12.5 of the By-Laws. To the extent that these of the total voting power of the outstanding shares adopt, alter, amend or repeal the By-Laws. differences would cause a difference in of NASDAQ OMX’s capital stock to approve certain 8 Article Ninth establishes the procedures to interpretation, NASDAQ OMX notes, following actions. adopt, alter, amend or repeal the Charter. consultation with outside counsel, that the Charter

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• the phase-out of the classified board amendment to NASDAQ OMX’s special meeting (a ‘‘Special Meeting structure, which was complete in 2007, Charter; however, since the amendment Request’’) by one or more stockholders. in Article Fifth, Paragraph B. is limited in scope, it does not require Such stockholders (the ‘‘Requisite In Article Fifth, Paragraph B, the the approval of NASDAQ OMX’s Holders’’) must hold of record, in the proposal also clarifies that the election stockholders.12 aggregate, at least 15 percent of of directors by stockholders shall occur NASDAQ OMX’s outstanding shares of at an annual or special meeting. The (iv) Proposed Amendments to the By- capital stock entitled to vote on matters proposal corrects a typographical error Laws to be brought before the special meeting in Article Fifth, Paragraph A and (a) Special Meetings of Stockholders (the ‘‘Requisite Percentage’’). Such 14 renumbers the provisions of the Charter, Current Section 3.2 of NASDAQ shares must be ‘‘Net Long Shares,’’ where necessary following the other OMX’s By-Laws provides that only and the Requisite Holders must have amendments. Finally, the proposal NASDAQ OMX may call special held the shares continuously for at least amends the introductory and meetings of its stockholders.13 To one year as of the date of the Special concluding language of the Charter to respond to feedback from its Meeting Request. Whether shares incorporate language that will be stockholders, as discussed above, constitute Net Long Shares shall required under Delaware law when the NASDAQ OMX proposes to delete this ultimately be decided by NASDAQ amended and restated Charter is filed provision and replace it with language OMX’s Board in its reasonable with the Secretary of State of the State that will allow NASDAQ OMX’s determination. The intent of the 10 of Delaware. stockholders to call special meetings requirement for stockholders to The amendment and restatement of after following particular procedures. maintain a ‘‘net long position’’ is to the Charter to incorporate these non- Similar to the elimination of limit the ability to call a special meeting substantive changes will simplify and supermajority voting requirements, to stockholders that have long-term streamline the document. which is discussed above, the record and economic positions in implementation of the right of NASDAQ OMX. (iii) Proposed Elimination of Certificate Proposed Section 3.2(a) also sets forth of Designation stockholders to call a special meeting has received recent attention from the procedures for determining whether NASDAQ OMX proposes to eliminate investor and corporate governance a special meeting has been requested by its Certificate of Designation, advocates. These advocates argue that Requisite Holders representing in Preferences and Rights of Series A such a right will enable stockholders to aggregate at least the Requisite Convertible Preferred Stock (the ‘‘Series raise and act on matters that arise Percentage if multiple Special Meeting A Convertible Preferred Stock’’), and all between annual meetings. Requests are delivered to NASDAQ matters set forth therein. The Series A Following discussions with some of OMX’s Corporate Secretary. Multiple Convertible Preferred Stock was created its stockholders, NASDAQ OMX agrees requests will be considered together in 2009 to facilitate the conversion of only if: (i) each Special Meeting Request 11 that it is appropriate to allow certain notes into common stock. The stockholders who meet certain identifies substantially the same Company authorized 2 million shares of procedural requirements to call a purpose or purposes of the special the Series A Convertible Preferred Stock special meeting. In proposing these and immediately issued 1.6 million of 14 For purposes of determining Requisite Holders procedural requirements, NASDAQ under proposed Section 3.2, ‘‘Net Long Shares’’ those shares to the converting OMX’s goals are to ensure timely notice noteholders. shall be limited to the number of shares beneficially of a meeting request and to gather owned, directly or indirectly, by any stockholder or In 2010, following stockholder sufficient information about the beneficial owner that constitute such person’s ‘‘net approval, all 1.6 million issued shares of proposing stockholder(s) and the long position’’ as defined in Rule 14e–4 under the the Series A Convertible Preferred Stock Act, provided that (A) for the purposes of this proposal. Among other things, this were converted into common stock. definition, references in the rule to ‘‘the date the information will ensure that NASDAQ tender offer is first publicly announced or otherwise Since then, no shares of the Series A OMX is able to comply with its made known by the bidder to the holders of the Convertible Preferred Stock have been disclosure and other requirements security to be acquired’’ shall be the date of the outstanding, and the Company has no relevant Special Meeting Request and all dates in under applicable law and that NASDAQ intention to issue further shares of this the one year period prior thereto, the ‘‘highest OMX, its Board and its stockholders are tender offer price or stated amount of the series. able to assess the proposal adequately. consideration offered for the subject security’’ shall As a clean-up matter, the Company The proposed procedural requirements refer to the closing sales price of NASDAQ OMX’s seeks to file a certificate of elimination capital stock on NASDAQ on such date (or, if such are set forth below. with the Secretary of State of the State date is not a trading day, the next succeeding First, proposed Section 3.2(a) trading day), the ‘‘person whose securities are the of Delaware to eliminate the Series A provides that special meetings of subject of the offer’’ shall refer to NASDAQ OMX, Convertible Preferred Stock. Under NASDAQ OMX’s stockholders may only a ‘‘subject security’’ shall refer to the issued and Delaware law, a certificate of outstanding voting stock of NASDAQ OMX; and (B) be called: (i) at any time by NASDAQ elimination is deemed to be an the net long position of such stockholder shall be OMX’s Board pursuant to a resolution reduced by any shares as to which such person does adopted by a majority of the total not have the right to vote or direct the vote at the language shall prevail. As soon as feasible, number of directors NASDAQ OMX proposed special meeting or as to which such NASDAQ OMX plans to present a proposal to the person has entered into a derivative or other stockholders to conform this provision of the would have if there were no vacancies; agreement, arrangement or understanding that Charter to the By-Laws. and (ii) by NASDAQ OMX’s Corporate hedges or transfers, in whole or in part, directly or 10 See Sections 242 and 245 of the DGCL. Secretary following the receipt of a indirectly, any of the economic consequences of 11 See Securities Exchange Act Release No. 60845 written request in proper form for a ownership of such shares. In addition, to the extent (October 20, 2009), 74 FR 55078 (October 26, 2009) any affiliates of the stockholder or beneficial owner (SR–BX–2009–061, SR–NASDAQ–2009–087, SR– are acting in concert with the stockholder or Phlx–2009–88); see also Securities Exchange Act 12 See Section 151(g) of the DGCL. beneficial owner with respect to the calling of the Release No. 61000 (November 13, 2009), 74 FR 13 Under Delaware law, special meetings of a special meeting, the determination of Net Long 61390 (November 24, 2009) (SR–BSECC–2009–005); corporation’s stockholders may be called by the Shares may include the effect of aggregating the Net see also Securities Exchange Act Release No. 61001 board of directors or by such persons as may be Long Shares (including any negative number) of (November 13, 2009), 74 FR 61391 (November 24, authorized by the certificate of incorporation or the such affiliate or affiliates. See proposed Section 2009) (SR–SCCP–2009–04). bylaws. See Section 211(d) of the DGCL. 3.2(a) of the By-Laws.

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meeting and substantially the same Special Meeting Request was delivered; • include (i) an agreement by each matters proposed to be acted on at the or Requisite Holder to immediately deliver requested special meeting (in each case • a Similar Item is included in written notice to NASDAQ OMX’s as determined in good faith by NASDAQ OMX’s notice of meeting as Corporate Secretary in the case of any NASDAQ OMX’s Board); and (ii) such an item of business to be presented at disposition, on or prior to the record Special Meeting Requests have been a stockholder’s meeting that has been date for the special meeting, of any dated and delivered to NASDAQ OMX’s called but not yet held. shares of NASDAQ OMX’s capital stock Corporate Secretary within 60 days of The Board may adjourn or reschedule held of record by such Requisite Holder the earliest dated Special Meeting any previously scheduled special and (ii) an acknowledgement that (1) Request. NASDAQ OMX believes these meeting of the stockholders. NASDAQ any such disposition shall be deemed a procedures are reasonable and clear and OMX believes the subject matter revocation of the Special Meeting notes that they grant only limited limitations set forth in proposed Section Request to the extent of such disposition discretion to NASDAQ OMX’s Board in 3.2(c) are appropriate in order to comply and (2) if, following such deemed determining whether Special Meeting with applicable law and to prevent revocation, the Requisite Holders hold Requests will be considered together. multiple considerations of the same of record, in the aggregate, less than the Pursuant to proposed Section 3.2(b), if item of business. NASDAQ OMX Requisite Percentage of the voting a Special Meeting Request is in proper believes the time limits set forth in power of all outstanding shares of form, NASDAQ OMX’s Board shall proposed Section 3.2(c) are appropriate NASDAQ OMX’s capital stock entitled determine the place, if any, date and to ensure that NASDAQ OMX is not to vote generally in the election of time of the special meeting, and required to incur the time and expense directors, NASDAQ OMX shall have no NASDAQ OMX’s Corporate Secretary of calling and holding a special meeting obligation to hold the special meeting. shall call the special meeting within 120 of stockholders immediately prior to an Proposed Section 3.2(f) provides that days after the date the Special Meeting upcoming annual meeting of at any special meeting of the Request was delivered. However, stockholders or if a Similar Item of stockholders, the only business to be NASDAQ OMX’s Board may, in lieu of business already has been presented at conducted or considered will have been calling a special meeting, present an a recent stockholders’ meeting. specified in the notice of meeting (or identical or substantially similar item of To be in proper form, a Special any supplement thereto) given by or at 15 the direction of NASDAQ OMX’s Board business (a ‘‘Similar Item’’), as Meeting Request must comply with or Corporate Secretary, as the case may determined in good faith by NASDAQ certain requirements, as described be. In any event, however, NASDAQ OMX’s Board, for stockholder approval further below.16 NASDAQ OMX’s Board OMX’s Board may submit its own at any other meeting of the stockholders will have the sole discretion to proposal or proposals for consideration that is held not less than 120 days after determine whether a Special Meeting at a special meeting. Except as the delivery of the Special Meeting Request is in proper form.17 Proposed otherwise allowed under proposed Request. The intent of this provision is Section 3.2(d) sets forth the Section 3.2, stockholders will not be to save NASDAQ OMX the time and requirements for a Special Meeting permitted to propose business to be expense of calling and holding a special Request to be in proper form. These meeting if NASDAQ OMX intends to brought before a special meeting of the proposed requirements will ensure that stockholders. NASDAQ OMX believes hold a separate stockholders’ meeting NASDAQ OMX has sufficient within 120 days. In fixing the place, if these provisions are reasonable and information to comply with its necessary to limit the items of business any, date and time for any special disclosure requirements under meeting, NASDAQ OMX’s Board may that may be considered at a special applicable law and that the Requisite meeting to those that were proposed by consider such factors as it deems Holders maintain a sufficient ownership relevant in its business judgment, the Company, the Board or stockholders level through the date of the special that comply with the requirements and including the nature of the matters to be meeting. Specifically, a Special Meeting considered, the facts and circumstances procedures set forth in the By-Laws. Request shall: Proposed Section 3.2(g) will require surrounding any request for a meeting • be in writing, signed by each the Requisite Holders giving a Special and any plan of the Board to call an 18 Requesting Person and delivered to Meeting Request to further update and annual meeting or a special meeting. NASDAQ OMX’s Corporate Secretary at supplement the request, if necessary, so Proposed Section 3.2(c) sets forth NASDAQ OMX’s principal executive that the information in the request is certain limitations on Special Meeting offices; true and correct as of the record date for Requests. Specifically, a Special • set forth certain information with the special meeting and as of the 10th Meeting Request will not be valid if: respect to (i) each person the Requesting business day prior to the special • it relates to an item of business that Person proposes to nominate for meeting or any adjournment or is not a proper subject for stockholder director, (ii) any business the postponement thereof. This requirement action under applicable law; Requesting Person proposes to bring • it is delivered during the period will ensure that NASDAQ OMX, its before the meeting and (iii) each Board and its other stockholders are commencing 90 days prior to the one- Requesting Person 19; and year anniversary of the date of the notified of changes to the information they will consider in assessing a immediately preceding annual meeting 16 See proposed Section 3.2(a) of the By-Laws. proposed item of business prior to the and ending on the date of the next 17 Id. special meeting. In the case of an update annual meeting; 18 ‘‘Requesting Person’’ means (i) each Requisite • a Similar Item was presented at any Holder, (ii) the beneficial owner or beneficial and supplement required to be made as meeting of stockholders held within 120 owners, if different, on whose behalf the Special of the record date, the update and Meeting Request is being delivered to NASDAQ days prior to the date on which the supplement must be delivered to OMX’s Corporate Secretary and (iii) any affiliate or NASDAQ OMX’s Corporate Secretary no associate of such stockholder or beneficial owner. 15 Under proposed Section 3.2(b) of the By-Laws, See proposed Section 3.2(e) of the By-Laws. later than the fifth business day after the the election of directors shall be deemed a ‘‘Similar 19 The information required is the same Item’’ with respect to all items of business involving information required from Proposing Persons with brought before an annual meeting of stockholders the nomination, election or removal of directors. respect to nominations or items of business to be and is described in detail in Section (iv)(b) below.

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record date for the special meeting. In stockholders to bring business before an of nominations or other business to be the case of an update and supplement annual meeting. NASDAQ OMX is considered at an annual meeting. required to be made as of the 10th therefore proposing changes to some of NASDAQ OMX proposes certain business day prior to the special these procedures to enhance them and amendments to this section to ensure meeting or any adjournment or conform them, in some cases, to the that NASDAQ OMX has sufficient postponement thereof, the update and procedures relating to special meetings. information about such nominations or supplement must be delivered to Generally, the proposed amendments other business proposed by a NASDAQ OMX’s Corporate Secretary no add requirements for extensive stockholder to enable the Company, the later than the eighth business day prior disclosures by proposing stockholders Board and the other stockholders to to the date for the special meeting or, if about themselves, any proposed assess a position on the nominations or practical, any adjournment or nominees for director and any proposed other business. The additional postponement thereof (and, if not items of business to be brought before a information requirements will also practicable, on the first practicable date meeting. The specific amendments are ensure that NASDAQ OMX can make prior to the date to which the special discussed in detail below. adequate disclosures to its stockholders meeting has been adjourned or First, Section 3.1(a) of the By-Laws and comply with requirements under postponed). currently states that nominations of applicable law. Proposed Section 3.2(h) will allow the persons for election to NASDAQ OMX’s Requisite Holders to revoke a Special Board and the proposal of other Specifically, NASDAQ OMX proposes Meeting Request by written revocation business to be considered by the an amendment to the first paragraph of delivered to NASDAQ OMX at any time stockholders at an annual meeting of this section to require a stockholder prior to the special meeting requested. stockholders may be made only: (i) who provides a notice relating to a However, NASDAQ OMX’s Board will Pursuant to the Company’s notice of nomination to include with the notice, have the discretion to determine meeting (or any supplement thereto); (ii) a completed and signed questionnaire, whether or not to proceed with the by or at the direction of NASDAQ representation and agreement relating to special meeting. The Board might wish OMX’s Board or its Nominating & the nominee(s) for director.21 NASDAQ to continue with the special meeting if, Governance Committee; or (iii) by any OMX also proposes to require a for example, the Company has already stockholder of the Company that meets stockholder who provides a notice to spent the time and expense required to certain requirements. These further update and supplement the call the meeting or if the agenda for the requirements state that the stockholder notice, if necessary, so that the meeting includes items other than those must: (i) Be a stockholder of record at information in the notice is true and proposed in the Special Meeting the time of delivery of notice to the correct as of the record date for the Request. Company of nominees or other business annual meeting and as of the 10th Finally, NASDAQ OMX proposes to to be conducted at the meeting; (ii) be business day prior to the annual designate as Section 3.2(i) existing text entitled to vote at the meeting; and (iii) meeting or any adjournment or that sets forth the requirements for comply with the notice procedures set postponement thereof.22 This stockholders to submit nominees for forth in the By-Laws. NASDAQ OMX requirement will ensure that NASDAQ election as directors at certain proposes to add a parenthetical to the OMX, its Board and its other stockholder meetings. NASDAQ OMX requirement that a stockholder must be stockholders are notified of changes to further proposes to make a minor a stockholder of record to clarify that a the information they will consider in change to this text to clarify that nomination or proposal of other assessing a proposed item of business NASDAQ OMX’s Board, rather than the business may be made on behalf of a prior to the annual meeting. In the case Company itself, will call a special beneficial owner, if different from the of an update and supplement required meeting on behalf of the Company. stockholder of record, only if the to be made as of the record date, the (b) Annual Meetings of Stockholders beneficial owner is the beneficial owner update and supplement must be of NASDAQ OMX shares. This delivered to NASDAQ OMX’s Corporate Section 3.1 of NASDAQ OMX’s By- modification will clarify that both Secretary no later than the fifth business Laws, which is the ‘‘advance notice’’ record and beneficial owners of day after the record date for the annual 20 provision, requires stockholders to NASDAQ OMX stock have the right to meeting. In the case of an update and notify NASDAQ OMX, during a propose nominees or business to be supplement required to be made as of specified period in advance of an considered at an annual meeting. the 10th business day prior to the annual meeting, of their intention to NASDAQ OMX further proposes that a annual meeting or any adjournment or nominate one or more persons for stockholder who proposes nominees or postponement thereof, the update and election to the Board or to present a business to be considered at an annual supplement must be delivered to business proposal for consideration by meeting must hold shares in the NASDAQ OMX’s Corporate Secretary no the stockholders at the meeting. While Company at the time of the meeting, in later than the eighth business day prior designing the proposed procedural addition to the time of delivery of the to the date for the annual meeting or, if requirements for stockholders to call a required notice to the Company. This practicable, any adjournment or special meeting, as outlined above, will ensure that a stockholder retains an postponement thereof (and, if not NASDAQ OMX evaluated the existing interest in the Company until the practicable, on the first practicable date procedural requirements for meeting at which the stockholder’s prior to the date to which the annual nominee or other business is 20 ‘‘Advance notice’’ provisions allow considered. Finally, NASDAQ OMX stockholder(s) to bring business before an annual 21 The contents of and rationale for the meeting of stockholders, but set forth procedural proposes to number the procedural questionnaire, representation and agreement are requirements to ensure that companies and boards requirements for stockholders who discussed further in Section (iv)(c) below. have sufficient information about the proposal and propose nominees or business to make 22 NASDAQ OMX notes that this proposal is the proposing stockholder(s), as well as adequate them easier to understand. similar to proposed Section 3.2(g) of the By-Laws, time to consider the proposal, by requiring the which requires updates and supplements to a proposing stockholder(s) to give advance notice of Currently, Section 3.1(b) of the By- stockholder notice relating to a special meeting. the intention to bring the proposal before the Laws sets forth the requirements for a This proposed change is discussed further in annual meeting. stockholder’s notice to NASDAQ OMX Section (iv)(a) above.

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meeting has been adjourned or serve as a director or (ii) that could be also proposes to state that a Proposing postponed). material to a reasonable stockholder’s Person shall in all events be deemed to Section 3.1(b)(i) of the By-Laws understanding of the independence, or beneficially own any shares of any class currently sets forth the information that lack of independence, of such proposed or series of NASDAQ OMX’s capital a stockholder must provide to NASDAQ nominee. NASDAQ OMX believes that stock as to which such person has a OMX about each person whom the all of the new information requirements right to acquire beneficial ownership at stockholder proposes to nominate for included in proposed Section 3.1(b)(i) any time in the future. These proposed election as a director. NASDAQ OMX are reasonable and necessary in order to changes merely clarify how the concept proposes changes to this section to use assist the Company in evaluating of beneficial ownership will be the defined term ‘‘Proposing Person’’ director eligibility, independence and interpreted under this section of the By- instead of stockholder,23 to require potential conflicts of interest. Laws. information with respect to nominees Section 3.1(b)(ii) of the By-Laws currently sets forth the information that Current Section 3.1(b)(iii)(D) requires for reelection as well as nominees for proposing stockholders to describe to election, to correct a reference to the Act a stockholder must provide to NASDAQ OMX about any business, other than NASDAQ OMX any agreement, and to add numbering and other arrangement or understanding organizational changes to make the nominations for director, that the (including any derivative or short requirements easier to read and stockholder proposes to bring before an positions, profit interests, options, understand. NASDAQ OMX also annual meeting. NASDAQ OMX warrants, convertible securities, stock proposes to require the same proposes changes to this section to appreciation or similar rights, hedging information with respect to a proposed require that the description of the transactions, and borrowed or loaned nominee that will be required with proposed business be reasonably shares) that has been entered into as of respect to a Proposing Person, as detailed, to use the defined term the date of the notice by the stockholder discussed further below. In addition, ‘‘Proposing Person’’ instead of and the beneficial owners with respect NASDAQ OMX proposes to add two stockholder and beneficial owner in to NASDAQ OMX’s stock. Given the new informational requirements for certain places and to add numbering, increased complexity of such proposed nominees, including: reordering and other organizational • a description of all direct and changes to make the requirements easier transactions in today’s marketplace, indirect compensation and other to read and understand. NASDAQ OMX NASDAQ OMX proposes to replace the material monetary agreements, also proposes to add a new requirement current language with a similar for a stockholder to provide a requirement for disclosure of any arrangements and understandings 25 during the past three years, and any reasonably detailed description of all Synthetic Equity Interest, without other material relationships, between or contracts, agreements, arrangements and regard to whether: (i) The derivative, among any Proposing Person, on the one understandings between or among any swap or other transaction or series of hand, and such proposed nominee and of the Proposing Persons or between or transactions conveys any voting rights any of his or her respective affiliates and among any Proposing Person in in such shares to the Proposing Person; associates, on the other hand, including, connection with the proposal. NASDAQ (ii) the derivative, swap or other without limitation, all information that OMX believes this information will be transaction or series of transactions is would be required to be disclosed useful in assessing the aims and required to be, or is capable of being, pursuant to Item 404 under Regulation incentives of Proposing Persons in settled through delivery of such shares; proposing business before an annual S–K if such Requesting Person were the or (iii) the Proposing Person may have meeting. ‘‘registrant’’ for purposes of such rule entered into other transactions that Section 3.1(b)(iii) of the By-Laws hedge or mitigate the economic effect of and the proposed nominee were a currently sets forth the information that director or executive officer of such such derivative, swap or other a stockholder who proposes nominee(s) transaction or series of transactions. registrant; and for director or other business to be put • a completed and signed This proposed provision will assist forth before an annual meeting must NASDAQ OMX, its Board and its other questionnaire, representation and provide to NASDAQ OMX about such agreement.24 stockholders in understanding a stockholder and the beneficial owner, if Proposing Person’s full economic Finally, NASDAQ OMX proposes to any, on whose behalf the nomination or add a catch-all provision to Section interests in NASDAQ OMX and possible proposal is made. NASDAQ OMX aims and incentives in submitting the 3.1(b)(i) of the By-Laws that will allow proposes changes to this section to use the Company to require any proposed proposed business for consideration at the defined term ‘‘Proposing Person’’ an annual meeting. nominee to furnish such other instead of stockholder and beneficial information (i) as the Company may owner in certain places and to add reasonably require to determine the 25 ‘‘Synthetic Equity Interest’’ shall mean any numbering, reordering and other derivative, swap or other transaction (including any eligibility of such proposed nominee to organizational changes to make the short positions, profit interest, options, warrants, requirements easier to read and convertible securities, stock appreciation or similar 23 ‘‘Proposing Person’’ means (i) the stockholder understand. rights) or series of transactions engaged in, directly providing the notice of business or the notice of the or indirectly, by a Proposing Person, the purpose or nomination, as applicable, proposed to be brought Relating to the existing requirement in effect of which is to give the Proposing Person before an annual meeting, (ii) any beneficial owner Section 3.1(b)(iii)(B) that a proposing economic risk similar to ownership of shares of any or beneficial owners, if different, on whose behalf stockholder describe the class or series class or series of NASDAQ OMX, including due to such business is proposed to be brought before the and number of shares of NASDAQ OMX the fact that the value of such derivative, swap or meeting or the notice of the nomination proposed other transaction or series of transactions is to be made at the meeting is made, as applicable, capital stock owned beneficially and of determined by reference to the price, value or and (iii) any affiliate or associate (each within the record by such stockholder and the volatility of any shares of any class or series of meaning of Rule 12b–2 under the Act for purposes beneficial owner, NASDAQ OMX NASDAQ OMX, or which derivative, swap or other of the By-Laws) of such stockholder or beneficial proposes to add a parenthetical stating transaction or series of transactions provides, owner. See proposed Section 3.1(c) of the By-Laws. directly or indirectly, the opportunity to profit from 24 The contents of and rationale for the that beneficial ownership shall be any increase in the price or value of shares of any questionnaire, representation and agreement are determined within the meaning of Rule class or series of NASDAQ OMX. See proposed discussed further in Section (iv)(c) below. 13d–3 under the Act. NASDAQ OMX Section 3.1(b)(iii)(D) of the By-Laws.

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For this same reason, NASDAQ OMX NASDAQ OMX held by the Proposing • Is not and will not become a party also proposes to add several new Person; 30 to (i) any agreement as to how the disclosures that a Proposing Person • any direct or indirect interest of the nominee will act or vote on any issue must include in a notice to NASDAQ Proposing Person in any contract with or question (a ‘‘Voting Commitment’’) OMX regarding nominees or other NASDAQ OMX, any affiliate of that has not been fully disclosed to business to be conducted at an annual NASDAQ OMX or any principal NASDAQ OMX or (ii) any Voting meeting. These include disclosures competitor of NASDAQ OMX Commitment that could limit or regarding: (including, in any such case, any interfere with the nominee’s fiduciary duties under applicable law; • Any proxy (other than a revocable employment agreement, collective • proxy or consent given in response to a bargaining agreement or consulting is not and will not become a party agreement); 31 to any agreement with any person other solicitation made pursuant to, and in • accordance with, Section 14(a) of the any pending or threatened litigation than NASDAQ OMX with respect to any Act by way of a solicitation statement in which the Proposing Person is a party direct or indirect compensation, filed on Schedule 14A), agreement, or material participant involving reimbursement or indemnification in arrangement, understanding or NASDAQ OMX or any of its officers or connection with service or action as a directors, or any affiliate of NASDAQ relationship pursuant to which the director of NASDAQ OMX that has not OMX; 32 been fully disclosed to NASDAQ OMX; Proposing Person has or shares a right • to vote any shares of any class or series any material transaction occurring, • would be in compliance, if elected, in whole or in part, during the then of NASDAQ OMX; 26 and will comply, with the provisions of immediately preceding 12-month period NASDAQ OMX’s By-Laws relating to • any proportionate interest in between such Proposing Person, on the qualifications of directors, conflicts of NASDAQ OMX shares or Synthetic one hand, and NASDAQ OMX, any interest and contracts and transactions Equity Interest held, directly or affiliate of NASDAQ OMX or any involving directors; and indirectly, by a general or limited principal competitor of NASDAQ OMX, • in such proposed nominee’s partnership in which the Proposing on the other hand; 33 and Person is a general partner or, directly • individual capacity and on behalf of any any other information relating to person on whose behalf the nomination or indirectly, beneficially owns an the Proposing Person required to be interest in a general partner; 27 is made, would be in compliance, if disclosed in a proxy statement or other elected, and will comply, with • any agreement, arrangement, filings required to be made in NASDAQ OMX’s Corporate Governance understanding or relationship, connection with solicitations of proxies Guidelines, Board of Director Code of including any repurchase or similar so- for, as applicable, the proposal and/or Conduct and Code of Ethics, including called ‘‘stock borrowing’’ agreement or for the election of directors in an all applicable, publicly disclosed arrangement, entered into or engaged in, election contest pursuant to and in conflict of interest, confidentiality, stock directly or indirectly, by the Proposing accordance with Section 14(a) of the Act ownership and insider trading policies Person, the purpose or effect of which and the rules and regulations and guidelines. promulgated thereunder.34 is to mitigate loss to, reduce the The requirements of proposed Section economic risk (of ownership or (c) Questionnaire, Representation and 3.5 of the By-Laws, which will apply to otherwise) of shares of any class or Agreement for Director-Nominees both the Company’s and stockholders’ series of NASDAQ OMX by, manage the nominees for director, will ensure that risk of share price changes for, or NASDAQ OMX proposes to add a new Section 3.5 to its By-Laws to NASDAQ OMX has the necessary increase or decrease the voting power information about nominees to fulfill its of, the Proposing Person with respect to require nominees for director to deliver to NASDAQ OMX, in accordance with public disclosure requirements. The shares of any class or series of NASDAQ requirements also will ensure that OMX, or that provides, directly or the time periods prescribed for delivery of a stockholder’s notice: (i) a written nominees will comply with the legal indirectly, the opportunity to profit obligations, policies and procedures from any decrease in the price or value questionnaire with respect to the background and qualifications of the applicable to all NASDAQ OMX of shares of any class or series of directors. NASDAQ OMX (any of the foregoing, a nominee; and (ii) a written ‘‘Short Interest’’); 28 representation and agreement as to (d) Removal and Replacement of certain matters. Specifically, the written • Supermajority Voting Provisions any performance-related fees (other representation and agreement will than an asset-based fee) to which the provide that the nominee: Consistent with the proposed Proposing Person is entitled based on amendments to remove and replace the any increase or decrease in the price or 30 See proposed Section 3.1(b)(iii)(I) of the By- supermajority voting provisions in the value of shares of any class or series of Laws. Charter discussed above, NASDAQ NASDAQ OMX, or any Synthetic Equity 31 See proposed Section 3.1(b)(iii)(J) of the By- OMX proposes to amend each provision Interest or Short Interest; 29 Laws. of the By-Laws that currently requires a 32 See proposed Section 3.1(b)(iii)(K) of the By- • any significant equity interest or supermajority vote of stockholders to Laws. instead require a ‘‘majority of votes any Synthetic Equity Interest or Short 33 See proposed Section 3.1(b)(iii)(L) of the By- Interest in any principal competitor of Laws. outstanding.’’ NASDAQ OMX’s By-Laws 34 See proposed Section 3.1(b)(iii)(M) of the By- currently include the following two Laws. NASDAQ OMX also proposes to include an supermajority voting requirements, each 26 See proposed Section 3.1(b)(iii)(E) of the By- exception to each of the aforementioned disclosure of which conforms with an analogous Laws. requirements for any disclosures with respect to the 27 See proposed Section 3.1(b)(iii)(F) of the By- ordinary course business activities of any broker, provision in the Charter. Laws. dealer, commercial bank, trust company or other • Removal of Directors. Section 4.6 28 See proposed Section 3.1(b)(iii)(G) of the By- nominee who is a Proposing Person solely as a provides that any or all of the directors Laws. result of being the stockholder directed to prepare 29 See proposed Section 3.1(b)(iii)(H) of the By- and submit the notice required by the By-Laws on may be removed from office at any time 2 Laws. behalf of a beneficial owner. by the affirmative vote of at least 66 ⁄3%

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of the total voting power of the Voting meeting of the Board shall be deemed (h) No Amendment or Repeal of Certain Stock, voting together as a single class.35 duly given to a director if, among other By-Law Amendments • Adoption, Alteration, Amendment methods, the notice is sent to the While current Section 11.1 of the By- and Repeal of By-Laws. Section 11.1 director at the address last made known Laws provides for alteration, provides that the By-Laws may be in writing to NASDAQ OMX by amendment, repeal and adoption of By- altered amended or repealed, or new By- telegraph, telefax, cable, radio or Laws by the stockholders, current Laws may be adopted, at any meeting of wireless. Section 4.12(b) of the By-Laws Section 11.2 provides for alteration, the stockholders by the affirmative vote provides that such notice of a board 2 amendment, repeal and adoption of By- of the holders of at least 66 ⁄3% of the meeting need not be given to any Laws by the Board. These two sections voting power of the Voting Stock, voting director if waived by the director in 36 operate as alternate means to alter, together as a single class. writing or by electronic transmission (or amend, repeal or adopt By-Laws. In To conform with the proposed by telegram, telefax, cable, radio or other words, the stockholders may alter, changes to the Charter, NASDAQ OMX wireless and subsequently confirmed in amend, repeal or adopt By-Laws proposes to replace each of these writing or by electronic transmission). without any action by the Board, and supermajority voting requirements with NASDAQ OMX proposes amendments vice versa. NASDAQ OMX proposes to a voting standard requiring the to Sections 4.12(a) and (b) to provide add a proviso to Section 11.2 to state affirmative vote of a majority of the that both notices and waivers of such that no By-Law adopted by the outstanding Voting Stock. As discussed notices can be given by email or other stockholders shall be amended or above with respect to the analogous means of written electronic repealed by the Board if the By-Law so Charter amendments, NASDAQ OMX transmission. These amendments are adopted so provides. This is a believes that a ‘‘majority of outstanding intended merely to expand the means stockholder-friendly provision that is shares’’ standard reflects a balanced through which notices and waivers of intended to prevent the Board from approach that responds to stockholder notices may be given, and the subsequently overriding stockholder feedback while appropriately amendments do not affect any of the action to amend or repeal the By-Laws. maintaining NASDAQ OMX’s defensive other procedural requirements of posture against hostile takeovers. Sections 4.12(a) and (b). In addition, the (i) Non-Substantive Changes (e) Procedures for Filling Board proposed amendments reflect current The remaining proposed By-Law Vacancies practices, as a substantial amount of amendments are non-substantive changes, which will simplify and Section 4.8 of the By-Laws sets forth communications between NASDAQ streamline the document. Specifically, the procedures to fill a director position OMX and its directors, outside of Board NASDAQ OMX proposes minor changes that has become vacant, whether meetings, occurs through electronic to Section 3.3 to incorporate the new because of death, disability, means. defined term ‘‘Proposing Person,’’ to use disqualification, removal or resignation. (g) Composition of the Management the term ‘‘nomination’’ rather than Under the current provisions, if such a Compensation Committee ‘‘nominee’’ for consistency and to vacancy occurs, the Nominating & correct two cross-references. NASDAQ Governance Committee of the Board As required by the Dodd-Frank Wall Street Reform and Consumer Protection OMX also proposes to delete obsolete shall nominate, and the Board shall references to the 3.75% Series A elect by majority vote, a person to fill Act and Rule 10C–1 under the Exchange Act,37 NASDAQ recently amended its Convertible Notes due 2012 and the the vacancy. In light of the addition of Series B Convertible Notes due 2012, a right for stockholders to call a special listing rules relating to compensation committees.38 Since NASDAQ OMX is which are no longer outstanding, in meeting, as discussed above, NASDAQ Section 12.7. listed on NASDAQ, it must comply with OMX proposes amendments to Section In addition, NASDAQ OMX proposes these listing rules just like any other 4.8 to state explicitly that vacancies on to correct typographical errors and/or the Board are to be filled by a majority listed company. NASDAQ OMX delete obsolete cross-references in vote of the Board, and not by therefore proposes amendments to Article I(f), Section 4.3, Section 9.4(b), stockholders. In addition, to prescribe Section 4.13(f) of the By-Laws, which Section 12.5 and Section 12.6. Finally, procedures in case multiple Board relates to the composition of the NASDAQ OMX proposes to renumber vacancies occur at the same time, the Management Compensation Committee and reorganize the provisions of the By- proposed amendments state that a Board of NASDAQ OMX’s Board, to conform Laws, where necessary following the vacancy shall be filled by the majority to the recent amendments to NASDAQ’s other amendments. of the directors, even if there is less than listing rules. Specifically, NASDAQ a quorum, or by the sole remaining OMX proposes to state that the 2. Statutory Basis director, if there is only one director Management Compensation Committee The Exchange believes that its remaining on the Board. The proposed must consist of at least two members proposal is consistent with Section 6(b) amendments do not change any of the and that each member shall meet the of the Act,39 in general, and furthers the other procedures for filling Board eligibility requirements set forth in the objectives of Section 6(b)(5) of the Act,40 vacancies. rules of The NASDAQ Stock Market. in particular, in that it is designed to (f) Use of Electronic Means for Certain promote just and equitable principles of 37 See Public Law 111–203, 124 Stat. 1376 (2010) Notices and Related Waivers trade, to remove impediments to and and 17 CFR 240.10C–1. perfect the mechanism of a free and 38 Currently, Section 4.12(a) of the By- See Securities Exchange Act Release No. 68640 open market and a national market Laws provides that notice of any (January 11, 2013), 78 FR 4554 (January 22, 2013) (SR–NASDAQ–2012–109). Among other things, the system, and, in general to protect amendments require each NASDAQ-listed investors and the public interest. 35 This provision is analogous to Article Fifth, company, with certain exceptions, to have a In response to feedback from its Paragraph D of the Charter, which is discussed compensation committee of its board of directors, investors, NASDAQ OMX is proposing under Section (ii)(a) above. consisting of a minimum of two independent 36 This provision is analogous to Article Eighth, directors who meet additional eligibility Paragraph A of the Charter, which is discussed requirements relating to compensatory fees and 39 15 U.S.C. 78f(b). under Section (ii)(a) above. affiliation. 40 15 U.S.C. 78f(b)(5).

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changes to its Charter to replace each Board from subsequently overriding All submissions should refer to File supermajority voting requirement with a stockholders’ wishes. Finally, the Number SR–BX–2013–057. This file ‘‘majority of outstanding shares’’ voting remaining changes are clarifying in number should be included on the standard. NASDAQ OMX believes this nature, and they enhance investor subject line if email is used. To help the approach will strike an appropriate protection by conforming NASDAQ Commission process and review your balance between responding to OMX’s governance documents to comments more efficiently, please use stockholder feedback and protecting the current practices and applicable rules only one method. The Commission will Company and its investors against and by making them clearer and easier post all comments on the Commission’s hostile takeovers. In addition, the to understand. Internet Web site (http://www.sec.gov/ clarifying changes to the Charter will rules/sro.shtml). Copies of the B. Self-Regulatory Organization’s protect investors by making the Charter submission, all subsequent Statement on Burden on Competition more concise and easier to understand. amendments, all written statements Both sets of changes to the Charter were Because the proposed rule change with respect to the proposed rule approved by NASDAQ OMX’s investors relates to the governance of NASDAQ change that are filed with the at the most recent annual meeting of OMX and not to the operations of the Commission, and all written stockholders. Exchange, the Exchange does not communications relating to the NASDAQ OMX also proposes to believe that the proposed rule change proposed rule change between the eliminate the Certificate of Designation will impose any burden on competition Commission and any person, other than relating to the Series A Convertible not necessary or appropriate in those that may be withheld from the Preferred Stock, which is no longer furtherance of the purposes of the Act. public in accordance with the outstanding. This proposed change will provisions of 5 U.S.C. 552, will be C. Self-Regulatory Organization’s protect investors by enhancing the available for Web site viewing and Statement on Comments on the clarity of NASDAQ OMX’s Charter. printing in the Commission’s Public Proposed Rule Change Received From Finally, NASDAQ OMX proposes Reference Room, 100 F Street NE., Members, Participants or Others changes to its By-Laws: (i) To Washington, DC 20549, on official implement a stockholder right to call a No written comments were either business days between the hours of special meeting; (ii) to enhance the solicited or received. 10:00 a.m. and 3:00 p.m. Copies of such ‘‘advance notice’’ procedures; (iii) to filing also will be available for III. Date of Effectiveness of the require certain information and inspection and copying at the principal Proposed Rule Change and Timing for agreements from director-nominees; (iv) offices of the Exchange. All comments Commission Action to remove and replace the supermajority received will be posted without change; voting provisions to conform to the Within 45 days of the date of the Commission does not edit personal Charter amendments; (v) to clarify the publication of this notice in the Federal identifying information from procedures for filling Board vacancies; Register or within such longer period (i) submissions. You should submit only (vi) to allow the use of electronic means as the Commission may designate up to information that you wish to make for certain notices and waivers; (vii) to available publicly. All submissions conform the composition requirements 90 days of such date if it finds such should refer to File Number SR–BX– for the Management Compensation longer period to be appropriate and 2013–057, and should be submitted on Committee of NASDAQ OMX’s Board publishes its reasons for so finding or or before January 2, 2014. with the NASDAQ listing rules; (vii) (ii) as to which the Exchange consents, [sic] to prevent the Board from the Commission shall: (a) By order For the Commission, by the Division of amending or repealing By-Law approve or disapprove such proposed Trading and Markets, pursuant to delegated 41 amendments approved by the rule change, or (b) institute proceedings authority. stockholders; and (viii) [sic] to make to determine whether the proposed rule Kevin M. O’Neill, other non-substantive changes. change should be disapproved. Deputy Secretary. The proposals relating to the IV. Solicitation of Comments [FR Doc. 2013–29610 Filed 12–11–13; 8:45 am] stockholder right to call a special BILLING CODE 8011–01–P meeting and to remove and replace the Interested persons are invited to supermajority voting requirements are submit written data, views, and responsive to feedback from NASDAQ arguments concerning the foregoing, SECURITIES AND EXCHANGE OMX’s stockholders. The additional including whether the proposed rule COMMISSION procedural requirements relating to change is consistent with the Act. special and annual meetings will protect Comments may be submitted by any of [Release No. 34–71007; File No. SR–CBOE– investors by stating clearly and the following methods: 2013–117] explicitly the procedures stockholders Electronic Comments Self-Regulatory Organizations; must follow to propose business at such Chicago Board Options Exchange, • Use the Commission’s Internet meetings. The requirement for certain Incorporated; Notice of Filing and comment form (http://www.sec.gov/ information and agreements from Immediate Effectiveness of a Proposed director-nominees will enhance investor rules/sro.shtml); or • Rule Change Relating to the Options protection by ensuring that nominees Send an email to rule-comments@ Regulatory Fee provide adequate information about sec.gov. Please include File Number SR– themselves and also comply with BX–2013–057 on the subject line. December 6, 2013. applicable law and certain NASDAQ Paper Comments Pursuant to Section 19(b)(1) of the OMX policies and procedures relating to Securities Exchange Act of 1934 (the the Board. The prohibition on the Board • Send paper comments in triplicate ‘‘Act’’) 1 and Rule 19b–4 thereunder,2 amending or repealing By-Law to Elizabeth M. Murphy, Secretary, amendments approved by the Securities and Exchange Commission, 41 17 CFR 200.30–3(a)(12). stockholders is a stockholder-friendly 100 F Street NE., Washington, DC 1 15 U.S.C. 78s(b)(1). provision that is intended to prevent the 20549–1090. 2 17 CFR 240.19b–4.

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notice is hereby given that on November Corporation (‘‘OCC’’) in the customer submitting a fee change filing to the 27, 2013, the Chicago Board Options range (i.e., transactions that clear in a Commission. The Exchange notifies Exchange, Incorporated (the ‘‘Exchange’’ customer account at OCC) regardless of Trading Permit Holders of adjustments or ‘‘CBOE’’) filed with the Securities the marketplace of execution. In other to the ORF via regulatory circular. and Exchange Commission words, the Exchange imposes the ORF 2. Statutory Basis (‘‘Commission’’) the proposed rule on all customer-range transactions change as described in Items I, II, and executed by a Trading Permit Holder, The Exchange believes the proposed III below, which Items have been even if the transactions do not take rule change is consistent with the prepared by the self-regulatory place on the Exchange.3 The ORF also Securities Exchange Act of 1934 (the organization. The Commission is is charged for transactions that are not ‘‘Act’’) and the rules and regulations publishing this notice to solicit executed by a Trading Permit Holder thereunder applicable to the Exchange comments on the proposed rule change but are ultimately cleared by a Trading and, in particular, the requirements of from interested persons. Permit Holder. In the case where a Section 6(b) of the Act.4 Specifically, Trading Permit Holder executes a the Exchange believes the proposed rule I. Self-Regulatory Organization’s transaction and a different Trading Statement of the Terms of Substance of change is consistent with Section 6(b)(4) Permit Holder clears the transaction, the 5 the Proposed Rule Change of the Act, which provides that ORF is assessed to the Trading Permit Exchange rules may provide for the Chicago Board Options Exchange, Holder who executed the transaction. In equitable allocation of reasonable dues, Incorporated (the ‘‘Exchange’’ or the case where a non-Trading Permit fees, and other charges among its ‘‘CBOE’’) proposes to amend the Holder executes a transaction and a Trading Permit Holders and other Options Regulatory Fee. The text of the Trading Permit Holder clears the persons using its facilities. Additionally, proposed rule change is available on the transaction, the ORF is assessed to the the Exchange believes the proposed rule Exchange’s Web site (http:// Trading Permit Holder who clears the change is consistent with the Section www.cboe.com/AboutCBOE/ transaction. The ORF is collected 6(b)(5) 6 requirement that the rules of an CBOELegalRegulatoryHome.aspx), at indirectly from Trading Permit Holders exchange not be designed to permit the Exchange’s Office of the Secretary, through their clearing firms by OCC on unfair discrimination between and at the Commission’s Public behalf of the Exchange. customers, issuers, brokers, or dealers. Reference Room. The ORF is designed to recover a material portion of the costs to the The Exchange believes the proposed II. Self-Regulatory Organization’s Exchange of the supervision and fee change is reasonable because it Statement of the Purpose of, and regulation of Trading Permit Holder would help the Exchange offset Statutory Basis for, the Proposed Rule customer options business, including increased regulatory expenses, in Change performing routine surveillances, particular the hiring of many new investigations, examinations, financial regulatory employees, but would not In its filing with the Commission, the result in total regulatory revenue Exchange included statements monitoring, as well as policy, rulemaking, interpretive and exceeding total regulatory costs. The concerning the purpose of and basis for Exchange believes the ORF is equitable the proposed rule change and discussed enforcement activities. The Exchange believes that revenue generated from the and not unfairly discriminatory in that any comments it received on the it is charged to all Trading Permit proposed rule change. The text of these ORF, when combined with all of the Exchange’s other regulatory fees and Holders on all their transactions that statements may be examined at the clear in the customer range at the OCC. places specified in Item IV below. The fines, will cover a material portion, but not all, of the Exchange’s regulatory Moreover, the Exchange believes the Exchange has prepared summaries, set ORF ensures fairness by assessing forth in sections A, B, and C below, of costs. The Exchange notes that its regulatory responsibilities with respect higher fees to those Trading Permit the most significant aspects of such Holders that require more Exchange statements. to Trading Permit Holder compliance with options sales practice rules have regulatory services based on the amount A. Self-Regulatory Organization’s largely been allocated to FINRA under of customer options business they Statement of the Purpose of, and a 17d–2 agreement. The ORF is not conduct. Regulating customer trading Statutory Basis for, the Proposed Rule designed to cover the cost of that activity is much more labor intensive Change options sales practice regulation. and requires greater expenditure of human and technical resources than 1. Purpose The Exchange will continue to monitor the amount of revenue regulating non-customer trading The Exchange has reevaluated the collected from the ORF to ensure that it, activity, which tends to be more current amount of the Options in combination with its other regulatory automated and less labor-intensive. As a Regulatory Fee (‘‘ORF’’) in connection fees and fines, does not exceed the result, the costs associated with with its annual budget review. In light Exchange’s total regulatory costs. If the administering the customer component of increased regulatory costs, including Exchange determines regulatory of the Exchange’s overall regulatory the hiring of many new regulatory revenues exceed regulatory costs, the program are materially higher than the employees, and expected volume levels Exchange will adjust the ORF by costs associated with administering the for 2014, the Exchange proposes to non-customer component (e.g., Trading increase the ORF from $.0074 per 3 Exchange rules require each Trading Permit Permit Holder proprietary transactions) contract to $.0095 per contract. The Holder to record the appropriate account origin of its regulatory program.7 code on all orders at the time of entry in order to proposed fee change would be operative allow the Exchange to properly prioritize and route 4 on January 1, 2014. orders and assess transaction fees pursuant to the 15 U.S.C. 78f(b). The ORF is assessed by the Exchange rules of the Exchange and report resulting 5 15 U.S.C. 78f(b)(4). to each Trading Permit Holder for all transactions to the OCC. CBOE order origin codes 6 Id. [sic] are defined in CBOE Regulatory Circular RG13–038. 7 If the Exchange changes its method of funding options transactions executed or cleared The Exchange represents that it has surveillances in regulation or if circumstances otherwise change in by the Trading Permit Holder that are place to verify that Trading Permit Holders mark the future, the Exchange may decide to modify the cleared by The Options Clearing orders with the correct account origin code. ORF or assess a separate regulatory fee on Trading

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B. Self-Regulatory Organization’s Securities and Exchange Commission, SECURITIES AND EXCHANGE Statement on Burden on Competition 100 F Street NE., Washington, DC COMMISSION CBOE does not believe that the 20549–1090. proposed rule change will impose any [Release No. 34–71016; File No. SR– All submissions should refer to File NYSEArca–2013–136] burden on competition that is not Number SR–CBOE–2013–117. This file necessary or appropriate in furtherance number should be included on the Self-Regulatory Organizations; NYSE of the purposes of the Act. The subject line if email is used. To help the Arca, Inc.; Notice of Filing and proposed rule change is not designed to Commission process and review your Immediate Effectiveness of Proposed address any competitive issues. Rather, comments more efficiently, please use Rule Change Amending the NYSE Arca the proposed rule change is designed to only one method. The Commission will Options Fee Schedule To Raise the help the Exchange to adequately fund post all comments on the Commission’s Take Liquidity Fee for Lead Market its regulatory activities while seeking to Internet Web site (http://www.sec.gov/ Maker and Market Maker Electronic ensure that total regulatory revenues do Executions in Penny Pilot Issues not exceed total regulatory costs. rules/sro.shtml). Copies of the submission, all subsequent December 6, 2013. C. Self-Regulatory Organization’s amendments, all written statements Pursuant to Section 19(b)(1) 1 of the Statement on Comments on the with respect to the proposed rule Proposed Rule Change Received From Securities Exchange Act of 1934 (the change that are filed with the 2 3 Members, Participants, or Others ‘‘Act’’) and Rule 19b–4 thereunder, Commission, and all written notice is hereby given that, on The Exchange neither solicited nor communications relating to the November 26, 2013, NYSE Arca, Inc. received comments on the proposed proposed rule change between the (the ‘‘Exchange’’ or ‘‘NYSE Arca’’) filed rule change. Commission and any person, other than with the Securities and Exchange III. Date of Effectiveness of the those that may be withheld from the Commission (the ‘‘Commission’’) the Proposed Rule Change and Timing for public in accordance with the proposed rule change as described in Commission Action provisions of 5 U.S.C. 552, will be Items I, II, and III below, which Items available for Web site viewing and have been prepared by the self- The foregoing rule change has become printing in the Commission’s Public regulatory organization. The effective pursuant to Section 19(b)(3)(A) Reference Room, 100 F Street NE., Commission is publishing this notice to of the Act 8 and paragraph (f) of Rule Washington, DC 20549, on official solicit comments on the proposed rule 19b–4 9 thereunder. At any time within business days between the hours of change from interested persons. 60 days of the filing of the proposed rule change, the Commission summarily may 10:00 a.m. and 3:00 p.m. Copies of such I. Self-Regulatory Organization’s temporarily suspend such rule change if filing also will be available for Statement of the Terms of the Substance it appears to the Commission that such inspection and copying at the principal of the Proposed Rule Change action is necessary or appropriate in the office of the Exchange. All comments received will be posted without change; The Exchange proposes to amend the public interest, for the protection of NYSE Arca Options Fee Schedule (‘‘Fee the Commission does not edit personal investors, or otherwise in furtherance of Schedule’’) to raise the Take Liquidity identifying information from the purposes of the Act. If the fee for Lead Market Maker (‘‘LMM’’) and submissions. You should submit only Commission takes such action, the Market Maker electronic executions in Commission will institute proceedings information that you wish to make Penny Pilot Issues. The Exchange to determine whether the proposed rule publicly available. All submissions proposes to implement the fee change change should be approved or should refer to File Number SR–CBOE– effective December 1, 2013. The text of disapproved. 2013–117 and should be submitted on the proposed rule change is available on IV. Solicitation of Comments or before January 2, 2014. the Exchange’s Web site at www.nyse.com, at the principal office of Interested persons are invited to For the Commission, by the Division of the Exchange, and at the Commission’s submit written data, views, and Trading and Markets, pursuant to delegated authority.10 Public Reference Room. arguments concerning the foregoing, including whether the proposed rule Kevin M. O’Neill, II. Self-Regulatory Organization’s change is consistent with the Act. Deputy Secretary. Statement of the Purpose of, and Comments may be submitted by any of [FR Doc. 2013–29606 Filed 12–11–13; 8:45 am] Statutory Basis for, the Proposed Rule the following methods: BILLING CODE 8011–01–P Change Electronic Comments In its filing with the Commission, the self-regulatory organization included • Use the Commission’s Internet statements concerning the purpose of, comment form (http://www.sec.gov/ and basis for, the proposed rule change rules/sro.shtml); or and discussed any comments it received • Send an email to rule-comments@ on the proposed rule change. The text sec.gov. Please include File Number SR– of those statements may be examined at CBOE–2013–117 on the subject line. the places specified in Item IV below. Paper Comments The Exchange has prepared summaries, • Send paper comments in triplicate set forth in sections A, B, and C below, to Elizabeth M. Murphy, Secretary, of the most significant parts of such statements. Permit Holder proprietary transactions if the Exchange deems it advisable. 1 15 U.S.C. 78s(b)(1). 8 15 U.S.C. 78s(b)(3)(A). 2 15 U.S.C. 78a. 9 17 CFR 240.19b–4(f). 10 17 CFR 200.30–3(a)(12). 3 17 CFR 240.19b–4.

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A. Self-Regulatory Organization’s 6(b)(4) and (5) of the Act,8 in particular, other exchanges by keeping its fees in a Statement of the Purpose of, and because it provides for the equitable similar range.11 The Exchange believes Statutory Basis for, the Proposed Rule allocation of reasonable dues, fees, and that the proposed fee change reduces Change other charges among its members, the burden on competition because it issuers and other persons using its 1. Purpose takes into account the value that various facilities and does not unfairly market participants add to the The Exchange proposes to amend the discriminate between customers, marketplace, as discussed above. The Fee Schedule to raise the Take Liquidity issuers, brokers or dealers. Exchange notes that it operates in a fee for LMM and Market Maker The Exchange believes that raising the highly competitive market in which electronic executions in Penny Pilot Take Liquidity fee from $0.47 per market participants can readily favor 4 Issues. The Exchange proposes to contract to $0.48 per contract for LMM competing venues. In such an implement the fee change effective and Market Maker electronic executions 5 environment, the Exchange must December 1, 2013. Currently, the in Penny Pilot Issues will result in the continually review, and consider Exchange charges a Take Liquidity fee Exchange’s fees for taking liquidity in adjusting, its fees and credits to remain of $0.47 per contract for LMM and Penny Pilot issues remaining competitive with other exchanges. For Market Maker electronic executions in comparable to fees charged by at least the reasons described above, the Penny Pilot Issues. The Exchange 9 one other exchange. In addition, the Exchange believes that the proposed proposes to raise the Take Liquidity fee proposed fee change is reasonable rule change promotes a competitive to $0.48 per contract for LMM and because it will generate revenue that environment. Market Maker electronic executions in will help to support the credits offered Penny Pilot Issues in order to keep the for posting liquidity, which are C. Self-Regulatory Organization’s fee in the same range as other available to all market participants. Statement on Comments on the exchanges 6 and generate revenue that The Exchange believes that the Proposed Rule Change Received From will help support credits offered to proposed fee increase is equitable and Members, Participants, or Others market participants that post liquidity. not unfairly discriminatory because the The Exchange does not propose to make Exchange would uniformly assess all No written comments were solicited any other changes to the fees for market participants, except Customers, or received with respect to the proposed electronic executions in Penny Pilot the same Take Liquidity fee of $0.48 per rule change. Issues. Take Liquidity fees will remain contract. Customer order flow benefits III. Date of Effectiveness of the at $0.48 for Firms and Broker Dealers the market by increasing liquidity, Proposed Rule Change and Timing for and $0.45 for Customers. which benefits all market participants; Commission Action 2. Statutory Basis thus Customers are assessed lower fees. Also, LMMs and Market Makers have The foregoing rule change is effective The Exchange believes that the the ability to earn a higher Post upon filing pursuant to Section proposed rule change is consistent with Liquidity credit of $0.28 per contract for 12 7 19(b)(3)(A) of the Act and Section 6(b) of the Act, in general, and electronic executions in Penny Pilot subparagraph (f)(2) of Rule 19b–4 13 furthers the objectives of Sections Issues compared to the $0.10 per thereunder, because it establishes a due, contract Post Liquidity Credit that is fee, or other charge imposed by the 4 As provided under NYSE Arca Options Rule 6.72, options on certain issues have been approved available to Firms and Broker Dealers. Exchange. to trade with a minimum price variation of $0.01 This is equitable and not unfairly At any time within 60 days of the as part of a pilot program that is currently discriminatory because LMMs and filing of such proposed rule change, the scheduled to expire on December 31, 2013. See Market Makers have obligations to quote Securities Exchange Act Release No. 69790, (June Commission summarily may 18, 2013) 78 FR 37853 (June 24, 2013) (SR– and commit capital, both of which temporarily suspend such rule change if NYSEArca–2013–59). contribute to market quality and price it appears to the Commission that such 5 The Exchange notes that it has previously filed discovery on the Exchange. Firms and action is necessary or appropriate in the with the Securities and Exchange Commission a Broker Dealers do not have such proposed rule change to amend the Fee Schedule public interest, for the protection of obligations. investors, or otherwise in furtherance of relating to co-location fees (File No. SR–NYSEArca– Finally, the Exchange believes that it 2013–131). Exhibit 5 to SR–NYSEArca–2013–131 the purposes of the Act. If the is subject to significant competitive specified an effective date for the revised Fee Commission takes such action, the Schedule of December 3, 2013 (changed from forces, as described below in the Commission shall institute proceedings November 8, 2013). Exhibit 5 to the instant Exchange’s statement regarding the under Section 19(b)(2)(B) 14 of the Act to proposed rule change specifies an effective date of burden on competition. For these December 1, 2013 (changed from November 8, determine whether the proposed rule reasons, the Exchange believes that the 2013). On December 1, 2013, the Exchange will change should be approved or update the Fee Schedule to reflect the fee change proposal is consistent with the Act. reflected in the instant proposed rule change, with disapproved. B. Self-Regulatory Organization’s an effective date of December 1, 2013. On December IV. Solicitation of Comments 3, 2013, the Exchange, subject to effectiveness of Statement on Burden on Competition SR–NYSEArca–2013–131, will further update the Fee Schedule to reflect the changes set forth in SR– In accordance with Section 6(b)(8) of Interested persons are invited to NYSEArca–2013–131, with an effective date of the Act,10 the Exchange does not believe submit written data, views, and December 3, 2013. that the proposed rule change will arguments concerning the foregoing, 6 For example, NASDAQ Options Market impose any burden on competition that including whether the proposed rule (‘‘NOM’’) charges Firms, Professionals, and Non- NOM Market Makers, NOM Market Makers, and is not necessary or appropriate in change is consistent with the Act. Broker-Dealers $0.48 per contract for removing furtherance of the purposes of the Act. Comments may be submitted by any of liquidity in Penny Pilot Options while Customers The proposed fee will allow the the following methods: are charged $0.45 per contract. See NASDAQ Exchange to remain competitive with Options Rules Chapter XV, Section 2, and Securities Exchange Act Release No. 70820, 11 See supra note 6. (November 6, 2013) 78 FR 68122 (November 13, 8 15 U.S.C. 78f(b)(4) and (5). 12 15 U.S.C. 78s(b)(3)(A). 2013) (SR–NASDAQ–2013–136). 9 See supra note 6. 13 17 CFR 240.19b–4(f)(2). 7 15 U.S.C. 78f(b). 10 15 U.S.C. 78f(b)(8). 14 15 U.S.C. 78s(b)(2)(B).

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Electronic Comments SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s Statement of the Purpose of, and • COMMISSION Use the Commission’s Internet Statutory Basis for, the Proposed Rule comment form (http://www.sec.gov/ [Release No. 34–71008; File No. SR– Change rules/sro.shtml); or NASDAQ–2013–146] 1. Purpose • Send an email to rule- Self-Regulatory Organizations; The [email protected]. Please include File The purpose of this filing is to amend NASDAQ Stock Market LLC; Notice of Number SR–NYSEArca–2013–136 on the Routing Fees in Section 2(3) of Filing and Immediate Effectiveness of Chapter XV in order to recoup costs the the subject line. Proposed Rule Change Relating to Exchange incurs for routing and Paper Comments Routing Fees executing certain orders in equity options to away markets. Today, the • Send paper comments in triplicate December 6, 2013. Exchange assesses a Non-Customer a to Elizabeth M. Murphy, Secretary, Pursuant to Section 19(b)(1) of the $0.95 per contract Routing Fee to any Securities and Exchange Commission, Securities Exchange Act of 1934 options exchange. The Customer 100 F Street NE., Washington, DC (‘‘Act’’),1 and Rule 19b–4 thereunder,2 Routing Fee for option orders routed to 20549–1090. notice is hereby given that on November NASDAQ OMX PHLX LLC (‘‘PHLX’’) is 27, 2013, The NASDAQ Stock Market a $0.05 per contract Fixed Fee in All submissions should refer to File LLC (‘‘NASDAQ’’ or ‘‘Exchange’’) filed addition to the actual transaction fee Number SR–NYSEArca–2013–136. This with the Securities and Exchange assessed. The Customer Routing Fee for file number should be included on the Commission (‘‘SEC’’ or ‘‘Commission’’) option orders routed to NASDAQ OMX subject line if email is used. To help the the proposed rule change as described BX, Inc. (‘‘BX Options’’) is $0.00 per Commission process and review your in Items I, II, and III below, which Items contract. The Customer Routing Fee for comments more efficiently, please use have been prepared by NASDAQ. The option orders routed to all other options only one method. The Commission will Commission is publishing this notice to exchanges 3 (excluding PHLX and BX post all comments on the Commission’s solicit comments on the proposed rule Options) is a fixed fee of $0.15 per Internet Web site (http://www.sec.gov/ change from interested persons. contract (‘‘Fixed Fee’’) in addition to the rules/sro.shtml). Copies of the I. Self-Regulatory Organization’s actual transaction fee assessed. If the submission, all subsequent Statement of the Terms of Substance of away market pays a rebate, the Routing amendments, all written statements the Proposed Rule Change Fee is $0.00 per contract.4 with respect to the proposed rule The Exchange proposes to increase change that are filed with the NASDAQ proposes to modify Chapter the Customer Routing Fixed Fee of XV, Section 2, entitled ‘‘NASDAQ Commission, and all written $0.15 per contract when an option order Options Market—Fees and Rebates,’’ communications relating to the is routed to all other exchanges to $0.20 which governs pricing for NASDAQ per contract. With respect to the fixed proposed rule change between the members using the NASDAQ Options Commission and any person, other than costs, the Exchange incurs a fee when it Market (‘‘NOM’’), NASDAQ’s facility for utilizes Nasdaq Options Services LLC those that may be withheld from the executing and routing standardized public in accordance with the (‘‘NOS’’), a member of the Exchange and equity and index options, to amend the Exchange’s exclusive order router.5 provisions of 5 U.S.C. 552, will be Routing Fees. Each time NOS routes an order to an available for Web site viewing and While these amendments are effective away market, NOS is charged a clearing printing in the Commission’s Public upon filing, the Exchange has fee 6 and, in the case of certain Reference Room, 100 F Street NE., designated the proposed amendments to exchanges, a transaction fee is also Washington, DC 20549 on official be operative on December 2, 2013. charged in certain symbols, which fees business days between the hours of The text of the proposed rule change are passed through to the Exchange. The 10:00 a.m. and 3:00 p.m. Copies of such is available on the Exchange’s Web site Exchange currently recoups clearing filing also will be available for at http:// and transaction charges incurred by the inspection and copying at the principal www.nasdaq.cchwallstreet.com, at the Exchange as well as certain other costs office of the Exchange. All comments principal office of the Exchange, and at incurred by the Exchange when routing received will be posted without change; the Commission’s Public Reference to away markets, such as administrative the Commission does not edit personal Room. and technical costs associated with identifying information from II. Self-Regulatory Organization’s operating NOS, membership fees at submissions. You should submit only Statement of the Purpose of, and information that you wish to make Statutory Basis for, the Proposed Rule 3 Including BATS Exchange, Inc. (‘‘BATS’’), BOX available publicly. All submissions Options Exchange LLC (‘‘BOX’’), the Chicago Board Change Options Exchange, Incorporated (‘‘CBOE’’), C2 should refer to File Number SR– In its filing with the Commission, the Options Exchange, Incorporated (‘‘C2’’), NYSEArca–2013–136, and should be International Securities Exchange, LLC (‘‘ISE’’), the Exchange included statements submitted on or before January 2, 2014. Miami International Securities Exchange, LLC concerning the purpose of and basis for (‘‘MIAX’’), NYSE Arca, Inc. (‘‘NYSE Arca’’), NYSE For the Commission, by the Division of the proposed rule change. The text of MKT LLC (‘‘NYSE Amex’’) and Topaz Exchange, Trading and Markets, pursuant to delegated these statements may be examined at LLC (‘‘Gemini’’). authority.15 4 For all Routing Fees, the transaction fee will the places specified in Item IV below. continue to be based on the away market’s actual Kevin M. O’Neill, The Exchange has prepared summaries, transaction fee or rebate for particular market Deputy Secretary. set forth in sections A, B, and C below, participants and in the case that there is no transaction fee or rebate assessed by the away [FR Doc. 2013–29615 Filed 12–11–13; 8:45 am] of the most significant aspects of such statements. market, the fixed fee. BILLING CODE 8011–01–P 5 See NASDAQ Rules at Chapter VI, Section 11(e) (Order Routing). 1 15 U.S.C. 78s(b)(1). 6 The Options Clearing Corporation (‘‘OCC’’) 15 17 CFR 200.30–3(a)(12). 2 17 CFR 240.19b–4. assesses $0.01 per contract side.

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away markets, Options Regulatory Fees the Exchange for technical, B. Self-Regulatory Organization’s (‘‘ORFs’’) and technical costs associated administrative, clearing, regulatory, Statement on Burden on Competition with routing options. The Exchange compliance and other costs, in addition NASDAQ does not believe that the assesses the actual away market fee at to the transaction fee assessed by the proposed rule change will impose any the time that the order was entered into away market. burden on competition not necessary or the Exchange’s trading system. This In addition, the Exchange believes appropriate in furtherance of the transaction fee would be calculated on that it is equitable and not unfairly purposes of the Act. The Exchange an order-by-order basis since different discriminatory to assess a $0.20 per believes that the rule change would away markets charge different amounts. contract Customer Routing Fixed Fee allow the Exchange to recoup its costs A new market entrant recently when routing orders designated as adopted an ORF.7 The Exchange when an option order is routed to all available for routing by the market proposes to increase its Fixed Fee from other exchanges because this fee would participant. NOM Participants may $0.15 to $0.20 per contract to recoup be assessed uniformly on all market costs associated with increased costs. participants in addition to the actual choose to mark the order as ineligible transaction fees on all orders routed to for routing to avoid incurring these 2. Statutory Basis non-NASDAQ OMX markets. fees.14 Today, other options exchanges NASDAQ believes that its proposal to The Exchange believes that it is also assess similar fees to recoup costs amend its Pricing Schedule is consistent equitable and not unfairly incurred when routing orders to away with Section 6(b) of the Act 8 in general, discriminatory to assess a fixed cost of markets. With respect to continuing to route and furthers the objectives of Section $0.05 per contract to route orders to 9 orders to PHLX and BX Options at a 6(b)(4) and (b)(5) of the Act in PHLX and no cost to route to BX lower cost as compared to other away particular, in that it provides for the Options because the cost, in terms of markets, the Exchange does not believe equitable allocation of reasonable dues, actual cash outlays, to the Exchange to that the proposed amendments to fees and other charges among members route to those markets is lower. For increase those fees, while maintaining and issuers and other persons using any example, costs related to routing to the same fee differential imposes a facility or system which NASDAQ PHLX and BX Options are lower as burden because all market participants operates or controls, and is not designed compared to other away markets to permit unfair discrimination between would be assessed the same fees because NOS is utilized by all three depending on the away market. Also, customers, issuers, brokers, or dealers. exchanges to route orders.11 NOS and The Exchange believes that the the Exchange is proposing to recoup the three NASDAQ OMX options proposed Routing Fees are reasonable costs incurred only when members (PHLX, BX Options and NOM) markets because they seek to recoup costs that request the Exchange route their orders have a common data center and staff are incurred by the Exchange when to an away market. The Exchange is routing Customer, Firm, Market Maker that are responsible for the day-to-day passing along savings realized by and Professional orders to away markets operations of NOS. Because the three leveraging NASDAQ OMX’s on behalf of members. Each destination exchanges are in a common data center, infrastructure and scale to market market’s transaction charge varies and Routing Fees are reduced because costly participants when those orders are there is a cost incurred by the Exchange expenses related to, for example, routed to Phlx and BX Options and is when routing orders to away markets. telecommunication lines to obtain providing those saving to all market The costs to the Exchange include connectivity are avoided when routing participants. Finally, the Exchange clearing costs, administrative and orders in this instance. The costs related routes orders to away markets where the technical costs associated with to connectivity to route orders to other Exchange’s disseminated bid or offer is operating NOS, membership fees at NASDAQ OMX exchanges are de inferior to the national best bid (best away markets, ORFs and technical costs minimis. When routing orders to non- offer) price and based on price first.15 associated with routing options. The NASDAQ OMX exchanges, the Exchange believes that the proposed Exchange incurs costly connectivity C. Self-Regulatory Organization’s Routing Fees would enable the charges related to telecommunication Statement on Comments on the Exchange to recover the costs it incurs lines and other related costs. The Proposed Rule Change Received From to route orders to away markets in Exchange believes it is reasonable, Members, Participants, or Others addition to transaction fees assessed to equitable and not unfairly No written comments were either market participants for the execution of discriminatory to pass along savings solicited or received. Customer, Firm, Market Maker and realized by leveraging NASDAQ OMX’s III. Date of Effectiveness of the Professional orders by the away market. infrastructure and scale to market Proposed Rule Change and Timing for Specifically, new entrants have added participants when those orders are Commission Action costs associated with routing.10 The routed to PHLX and BX Options. Orders Exchange believes that it is reasonable are routed to away markets in The foregoing rule change has become to recoup these costs borne by the accordance with Exchange rules based effective pursuant to Section Exchange on each transaction. The on price.12 Market participants may 19(b)(3)(A)(ii) of the Act.16 At any time $0.20 per contract Customer Routing submit orders to the Exchange as within 60 days of the filing of the Fixed Fee, which is assessed when an ineligible for routing or ‘‘DNR’’ to avoid proposed rule change, the Commission option order is routed to all other incurring the Routing Fees proposed summarily may temporarily suspend exchanges, represents the overall cost to herein.13 such rule change if it appears to the Commission that such action is 7 Gemini adopted an ORF of $0.0010 per contract. 11 See Chapter VI, Section 11 of the NASDAQ and See Securities Exchange Act Release No. 70200 BX Options Rules and PHLX Rule 1080(m)(iii)(A). 14 See NASDAQ Rules at Chapter VI, Section (August 14, 2013), 78 FR 51242 (August 20, 2013) 12 See NASDAQ Rules at Chapter XII (Options 11(e) (Order Routing). (SR–Topaz–2013–01). Order Protection and Locked and Crossed Market 15 See NASDAQ Rules at Chapter XII (Options 8 15 U.S.C. 78f(b). Rules). Order Protection and Locked and Crossed Market 9 15 U.S.C. 78f(b)(4), (5). 13 See NASDAQ Rules at Chapter VI, Section Rules). 10 See note 8 [sic]. 11(e) (Order Routing). 16 15 U.S.C. 78s(b)(3)(A)(ii).

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necessary or appropriate in the public NASDAQ–2013–146 and should be Rules, as well as the underlying interest, for the protection of investors, submitted on or before January 2, 2014. practices that have been developed to or otherwise in furtherance of the For the Commission, by the Division of aid the Board in meeting its obligations. purposes of the Act. If the Commission Trading and Markets, pursuant to delegated According to OCC, the Board adopted a takes such action, the Commission shall authority.17 charter in an effort to provide outside institute proceedings to determine Kevin M. O’Neill, parties with greater transparency into whether the proposed rule should be Deputy Secretary. the Board’s oversight activities, to approved or disapproved. promote accountability, and to align [FR Doc. 2013–29607 Filed 12–11–13; 8:45 am] OCC with current best practices in IV. Solicitation of Comments BILLING CODE 8011–01–P corporate governance. Interested persons are invited to The Board Charter addresses the submit written data, views, and organization, composition, authority, arguments concerning the foregoing, SECURITIES AND EXCHANGE COMMISSION functions, and responsibilities of the including whether the proposed rule Board. With respect to membership, the change is consistent with the Act. [Release No. 34–71022; File No. SR–OCC– Board Charter sets forth the size and Comments may be submitted by any of 2013–17] composition of the Board, the the following methods: qualifications for Board membership, Self-Regulatory Organizations; The and the term, tenure, and age limits Electronic Comments Options Clearing Corporation; Order • applicable to each category of Board Use the Commission’s Internet Approving Proposed Rule Change member. The Board Charter also comment form (http://www.sec.gov/ Concerning Charters for the Board of addresses Board meetings, specifying rules/sro.shtml); or Directors, the Membership/Risk that the Board will meet at least five • Send an email to rule-comments@ Committee, the Audit Committee and times annually, that the Chairman of the sec.gov. Please include File Number SR– the Performance Committee NASDAQ–2013–146 on the subject line. Board will establish the agenda for each December 6, 2013. meeting in consultation with the Paper Comments President and Secretary, and that I. Introduction • Send paper comments in triplicate individual Directors must prepare for to Elizabeth M. Murphy, Secretary, On October 17, 2013, The Options and attend each Board meeting. Securities and Exchange Commission, Clearing Corporation (‘‘OCC’’) filed with Additionally, the Board Charter 100 F Street NE., Washington, DC the Securities and Exchange incorporates many provisions of OCC’s 20549–1090. Commission (‘‘Commission’’) proposed existing By-Laws, including those All submissions should refer to File rule change SR–OCC–2013–17 pursuant governing the election, resignation, and 5 Number SR–NASDAQ–2013–146. This to Section 19(b)(1) of the Securities disqualification of Directors, the file number should be included on the Exchange Act of 1934 (‘‘Act’’) 1 and Rule establishment of Board committees and subject line if email is used. To help the 19b–4 thereunder.2 The proposed rule subcommittees, and the existence of a Commission process and review your change was published for comment in quorum. comments more efficiently, please use the Federal Register on October 30, The Board Charter also defines the only one method. The Commission will 2013.3 The Commission received no scope of the Board’s authority, post all comments on the Commission’s comments concerning the proposed rule providing, among other things, that the Internet Web site (http://www.sec.gov/ change. For the reasons set forth below, Board may make any inquiries it deems rules/sro.shtml). Copies of the the Commission is approving the appropriate in executing its duties, and submission, all subsequent proposed rule change. that the Board may confer with OCC management or employees as needed.6 amendments, all written statements II. Description with respect to the proposed rule The Board Charter reiterates the Board’s change that are filed with the The proposed rule change concerns authority under the By-Laws to elect Commission, and all written the charter of OCC’s Board of Directors certain corporate officers annually, to communications relating to the (‘‘Board’’), as well as the charters of the form such committees and proposed rule change between the Board’s Membership/Risk Committee subcommittees as it deems appropriate, Commission and any person, other than (‘‘MRC’’), Audit Committee (‘‘AC’’), and and to delegate authority to committee those that may be withheld from the Performance Committee (‘‘PC’’) members. public in accordance with the (collectively, ‘‘Committee Charters’’).4 The Board Charter describes the Board’s cardinal duty as overseeing OCC provisions of 5 U.S.C. 552, will be Board of Directors Charter available for Web site viewing and to ensure that it is managed and printing in the Commission’s Public The Board’s new charter (‘‘Board operates in a manner that is consistent Reference Room, 100 F Street NE., Charter’’) does not impose any new with OCC’s regulatory responsibilities. Washington, DC 20549, on official responsibilities on the Board, but rather The Board is also tasked with business days between the hours of reflects the existing powers and duties of the Board under OCC’s By-Laws and 5 The Board Charter currently reflects that the 10:00 a.m. and 3:00 p.m. Copies of the Board has one Management Director, who is both filing also will be available for the Chairman of the Board and Chief Executive 17 inspection and copying at the principal 17 CFR 200.30–3(a)(12). Officer of OCC. OCC intends to split the office of 1 15 U.S.C. 78s(b)(1). office of the Exchange. All comments the Chairman into two offices, Executive Chairman 2 17 CFR 240.19b–4. and President, both of whom will be elected as received will be posted without change; 3 Securities Exchange Act Release No. 70753 Management Directors. See Securities Exchange Act the Commission does not edit personal (October 24, 2013), 78 FR 65027 (October 30, 2013) Release No. 70076 (July 30, 2013), 78 FR 47449 identifying information from (SR–OCC–2013–17). (August 5, 2013) (SR–OCC–2013–09). submissions. You should submit only 4 OCC’s Board adopted its charter on March 7, 6 The Chairman is permitted to ask OCC 2013. Although OCC has had charters for its MRC, management or others to attend meetings and information that you wish to make AC, and PC in place for a number of years, it has provide pertinent information. The Board may also available publicly. All submissions not previously submitted those as proposed rule hire specialists or rely on outside advisors or should refer to File Number SR– changes pursuant to Section 19(b) of the Act. specialists.

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stewarding OCC to ensure it has the functions, and responsibilities of each proposed rule change of a self- ability to achieve its objectives in a safe, Committee. regulatory organization if it finds that sound, and prudential manner. The With respect to meetings, each the proposed rule change is consistent Board Charter reiterates many of the Committee Charter establishes the with the requirements of the Act and the Board’s responsibilities under OCC’s Committee’s meeting schedule, quorum rules and regulations thereunder By-Laws, including the obligations to rules, minute-keeping, and reporting applicable to such organization. Section determine disqualifications from Board requirements. Each Committee Charter 17A(b)(3)(F) of the Act 14 requires that service, to fill vacancies, to conduct further provides that the meeting agenda the rules of a registered clearing agency is established by the Committee’s hearings in connection with a denial or be designed to, among other things, suspension of membership, and to chairman, or his or her designee, in promote the prompt and accurate suspend clearing members when consultation with the Secretary and clearance and settlement of securities appropriate. The Board Charter also lists OCC’s management. A majority of the additional Board responsibilities that do Committee members constitutes a transactions, as well as protect investors not appear in the By-Laws.7 quorum, and if the chairman is not and the public interest. The The Board Charter also sets forth the present at a meeting, the members who Commission finds that the proposed duties and responsibilities of individual are present must designate one of their rule change is consistent with the Act’s Directors, including the duty to act in number to serve as acting chairman. All requirements because the new and good faith in the best interests of OCC, Committees are permitted to call revised Board charters will clarify the as well as with due regard for the executive sessions from which guests of responsibilities and operations of OCC’s fiduciary responsibilities owed to OCC such Committee may be excluded, and Board and its committees. This clarity as a systemically important financial Committee members are permitted to will help ensure that OCC maintains a market utility.8 Directors are also participate in all meetings by robust and transparent governance required to comply with the provisions teleconference or similar means.10 structure that should promote the of the Code of Conduct for OCC Each Committee’s charter describes prompt and accurate clearance and Directors, including the provisions the scope of its authority, which settlement of securities transactions, relating to conflicts of interest and includes the power to act, subject to the and should further safeguard investors confidentiality. Board’s direction, with respect to any and the public interest. matter necessary or appropriate to Committee Charters accomplish the purpose and IV. Conclusion OCC has long maintained Charters for responsibilities set forth in the the MRC, AC, and PC (each, a Committee’s Charter, as well as the On the basis of the foregoing, the ‘‘Committee,’’ and collectively, the power to delegate this authority to any Commission finds that the proposal is ‘‘Committees’’). These Committee subcommittee that the Committee may consistent with the requirements of the Charters describe the purpose of each form. Each Committee is also authorized Act, particularly the requirements of Committee as assisting the Board in to make inquiries into any matter Section 17A of the Act 15 and the rules fulfilling certain of its oversight related to its respective purpose and and regulations thereunder applicable to responsibilities. The Committee responsibilities,11 and to confer with OCC. Charters further specify the policies and OCC’s management and other It is therefore ordered, pursuant to procedures governing the membership,9 employees as it deems appropriate. Section 19(b)(2) of the Act,16 that organization, scope of authority, Additionally, the chair of each proposed rule change SR–OCC–2013–17 Committee is authorized to act on behalf be and hereby is approved.17 7 These additional responsibilities include the of his or her Committee in the event following: (i) To oversee OCC’s governance immediate action is required and it is For the Commission by the Division of processes; (ii) to approve and oversee OCC’s business strategies; (iii) to monitor OCC’s impractical to convene such Trading and Markets, pursuant to delegated performance in delivering clearance and settlement Committee.12 authority.18 services; (iv) to oversee OCC’s processes and Each Committee Charter sets forth a Elizabeth M. Murphy, framework for assessing, managing, and monitoring detailed list of the Committee’s strategic, financial, and operational risk; (v) to Secretary. respective functions and oversee OCC’s financial reporting, auditing, [FR Doc. 2013–29621 Filed 12–11–13; 8:45 am] accounting, and compliance processes; (vi) to responsibilities, and also requires each oversee OCC’s system of internal controls; (vii) to Committee to review its charter BILLING CODE 8011–01–P foster processes designed to ensure that OCC complies with applicable laws and regulations, and annually and to submit any revised that OCC operates in an ethical manner; (viii) to charters to OCC’s Board for reapproval. oversee OCC’s major capital expenditures and approve the annual budget and corporate plan; (ix) III. Discussion to oversee the development and design of employee Section 19(b)(2)(C) of the Act 13 compensation, incentive, and benefit programs; (x) to evaluate senior management performance directs the Commission to approve a regularly and approve the compensation of the Chairman and President; and (xi) to assure 10 Meeting minutes must be kept and shared with management succession. the Board. 8 On July 18, 2012, the Financial Stability 11 The Committee Charters further permit each Oversight Council (‘‘FSOC’’) designated OCC as a Committee to hire specialists or rely on outside systemically important financial market utility advisors or specialists to assist in carrying out the under Title VIII of the Dodd-Frank Wall Street Committee’s activities, and further confirm the Reform and Consumer Protection Act. Financial Committees’ authority to approve any related terms 14 15 U.S.C. 78q–1(b)(3)(F). Stability Oversight Council, 2012 Annual Report, of retention and fees. The MRC and PC’s authority 15 15 U.S.C. 78q–1. Appendix A, p.145, available at http:// under these provisions, however, is subject to Board 16 15 U.S.C. 78s(b)(2). www.treasury.gov/initiatives/fsoc/Documents/ approval. 17 In approving the proposed rule change, the 2012%20Annual%20Report.pdf. 12 In such instances, the committee chair must, as Commission considered the proposal’s impact on 9 Each Committee Charter requires the inclusion soon as practicable, seek ratification from the full of at least one Public Director and empowers the committee for any actions the chair has taken efficiency, competition, and capital formation. 15 Board to remove or replace any Committee member unilaterally. U.S.C. 78c(f). at any time. 13 15 U.S.C. 78s(b)(2)(C). 18 17 CFR 200.30–3(a)(12).

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SECURITIES AND EXCHANGE A. Self-Regulatory Organization’s affirmative vote of at least 662⁄3% of the COMMISSION Statement of the Purpose of, and total voting power of the outstanding Statutory Basis for, the Proposed Rule shares of NASDAQ OMX’s capital stock [Release No. 34–71010; File No. SR–Phlx– 2013–115] Change entitled to vote generally in the election of directors (the ‘‘Voting Stock’’), voting 1. Purpose Self-Regulatory Organizations; together as a single class. NASDAQ OMX PHLX LLC; Notice of NASDAQ OMX is proposing to make • Adoption, Alteration, Amendment Filing of Proposed Rule Change To certain amendments to its Charter and and Repeal of By-Laws. Article Eighth, Amend the Restated Certificate of By-Laws. Paragraph A provides that the Incorporation and By-Laws of The (i) Background affirmative vote of the holders of at least NASDAQ OMX Group, Inc. 662⁄3% of the total voting power of the At NASDAQ OMX’s 2012 annual outstanding Voting Stock, voting December 6, 2013. meeting held on May 22, 2012, together as a single class, shall be Pursuant to Section 19(b)(1) of the NASDAQ OMX’s stockholders required in order for the stockholders to Securities Exchange Act of 1934 considered two proposals submitted by adopt, alter, amend or repeal any By- (‘‘Act’’),1 and Rule 19b–4 thereunder,2 individual stockholders. The first Law. notice is hereby given that on November proposal, which passed with 68% of the • Adoption, Alteration, Amendment 27, 2013, NASDAQ OMX PHLX LLC votes cast, requested that NASDAQ and Repeal of Certain Charter (‘‘Phlx’’ or ‘‘Exchange’’) filed with the OMX’s Board take steps to replace each Provisions. Article Ninth, Paragraph A Securities and Exchange Commission supermajority voting standard in the provides that the affirmative vote of the 3 (‘‘SEC’’ or ‘‘Commission’’) the proposed Charter and By-Laws with a voting holders of at least 662⁄3% of the voting rule change as described in Items I, II, standard requiring a ‘‘majority of votes power of the outstanding Voting Stock, and III below, which Items have been cast.’’ The second proposal, which did voting together as a single class, shall be prepared by the Exchange. The not pass but received 49% of the votes required to amend, repeal or adopt any Commission is publishing this notice to cast, requested that NASDAQ OMX’s provision inconsistent with paragraph C solicit comments on the proposed rule Board take steps to enable stockholders of Article Fourth,4 Article Fifth,5 Article change from interested persons. having at least one-tenth of NASDAQ Seventh,6 Article Eighth7 or Article 8 I. Self-Regulatory Organization’s OMX’s voting power to call a special Ninth of the Charter. Statement of the Terms of Substance of meeting of stockholders. In each of the three provisions the Proposed Rule Change Following the 2012 annual meeting, described above, NASDAQ OMX the Nominating & Governance proposes to remove the requirement for The Exchange is filing this proposed Committee of NASDAQ OMX’s Board an affirmative vote of at least 662⁄3% of rule change with respect to amendments reviewed the voting results on the two the total voting power of the Voting of the Restated Certificate of stockholder proposals and discussed the Stock and replace it with a voting Incorporation (the ‘‘Charter’’) and By- stockholder voting standards and rights standard requiring the affirmative vote Laws (the ‘‘By-Laws’’) of its parent contemplated by the Charter and By- of a majority of the outstanding Voting corporation, The NASDAQ OMX Group, Laws. Following this review, the Stock. In developing this proposal, Inc. (‘‘NASDAQ OMX’’ or the Nominating & Governance Committee NASDAQ OMX considered the relative ‘‘Company’’). The proposed recommended to the Board, and the weight of the arguments for and against amendments will be implemented on a Board approved, certain changes to the supermajority voting requirements. date designated by NASDAQ OMX Charter and By-Laws to address the two Historically, supermajority voting following approval by the Commission. stockholder proposals and make other requirements have protected The text of the proposed rule changes. NASDAQ OMX now proposes corporations against coercive takeover change is available on the Exchange’s to make these changes, which are tactics by requiring broad stockholder Web site at http:// described further below. support for certain types of transactions nasdaqomxphlx.cchwallstreet.com, at (ii) Proposed Amendments to Charter or governance changes. However, in the principal office of the Exchange, and recent years, corporate governance at the Commission’s Public Reference (a) Removal and Replacement of standards have evolved, and many Room. Supermajority Voting Requirements stockholder rights advocates argue that II. Self-Regulatory Organization’s To respond to feedback from its supermajority voting requirements Statement of the Purpose of, and stockholders, NASDAQ OMX proposes Statutory Basis for, the Proposed Rule to replace each supermajority voting 4 Paragraph C of Article Fourth sets forth the 5% voting limitation, which provides that holders of Change requirement in the Charter with a NASDAQ OMX’s voting securities may not cast In its filing with the Commission, the ‘‘majority of outstanding shares’’ voting votes in excess of 5% of NASDAQ OMX’s Exchange included statements requirement. The Charter currently outstanding voting securities. To be clear, NASDAQ includes the following three OMX is not proposing any change to the 5% voting concerning the purpose of and basis for limitation itself. NASDAQ OMX only proposes that the proposed rule change and discussed supermajority voting requirements. any future amendment of the 5% voting limitation • any comments it received on the Removal of Directors. Article Fifth, will require the approval of stockholders holding a proposed rule change. The text of these Paragraph D provides that, except for majority of the outstanding shares, rather than directors elected by the holders of any stockholders holding 662⁄3% of the outstanding statements may be examined at the shares. places specified in Item IV below. The series of preferred stock, any director, or 5 Article Fifth includes certain provisions relating Exchange has prepared summaries, set the entire Board, may be removed from to the Board, such as Board size and director forth in sections A, B, and C below, of office at any time, but only by the elections. the most significant aspects of such 6 Article Seventh prohibits stockholder action by 3 These provisions, which are described further written consent. statements. 7 below, require the affirmative vote of at least 662⁄3% Article Eighth establishes the procedures to of the total voting power of the outstanding shares adopt, alter, amend or repeal the By-Laws. 1 15 U.S.C. 78s(b)(1). of NASDAQ OMX’s capital stock to approve certain 8 Article Ninth establishes the procedures to 2 17 CFR 240.19b–4. actions. adopt, alter, amend or repeal the Charter.

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limit stockholders’ participation in • the phase-out of the classified board the Series A Convertible Preferred Stock corporate governance. NASDAQ OMX structure, which was complete in 2007, and immediately issued 1.6 million of believes that while it is important to in Article Fifth, Paragraph B. those shares to the converting protect against coercive takeover tactics, In Article Fifth, Paragraph B, the noteholders. it is also critically important to obtain proposal also clarifies that the election In 2010, following stockholder stockholder input and respond to of directors by stockholders shall occur approval, all 1.6 million issued shares of stockholder concerns about corporate at an annual or special meeting. The the Series A Convertible Preferred Stock governance. proposal corrects a typographical error were converted into common stock. NASDAQ OMX believes that the in Article Fifth, Paragraph A and Since then, no shares of the Series A proposed ‘‘majority of outstanding renumbers the provisions of the Charter, Convertible Preferred Stock have been shares’’ voting requirement will where necessary following the other outstanding, and the Company has no continue to provide some protection amendments. Finally, the proposal intention to issue further shares of this against proposals that are harmful to the amends the introductory and series. stockholders. While this requirement is concluding language of the Charter to As a clean-up matter, the Company less difficult to satisfy than a incorporate language that will be seeks to file a certificate of elimination supermajority voting requirement, it is required under Delaware law when the with the Secretary of State of the State more difficult to satisfy than a ‘‘majority amended and restated Charter is filed of Delaware to eliminate the Series A of votes cast’’ requirement, which with the Secretary of State of the State Convertible Preferred Stock. Under NASDAQ OMX considered as an of Delaware.10 Delaware law, a certificate of alternate option. NASDAQ OMX The amendment and restatement of elimination is deemed to be an believes that a ‘‘majority of outstanding the Charter to incorporate these non- amendment to NASDAQ OMX’s shares’’ standard is a balanced outcome substantive changes will simplify and Charter; however, since the amendment that responds to stockholder feedback streamline the document. is limited in scope, it does not require while appropriately maintaining the approval of NASDAQ OMX’s (iii) Proposed Elimination of Certificate 12 NASDAQ OMX’s defensive posture of Designation stockholders. against hostile takeovers. NASDAQ OMX proposes to eliminate (iv) Proposed Amendments to the By- (b) Non-Substantive Changes its Certificate of Designation, Laws NASDAQ OMX also proposes to Preferences and Rights of Series A (a) Special Meetings of Stockholders Convertible Preferred Stock (the ‘‘Series amend and restate the Charter to make Current Section 3.2 of NASDAQ A Convertible Preferred Stock’’), and all other non-substantive changes. OMX’s By-Laws provides that only matters set forth therein. The Series A Specifically, the proposal deletes NASDAQ OMX may call special Convertible Preferred Stock was created obsolete references to the following: meetings of its stockholders.13 To • in 2009 to facilitate the conversion of The 3.75% Series A Convertible respond to feedback from its certain notes into common stock.11 The Notes due 2012 and the 3.75% Series B stockholders, as discussed above, Company authorized 2 million shares of Convertible Notes due 2012, which are NASDAQ OMX proposes to delete this no longer outstanding, in Article Fourth, provision and replace it with language of Article Fourth, Paragraph C(6) should read: ‘‘The Paragraph C and Article Eleventh; that will allow NASDAQ OMX’s • a voting trust agreement, which is Board, however, may not approve an exemption under Section 6: (i) for a registered broker or dealer stockholders to call special meetings no longer in effect, in Article Fourth, or an Affiliate thereof or (ii) an individual or entity after following particular procedures. Paragraph C(3)(b)(iii); that is subject to a statutory disqualification under Similar to the elimination of • ownership of NASDAQ OMX Section 3(a)(39) of the Exchange Act.’’ Under no supermajority voting requirements, securities by the National Association of circumstances will NASDAQ OMX read the obsolete cross-reference to imply that the Board which is discussed above, the Securities Dealers, Inc., certain affiliates could grant an exemption to the ownership implementation of the right of of Hellman & Friedman LLC, and certain limitation in Article Fourth, Paragraph C(6) of the stockholders to call a special meeting affiliates of Silver Lake, none of which Charter for a registered broker or dealer or an has received recent attention from currently own any NASDAQ OMX Affiliate thereof, or an individual or entity that is subject to a statutory disqualification under Section investor and corporate governance securities, in Article Fourth, Paragraph 3(a)(39) of the Exchange Act. NASDAQ OMX also advocates. These advocates argue that C(6); 9 and notes that it is proposing amendments to Section such a right will enable stockholders to 12.5 of the By-Laws to eliminate cross-references to raise and act on matters that arise 9 NASDAQ OMX notes that the remaining text of subsection (b) of Article Fourth, Paragraph C(6) of Article Fourth, Paragraph C(6) of the Charter the Charter. Finally, NASDAQ OMX notes that between annual meetings. includes an obsolete cross-reference to Section 6(b) there are some differences in language between the Following discussions with some of of Article Fourth, Paragraph C in the second second sentence of Article Fourth, Paragraph C(6) its stockholders, NASDAQ OMX agrees of the Charter and the second sentence of Section sentence, which begins ‘‘The Board, however, may that it is appropriate to allow not approve an exemption under Section 6(b). . . .’’ 12.5 of the By-Laws. To the extent that these NASDAQ OMX cannot correct this cross-reference, differences would cause a difference in stockholders who meet certain which should refer to Section 6 without further interpretation, NASDAQ OMX notes, following procedural requirements to call a reference to a subsection (b), without seeking consultation with outside counsel, that the Charter special meeting. In proposing these language shall prevail. As soon as feasible, further approval of its stockholders, which would procedural requirements, NASDAQ require NASDAQ OMX to call and hold a NASDAQ OMX plans to present a proposal to the stockholder meeting. Generally, NASDAQ OMX stockholders to conform this provision of the OMX’s goals are to ensure timely notice holds stockholder meetings, which are time Charter to the By-Laws. of a meeting request and to gather consuming and expensive, only once or twice a 10 See Sections 242 and 245 of the DGCL. sufficient information about the year. Moreover, it is atypical of a large public 11 See Securities Exchange Act Release No. 60845 proposing stockholder(s) and the company like NASDAQ OMX to submit a proposal (October 20, 2009), 74 FR 55078 (October 26, 2009) to its stockholders solely to correct a cross-reference (SR–BX–2009–061, SR–NASDAQ–2009–087, in its Charter. However, NASDAQ OMX believes, SR–Phlx–2009–88); see also Securities Exchange 12 See Section 151(g) of the DGCL. following consultation with outside counsel, that it Act Release No. 61000 (November 13, 2009), 74 FR 13 Under Delaware law, special meetings of a is clear, based on the drafting history of this 61390 (November 24, 2009) (SR–BSECC–2009–005); corporation’s stockholders may be called by the provision, that the intent of the cross-reference is see also Securities Exchange Act Release No. 61001 board of directors or by such persons as may be to refer to Section 6 of Article Fourth, Paragraph C (November 13, 2009), 74 FR 61391 (November 24, authorized by the certificate of incorporation or the of the Charter. In other words, the second sentence 2009) (SR–SCCP–2009–04). bylaws. See Section 211(d) of the DGCL.

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proposal. Among other things, this OMX’s Board in its reasonable considered, the facts and circumstances information will ensure that NASDAQ determination. The intent of the surrounding any request for a meeting OMX is able to comply with its requirement for stockholders to and any plan of the Board to call an disclosure and other requirements maintain a ‘‘net long position’’ is to annual meeting or a special meeting. under applicable law and that NASDAQ limit the ability to call a special meeting Proposed Section 3.2(c) sets forth OMX, its Board and its stockholders are to stockholders that have long-term certain limitations on Special Meeting able to assess the proposal adequately. record and economic positions in Requests. Specifically, a Special The proposed procedural requirements NASDAQ OMX. Meeting Request will not be valid if: are set forth below. Proposed Section 3.2(a) also sets forth • It relates to an item of business that First, proposed Section 3.2(a) the procedures for determining whether is not a proper subject for stockholder provides that special meetings of a special meeting has been requested by action under applicable law; NASDAQ OMX’s stockholders may only Requisite Holders representing in • it is delivered during the period be called: (i) At any time by NASDAQ aggregate at least the Requisite commencing 90 days prior to the one- OMX’s Board pursuant to a resolution Percentage if multiple Special Meeting year anniversary of the date of the adopted by a majority of the total Requests are delivered to NASDAQ immediately preceding annual meeting number of directors NASDAQ OMX OMX’s Corporate Secretary. Multiple and ending on the date of the next would have if there were no vacancies; requests will be considered together annual meeting; and (ii) by NASDAQ OMX’s Corporate only if: (i) Each Special Meeting Request • a Similar Item was presented at any Secretary following the receipt of a identifies substantially the same meeting of stockholders held within 120 written request in proper form for a purpose or purposes of the special days prior to the date on which the special meeting (a ‘‘Special Meeting meeting and substantially the same Special Meeting Request was delivered; Request’’) by one or more stockholders. matters proposed to be acted on at the or Such stockholders (the ‘‘Requisite requested special meeting (in each case • a Similar Item is included in Holders’’) must hold of record, in the as determined in good faith by NASDAQ OMX’s notice of meeting as aggregate, at least 15 percent of NASDAQ OMX’s Board); and (ii) such an item of business to be presented at NASDAQ OMX’s outstanding shares of Special Meeting Requests have been a stockholder’s meeting that has been capital stock entitled to vote on matters dated and delivered to NASDAQ OMX’s called but not yet held. to be brought before the special meeting Corporate Secretary within 60 days of The Board may adjourn or reschedule (the ‘‘Requisite Percentage’’). Such the earliest dated Special Meeting any previously scheduled special 14 shares must be ‘‘Net Long Shares,’’ Request. NASDAQ OMX believes these meeting of the stockholders. NASDAQ and the Requisite Holders must have procedures are reasonable and clear and OMX believes the subject matter held the shares continuously for at least notes that they grant only limited limitations set forth in proposed Section one year as of the date of the Special discretion to NASDAQ OMX’s Board in 3.2(c) are appropriate in order to comply Meeting Request. Whether shares determining whether Special Meeting with applicable law and to prevent constitute Net Long Shares shall Requests will be considered together. multiple considerations of the same ultimately be decided by NASDAQ Pursuant to proposed Section 3.2(b), if item of business. NASDAQ OMX a Special Meeting Request is in proper believes the time limits set forth in 14 For purposes of determining Requisite Holders form, NASDAQ OMX’s Board shall proposed Section 3.2(c) are appropriate under proposed Section 3.2, ‘‘Net Long Shares’’ determine the place, if any, date and shall be limited to the number of shares beneficially to ensure that NASDAQ OMX is not owned, directly or indirectly, by any stockholder or time of the special meeting, and required to incur the time and expense beneficial owner that constitute such person’s ‘‘net NASDAQ OMX’s Corporate Secretary of calling and holding a special meeting long position’’ as defined in Rule 14e–4 under the shall call the special meeting within 120 of stockholders immediately prior to an Act, provided that (A) for the purposes of this days after the date the Special Meeting definition, references in the rule to ‘‘the date the upcoming annual meeting of tender offer is first publicly announced or otherwise Request was delivered. However, stockholders or if a Similar Item of made known by the bidder to the holders of the NASDAQ OMX’s Board may, in lieu of business already has been presented at security to be acquired’’ shall be the date of the calling a special meeting, present an a recent stockholders’ meeting. relevant Special Meeting Request and all dates in identical or substantially similar item of To be in proper form, a Special the one year period prior thereto, the ‘‘highest 15 tender offer price or stated amount of the business (a ‘‘Similar Item’’), as Meeting Request must comply with consideration offered for the subject security’’ shall determined in good faith by NASDAQ certain requirements, as described refer to the closing sales price of NASDAQ OMX’s OMX’s Board, for stockholder approval further below.16 NASDAQ OMX’s Board capital stock on NASDAQ on such date (or, if such at any other meeting of the stockholders date is not a trading day, the next succeeding will have the sole discretion to trading day), the ‘‘person whose securities are the that is held not less than 120 days after determine whether a Special Meeting subject of the offer’’ shall refer to NASDAQ OMX, the delivery of the Special Meeting Request is in proper form.17 Proposed a ‘‘subject security’’ shall refer to the issued and Request. The intent of this provision is Section 3.2(d) sets forth the outstanding voting stock of NASDAQ OMX; and (B) to save NASDAQ OMX the time and the net long position of such stockholder shall be requirements for a Special Meeting reduced by any shares as to which such person does expense of calling and holding a special Request to be in proper form. These not have the right to vote or direct the vote at the meeting if NASDAQ OMX intends to proposed requirements will ensure that proposed special meeting or as to which such hold a separate stockholders’ meeting NASDAQ OMX has sufficient person has entered into a derivative or other within 120 days. In fixing the place, if agreement, arrangement or understanding that information to comply with its hedges or transfers, in whole or in part, directly or any, date and time for any special disclosure requirements under indirectly, any of the economic consequences of meeting, NASDAQ OMX’s Board may applicable law and that the Requisite ownership of such shares. In addition, to the extent consider such factors as it deems Holders maintain a sufficient ownership any affiliates of the stockholder or beneficial owner relevant in its business judgment, are acting in concert with the stockholder or level through the date of the special beneficial owner with respect to the calling of the including the nature of the matters to be meeting. Specifically, a Special Meeting special meeting, the determination of Net Long Request shall: Shares may include the effect of aggregating the Net 15 Under proposed Section 3.2(b) of the By-Laws, Long Shares (including any negative number) of the election of directors shall be deemed a ‘‘Similar such affiliate or affiliates. See proposed Section Item’’ with respect to all items of business involving 16 See proposed Section 3.2(a) of the By-Laws. 3.2(a) of the By-Laws. the nomination, election or removal of directors. 17 Id.

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• Be in writing, signed by each Proposed Section 3.2(g) will require provision,20 requires stockholders to Requesting Person 18 and delivered to the Requisite Holders giving a Special notify NASDAQ OMX, during a NASDAQ OMX’s Corporate Secretary at Meeting Request to further update and specified period in advance of an NASDAQ OMX’s principal executive supplement the request, if necessary, so annual meeting, of their intention to offices; that the information in the request is nominate one or more persons for • set forth certain information with true and correct as of the record date for election to the Board or to present a respect to (i) each person the Requesting the special meeting and as of the 10th business proposal for consideration by Person proposes to nominate for business day prior to the special the stockholders at the meeting. While director, (ii) any business the meeting or any adjournment or designing the proposed procedural Requesting Person proposes to bring postponement thereof. This requirement requirements for stockholders to call a before the meeting and (iii) each will ensure that NASDAQ OMX, its special meeting, as outlined above, Requesting Person; 19 and Board and its other stockholders are NASDAQ OMX evaluated the existing • include (i) an agreement by each notified of changes to the information procedural requirements for Requisite Holder to immediately deliver they will consider in assessing a stockholders to bring business before an written notice to NASDAQ OMX’s proposed item of business prior to the annual meeting. NASDAQ OMX is Corporate Secretary in the case of any special meeting. In the case of an update therefore proposing changes to some of disposition, on or prior to the record and supplement required to be made as these procedures to enhance them and date for the special meeting, of any of the record date, the update and conform them, in some cases, to the shares of NASDAQ OMX’s capital stock supplement must be delivered to procedures relating to special meetings. held of record by such Requisite Holder NASDAQ OMX’s Corporate Secretary no Generally, the proposed amendments and (ii) an acknowledgement that (1) later than the fifth business day after the add requirements for extensive any such disposition shall be deemed a record date for the special meeting. In disclosures by proposing stockholders revocation of the Special Meeting the case of an update and supplement about themselves, any proposed Request to the extent of such disposition required to be made as of the 10th nominees for director and any proposed and (2) if, following such deemed business day prior to the special items of business to be brought before a revocation, the Requisite Holders hold meeting or any adjournment or meeting. The specific amendments are of record, in the aggregate, less than the postponement thereof, the update and discussed in detail below. Requisite Percentage of the voting supplement must be delivered to First, Section 3.1(a) of the By-Laws power of all outstanding shares of NASDAQ OMX’s Corporate Secretary no currently states that nominations of NASDAQ OMX’s capital stock entitled later than the eighth business day prior persons for election to NASDAQ OMX’s to vote generally in the election of to the date for the special meeting or, if Board and the proposal of other directors, NASDAQ OMX shall have no practical, any adjournment or business to be considered by the obligation to hold the special meeting. postponement thereof (and, if not stockholders at an annual meeting of Proposed Section 3.2(f) provides that practicable, on the first practicable date stockholders may be made only: at any special meeting of the prior to the date to which the special (i) Pursuant to the Company’s notice of stockholders, the only business to be meeting has been adjourned or meeting (or any supplement thereto); (ii) conducted or considered will have been postponed). by or at the direction of NASDAQ specified in the notice of meeting (or Proposed Section 3.2(h) will allow the OMX’s Board or its Nominating & any supplement thereto) given by or at Requisite Holders to revoke a Special Governance Committee; or (iii) by any the direction of NASDAQ OMX’s Board Meeting Request by written revocation stockholder of the Company that meets or Corporate Secretary, as the case may delivered to NASDAQ OMX at any time certain requirements. These be. In any event, however, NASDAQ prior to the special meeting requested. requirements state that the stockholder OMX’s Board may submit its own However, NASDAQ OMX’s Board will must: (i) Be a stockholder of record at proposal or proposals for consideration have the discretion to determine the time of delivery of notice to the at a special meeting. Except as whether or not to proceed with the Company of nominees or other business otherwise allowed under proposed special meeting. The Board might wish to be conducted at the meeting; (ii) be Section 3.2, stockholders will not be to continue with the special meeting if, entitled to vote at the meeting; and (iii) permitted to propose business to be for example, the Company has already comply with the notice procedures set brought before a special meeting of the spent the time and expense required to forth in the By-Laws. NASDAQ OMX stockholders. NASDAQ OMX believes call the meeting or if the agenda for the proposes to add a parenthetical to the these provisions are reasonable and meeting includes items other than those requirement that a stockholder must be necessary to limit the items of business proposed in the Special Meeting a stockholder of record to clarify that a that may be considered at a special Request. nomination or proposal of other meeting to those that were proposed by Finally, NASDAQ OMX proposes to business may be made on behalf of a the Company, the Board or stockholders designate as Section 3.2(i) existing text beneficial owner, if different from the that comply with the requirements and that sets forth the requirements for stockholder of record, only if the procedures set forth in the By-Laws. stockholders to submit nominees for beneficial owner is the beneficial owner election as directors at certain of NASDAQ OMX shares. This 18 ‘‘Requesting Person’’ means (i) each Requisite stockholder meetings. NASDAQ OMX modification will clarify that both Holder, (ii) the beneficial owner or beneficial further proposes to make a minor owners, if different, on whose behalf the Special change to this text to clarify that 20 ‘‘Advance notice’’ provisions allow Meeting Request is being delivered to NASDAQ NASDAQ OMX’s Board, rather than the stockholder(s) to bring business before an annual OMX’s Corporate Secretary and (iii) any affiliate or meeting of stockholders, but set forth procedural associate of such stockholder or beneficial owner. Company itself, will call a special requirements to ensure that companies and boards See proposed Section 3.2(e) of the By-Laws. meeting on behalf of the Company. have sufficient information about the proposal and 19 The information required is the same the proposing stockholder(s), as well as adequate information required from Proposing Persons with (b) Annual Meetings of Stockholders time to consider the proposal, by requiring the respect to nominations or items of business to be proposing stockholder(s) to give advance notice of brought before an annual meeting of stockholders Section 3.1 of NASDAQ OMX’s By- the intention to bring the proposal before the and is described in detail in Section (iv)(b) below. Laws, which is the ‘‘advance notice’’ annual meeting.

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record and beneficial owners of the information they will consider in without limitation, all information that NASDAQ OMX stock have the right to assessing a proposed item of business would be required to be disclosed propose nominees or business to be prior to the annual meeting. In the case pursuant to Item 404 under Regulation considered at an annual meeting. of an update and supplement required S–K if such Requesting Person were the NASDAQ OMX further proposes that a to be made as of the record date, the ‘‘registrant’’ for purposes of such rule stockholder who proposes nominees or update and supplement must be and the proposed nominee were a business to be considered at an annual delivered to NASDAQ OMX’s Corporate director or executive officer of such meeting must hold shares in the Secretary no later than the fifth business registrant; and Company at the time of the meeting, in day after the record date for the annual • a completed and signed addition to the time of delivery of the meeting. In the case of an update and questionnaire, representation and required notice to the Company. This supplement required to be made as of agreement.24 will ensure that a stockholder retains an the 10th business day prior to the Finally, NASDAQ OMX proposes to interest in the Company until the annual meeting or any adjournment or add a catch-all provision to Section meeting at which the stockholder’s postponement thereof, the update and 3.1(b)(i) of the By-Laws that will allow nominee or other business is supplement must be delivered to the Company to require any proposed considered. Finally, NASDAQ OMX NASDAQ OMX’s Corporate Secretary no nominee to furnish such other proposes to number the procedural later than the eighth business day prior information (i) as the Company may requirements for stockholders who to the date for the annual meeting or, if reasonably require to determine the propose nominees or business to make practicable, any adjournment or eligibility of such proposed nominee to them easier to understand. postponement thereof (and, if not serve as a director or (ii) that could be Currently, Section 3.1(b) of the By- practicable, on the first practicable date material to a reasonable stockholder’s Laws sets forth the requirements for a prior to the date to which the annual understanding of the independence, or stockholder’s notice to NASDAQ OMX meeting has been adjourned or lack of independence, of such proposed of nominations or other business to be postponed). nominee. NASDAQ OMX believes that considered at an annual meeting. Section 3.1(b)(i) of the By-Laws all of the new information requirements NASDAQ OMX proposes certain currently sets forth the information that included in proposed Section 3.1(b)(i) amendments to this section to ensure a stockholder must provide to NASDAQ are reasonable and necessary in order to that NASDAQ OMX has sufficient OMX about each person whom the assist the Company in evaluating information about such nominations or stockholder proposes to nominate for director eligibility, independence and other business proposed by a election as a director. NASDAQ OMX potential conflicts of interest. stockholder to enable the Company, the proposes changes to this section to use Section 3.1(b)(ii) of the By-Laws Board and the other stockholders to the defined term ‘‘Proposing Person’’ currently sets forth the information that assess a position on the nominations or instead of stockholder,23 to require a stockholder must provide to NASDAQ other business. The additional information with respect to nominees OMX about any business, other than information requirements will also for reelection as well as nominees for nominations for director, that the ensure that NASDAQ OMX can make election, to correct a reference to the Act stockholder proposes to bring before an adequate disclosures to its stockholders and to add numbering and other annual meeting. NASDAQ OMX and comply with requirements under organizational changes to make the proposes changes to this section to applicable law. requirements easier to read and require that the description of the Specifically, NASDAQ OMX proposes understand. NASDAQ OMX also proposed business be reasonably an amendment to the first paragraph of proposes to require the same detailed, to use the defined term this section to require a stockholder information with respect to a proposed ‘‘Proposing Person’’ instead of who provides a notice relating to a nominee that will be required with stockholder and beneficial owner in nomination to include with the notice, respect to a Proposing Person, as certain places and to add numbering, a completed and signed questionnaire, discussed further below. In addition, reordering and other organizational representation and agreement relating to NASDAQ OMX proposes to add two changes to make the requirements easier the nominee(s) for director.21 NASDAQ new informational requirements for to read and understand. NASDAQ OMX OMX also proposes to require a proposed nominees, including: also proposes to add a new requirement • stockholder who provides a notice to A description of all direct and for a stockholder to provide a further update and supplement the indirect compensation and other reasonably detailed description of all notice, if necessary, so that the material monetary agreements, contracts, agreements, arrangements and information in the notice is true and arrangements and understandings understandings between or among any correct as of the record date for the during the past three years, and any of the Proposing Persons or between or annual meeting and as of the 10th other material relationships, between or among any Proposing Person in business day prior to the annual among any Proposing Person, on the one connection with the proposal. NASDAQ meeting or any adjournment or hand, and such proposed nominee and OMX believes this information will be postponement thereof.22 This any of his or her respective affiliates and useful in assessing the aims and requirement will ensure that NASDAQ associates, on the other hand, including, incentives of Proposing Persons in OMX, its Board and its other proposing business before an annual stockholders are notified of changes to 23 ‘‘Proposing Person’’ means (i) the stockholder meeting. providing the notice of business or the notice of the nomination, as applicable, proposed to be brought Section 3.1(b)(iii) of the By-Laws 21 The contents of and rationale for the before an annual meeting, (ii) any beneficial owner currently sets forth the information that questionnaire, representation and agreement are or beneficial owners, if different, on whose behalf a stockholder who proposes nominee(s) discussed further in Section (iv)(c) below. such business is proposed to be brought before the for director or other business to be put 22 NASDAQ OMX notes that this proposal is meeting or the notice of the nomination proposed similar to proposed Section 3.2(g) of the By-Laws, to be made at the meeting is made, as applicable, forth before an annual meeting must which requires updates and supplements to a and (iii) any affiliate or associate (each within the stockholder notice relating to a special meeting. meaning of Rule 12b–2 under the Act for purposes 24 The contents of and rationale for the This proposed change is discussed further in of the By-Laws) of such stockholder or beneficial questionnaire, representation and agreement are Section (iv)(a) above. owner. See proposed Section 3.1(c) of the By-Laws. discussed further in Section (iv)(c) below.

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provide to NASDAQ OMX about such regard to whether: (i) the derivative, OMX, or that provides, directly or stockholder and the beneficial owner, if swap or other transaction or series of indirectly, the opportunity to profit any, on whose behalf the nomination or transactions conveys any voting rights from any decrease in the price or value proposal is made. NASDAQ OMX in such shares to the Proposing Person; of shares of any class or series of proposes changes to this section to use (ii) the derivative, swap or other NASDAQ OMX (any of the foregoing, a the defined term ‘‘Proposing Person’’ transaction or series of transactions is ‘‘Short Interest’’); 28 instead of stockholder and beneficial required to be, or is capable of being, • any performance-related fees (other owner in certain places and to add settled through delivery of such shares; than an asset-based fee) to which the numbering, reordering and other or (iii) the Proposing Person may have Proposing Person is entitled based on organizational changes to make the entered into other transactions that any increase or decrease in the price or requirements easier to read and hedge or mitigate the economic effect of value of shares of any class or series of understand. such derivative, swap or other NASDAQ OMX, or any Synthetic Equity 29 Relating to the existing requirement in transaction or series of transactions. Interest or Short Interest; • any significant equity interest or Section 3.1(b)(iii)(B) that a proposing This proposed provision will assist any Synthetic Equity Interest or Short stockholder describe the class or series NASDAQ OMX, its Board and its other Interest in any principal competitor of and number of shares of NASDAQ OMX stockholders in understanding a NASDAQ OMX held by the Proposing capital stock owned beneficially and of Proposing Person’s full economic interests in NASDAQ OMX and possible Person; 30 record by such stockholder and the • any direct or indirect interest of the beneficial owner, NASDAQ OMX aims and incentives in submitting the proposed business for consideration at Proposing Person in any contract with proposes to add a parenthetical stating NASDAQ OMX, any affiliate of that beneficial ownership shall be an annual meeting. For this same reason, NASDAQ OMX NASDAQ OMX or any principal determined within the meaning of Rule also proposes to add several new competitor of NASDAQ OMX 13d–3 under the Act. NASDAQ OMX disclosures that a Proposing Person (including, in any such case, any also proposes to state that a Proposing must include in a notice to NASDAQ employment agreement, collective Person shall in all events be deemed to OMX regarding nominees or other bargaining agreement or consulting beneficially own any shares of any class business to be conducted at an annual agreement); 31 or series of NASDAQ OMX’s capital meeting. These include disclosures • any pending or threatened litigation stock as to which such person has a regarding: in which the Proposing Person is a party right to acquire beneficial ownership at • Any proxy (other than a revocable or material participant involving any time in the future. These proposed proxy or consent given in response to a NASDAQ OMX or any of its officers or changes merely clarify how the concept solicitation made pursuant to, and in directors, or any affiliate of NASDAQ of beneficial ownership will be accordance with, Section 14(a) of the OMX; 32 interpreted under this section of the By- Act by way of a solicitation statement • any material transaction occurring, Laws. filed on Schedule 14A), agreement, in whole or in part, during the then Current Section 3.1(b)(iii)(D) requires arrangement, understanding or immediately preceding 12-month period proposing stockholders to describe to relationship pursuant to which the between such Proposing Person, on the NASDAQ OMX any agreement, Proposing Person has or shares a right one hand, and NASDAQ OMX, any arrangement or understanding to vote any shares of any class or series affiliate of NASDAQ OMX or any (including any derivative or short of NASDAQ OMX; 26 principal competitor of NASDAQ OMX, positions, profit interests, options, • any proportionate interest in on the other hand; 33 and warrants, convertible securities, stock NASDAQ OMX shares or Synthetic • any other information relating to appreciation or similar rights, hedging Equity Interest held, directly or the Proposing Person required to be transactions, and borrowed or loaned indirectly, by a general or limited disclosed in a proxy statement or other shares) that has been entered into as of partnership in which the Proposing filings required to be made in the date of the notice by the stockholder Person is a general partner or, directly connection with solicitations of proxies and the beneficial owners with respect or indirectly, beneficially owns an for, as applicable, the proposal and/or to NASDAQ OMX’s stock. Given the interest in a general partner; 27 for the election of directors in an • increased complexity of such any agreement, arrangement, election contest pursuant to and in transactions in today’s marketplace, understanding or relationship, accordance with Section 14(a) of the Act NASDAQ OMX proposes to replace the including any repurchase or similar so- and the rules and regulations current language with a similar called ‘‘stock borrowing’’ agreement or promulgated thereunder.34 requirement for disclosure of any arrangement, entered into or engaged in, Synthetic Equity Interest,25 without directly or indirectly, by the Proposing 28 See proposed Section 3.1(b)(iii)(G) of the By- Person, the purpose or effect of which Laws. 29 See proposed Section 3.1(b)(iii)(H) of the By- 25 is to mitigate loss to, reduce the ‘‘Synthetic Equity Interest’’ shall mean any Laws. derivative, swap or other transaction (including any economic risk (of ownership or 30 See proposed Section 3.1(b)(iii)(I) of the By- short positions, profit interest, options, warrants, otherwise) of shares of any class or Laws. convertible securities, stock appreciation or similar series of NASDAQ OMX by, manage the 31 rights) or series of transactions engaged in, directly See proposed Section 3.1(b)(iii)(J) of the By- or indirectly, by a Proposing Person, the purpose or risk of share price changes for, or Laws. effect of which is to give the Proposing Person increase or decrease the voting power 32 See proposed Section 3.1(b)(iii)(K) of the By- economic risk similar to ownership of shares of any of, the Proposing Person with respect to Laws. 33 class or series of NASDAQ OMX, including due to shares of any class or series of NASDAQ See proposed Section 3.1(b)(iii)(L) of the By- the fact that the value of such derivative, swap or Laws. other transaction or series of transactions is 34 See proposed Section 3.1(b)(iii)(M) of the By- determined by reference to the price, value or class or series of NASDAQ OMX. See proposed Laws. NASDAQ OMX also proposes to include an volatility of any shares of any class or series of Section 3.1(b)(iii)(D) of the By-Laws. exception to each of the aforementioned disclosure NASDAQ OMX, or which derivative, swap or other 26 See proposed Section 3.1(b)(iii)(E) of the By- requirements for any disclosures with respect to the transaction or series of transactions provides, Laws. ordinary course business activities of any broker, directly or indirectly, the opportunity to profit from 27 See proposed Section 3.1(b)(iii)(F) of the By- dealer, commercial bank, trust company or other any increase in the price or value of shares of any Laws. nominee who is a Proposing Person solely as a

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(c) Questionnaire, Representation and (d) Removal and Replacement of 4.8 to state explicitly that vacancies on Agreement for Director-Nominees Supermajority Voting Provisions the Board are to be filled by a majority vote of the Board, and not by NASDAQ OMX proposes to add a Consistent with the proposed amendments to remove and replace the stockholders. In addition, to prescribe new Section 3.5 to its By-Laws to procedures in case multiple Board require nominees for director to deliver supermajority voting provisions in the Charter discussed above, NASDAQ vacancies occur at the same time, the to NASDAQ OMX, in accordance with proposed amendments state that a Board the time periods prescribed for delivery OMX proposes to amend each provision of the By-Laws that currently requires a vacancy shall be filled by the majority of a stockholder’s notice: (i) A written of the directors, even if there is less than questionnaire with respect to the supermajority vote of stockholders to instead require a ‘‘majority of votes a quorum, or by the sole remaining background and qualifications of the director, if there is only one director nominee; and (ii) a written outstanding.’’ NASDAQ OMX’s By-Laws currently include the following two remaining on the Board. The proposed representation and agreement as to supermajority voting requirements, each amendments do not change any of the certain matters. Specifically, the written of which conforms with an analogous other procedures for filling Board representation and agreement will provision in the Charter. vacancies. provide that the nominee: • Removal of Directors. Section 4.6 (f) Use of Electronic Means for Certain • Is not and will not become a party provides that any or all of the directors Notices and Related Waivers to (i) any agreement as to how the may be removed from office at any time Currently, Section 4.12(a) of the By- nominee will act or vote on any issue by the affirmative vote of at least 662⁄3% Laws provides that notice of any or question (a ‘‘Voting Commitment’’) of the total voting power of the Voting meeting of the Board shall be deemed that has not been fully disclosed to Stock, voting together as a single class.35 duly given to a director if, among other NASDAQ OMX or (ii) any Voting • Adoption, Alteration, Amendment methods, the notice is sent to the Commitment that could limit or and Repeal of By-Laws. Section 11.1 director at the address last made known interfere with the nominee’s fiduciary provides that the By-Laws may be in writing to NASDAQ OMX by duties under applicable law; altered amended or repealed, or new By- telegraph, telefax, cable, radio or • Laws may be adopted, at any meeting of is not and will not become a party wireless. Section 4.12(b) of the By-Laws the stockholders by the affirmative vote to any agreement with any person other provides that such notice of a board of the holders of at least 662⁄3% of the than NASDAQ OMX with respect to any meeting need not be given to any voting power of the Voting Stock, voting direct or indirect compensation, director if waived by the director in together as a single class.36 reimbursement or indemnification in writing or by electronic transmission (or To conform with the proposed connection with service or action as a by telegram, telefax, cable, radio or changes to the Charter, NASDAQ OMX director of NASDAQ OMX that has not wireless and subsequently confirmed in proposes to replace each of these been fully disclosed to NASDAQ OMX; writing or by electronic transmission). supermajority voting requirements with • NASDAQ OMX proposes amendments would be in compliance, if elected, a voting standard requiring the to Sections 4.12(a) and (b) to provide and will comply, with the provisions of affirmative vote of a majority of the that both notices and waivers of such NASDAQ OMX’s By-Laws relating to outstanding Voting Stock. As discussed notices can be given by email or other qualifications of directors, conflicts of above with respect to the analogous means of written electronic interest and contracts and transactions Charter amendments, NASDAQ OMX transmission. These amendments are involving directors; and believes that a ‘‘majority of outstanding intended merely to expand the means • in such proposed nominee’s shares’’ standard reflects a balanced through which notices and waivers of individual capacity and on behalf of any approach that responds to stockholder notices may be given, and the person on whose behalf the nomination feedback while appropriately amendments do not affect any of the is made, would be in compliance, if maintaining NASDAQ OMX’s defensive other procedural requirements of elected, and will comply, with posture against hostile takeovers. NASDAQ OMX’s Corporate Governance Sections 4.12(a) and (b). In addition, the Guidelines, Board of Director Code of (e) Procedures for Filling Board proposed amendments reflect current Conduct and Code of Ethics, including Vacancies practices, as a substantial amount of all applicable, publicly disclosed Section 4.8 of the By-Laws sets forth communications between NASDAQ conflict of interest, confidentiality, stock the procedures to fill a director position OMX and its directors, outside of Board ownership and insider trading policies that has become vacant, whether meetings, occurs through electronic and guidelines. because of death, disability, means. The requirements of proposed Section disqualification, removal or resignation. (g) Composition of the Management 3.5 of the By-Laws, which will apply to Under the current provisions, if such a Compensation Committee both the Company’s and stockholders’ vacancy occurs, the Nominating & As required by the Dodd-Frank Wall nominees for director, will ensure that Governance Committee of the Board Street Reform and Consumer Protection NASDAQ OMX has the necessary shall nominate, and the Board shall Act and Rule 10C–1 under the Exchange elect by majority vote, a person to fill information about nominees to fulfill its Act,37 NASDAQ recently amended its the vacancy. In light of the addition of public disclosure requirements. The listing rules relating to compensation a right for stockholders to call a special requirements also will ensure that committees.38 Since NASDAQ OMX is nominees will comply with the legal meeting, as discussed above, NASDAQ obligations, policies and procedures OMX proposes amendments to Section 37 See Public Law 111–203, 124 Stat. 1376 (2010) applicable to all NASDAQ OMX and 17 CFR 240.10C–1. 35 directors. This provision is analogous to Article Fifth, 38 See Securities Exchange Act Release No. 68640 Paragraph D of the Charter, which is discussed (January 11, 2013), 78 FR 4554 (January 22, 2013) under Section (ii)(a) above. (SR–NASDAQ–2012–109). Among other things, the result of being the stockholder directed to prepare 36 This provision is analogous to Article Eighth, amendments require each NASDAQ-listed and submit the notice required by the By-Laws on Paragraph A of the Charter, which is discussed company, with certain exceptions, to have a behalf of a beneficial owner. under Section (ii)(a) above. Continued

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listed on NASDAQ, it must comply with NASDAQ OMX proposes to renumber meeting and to remove and replace the these listing rules just like any other and reorganize the provisions of the By- supermajority voting requirements are listed company. NASDAQ OMX Laws, where necessary following the responsive to feedback from NASDAQ therefore proposes amendments to other amendments. OMX’s stockholders. The additional Section 4.13(f) of the By-Laws, which 2. Statutory Basis procedural requirements relating to relates to the composition of the special and annual meetings will protect Management Compensation Committee The Exchange believes that its investors by stating clearly and of NASDAQ OMX’s Board, to conform proposal is consistent with Section 6(b) explicitly the procedures stockholders of the Act,39 in general, and furthers the to the recent amendments to NASDAQ’s must follow to propose business at such objectives of Section 6(b)(5) of the Act,40 listing rules. Specifically, NASDAQ meetings. The requirement for certain OMX proposes to state that the in particular, in that it is designed to promote just and equitable principles of information and agreements from Management Compensation Committee director-nominees will enhance investor must consist of at least two members trade, to remove impediments to and protection by ensuring that nominees and that each member shall meet the perfect the mechanism of a free and provide adequate information about eligibility requirements set forth in the open market and a national market rules of The NASDAQ Stock Market. system, and, in general to protect themselves and also comply with investors and the public interest. applicable law and certain NASDAQ (h) No Amendment or Repeal of Certain In response to feedback from its OMX policies and procedures relating to By-Law Amendments investors, NASDAQ OMX is proposing the Board. The prohibition on the Board While current Section 11.1 of the By- changes to its Charter to replace each amending or repealing By-Law Laws provides for alteration, supermajority voting requirement with a amendments approved by the amendment, repeal and adoption of By- ‘‘majority of outstanding shares’’ voting stockholders is a stockholder-friendly Laws by the stockholders, current standard. NASDAQ OMX believes this provision that is intended to prevent the Section 11.2 provides for alteration, approach will strike an appropriate Board from subsequently overriding amendment, repeal and adoption of By- balance between responding to stockholders’ wishes. Finally, the Laws by the Board. These two sections stockholder feedback and protecting the remaining changes are clarifying in operate as alternate means to alter, Company and its investors against nature, and they enhance investor amend, repeal or adopt By-Laws. In hostile takeovers. In addition, the protection by conforming NASDAQ other words, the stockholders may alter, clarifying changes to the Charter will OMX’s governance documents to amend, repeal or adopt By-Laws protect investors by making the Charter current practices and applicable rules without any action by the Board, and more concise and easier to understand. and by making them clearer and easier vice versa. NASDAQ OMX proposes to Both sets of changes to the Charter were to understand. add a proviso to Section 11.2 to state approved by NASDAQ OMX’s investors that no By-Law adopted by the at the most recent annual meeting of B. Self-Regulatory Organization’s stockholders shall be amended or stockholders. Statement on Burden on Competition repealed by the Board if the By-Law so NASDAQ OMX also proposes to adopted so provides. This is a eliminate the Certificate of Designation Because the proposed rule change stockholder-friendly provision that is relating to the Series A Convertible relates to the governance of NASDAQ intended to prevent the Board from Preferred Stock, which is no longer OMX and not to the operations of the subsequently overriding stockholder outstanding. This proposed change will Exchange, the Exchange does not action to amend or repeal the By-Laws. protect investors by enhancing the believe that the proposed rule change will impose any burden on competition (i) Non-Substantive Changes clarity of NASDAQ OMX’s Charter. Finally, NASDAQ OMX proposes not necessary or appropriate in The remaining proposed By-Law changes to its By-Laws: (i) To furtherance of the purposes of the Act. amendments are non-substantive implement a stockholder right to call a changes, which will simplify and C. Self-Regulatory Organization’s special meeting; (ii) to enhance the Statement on Comments on the streamline the document. Specifically, ‘‘advance notice’’ procedures; (iii) to NASDAQ OMX proposes minor changes Proposed Rule Change Received From require certain information and Members, Participants or Others to Section 3.3 to incorporate the new agreements from director-nominees; (iv) defined term ‘‘Proposing Person,’’ to use to remove and replace the supermajority No written comments were either the term ‘‘nomination’’ rather than voting provisions to conform to the solicited or received. ‘‘nominee’’ for consistency and to Charter amendments; (v) to clarify the correct two cross-references. NASDAQ procedures for filling Board vacancies; III. Date of Effectiveness of the OMX also proposes to delete obsolete (vi) to allow the use of electronic means Proposed Rule Change and Timing for references to the 3.75% Series A for certain notices and waivers; (vii) to Commission Action Convertible Notes due 2012 and the conform the composition requirements Within 45 days of the date of Series B Convertible Notes due 2012, for the Management Compensation publication of this notice in the Federal which are no longer outstanding, in Committee of NASDAQ OMX’s Board Section 12.7. with the NASDAQ listing rules; (vii) Register or within such longer period (i) In addition, NASDAQ OMX proposes [sic] to prevent the Board from as the Commission may designate up to to correct typographical errors and/or amending or repealing By-Law 90 days of such date if it finds such delete obsolete cross-references in amendments approved by the longer period to be appropriate and Article I(f), Section 4.3, Section 9.4(b), stockholders; and (viii) [sic] to make publishes its reasons for so finding or Section 12.5 and Section 12.6. Finally, other non-substantive changes. (ii) as to which the Exchange consents, The proposals relating to the the Commission shall: (a) by order compensation committee of its board of directors, stockholder right to call a special approve or disapprove such proposed consisting of a minimum of two independent rule change, or (b) institute proceedings directors who meet additional eligibility requirements relating to compensatory fees and 39 15 U.S.C. 78f(b). to determine whether the proposed rule affiliation. 40 15 U.S.C. 78f(b)(5). change should be disapproved.

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IV. Solicitation of Comments For the Commission, by the Division of plan to the Commission until September Trading and Markets, pursuant to delegated 30, 2014.9 Interested persons are invited to authority.41 In their Current Request Letter, the submit written data, views, and Kevin M. O’Neill, SROs explain that on February 26, 2013, arguments concerning the foregoing, Deputy Secretary. they published a Request for Proposal including whether the proposed rule [FR Doc. 2013–29609 Filed 12–11–13; 8:45 am] (‘‘RFP’’) to solicit bids from which they change is consistent with the Act. BILLING CODE 8011–01–P will select an entity to serve as the Comments may be submitted by any of consolidated audit trail (‘‘CAT’’) plan the following methods: processor to build, operate, administer, SECURITIES AND EXCHANGE and maintain the CAT.10 Thirty-one Electronic Comments COMMISSION firms, including four distinct SRO groups, initially indicated that they • Use the Commission’s Internet [Release No. 34–71018] planned to submit bids on the RFP.11 comment form (http://www.sec.gov/ The SROs further state in the Current rules/sro.shtml); or Order Granting a Temporary Exemption Pursuant to Section 36(a)(1) Request Letter that following the • Send an email to rule-comments@ of the Securities Exchange Act of 1934 publication of the RFP, potential sec.gov. Please include File Number From the Filing Deadline Specified in bidders and members of the public, SR–Phlx–2013–115 on the subject line. Rule 613(a)(1) of the Exchange Act including broker-dealer members of the SROs, expressed interest in the process Paper Comments December 6, 2013. by which the SROs will review and Rule 613(a)(1) of the Securities • Send paper comments in triplicate evaluate bids, narrow down the list of Exchange Act of 1934 (‘‘Exchange to Elizabeth M. Murphy, Secretary, bids, use those bids in formulating the Act’’) 1 requires the Financial Industry CAT NMS Plan, and, ultimately, select Securities and Exchange Commission, Regulatory Authority, Inc. (‘‘FINRA’’) 100 F Street NE., Washington, DC the CAT plan processor. and the eighteen registered national The SROs state in the Current Request 20549–1090. securities exchanges (collectively, the Letter that they solicited views from All submissions should refer to File ‘‘SROs’’) to ‘‘jointly file on or before 270 potential bidders regarding whether Number SR–Phlx–2013–115. This file days from the date of publication of the they preferred to know the process the number should be included on the Adopting Release [for Rule 613 of the SROs will follow to review, evaluate, 2 subject line if email is used. To help the Exchange Act ] in the Federal Register and select a bidder in advance of Commission process and review your a national market system plan to govern submitting their bids and whether that the creation, implementation, and comments more efficiently, please use process could influence either a maintenance of a consolidated audit only one method. The Commission will decision regarding whether to submit a trail and central repository as required post all comments on the Commission’s bid or the contents of a bid. The SROs by [the rule].’’ The Adopting Release for represent that many potential bidders Internet Web site (http://www.sec.gov/ Rule 613 was published in the Federal rules/sro.shtml). Copies of the indicated that knowing the process by Register on August 1, 2012,3 thus which the SROs will choose the plan submission, all subsequent requiring the national market system processor is important to finalizing their amendments, all written statements plan (‘‘NMS plan’’) to be filed on or bids. According to the SROs, the with respect to the proposed rule before April 28, 2013.4 On March 7, potential bidders also generally change that are filed with the 2013, the Securities and Exchange expressed the view that providing Commission, and all written Commission (‘‘Commission’’) granted a bidders with four weeks between communications relating to the request from the SROs for a temporary approval of a selection process and the proposed rule change between the exemption from this deadline until submission deadline for the bids would 5 Commission and any person, other than December 6, 2013. On November 8, be an appropriate timeframe to allow those that may be withheld from the 2013, the SROs filed an application, bidders to make any changes to their public in accordance with the pursuant to Rule 0–12 under the bids in light of the approved evaluation 6 provisions of 5 U.S.C. 552, will be Exchange Act, to request the and selection process. Based on this available for Web site viewing and Commission to grant a temporary printing in the Commission’s Public exemption under Section 36 of the 9 See Letter from Robert L.D. Colby, Executive 7 Reference Room, 100 F Street NE., Exchange Act, from the deadline Vice President and Chief Legal Officer, FINRA, to Elizabeth M. Murphy, Secretary, Commission, dated Washington, DC 20549, on official specified in Rule 613(a)(1) of the Exchange Act 8 for submitting the NMS November 7, 2013 (the ‘‘Current Request Letter’’). business days between the hours of 10 In the February 7, 2013 Letter, the SROs stated 10:00 a.m. and 3:00 p.m. Copies of such that an RFP process was necessary prior to filing an 1 17 CFR 242.613(a)(1). filing also will be available for NMS plan pursuant to Rule 613 (‘‘CAT NMS Plan’’). 2 17 CFR 242.613. The SROs explained their belief that such a process inspection and copying at the principal 3 Securities Exchange Act Release No. 67457 (July would ensure that potential alternative solutions for offices of the Exchange. All comments 18, 2012), 77 FR 45722 (August 1, 2012) (‘‘Adopting creating the consolidated audit trail could be received will be posted without change; Release’’). presented to the SROs for their consideration, and 4 April 28, 2013, was a Sunday. Therefore, in would provide the SROs with information the Commission does not edit personal accordance with Rule 160(a) of the Commission necessary to prepare a detailed cost/benefit analysis identifying information from Rules of Practice, the deadline for filing the NMS as required by Rule 613. See February 7, 2013 submissions. You should submit only plan was Monday, April 29, 2013. Letter, supra note 5. information that you wish to make 5 See Securities Exchange Act Release No. 69060, 11 According to the SROs, since that time, seven 78 FR 15771 (March 12, 2013); and letter from firms have formally notified the SROs of their intent available publicly. All submissions Robert L.D. Colby, Executive Vice President and to withdraw as primary bidders. See Current should refer to File Number SR–Phlx– Chief Legal Officer, FINRA, to Elizabeth M. Request Letter, supra note 9. Of the seven firms that 2013–115, and should be submitted on Murphy, Secretary, Commission, dated February 7, formally notified the SROs of their intent to 2013 (‘‘February 7, 2013 Letter’’). or before January 2, 2014. withdraw as primary bidders, two are SRO groups. 6 17 CFR 240.0–12. See http://catnmsplan.com/web/groups/catnms/@ 7 15 U.S.C. 78mm. catnms/documents/appsupportdocs/p217583.pdf 41 17 CFR 200.30–3(a)(12). 8 17 CFR 242.613(a)(1). (last visited November 19, 2013).

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feedback, the SROs filed with the consistent with the protection of SUPPLEMENTARY INFORMATION: Commission an NMS plan to govern the investors, to grant the SROs a temporary OMB Control Number: 2120–0701. SROs’ process for the selection of a CAT exemption from the deadline for filing plan processor, and for mitigating the CAT NMS Plan contained in Rule Title: Advanced Qualification conflicts of interest that might arise in 613(a)(1) until September 30, 2014. The Program (AQP). the process (the ‘‘Selection NMS Commission believes that granting the Form Numbers: There are no FAA Plan’’).12 exemption is appropriate in light of the forms associated with this collection. In the Current Request Letter, the need for the SROs to establish a Type of Review: Renewal of an SROs state that a temporary exemption deadline for finalizing and submitting information collection. is necessary and appropriate regardless bids in response to the RFP; to evaluate Background: Under Special Federal of whether the Commission approves the bids submitted and select the CAT Aviation Regulation No. 58, Advanced the Selection NMS Plan. Specifically, Plan Processor under the Selection NMS Qualification Program (AQP), the FAA the SROs note that if the Selection NMS Plan, if the Selection NMS Plan is provides certificated air carriers, as well Plan is approved, they believe it will approved by the Commission, or an as training centers they employ, with a take ‘‘approximately seven months from alternative process if the Selection NMS regulatory alternative for training, the receipt of the bids to review and Plan is not approved by the checking, qualifying, and certifying evaluate the bids, perform the in-depth Commission; and to draft the CAT NMS aircrew personnel subject to the and thorough analysis . . . required by Plan. Rule 613, and draft the CAT NMS plan Accordingly, it is hereby ordered, requirements of 14 CFR parts 121 and for submission to the SEC.’’ 13 The SROs pursuant to Section 36 of the Exchange 135. The main goal of the AQP is to further state that ‘‘[b]ecause the content Act,17 that the SROs are temporarily improve flight crew performance by of the bids is critical to the analysis exempted from the deadline for providing alternative means of needed to draft the CAT NMS Plan, the submitting the NMS plan to govern the complying with certain rules that may SROs estimate that seven months creation, implementation, and inhibit innovative use of modern following the receipt of bids is maintenance of a consolidated audit technology for flight crewmember necessary to ensure that they can fully trail and central repository contained in training. AQP is continuously validated address the considerations enumerated Rule 613(a)(1) 18 until September 30, through the collection and analysis of in Rule 613, including a discussion of 2014. trainee performance. Data collection and the costs and benefits of not only the analysis processes ensure that the By the Commission. certificate holder provides performance proposed solution(s) but also of the Elizabeth M. Murphy, alternative solutions considered but not information on its crewmembers, flight Secretary. proposed as the solution in the CAT instructors, and evaluators that will NMS Plan, so that the Commission and [FR Doc. 2013–29620 Filed 12–11–13; 8:45 am] enable the certificate holder and the the public have sufficiently detailed BILLING CODE 8011–01–P FAA to determine whether the form and information to carefully consider all content of training and evaluation aspects of the CAT NMS Plan ultimately activities are satisfactorily submitted by the SROs.’’ 14 If the DEPARTMENT OF TRANSPORTATION accomplishing the overall objectives of Selection NMS Plan is not approved, the the curriculum. Federal Aviation Administration SROs explain that they will need the Respondents: 18 respondents with temporary exemption to allow bidders Agency Information Collection approved Advanced Qualification additional time to finalize their bids, Activities: Requests for Comments; Programs. and allow the SROs additional time to Clearance of Renewed Approval of Frequency: Data is collected monthly. develop an alternative process for Information Collection: Advanced Estimated Average Burden per evaluating the bids, developing the CAT Qualification Program (AQP) NMS Plan, and selecting the CAT plan Response: 2 hours. processor.15 AGENCY: Federal Aviation Estimated Total Annual Burden: 432 Section 36 of the Exchange Act 16 Administration (FAA), DOT. hours. authorizes the Commission, by rule, ACTION: Notice and request for ADDRESSES: Send comments to the FAA regulation, or order, to exempt, either comments. conditionally or unconditionally, any at the following address: Ms. Kathy person, security, or transaction, or any SUMMARY: In accordance with the DePaepe, Room 126B, Federal Aviation class or classes of persons, securities, or Paperwork Reduction Act of 1995, FAA Administration, AES–200, 6500 S. transactions, from any provision or invites public comments about our MacArthur Blvd., Oklahoma City, OK provisions of the Exchange Act or any intention to request the Office of 73169. rule or regulation thereunder, to the Management and Budget (OMB) Public Comments Invited: You are extent that such exemption is necessary approval to renew an information asked to comment on any aspect of this or appropriate in the public interest, collection. The Advanced Qualification information collection, including (a) and is consistent with the protection of Program uses data driven quality control Whether the proposed collection of investors. processes for validating and maintaining information is necessary for FAA’s The Commission finds that it is the effectiveness of air carrier training performance; (b) the accuracy of the appropriate in the public interest, and is program curriculum content. estimated burden; (c) ways for FAA to DATES: Written comments should be enhance the quality, utility and clarity 12 The Commission published the Selection NMS submitted by February 10, 2014. of the information collection; and (d) Plan for notice and comment. See Securities FOR FURTHER INFORMATION CONTACT: ways that the burden could be Exchange Act Release No. 70892 (November 15, 2013), 78 FR 66910 (November 21, 2013). Kathy DePaepe at (405) 954–9362, or by minimized without reducing the quality 13 See Current Request Letter, supra note 9. email at: [email protected]. of the collected information. The agency 14 Id. will summarize and/or include your 15 Id. 17 15 U.S.C. 78mm. comments in the request for OMB’s 16 15 U.S.C. 78mm. 18 17 CFR 242.613(a)(1). clearance of this information collection.

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Issued in Washington, DC, on December 6, industry, and others for safety 30, 2013, vol. 78, no. 169, pages 53817– 2013. assessment, planning, forecasting, cost/ 53818. The collection involves an Albert R. Spence, benefit analysis, and to target areas for assessment of the number of ferry flights FAA Assistant Information Collection research. typically conducted by on-demand air Clearance Officer, IT Enterprises Business Respondents: Approximately 83,500 carriers and the costs associated with Services Division, AES–200. owners of general aviation aircraft. those flights. The information to be [FR Doc. 2013–29687 Filed 12–11–13; 8:45 am] Frequency: Information is collected collected will be used to conduct a BILLING CODE 4910–13–P annually. benefit cost analysis in connection with Estimated Average Burden per rulemaking as required by Congress. Response: 20 minutes. DATES: Written comments should be DEPARTMENT OF TRANSPORTATION Estimated Total Annual Burden: submitted by January 13, 2014. 13,000 hours. Federal Aviation Administration FOR FURTHER INFORMATION CONTACT: ADDRESSES: Send comments to the FAA Martin Zhu at (202) 267–4110 or by Agency Information Collection at the following address: Ms. Kathy email at: [email protected]. DePaepe, Room 126B, Federal Aviation Activities: Requests for Comments; SUPPLEMENTARY INFORMATION: Administration, AES–200, 6500 S. Clearance of Renewed Approval of OMB Control Number: 2120–XXXX. MacArthur Blvd., Oklahoma City, OK Information Collection: General Title: Information Regarding Ferry 73169. Aviation and Air Taxi Activity and Flights in On-Demand Operations. Public Comments Invited: You are Avionics Survey Form Numbers: There are no FAA asked to comment on any aspect of this forms associated with this specific AGENCY: Federal Aviation information collection, including (a) collection of information. Administration (FAA), DOT. Whether the proposed collection of Type of Review: Clearance of a new information is necessary for FAA’s ACTION: Notice and request for information collection. performance; (b) the accuracy of the comments. Background: In response to the FAA estimated burden; (c) ways for FAA to Modernization and Reform Act of 2012 SUMMARY: In accordance with the enhance the quality, utility and clarity (Public Law 112–95), the FAA will Paperwork Reduction Act of 1995, FAA of the information collection; and (d) initiate a rulemaking to change part 91 invites public comments about our ways that the burden could be tail-end ferry flight limitations and rest intention to request the Office of minimized without reducing the quality requirements. The rule would apply Management and Budget (OMB) of the collected information. The agency part 135 flight limitations and rest approval to renew an information will summarize and/or include your requirements to today’s part 91 tail-end collection. Respondents to this survey comments in the request for OMB’s ferry flights (a part 91 flight following are owners of general aviation aircraft. clearance of this information collection. the last part 135 flight in a duty period). This information is used by FAA, NTSB, Issued in Washington, DC, on December 6, and other government agencies, the The FAA will use the results of this 2013. collection of information as the basis for aviation industry, and others for safety Albert R. Spence, assessment, planning, forecasting, cost/ the cost and benefit estimate of the FAA Assistant Information Collection proposed rule. The FAA requests benefit analysis, and to target areas for Clearance Officer, IT Enterprises Business research. comments on the proposed questions Services Division, AES–200. below in order to help assess costs. DATES: Written comments should be [FR Doc. 2013–29688 Filed 12–11–13; 8:45 am] Survey Questions submitted by February 10, 2014. BILLING CODE 4910–13–P FOR FURTHER INFORMATION CONTACT: 1. How many total part 135 operations Kathy DePaepe at (405) 954–9362, or by do you have annually? email at: [email protected]. DEPARTMENT OF TRANSPORTATION 2. For comparative purposes, how SUPPLEMENTARY INFORMATION: many aircraft are flown in your part 135 OMB Control Number: 2120–0060. Federal Aviation Administration services? Title: General Aviation and Air Taxi 3. How many tail-end ferry flights Agency Information Collection Activity and Avionics Survey. flown under part 91 would be curtailed Activities: Requests for Comments; Form Numbers: There are no FAA if pilots need to fly under part 135 of Clearance of a New Approval of forms associated with this collection. rest and duty requirements? Information Collection: Information Type of Review: Renewal of an 4. What percentage of these tail-end Regarding Ferry Flights in On-Demand information collection. ferry flights would be accounted as Operations Background: Title 49, United States single-pilot flights? Code, empowers the Secretary of AGENCY: Federal Aviation 5. Would another crewmember fly the Transportation to collect and Administration (FAA), DOT. aircraft to its destination? disseminate information relative to civil ACTION: Notice and request for 6. What would be the average cost of aeronautics, to study the possibilities for comments. tail-end ferries flown under part 91 development of air commerce and the rules? aeronautical industries, and to make SUMMARY: In accordance with the 7. What would be the average cost of long-range plans for, and formulate Paperwork Reduction Act of 1995, FAA tail-end ferries flown under part 135 rest policy with respect to, the orderly invites public comments about our and duty rules? development and use of the navigable intention to request the Office of 8. Please itemize key cost-drivers to airspace, radar installations and all Management and Budget (OMB) comply with the proposed rule. other aids for air navigation. approval for a new information Respondents: Part 135 operators Respondents to this survey are owners collection. The Federal Register Notice conducting part 91 tail-end ferry flight. of general aviation aircraft. This with a 60-day comment period soliciting We estimate 2,155 of part 135 operators information is used by FAA, NTSB, and comments on the following collection of have such operations. other government agencies, the aviation information was published on August Frequency: One time.

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Estimated Average Burden per SUMMARY: Federal hazardous material 1. N.J.A.C. 7:26–3A.21(a)(1) to the Response: 60 minutes. transportation law preempts the extent that it requires the generator to Estimated Total One-Time Burden: following requirements in the New retain a copy of the shipping paper for 2,155 hours. Jersey Administrative Code (N.J.A.C.) at least three years from the date the ADDRESSES: Interested persons are because the requirements are not regulated medical waste was accepted invited to submit written comments on substantively the same as the by the transporter; the proposed information collection to requirements in the HMR: 2. N.J.A.C. 7:26–3A.21(a)(2) to the the Office of Information and Regulatory 1. N.J.A.C. 7:26–3A.10(a) that extent that it requires the generator to Affairs, Office of Management and generators must separate into different retain a copy of any exception report for Budget. Comments should be addressed containers before transport sharps, at least three years after the day the to the attention of the Desk Officer, fluids (greater than 20 cc), and other exception report was submitted; Department of Transportation/FAA, and regulated medical waste; 3. N.J.A.C. 7:26–3A.22 to the extent sent via electronic mail to oira_ 2. N.J.A.C. 7:26–3A.11(d) which that it requires the generator of [email protected], or faxed to allows a generator to ship oversized regulated medical waste to file an (202) 395–6974, or mailed to the Office medical waste without placing it in a exception report with the state when a of Information and Regulatory Affairs, packaging as required by the HMR; transporter and/or destination facility Office of Management and Budget, 3. N.J.A.C. 7:26–3A.14 that the words notifies the generator of any discrepancy Docket Library, Room 10102, 725 17th ‘‘Medical Waste’’ or ‘‘Infectious Waste’’ between the shipment as accepted by Street NW., Washington, DC 20503. must be labeled on the outside of the the initial transporter and delivered to Public Comments Invited: You are package when there is untreated the destination facility; asked to comment on any aspect of this regulated medical waste; 4. N.J.A.C. 7:26–3A.32 to the extent information collection, including (a) 4. N.J.A.C. 7:26–3A:15 that each that it requires the transporter to deliver Whether the proposed collection of ‘‘generator shall mark each individual the entire quantity of regulated medical information is necessary for FAA’s container of regulated medical waste in waste to the proper party listed on the performance; (b) the accuracy of the accordance with all applicable Federal tracking form; estimated burden; (c) ways for FAA to regulations. . . . ,’’ and that the markings 5. N.J.A.C. 7:26–3A.33 to the extent enhance the quality, utility and clarity must include details of the transporter’s that does not require a particular form of the information collection; and (d) name, the date of shipment, the to be used to consolidate the multiple ways that the burden could be intermediate handler’s name, and other shipments; minimized without reducing the quality specific information; 6. N.J.A.C. 7:26–3A.34 to the extent of the collected information. The agency 5. N.J.A.C. 7:26–3A.19 and those that it requires that the transporter of will summarize and/or include your provisions in 7:26–3A.31 which require regulated medical waste to retain a copy comments in the request for OMB’s the use of a specific ‘‘tracking form’’ to of the shipping paper for at least three clearance of this information collection. accompany shipments of regulated years from the date the regulated medical waste was accepted by the next Issued in Washington, DC, on December 6, medical waste that are prescribed for either the generator or the transporter; party; and 2013. 7. N.J.A.C. 7:26–3A.41 to the extent Albert R. Spence, 6. N.J.A.C. 7:26–3A.28 that, when transferring between transporters, each that it requires intermediate handlers FAA Assistant Information Collection and destination facilities to certify that Clearance Officer, IT Enterprises Business transporter must place a water resistant tag below the generator’s marking on the they had received the listed regulated Services Division, AES–200. medical waste. [FR Doc. 2013–29686 Filed 12–11–13; 8:45 am] outer surface of the container with the transporter’s name, solid waste FOR FURTHER INFORMATION CONTACT: BILLING CODE 4910–13–P registration number, and date of receipt; Alisa Chunephisal, Office of Chief and Counsel, Pipeline and Hazardous DEPARTMENT OF TRANSPORTATION 7. N.J.A.C. 7:26–3A.30 which requires Materials Safety Administration, U.S. that a vehicle used to transport Department of Transportation, 1200 Pipeline and Hazardous Materials regulated medical waste must have: 1) New Jersey Avenue SE., Washington, Safety Administration the name of the transporter; 2) the New DC 20590–0001 (Tel. No. 202–366– Jersey Department of Environmental 4400). [Docket No. PHMSA–2011–0294 (PD–35(R)] Protection (NJDEP) solid waste SUPPLEMENTARY INFORMATION: transporter registration number; and 3) New Jersey Regulations on either the words ‘‘Medical Waste’’ or I. Application Transportation of Regulated Medical ‘‘Infectious Waste’’ on two sides and the Waste The Healthcare Waste Institute back of the cargo-carrying body. (Institute) has applied to PHMSA for a AGENCY: Pipeline and Hazardous 8. N.J.A.C. 7:26–3A.45, to the extent determination whether Federal Materials Safety Administration that it requires rail transporters to hazardous material transportation law, (PHMSA), DOT. comply with the transporter 49 U.S.C. 5101 et seq., preempts ACTION: Notice of administrative requirements of 7:26–3A.28 and 7:26– requirements in the N.J.A.C. on the determination of preemption. 3A.30. transportation of regulated medical 9. N.J.A.C. 7:26–3A.46 which requires waste in commerce regarding packaging, Applicable Federal Requirements: a specific tracking form to accompany labeling and marking of containers, use Federal hazardous material shipments of regulated medical waste of a specific ‘‘tracking form,’’ transportation law, 49 U.S.C. 5101 et for rail transporters. submission of ‘‘exception reports,’’ and seq., and the Hazardous Materials Federal hazardous material marking of transport vehicles. Regulations (HMR), 49 CFR parts 171– transportation law does not preempt the In summary, the Institute contends 180. following requirements because they do that these requirements are preempted Modes Affected: All transportation not create an obstacle in complying with because they are (1) not ‘‘substantively modes the HMR. the same as’’ requirements in the

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Federal hazardous material subject to the Resource Conservation (C) the preparation, execution, and use of transportation law or the HMR, 49 CFR and Recovery Act, 42 U.S.C. 6901 et seq. shipping documents related to hazardous parts 171–180, on the transportation of material and requirements related to the I. Federal Preemption regulated medical waste, or (2) number, contents, and placement of those documents. otherwise an ‘‘obstacle’’ to A United States Court of Appeals has (D) the written notification, recording, and accomplishing and carrying out Federal found that uniformity was the reporting of the unintentional release in hazardous material transportation law ‘‘linchpin’’ in the design of the Federal transportation of hazardous material. and the HMR, as the NJDEP laws governing the transportation of (E) the designing, manufacturing, requirements are enforced and applied. hazardous materials. Colorado Pub. Util. fabricating, inspecting, marking, maintaining, On November 10, 2011, PHMSA Comm’n v. Harmon, 951 F.2d 1571, reconditioning, repairing, or testing a published a notice in the Federal 1575 (10th Cir. 1991). Section 5125 of package, container, or packaging component Register inviting interested persons to that is represented, marked, certified, or sold Title 49 U.S.C. contains express as qualified for use in transporting hazardous comment on the Institute’s application. preemption provisions. Section 5125(a) material. 77 FR 39567. The only comment was provides that a requirement of a State, submitted by the American Trucking political subdivision of a State, or Under 49 U.S.C. 5125(d)(1), any Associations, Inc. (ATA). ATA echoes Indian tribe is preempted—unless the person (including a State, political the position of the Institute that New non-Federal requirement is authorized subdivision of a State, or Indian tribe) Jersey’s tracking form, marking, and by another Federal law or DOT grants a directly affected by a requirement of a labeling requirements fall within the waiver of preemption under § 5125(e)— State, political subdivision or tribe may apply to the Secretary of Transportation ‘‘enumerated ‘covered subjects’’’ that if ‘‘requires that the state regulation be for a determination whether the ‘substantively the same as’ the federal (1) complying with a requirement of the requirement is preempted. The State, political subdivision, or tribe and a requirements.’’ ATA also states that Secretary of Transportation has requirement of this chapter, a regulation delegated authority to PHMSA to make ‘‘requiring different labels and marking prescribed under this chapter, or a hazardous for hazardous materials packagings and materials transportation security regulation determinations of preemption, except motor vehicles in transportation creates or directive issued by the Secretary of for those concerning highway routing an unworkable situation [and] . . . Homeland Security is not possible; or (which have been delegated to the motor carriers cannot be expected to (2) the requirement of the State, political Federal Motor Carrier Safety modify package and vehicle markings subdivision, or tribe, as applied or enforced, Administration). 49 CFR 1.53(b). and labels depending upon the states or is an obstacle to accomplishing and carrying Section 5125(d)(1) requires notice of municipalities they travel through.’’ out this chapter, a regulation prescribed an application for a preemption ATA opines that ‘‘New Jersey’s use of a under this chapter, or a hazardous materials determination to be published in the transportation security regulation or directive unique hazardous materials shipping Federal Register. Following the receipt issued by the Secretary of Homeland and consideration of written comments, paper impacts safety by creating Security.1 potential confusion for motor carriers PHMSA publishes its determination in and emergency responders. Moreover, Subsection (b)(1) of 49 U.S.C. 5125 the Federal Register. See 49 CFR the use of unique hazardous material further provides that a non-Federal 107.209(c). shipping papers by states and requirement concerning any of the Preemption determinations do not municipalities creates a compliance following subjects is preempted—unless address issues of preemption arising nightmare for motor carriers.’’ authorized by another Federal law or under the Commerce Clause, the Fifth In a June 8, 2012 telephone DOT grants a waiver of preemption— Amendment or other provisions of the conversation, staff attorneys in the New when the non-Federal requirement is Constitution, or statutes other than the Jersey Department of Law and Public not ‘‘substantively the same as’’ a Federal hazardous material Safety advised an attorney in my office provision of Federal hazardous material transportation law unless it is necessary that the New Jersey regulations dated transportation law, a regulation to do so in order to determine whether from 1989 when the U.S. Environmental prescribed under that law, or a a requirement is authorized by another Protection Agency (EPA) conducted a hazardous materials security regulation Federal law, or whether a fee is ‘‘fair’’ two-year demonstration program, which or directive issued by the Department of within the meaning of 49 U.S.C. expired in 1991. See the discussion in Homeland Security: 2 5125(f)(1). A State, local or Indian tribe Preemption Determination (PD) No. (A) the designation, description, and requirement is not authorized by 23(RF), ‘‘Morrisville, PA Requirements classification of hazardous material. another Federal law merely because it is for Transportation of ‘Dangerous (B) the packing, repacking, handling, not preempted by another Federal Waste,’ ’’ 66 FR 37260–61 (July 17, labeling, marking, and placarding of statute. Colorado Pub. Util. Comm’n v. 2001), decision on petition for hazardous material. Harmon, 951 F.2d at 1581. reconsideration, 67 FR 2948 (Jan. 22, In making preemption determinations 2002), and PD–29(R), ‘‘Massachusetts 1 These two paragraphs set forth the ‘‘dual under 49 U.S.C. 5125(d), PHMSA is Requirements on the Storage and compliance’’ and ‘‘obstacle’’ criteria which are guided by the principles and policies set Disposal of Infectious or Physically based on U.S. Supreme Court decisions on forth in Executive Order No. 13132, preemption. Hines v. Davidowitz, 312 U.S. 52 Dangerous Medical or Biological (1941); Florida Lime & Avocado Growers, Inc. v. entitled ‘‘Federalism’’ (64 FR 43255 Waste,’’ 69 FR 34715, 34717 (June 22, Paul, 373 U.S. 132 (1963); Ray v. Atlantic Richfield, (Aug. 10, 1999)), and the President’s 2004). As explained in those decisions, Inc., 435 U.S. 151 (1978). May 20, 2009 memorandum on DOT regulates the transportation of 2 To be ‘‘substantively the same,’’ the non-Federal ‘‘Preemption’’ (74 FR 24693 (May 22, requirement must conform ‘‘in every significant regulated medical waste as a Division respect to the Federal requirement. Editorial and 2009)). Section 4(a) of that Executive 6.2 hazardous material. PD–23(RF), 66 other similar de minimis changes are permitted.’’ Order authorizes preemption of State FR at 37260–61; PD–29(R), 69 FR at 49 CFR 107.202(d). Additional standards apply to laws only when a statute contains an 34717. See also 49 CFR 173.134(a)(5). preemption of non-Federal requirements on express preemption provision, there is highway routes over which hazardous materials However, New Jersey’s regulations may or may not be transported and fees related to other clear evidence Congress intended appear to treat regulated medical waste transporting hazardous material. See 49 U.S.C. to preempt State law, or the exercise of in a manner similar to hazardous waste 5125(c) and (f). State authority directly conflicts with

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the exercise of Federal authority. The In comparison, New Jersey’s must be affixed on packages that contain President’s May 20, 2009 memorandum regulations are less prescriptive than the regulated medical waste unless the sets forth the policy ‘‘that preemption of HMR. First, N.J.A.C. 7:26–3A.5 defines packaging is marked with the State law by executive departments and ‘‘oversized regulated medical waste’’ as ‘‘BIOHAZARD’’ marking and is being agencies should be undertaken only ‘‘medical waste that is too large to be transported by a private or contract with full consideration of the legitimate placed in a plastic bag or standard carrier. 49 CFR 172.400(a), 172.432, and prerogatives of the States and with a container,’’ without defining the term 173.134(c)(1)(i). The ‘‘INFECTIOUS sufficient legal basis for preemption.’’ ‘‘standard container.’’ More importantly, SUBSTANCE’’ label is a white panel Section 5125 contains express N.J.A.C. 7:26–3A.11(d) explicitly allows with black text. 49 CFR 172.432. The preemption provisions, which PHMSA ‘‘oversized regulated medical waste’’ to HMR do not differentiate when a label has implemented through its regulations be transported without any form of is needed based on whether there is and which PHMSA applies in making packaging or containment, in stark treated or untreated medical waste nor administrative preemption contrast to the authorized bulk do they define untreated medical waste. determinations. packagings required in § 173.197. N.J.A.C. 7:26–3A.5, however, defines The HMR also contain specific ‘‘untreated regulated medical waste’’ as III. Discussion packaging requirements for sharps and waste ‘‘that has not been treated to A. Packaging and Segregation liquids. 49 CFR 173.197(b) and (e)(3), substantially reduce or eliminate its Requirements respectively, provide that: ‘‘A non-bulk potential for causing disease.’’ N.J.A.C. The Institute raises concerns with two packaging used as a sharps container 7:26–3A:14 requires that only a provisions which (1) allow generators to must be puncture-resistant for sharps container of untreated regulated ship oversized medical waste without a and sharps with residual fluid as medical waste must have the label packaging or container and (2) require demonstrated by conducting the ‘‘Medical Waste,’’ ‘‘Infectious Waste,’’ or generators to separate sharps, fluids performance tests in part 178. . . . display the universal biohazard symbol (greater than 20 cc), and other regulated Sharps containers must be securely on the outside of the container. The medical waste. closed to prevent leaks or puncture in N.J.A.C. 7:26–3A.14 requirement is not The HMR authorize the following conformance with the instructions substantively the same as the HMR and packagings for the transportation of provided by the packaging therefore is preempted. regulated medical waste: (1) UN manufacturer.’’ Moreover, ‘‘[s]harps Additionally, the HMR require that standard non-bulk packagings transported in a Large Packaging, Cart, the inner packagings authorized for conforming to the requirements of 49 or BOP must be packaged in a puncture- large packagings, carts, and bulk outer CFR part 178 at the Packing Group II resistant inner packaging (sharps packagings containing regulated performance level; (2) large packagings container).’’ As for liquids, medical waste ‘‘must be durably marked constructed, tested, and marked in § 173.197(e)(2) requires that: or tagged with the name and location accordance with the requirements of Liquid regulated medical waste or clinical (city and state) of the offeror, except part 178 provided the waste is waste or (bio) medical waste transported in when the entire contents of the Large contained in inner packagings a Large Packaging, Cart, or BOP must be Packaging, Cart, or BOP originates at a conforming to the requirements of packaged in a rigid inner packaging single location and is delivered to a conforming to the provisions of subpart B of single location.’’ 49 CFR 173.197(e). paragraph (e) of § 173.197; and (3) non- this part. Liquid materials are not authorized specification bulk packaging such as a Moreover, the markings for the outer for transportation in inner packagings having packaging for regulated medical waste wheeled cart or bulk outer packaging a capacity of greater than 19 L (5 gallons). (BOP) provided the waste is contained of non-bulk packages and bulk packages The HMR do not provide a quantity in inner packagings conforming to the require only the proper shipping name exception. In contrast, the N.J.A.C. 7:26– requirements of paragraph (e) of and UN identification number while the 3A.10(a) ‘‘requires generators to separate § 173.197. In addition, regulated inner packaging for non-bulk packages regulated medical waste into different medical waste transported by a private is required to only be marked with the containers before transport, i.e., sharps, or contract carrier is excepted from the ‘‘BIOHAZARD’’ symbol. 49 CFR 172.301 fluids (greater than 20 cc), and other specific packaging requirements of and 172.304. Bulk packagings that regulated medical waste.’’ Moreover, § 173.197, if packaged in a rigid non- contain infectious substances must be N.J.A.C. 7.26–3A.11(d) provides that the bulk packaging conforming to the marked with an orange panel containing packages or containers for sharps must general packaging requirements of the UN identification number and the be puncture resistant while the packages §§ 173.24 and 173.24a and packaging ‘‘BIOHAZARD’’ symbol. 49 CFR 172.323 for fluids (quantities greater than 20 requirements specified in 29 CFR and 172.332. cubic centimeters) in packaging or 1910.1030, provided the material does However, New Jersey requires that all containers must be break-resistant and not include a waste concentrated stock packages containing treated regulated tightly lidded or stoppered. culture of an infectious substance. medical waste must to be marked in Because N.J.A.C. 7:26–3A.10(a) and accordance with N.J.A.C. 7:26–3A:15. Sharps containers must be securely N.J.A.C. 7:26–3A.11(d) cover ‘‘the closed to prevent leaks or punctures. According to N.J.A.C. 7:26–3A.5, packing, repacking, [and] handling . . . ‘‘treated regulated medical waste’’ Thus, in all cases, the HMR require that, of hazardous material’’ and they are not regardless of size, regulated medical means ‘‘regulated medical waste that substantively the same as the HMR, has been treated to substantially reduce waste may be transported only in a these regulations are preempted. closed packaging or container.3 or eliminate its potential for causing B. Labeling and Marking Requirements disease, but has not yet been destroyed.’’ New Jersey’s 7:26–3A:15 3 In the preamble to its August 14, 2002 final rule The HMR require that an making ‘‘Revisions to Standards for Infectious requires that each ‘‘generator shall mark Substances,’’ PHMSA’s predecessor agency, the ‘‘INFECTIOUS SUBSTANCE’’ label each individual container of regulated Research and Special Programs Administration, medical waste in accordance with all responded to a comment that it had proposed to authorized for the transportation of RMS must be applicable Federal regulations. . . .,’’ ‘‘permit regulated medical waste to be transported closed with a lid or closure to prevent intrusion of in large open-top, roll-off containers. This is not the water into the packaging or release of contents from and also requires additional markings case. The non-specification bulk packagings the packaging.’’ 67 FR 53118, 53125. such as the transporter’s name, the date

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of shipment, the intermediate handler’s the requirements of the HMR, and is D. Exception Reports 4 name. Thus, because 7:26–3A:15 preempted. N.J.A.C. 7:26–3A.22 requires the requires additional markings that the Additionally, N.J.A.C. 7:26–3A.33 generator of the waste to file an HMR does not, it is not substantively allows a transporter to consolidate exception report with the state when a the same and therefore preempted. multiple shipments of waste to a new transporter and/or destination facility Further, N.J.A.C. 7:26–3A.28 requires tracking form. The HMR does not have fails to return a signed copy of the that each transporter place a water a specific regulation about consolidation tracking form to the generator while resistant tag below the generator’s of shipments onto a new tracking form. N.J.A.C. 7:26–3A.21(a)(2) requires the marking on the outer surface of the Insofar as N.J.A.C. 7:26–3A.33 does not generator to retain a copy of all container when transferring between require a particular form to be used to exception reports submitted for at least transporters with the transporter’s consolidate the multiple shipments, it is three years after the day the exception name, solid waste registration number, not preempted by the HMR. report was submitted. The Institute and date of receipt. The HMR do not asserts that the regulations ‘‘create N.J.A.C. 7:26–3A.21(a)(1) requires that require such markings or labels; confusion because shippers may think the generator of the regulated medical therefore, N.J.A.C. 7:26–3A.28 is that an exception report relieves them of waste keep a copy of the tracking form preempted. failure to have a shipping paper on file.’’ for at least three years from the date The HMR do not provide a parallel C. Tracking Form Requirements waste is accepted by the transporter and requirement. While these requirements 7:26–3A.34 requires the same of the The HMR require that any person relate to transportation of the regulated transporter from the date the waste is offering a hazardous material must medical waste, they apply to the accepted by the next party. On the other provide a shipping paper describing the generator of the waste and not the material by: hand, Federal hazardous material • transporter. There is not sufficient basis The identification number, the transportation law and the HMR require to show that New Jersey’s regulations proper shipping name, the hazard class, an offeror of a hazardous material to confuse shippers into thinking that they and the packing group of the material, retain a copy of the shipping paper for are not required to retain a copy of the 49 CFR 172.202(a)(1)–(4); two years, and a carrier to retain a copy • shipping paper as required by 49 CFR Total quantity of the material of the shipping paper for one year. 49 172.201(e). The HMR clearly describe covered by one description, 49 CFR U.S.C. 5110, 49 CFR 172.201(e), the recordkeeping requirements of the 172.202(c); 177.817(f).5 I do not find that • shipping papers without any Emergency response telephone requirements specifying the time period contingencies. New Jersey cannot number, 49 CFR 172.604; and for which an offeror or transporter must • require a specific tracking form as Shipper’s certification that the retain a copy of the shipping documents discussed above, but the requirements material is ‘‘properly classified, to be within the scope of the to submit and retain the exception described, packaged, marked and ‘‘preparation, execution, and use of report in 7:26–3A.21(a)(2) and 7:26– labeled and are in proper condition for shipping documentation’’ or 3A.22 do not appear to create an transportation . . .’’ 49 CFR ‘‘requirements related to the number, obstacle in complying with the HMR. 172.204(a)(1). contents, and placement of those Therefore, these requirements are not However, except for shipments of documents’’ in 49 U.S.C. 5125(b)(1)(C). preempted. hazardous waste for which the EPA Nor is there information to show that hazardous waste manifest is required the longer retention period in N.J.A.C. E. Marking a Motor Vehicle With (see 49 CFR 172.205), a hazardous 7:26–3A.21(a)(1) and 7:26–3A.34 is any Additional Information material shipping paper need not be in obstacle to accomplishing the shorter The HMR require that each self- any specific form or format, nor must it retention periods in the HMR. The fact propelled commercial motor vehicle be signed by the transporter or recipient that the State’s requirement is more (CMV) be marked with the legal name of the shipment. In contrast, N.J.A.C. stringent does not, by itself, appear to or a single trade name of the motor 7:26–3A.19 and 7:26–3A.31 require the constitute an obstacle for the offeror and carrier operating the self-propelled use of a specific ‘‘tracking form’’ for transporter meeting the two-year and CMV. 49 CFR 390.21 (as incorporated in shipments of regulated medical waste, one-year retention periods in the HMR, the HMR by 49 CFR 177.804(a)). which must be prepared in accordance respectively. Therefore, as applied to Additionally, the HMR require two with the instructions found in these requirements to retain copies of types of markings for the outside of a regulations. These regulations for use of shipping papers, N.J.A.C. 7:26– vehicle depending on whether the the tracking form also differentiate 3A.21(a)(1) and 7:26–3A.34 are not regulated medical waste is contained in between ‘‘NJ Treated’’ versus ‘‘NJ preempted. packaging which is bulk or non-bulk. 49 Untreated’’ medical waste (which the CFR 172.332 and 172.336 require that HMR do not) and further require that 4 The Institute takes issue with N.J.A.C. 7:26– vehicles containing non-bulk packages the transporter and destination facility 3A.45 and 7:26–3A.47 in its application. We believe of a single hazardous materials with an sign the tracking document. that the Institute meant to cite 7:26–3A.45 and aggregate gross weight of the hazardous As explained in ‘‘Massachusetts 7:26–3A.46 since those both relate to rail transporters while 7:26–3A.47 pertains to material is 4,000 kg (8,820 pounds) or Requirements on the Storage and alternative or innovative technology authorization. more to be marked with the Disposal of Infectious or Physically Since N.J.A.C. 7:26–3A.45 and 7:26–3A.46 are identification number on either orange Dangerous Medical or Biological similar in substance to the regulations pertaining to panels or on a plain white square-on- Waste,’’ a requirement that the highway transporters discussed in this section, they are also preempted. Additionally, we read the point display configuration having the transporter sign the shipping paper is intent of N.J.A.C. 7:26–3A.32 and 7:26–3A.41 as same outside dimensions as a placard. preempted since it is not substantively ensuring that the hazardous materials reach the In accordance with 49 CFR 172.323(b), the same as the federal requirement. intended recipient on the shipping document; to when a bulk packaging contained in or Because New Jersey’s tracking form that extent, these provisions are not preempted. on a transport vehicle or freight 5 A person who offers a hazardous waste for requires a signature not required by the transportation must retain a copy of the shipping container is marked with a HMR, it is not substantively the same as paper for three years. 49 CFR 172.201(e). ‘‘BIOHAZARD’’ marking which is not

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visible, then the transport vehicle or Waste’’ on two sides and the back of the District of Columbia or in the Court of freight container must be marked on cargo-carrying body. Appeals for the United States for the each side and each end with a 8. N.J.A.C. 7:26–3A.45 to the extent circuit in which the petitioner resides or ‘‘BIOHAZARD’’ marking. that it requires rail transporters to has its principal place of business, In contrast, N.J.A.C. 7:26–3A.30 comply with the transporter within 60 days after the determination requires that the vehicles that transport requirements of 7:26–3A.28 and 7:26– becomes final. 49 U.S.C. 5127(a). regulated medical waste have: (1) The 3A.30. This decision will become PHMSA’s name of the transporter; (2) the NJDEP 9. N.J.A.C. 7:26–3A.46 which requires final decision 20 days after publication solid waste transporter registration a specific tracking form to accompany in the Federal Register if no petition for number; and (3) either the words shipments of regulated medical waste reconsideration is filed within that time. ‘‘Medical Waste’’ or ‘‘Infectious Waste’’ for rail transporters. The filing of a petition for on two sides and the back of the cargo- Federal hazardous material reconsideration is not a prerequisite to carrying body. The N.J.A.C. marking transportation law does not preempt the seeking judicial review of this decision requirement is not substantively the following requirements because they do under 49 U.S.C. 5127(a). same as the HMR and is therefore not create an obstacle in complying with If a petition for reconsideration is preempted. the HMR. filed within 20 days of publication in 1. N.J.A.C. 7:26–3A.21(a)(1) to the IV. Ruling the Federal Register, the action by extent that it requires the generator to PHMSA’s Chief Counsel on the petition Federal hazardous material retain a copy of the shipping paper for for reconsideration will be PHMSA’s transportation law preempts the at least three years from the date the final action. 49 CFR 107.211(d). following requirements in the New regulated medical waste was accepted Jersey Administrative Code (N.J.A.C.) by the transporter; Issued in Washington, DC on December 2, 2013. because the requirements are not 2. N.J.A.C. 7:26–3A.21(a)(2) to the substantively the same as the extent that it requires the generator to Vanessa L. Allen Sutherland, requirements in the HMR: retain a copy of any exception report for Chief Counsel. 1. N.J.A.C. 7:26–3A.10(a) that at least three years after the day the [FR Doc. 2013–29604 Filed 12–11–13; 8:45 am] generators must separate into different exception report was submitted; BILLING CODE 4910–60–P containers before transport sharps, 3. N.J.A.C. 7:26–3A.22 to the extent fluids (greater than 20 cc), and other that it requires the generator of the regulated medical waste; regulated medical waste to file an DEPARTMENT OF TRANSPORTATION 2. N.J.A.C. 7:26–3A.11(d) which exception report with the state when a allows a generator to ship oversized transporter and/or destination facility Surface Transportation Board medical waste without placing it in a notifies the generator of any discrepancy [Docket No. FD 35787] packaging as required by the HMR; between the shipment as accepted by 3. N.J.A.C. 7:26–3A.14 that the words the initial transporter and delivered to Mark W. Dobronski and Susan K. ‘‘Medical Waste’’ or ‘‘Infectious Waste’’ the destination facility; Dobronski—Acquisition of Control must be labeled on the outside of the 4. N.J.A.C. 7:26–3A.32 to the extent Exemption—Adrian & Blissfield Rail package when there is untreated that it requires the transporter to deliver Road Company, Charlotte Southern regulated medical waste; the entire quantity of regulated medical Railroad Company, Detroit Connecting 4. N.J.A.C. 7:26–3A.15 that each waste to the proper party listed on the Railroad Company, Lapeer Industrial ‘‘generator shall mark each individual tracking form; Railroad Company and Jackson & container of regulated medical waste in 5. N.J.A.C. 7:26–3A.33 to the extent Lansing Railroad Company accordance with all applicable Federal that does not require a particular form regulations. . . . .’’ and that the markings to be used to consolidate the multiple Mark W. Dobronski and Susan K. must include details of the transporter’s shipments; Dobronski (Applicants), both name, the date of shipment, the 6. N.J.A.C. 7:26–3A.34 to the extent noncarriers, have filed a verified notice intermediate handler’s name, and other that it requires that the transporter of of exemption under 49 CFR 1180(d)(2) specific information; the regulated medical waste to retain a to indirectly control Adrian & Blissfield 5. N.J.A.C. 7:26–3A.19 and those copy of the shipping paper for at least Rail Road Company (ADBF), a Class III provisions of 7:26–3A.31 which require three years from the date the regulated railroad, and ADBF’s four Class III the use of a specific ‘‘tracking form’’ to medical waste was accepted by the next railroad subsidiaries: Charlotte Southern accompany shipments of regulated party; and Railroad Company (CHS), Detroit medical waste that are prescribed for 7. N.J.A.C. 7:26–3A.41 to the extent Connecting Railroad Company (DCON), either the generator or the transporter; that it requires intermediate handlers Lapeer Industrial Railroad Company 6. N.J.A.C. 7:26–3A.28 that, when and destination facilities to certify that (LIRR), and Jackson & Lansing Railroad transferring between transporters, each they had received the listed regulated Company (JAIL). transporter must place a water resistant medical waste. Applicants state that they control tag below the generator’s marking on the Ferrovia, L.L.C. (Ferrovia), also a outer surface of the container with the V. Petition for Reconsideration/Judicial noncarrier and a limited liability transporter’s name, solid waste Review company, which, until very recently, registration number, and date of receipt; In accordance with 49 CFR owned 50 percent of ADBF. On and 107.211(a), any person aggrieved by this November 15, 2013, two minority 7. N.J.A.C. 7:26–3A.30 which requires decision may file a petition for shareholders of ADBF were required by that a vehicle used to transport reconsideration within 20 days of court order to sell their outstanding regulated medical waste must have: (1) publication of this decision in the shares back to ADBF. As a result, The name of the transporter; (2) the Federal Register. A petition for judicial Ferrovia now owns 58.33 percent of the NJDEP solid waste transporter review of a final preemption outstanding shares of ADBF and registration number; and (3) either the determination must be filed in the therefore directly controls ADBF and words ‘‘Medical Waste’’ or ‘‘Infectious United States Court of Appeals for the indirectly controls CHS, DCON, LIRR,

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and JAIL. Applicants, in turn, now By the Board, Rachel D. Campbell, Casualty Insurers Submission for indirectly control ADBF, CHS, DCON, Director, Office of Proceedings Federal Share Compensation. LIRR, and JAIL. Applicants state that Raina S. White, Abstract: Sections 103(a) and 104 of they have not entered into an agreement Clearance Clerk. the Terrorism Risk Insurance Act of rendering them in indirect control of [FR Doc. 2013–29691 Filed 12–11–13; 8:45 am] 2002 (Pub. L. 107–297) (as extended by ADBF and its four carrier subsidiaries. BILLING CODE 4915–01–P the Terrorism Risk Insurance Extension The transaction is expected to be Act of 2005 (Pub. L. 109–144) and the consummated on December 26, 2013 Terrorism Risk Insurance Program (the effective date of the exemption, 30 DEPARTMENT OF THE TREASURY Reauthorization Act of 2007 (Pub. L. days after the notice of exemption was 110–160) authorize the Department of filed). Proposed Collection; Comment the Treasury to administer and Petitioners state that: (1) The rail lines Request implement the Terrorism Risk Insurance operated by ADBF and its four Program established by the Act. In 31 subsidiaries do not connect with each ACTION: Notice and request for comments. CFR part 50, subpart F (Sec. 50.50– other; 1 (2) this transaction is not part of 50.54) Treasury established a series of anticipated transactions that SUMMARY: The Department of the requirements and procedures for would connect the rail lines operated by Treasury, as part of its continuing effort insurers that file claims for payment of ADBF, CHS, DCON, LIRR, and JAIL to reduce paperwork burdens, invites the Federal share of compensation for with any of their affiliated railroads; and the general public and other Federal insured losses resulting from a certified (3) this transaction does not involve a agencies to comment on a currently act of Terrorism under the Act. Class I rail carrier. Therefore, the approved information collection that is Type of Review: Extension of a transaction is exempt from the prior due for extension approval by the Office currently approved data collection. approval acquirements of 49 U.S.C. of Management and Budget. The Affected Public: Business/Financial 11323 pursuant to 49 CFR 1180.2(d)(2). Terrorism Risk Insurance Program Institutions. Under 49 U.S.C. 10502(g), the Board Office within the Department of the may not use its exemption authority to Treasury is soliciting comments Estimated Number of Respondents: relieve a rail carrier of its statutory concerning the Commercial Property 100. obligation to protect the interests of its and Casualty Insurers Submission for Estimated Average Time per employees. Section 11326(c), however, Federal Share Compensation Respondent: 42 hours. does not provide for labor protection for Requirements set forth in 31 CFR part Estimated Total Annual Burden transactions under 11324 and 11325 50, subpart F (Sec. 50.50–50.54). Hours: 4200 hours. that involve only Class III rail carriers. DATES: Written comments should be Accordingly, the Board may not impose Request for Comments.: An agency received on or before February 10, 2014 may not conduct or sponsor, and a labor protective conditions here because to be assured of consideration. all of the carriers involved are Class III person is not required to respond to, a ADDRESSES: Submit comments by email collection of information unless the carriers. to [email protected] or by If the verified notice contains false or collection of information displays a mail (if hard copy, preferably an original valid OMB control number. Comments misleading information, the exemption and two copies) to: Terrorism Risk is void ab initio. Petitions to revoke the submitted in response to this notice will Insurance Program, Public Comment be summarized and/or included in the exemption under 49 U.S.C. 10502(d) Record, Suite 2100, Department of the may be filed at any time. The filing of request for OMB approval. All Treasury, 1425 New York Ave. NW., comments will become a matter of a petition to revoke will not Washington, DC 20220. Because paper automatically stay the effectiveness of public record. Comments are invited on: mail in the Washington DC area may be (a) Whether the collection of the exemption. Petitions to stay must be subject to delay, it is recommended that filed no later than December 19, 2013 (at information is necessary for the proper comments be submitted electronically. performance of the functions of the least 7 days before the exemption All comments should be captioned with becomes effective). agency, including whether the ‘‘PRA Comments—Commercial Property information shall have practical utility; An original and 10 copies of all and Casualty Insurers Submission for pleadings, referring to Docket No. FD (b) the accuracy of the agency’s estimate Federal Share Compensation’’. Please of the burden of the collection of 35787, must be filed with the Surface include your name, affiliation, address, Transportation Board, 395 E Street SW., information; (c) ways to enhance the email address and telephone number in quality, utility, and clarity of the Washington, DC 20423–0001. In your comment. Comments will be addition, a copy must be served on Karl information collections; (d) ways to available for public inspection by minimize the burden of the collection of Morell, Ball Janik LLP, 655 Fifteenth appointment only at the Reading Room Street, NW., Suite 225, Washington, DC information on respondents, including of the Treasury Library. To makes through the use of automated collection 20005. appointments, call (202) 622–0990 (not Board decisions and notices are techniques or other forms of information a toll-free number). technology; and (e) estimates of capital available on our Web site at FOR FURTHER INFORMATION CONTACT: ‘‘www.stb.dot.gov.’’ or start-up costs and costs of operation, Requests for additional information maintenance, and purchase of services Decided: December 9, 2013. should be directed to: Terrorism Risk to provide information. Insurance Program Office at (202) 622– Dated: December 3, 2013. 1 ADBF operates a 20-mile rail line between 6770 (not a toll-free number). Jeffrey S. Bragg, Adrian and Riga, Mich. CHS operates a 3.5-mile rail SUPPLEMENTARY INFORMATION: line near Charlotte, Mich. DCON operates a 2.5-mile Director, Terrorism Risk Insurance Program. rail line in Detroit, Mich. LIRR operates a 1.5-mile OMB Number: 1505–0200. rail line in LaPeer, Mich. JAIL operates a 47-mile Title: Terrorism Risk Insurance [FR Doc. 2013–29675 Filed 12–11–13; 8:45 am] rail line between Jackson and Lansing, Mich. Program—Commercial Property and BILLING CODE P

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Part II

Commodity Futures Trading Commission

17 CFR Parts 1, 15, 17, et al. Position Limits for Derivatives; Proposed Rule

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COMMODITY FUTURES TRADING • Mail: Secretary of the Commission, ii. Proposed § 150.2 COMMISSION Commodity Futures Trading 3. Section 150.3—Exemptions Commission, Three Lafayette Centre, i. Current § 150.3 17 CFR Parts 1, 15, 17, 19, 32, 37, 38, 1155 21st Street NW., Washington, DC ii. Proposed § 150.3 4. Part 19—Reports by Persons Holding 140, and 150 20581. • Bona Fide Hedge Positions Pursuant to Hand Delivery/Courier: Same as § 150.1 of This Chapter and by RIN 3038–AD99 mail above. • Merchants and Dealers in Cotton Position Limits for Derivatives Federal eRulemaking Portal: http:// i. Current Part 19 www.regulations.gov. Follow ii. Proposed Amendments to Part 19 AGENCY: Commodity Futures Trading instructions for submitting comments. 5. § 150.7—Reporting Requirements for Commission. All comments must be submitted in Anticipatory Hedging Positions i. Current § 1.48 ACTION: Notice of proposed rulemaking. English, or if not, accompanied by an English translation. Comments will be ii. Proposed § 150.7 6. Miscellaneous Regulatory Amendments SUMMARY: The Commission proposes to posted as received to www.cftc.gov. You i. Proposed § 150.6—Ongoing amend regulations concerning should submit only information that Responsibility of DCMs and SEFs speculative position limits to conform to you wish to make available publicly. If ii. Proposed § 150.8—Severability the Wall Street Transparency and you wish the Commission to consider iii. Part 15—Reports—General Provisions Accountability Act of 2010 (‘‘Dodd- information that is exempt from iv. Part 17—Reports by Reporting Markets, Frank Act’’) amendments to the disclosure under the Freedom of Futures Commission Merchants, Clearing Commodity Exchange Act (‘‘CEA’’ or Information Act, a petition for Members, and Foreign Brokers ‘‘Act’’). The Commission proposes to confidential treatment of the exempt II. Revision of Rules, Guidance, and establish speculative position limits for information may be submitted according Acceptable Practices Applicable to to the procedure established in § 145.9 Exchange-Set Speculative Position 28 exempt and agricultural commodity Limits—§ 150.5 futures and option contracts, and of the Commission’s regulations (17 CFR A. Background physical commodity swaps that are 145.9). B. The Current Regulatory Framework for ‘‘economically equivalent’’ to such The Commission reserves the right, Exchange-Set Position Limits contracts. In connection with but shall have no obligation, to review, 1. Section 150.5 establishing these limits, the pre-screen, filter, redact, refuse, or 2. The Commodity Futures Modernization Commission proposes to update some remove any or all of your submission Act of 2000 Caused Commission § 150.5 relevant definitions; revise the from http://www.cftc.gov that it may To Become Guidance on and Acceptable exemptions from speculative position deem to be inappropriate for Practices for Compliance with DCM Core Principle 5 limits, including for bona fide hedging; publication, such as obscene language. All submissions that have been redacted 3. The CFTC Reauthorization Act of 2008 and extend and update reporting 4. The Dodd-Frank Act Amendments to requirements for persons claiming or removed that contain comments on CEA Section 5 exemption from these limits. The the merits of the rulemaking will be i. The Dodd-Frank Act Added Provisions Commission proposes appendices that retained in the public comment file and That Permit the Commission To Override would provide guidance on risk will be considered as required under the the Discretion of DCMs in Determining management exemptions for commodity Administrative Procedure Act and other How To Comply With the Core derivative contracts in excluded applicable laws, and may be accessible Principles commodities permitted under the under the Freedom of Information Act. ii. The Dodd-Frank Act Established a Comprehensive New Statutory FOR FURTHER INFORMATION CONTACT: proposed definition of bona fide Framework for Swaps hedging position; list core referenced Stephen Sherrod, Senior Economist, iii. The Dodd-Frank Act Added the futures contracts and commodities that Division of Market Oversight, at (202) Regulation of Swaps, Added Core would be substantially the same as a 418–5452, [email protected]; Riva Principles for SEFs, Including SEF Core commodity underlying a core referenced Spear Adriance, Senior Special Counsel, Principle 6, and Amended DCM Core futures contract for purposes of the Division of Market Oversight, at (202) Principle 5 proposed definition of basis contract; 418–5494, [email protected]; David N. 5. Dodd-Frank Rulemaking describe and analyze fourteen fact Pepper, Attorney-Advisor, Division of i. Amended Part 38 patterns that would satisfy the proposed Market Oversight, at (202) 418–5565, ii. Amended Part 37 iii. Vacated Part 151 definition of bona fide hedging position; [email protected], Commodity Futures C. Proposed Amendments to § 150.5 and present the proposed speculative Trading Commission, Three Lafayette 1. Proposed Amendments to § 150.5 To position limit levels in tabular form. In Centre, 1155 21st Street NW., Add References to Swaps and Swap addition, the Commission proposes to Washington, DC 20581. Execution Facilities update certain of its rules, guidance and SUPPLEMENTARY INFORMATION: 2. Proposed § 150.5(a)—Requirements and acceptable practices for compliance Acceptable Practices for Commodity with Designated Contract Market Table of Contents Derivative Contracts That Are Subject to (‘‘DCM’’) core principle 5 and Swap I. Position Limits for Physical Commodity Federal Position Limits Execution Facility (‘‘SEF’’) core Futures and Swaps 3. Proposed § 150.5(b)—Requirements and A. Background Acceptable Practices for Commodity principle 6 in respect of exchange-set Derivative Contracts That Are Not speculative position limits and position 1. CEA Section 4a 2. The Commission Construes CEA Section Subject to Federal Position Limits accountability levels. 4a(a) To Mandate That the Commission III. Related Matters DATES: Comments must be received on Impose Position Limits A. Considerations of Costs and Benefits or before February 10, 2014. 3. Necessity Finding 1. Background B. Proposed Rules i. Statutory Mandate To Consider Costs and ADDRESSES: You may submit comments, 1. Section 150.1—Definitions Benefits identified by RIN number 3038–AD99 i. Various Definitions Found in § 150.1 2. Section 150.1—Definitions by any of the following methods: ii. Bona Fide Hedging Definition i. Bona Fide Hedging • Agency Web site: http:// 2. Section 150.2—Position Limits ii. Rule Summary comments.cftc.gov. i. Current § 150.2 iii. Benefits and Costs

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3. Section 150.2—Limits basis for exchanges to use pre-existing limits on swaps that are economically i. Rule Summary position accountability levels as an equivalent to the agricultural and ii. Benefits alternative means to limit the burdens of exempt commodity derivatives for iii. Costs excessive speculative positions. iv. Consideration of Alternatives which it mandated position limits in 4. Section 150.3—Exemptions Nevertheless, the CFMA did not weaken CEA section 4a(a)(2). i. Rule Summary the Commission’s authority in CEA With respect to the position limits ii. Benefits section 4a to establish position limits to that the Commission is required to set, iii. Costs prevent such undue burdens on CEA section 4a(a)(3) guides the iv. Consideration of Alternatives interstate commerce.3 More recently, in Commission in setting the level of those 5. Section 150.5—Exchange-Set the CFTC Reauthorization Act of 2008, limits by providing several criteria for Speculative Position Limits Congress gave the Commission the Commission to address, namely: (i) i. Rule Summary expanded authority to set position ii. Benefits To diminish, eliminate, or prevent iii. Costs limits for significant price discovery excessive speculation as described iv. Consideration of Alternatives contracts on exempt commercial under this section; (ii) to deter and 6. Section 150.7—Reporting Requirements markets.4 prevent market manipulation, squeezes, for Anticipatory Hedging Positions In 2010, the Dodd-Frank Act and corners; (iii) to ensure sufficient i. Benefits and Costs expanded the Commission’s authority to market liquidity for bona fide hedgers; 7. Part 19—Reports set position limits by amending CEA and (iv) to ensure that the price i. Rule Summary section 4a(a)(1) to authorize the discovery function of the underlying ii. Benefits Commission to establish position limits market is not disrupted.10 iii. Costs not just for futures and option contracts, iv. Consideration of Alternatives CEA section 4a(a)(5) requires the 8. CEA Section 15(a) but also for swaps that are economically Commission to establish, at an i. Protection of Market Participants and the equivalent to covered futures and appropriate level, position limits for Public options contracts,5 swaps traded on a swaps that are economically equivalent ii. Efficiency, Competitiveness, and DCM or SEF, swaps that are traded on to those futures and options that are Financial Integrity of Markets or subject to the rules of a DCM or SEF, subject to mandatory position limits iii. Price Discovery and swaps not traded on a DCM or SEF pursuant to CEA section 4a(a)(2).11 CEA iv. Sound Risk Management that perform or affect a significant price section 4a(a)(5) also requires that the v. Other Public Interest Considerations discovery function with respect to position limits on economically B. Paperwork Reduction Act 6 1. Overview regulated entities (‘‘SPDF Swaps’’). equivalent swaps be imposed at the 2. Methodology and Assumptions CEA section 4a(a)(1) further declares the same time as mandatory limits are 3. Information Provided by Reporting Congressional determination that: imposed on futures and options.12 Entities/Persons and Recordkeeping ‘‘[e]xcessive speculation in any CEA section 4a(a)(6) requires the Duties commodity under contracts of sale of Commission to apply position limits on 4. Comments on Information Collection such commodity for future delivery an aggregate basis to contracts based on C. Regulatory Flexibility Act made on or subject to the rules of the same underlying commodity across: IV. Appendices contract markets or derivatives A. Appendix A—Studies Relating to (1) Contracts listed by DCMs; (2) with Position Limits Reviewed and Evaluated transaction execution facilities, or respect to foreign boards of trade by the Commission swaps that perform or affect a (‘‘FBOTs’’), contracts that are price- significant price discovery function linked to a contract listed for trading on I. Position Limits for Physical with respect to registered entities a registered entity and made available Commodity Futures and Swaps causing sudden or unreasonable from within the United States via direct A. Background fluctuations or unwarranted changes in access; and (3) SPDF Swaps.13 the price of such commodity, is an Furthermore, under new CEA section 1. CEA Section 4a undue and unnecessary burden on 4a(a)(7), Congress gave the Commission Speculative position limits have been interstate commerce in such authority to exempt persons or used as a tool to regulate futures commodity.’’ 7 transactions from any position limits it markets for over seventy years. Since As described below, amended CEA establishes.14 the Commodity Exchange Act of 1936,1 section 4a(a)(2), Congress directed, i.e., 2. The Commission Construes CEA Congress has repeatedly expressed mandated, that the Commission ‘‘shall’’ Section 4a(a) To Mandate That the confidence in the use of speculative establish limits on the amount of Commission Impose Position Limits position limits as an effective means of positions, as appropriate, that may be preventing unreasonable and held by any person in agricultural and The Commission concludes that, unwarranted price fluctuations.2 exempt commodity futures and options based on its experience and expertise, CEA section 4a, as amended by the contracts traded on a DCM.8 Similarly, when section 4a(a) of the Act is Dodd-Frank Act, provides the as described below, in amended CEA considered as an integrated whole, it is Commission with broad authority to set section 4a(a)(5),9 Congress mandated reasonable to construe that section to position limits. When Congress created that the Commission impose position mandate that the Commission impose the Commission in 1974, it reiterated position limits. This mandate requires that the purpose of the CEA was to 3 See Commodity Futures Modernization Act of the Commission to impose limits on prevent fraud and manipulation and to 2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, futures contracts, options, and certain 2000). swaps for agricultural and exempt control speculation. Later, the 4 See Food, Conservation and Energy Act of 2008, Commodity Futures Modernization Act Public Law 110–246, 122 Stat. 1624 (June 18, 2008). commodities. The Commission also of 2000 (‘‘CFMA’’) provided a statutory 5 See infra discussion of economically equivalent. 6 CEA section 4a(a)(1) (as amended 2010) ; 7 10 CEA section 4a(a)(3); 7 U.S.C. 6a(a)(3). 1 7 U.S.C. 1 et seq. U.S.C. 6a(a)(1). 11 CEA section 4a(a)(5); 7 U.S.C. 6a(a)(5). 2 See, e.g., H.R. Rep. No. 421, 74th Cong., 1st Sess. 7 Id. 12 See id. 1 (1935); H.R. Rep. No. 624, 99th Cong., 2d Sess. 8 CEA section 4a(a)(2); 7 U.S.C. 6a(a)(2). 13 CEA section 4a(a)(6); 7 U.S.C. 6a(a)(6). 44 (1986). 9 CEA section 4a(a)(5); 7 U.S.C. 6a(a)(5). 14 CEA section 4a(a)(7); 7 U.S.C. 6a(a)(7).

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concludes that the mandate requires it experience and expertise to resolve the conducted several investigations that to impose such limits without first ambiguity the district court perceived in concluded that excessive speculation finding that any such limit is necessary section 4a(a) of the Act. The most accounted for significant volatility and to prevent excessive speculation in a important guidepost for the Commission price increases in physical commodity particular market. in resolving the ambiguity is section markets. A congressional investigation In ISDA v. CFTC,15 the district court 4a(a)(2) of the Act. That section, which determined that prices of crude oil had concluded that section 4a(a)(1) of the is captioned ‘‘Establishment of risen precipitously and that ‘‘[t]he Act ‘‘unambiguously requires that, prior Limitations,’’ includes two sections that traditional forces of supply and demand to imposing position limits, the are critical to understanding cannot fully account for these Commission find that position limits are congressional intent. Subsection increases.’’ 24 The investigation found necessary to ‘diminish, eliminate, or 4a(a)(2)(A) provides that the evidence suggesting that speculation prevent’ the burden described in Commission, in accordance with the was responsible for an increase of as [section 4a(a)(1) of the Act].’’ 16 But the standards set forth in section 4a(a)(1) of much as $20–25 per barrel of crude oil, court further concluded that, even if the Act, shall establish limits on the which was then at $70.25 Subsequently, CEA section 4a(a)(1) standing alone amount of positions, as appropriate, Congress found similar price volatility required the Commission to make a other than bona fide hedge positions stemming from excessive speculation in necessity determination as a that may be held by any person with the natural gas market.26 Thus, these prerequisite to imposing position limits, respect to physical commodities other investigations had already gathered it was plausible to conclude that than excluded commodities.21 evidence regarding the impact of sections 4a(a)(2), (3), and (5) of the Act, Subsection 4a(a)(2)(B) provides that for excessive speculation, and had which were added by Dodd-Frank, exempt commodities, the limits concluded that such speculation constituted a mandate, requiring the ‘‘required’’ under subsection 4a(a)(2)(A) imposed an undue burden on the Commission to impose position limits be established within 180 days of the economy. In light of these investigations without making any findings of enactment of section 4a(a)(2)(B) and that and conclusions, it is reasonable for the necessity. The court ultimately for agricultural commodities, the limits Commission to conclude that Congress determined that the Dodd-Frank ‘‘required’’ under subsection 4a(a)(2)(A) did not intend for it to duplicate amendments, and their relationship to be established within 270 days of the investigations Congress had already section 4a(a)(1) of the Act, are enactment of section 4a(a)(2)(B).22 conducted, and did not intend to leave ‘‘ambiguous and lend themselves to The court concluded that this section it up to the Commission whether there more than one plausible was ambiguous as to whether the should be federal limits. Instead, interpretation.’’ 17 Thus, the court Commission had a mandate to impose Congress set short deadlines for the rejected the Commission’s contention position limits. The court focused on limits it ‘‘required,’’ and directed the that section 4a(a) of the Act the opening phrase of subsection (A)— Commission to conduct a study of the unambiguously mandated the ‘‘[i]n accordance with the standards set limits after their imposition and to imposition of position limits without forth in [section 4a(a)(1) of the Act].’’ report to Congress promptly on their any finding of necessity. The court held that the term effects. Accordingly, the Commission Having concluded that section 4a(a) of ‘‘standards’’ in section 4a(a)(2) of the believes that the better reading of the the Act is ambiguous, the court could Act was ambiguous and could refer to Dodd-Frank amendments, in light of the not rely on the Commission’s the requirement in section 4a(a)(1) of congressional investigations and interpretation to resolve the section’s the Act that the Commission impose findings made, is the Dodd-Frank ambiguity. As the court observed, the position limits ‘‘as [it] finds are amendments require the Commission to D.C. Circuit has held that ‘‘ ‘deference to necessary to diminish, eliminate, or impose position limits on physical an agency’s interpretation of a statute is prevent’’ an unnecessary burden on commodity derivatives as opposed to not appropriate when the agency interstate commerce.23 Thus, the court merely reaffirming the preexisting, wrongly believes that interpretation is held that it was plausible that section discretionary authority the Commission compelled by Congress.’ ’’ 18 The court 4a(a)(2) of the Act required the has long had to impose limits as it finds further held that, pursuant to the law of Commission to make a finding of necessary. Congress made the decision the D.C. Circuit, it was required to necessity as a precondition to imposing to impose limits, and it is for the remand the matter to the Commission so any position limit. But the court held Commission to carry that decision out, that it could ‘‘fill in the gaps and resolve that it was also plausible that the subject to close congressional oversight. the ambiguities.’’ 19 The court cautioned reference to ‘‘standards’’ did not Based on its experience, the the Commission that, in resolving the incorporate such a requirement. Commission concludes that Congress ambiguity of section 4a(a) of the Act, The Commission believes that it is could not have contemplated that, as a ‘‘ ‘it is incumbent upon the agency not reasonable to conclude from the Dodd- prerequisite to imposing limits, the to rest simply on its parsing of the Frank amendments that Congress Commission would first make the sort of statutory language.’ ’’ 20 mandated limits and did not intend for The Commission now undertakes the the Commission to make a necessity 24 ‘‘The Role of Market Speculation in Rising Oil task assigned by the court: using its finding as a prerequisite to the and Gas Prices: A Need to Put the Cop Back on the Beat,’’ Staff Report, Permanent Subcommittee on imposition of limits. The Commission’s Investigations of the Senate Committee on 15 International Swaps and Derivatives interpretation of its mandate is also Homeland Security and Governmental Affairs, U.S. Association v. United States Commodity Futures Senate, S. Prt. No. 109–65 at 1 (June 27, 2006). Trading Commission, 887 F. Supp. 2d 259 (D.D.C. based on congressional concerns that 25 Id. at 12; see also ‘‘Excessive Speculation in the 2012). arose, and congressional actions taken, Natural Gas Market,’’ Staff Report, Permanent 16 Id. at 270. before the passage of the Dodd-Frank Subcommittee on Investigations of the Senate 17 Id. at 281. amendments. During the years leading Committee on Homeland Security and 18 Id. at 280–82, quoting Peter Pan Bus Lines, Inc. up to the enactment, Congress Governmental Affairs, U.S. Senate at 1 (June 25, v. Fed. Motor Carrier Safety Admin., 471 F.3d 1350, 2007) available at http://www.levin.senate.gov/imo/ 1354 (D.C. Cir. 2006). media/doc/supporting/2007/ 19 887 F. Supp. 2d at 282. 21 CEA section 4a(a)(2)(A); 7 U.S.C. 6a(a)(2)(A). PSI.Amaranth.062507.pdf (last visited Mar. 18, 20 Id. at n.7, quoting PDK Labs. Inc. v. DEA, 362 22 CEA section 4a(a)(2)(B); 7 U.S.C. 6a(a)(2)(B). 2013) (‘‘Gas Report’’). F.3d 786, 797 (D.C. Cir. 2004). 23 887 F. Supp. 2d at 274–76. 26 Gas Report at 1–2.

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necessity determination that the Dodd-Frank requires the Commission months are listed to trade’’ on any DCM, plaintiffs in ISDA v. CFTC argue section to impose position limits on all exempt including ‘‘contracts for future delivery 4a(a)(2) of the Act requires—i.e., a commodities within 180 days after of any commodity subject to the rules of finding that, before imposing any limit enactment, and on all agricultural such contract market.’’ 36 The in any particular market, there is a commodities within 270 days.33 Commission explained that this action reasonable likelihood that excessive Because of these stringent time limits, was necessary in order to ‘‘close the speculation will pose a problem in that the Commission concludes that existing regulatory gap whereby some market, and that position limits are Congress did not intend for the but not all contract markets [we]re likely to curtail that excessive Commission to delay the imposition of subject to a specified speculative speculation without imposing undue limits until it has first made antecedent, position limit.’’ 37 Like the Dodd-Frank costs.27 As the district court noted, for contract-by-contract necessity Act, the 1981 final rule established (and 45 years after passage of the CEA, the findings.34 the rule release described) that such Commission’s predecessor agency made Additional experience of the limits ‘‘shall’’ be established according findings of necessity in its rulemakings Commission confirms this to what the Commission termed establishing position limits.28 During interpretation. The Commission has ‘‘standards.’’ 38 As used in the 1981 final that period, the Commission had found, historically, that speculative rule and release, ‘‘standards’’ meant the jurisdiction over only a limited number position limits are a beneficial tool to criteria for determining how the of agricultural commodities. The court prevent, among other things, required limits would be set.39 cited several orders issued by the manipulation of prices. Limits do so by ‘‘Standards’’ did not include the Commodity Exchange Commission restricting the size of positions held by antecedent judgment of whether to order (‘‘CEC’’) between 1940 and 1956 noncommercial entities that do not have limits at all. The Commission had establishing position limits, and in each hedging needs in the underlying already made the antecedent judgment of those orders, the CEC stated that the physical markets. In other words, in the rule that ‘‘speculative limits are limits it was imposing were necessary. markets that have underlying physical appropriate for all contract markets Each of those orders involved no more commodities with finite supplies benefit irrespective of the characteristics of the than a small number of commodities. from the protections offered by position underlying market.’’ 40 It further But it took the CEC many months to limits. This will be discussed further, concluded that, with respect to any make those findings. For example, in below. particular market, the ‘‘existence of 1938, the CEC imposed position limits For example, in 1981, the historical trading data’’ showing on six grain products.29 Proceedings Commission, acting expressly pursuant excessive speculation or other burdens leading up to the establishment of the to, inter alia, what was then CEA on that market is not ‘‘an essential limits commenced more than 13 months Section 4a(1) (predecessor to CEA prerequisite to the establishment of a earlier, when the CEC issued a notice of section 4a(a)(1)), adopted what was then speculative limit.’’ 41 The Commission hearings regarding the limits.30 § 1.61.35 This rule required speculative thus directed the exchanges to set limits Similarly, in September 1939, the CEC position limits for ‘‘for each separate for all futures contracts ‘‘pursuant to the issued a Notice of Hearing with respect type of contract for which delivery . . . standards of rule 1.61[.]’’ 42 And to position limits for cotton, but it was § 1.61 incorporated the standards from not until August 1940 that the CEC 33 Although the Commission did not meet these then-CEA-section 4a(1)—an finally promulgated such limits.31 And deadlines in its first position limits rulemaking, it completed the task (in which the Commission ‘‘Aggregation Standard’’ (46 FR at the CEC began the process of imposing received and addressed more than 15,000 50943) for applying the limits to limits on soybeans and eggs in January comments) as expeditiously as possible under the positions both held and controlled by a 1951, but did not complete the process circumstances. trader and a flexibility standard, 32 34 until more than seven months later. Even if there were no mandate, the Commission allowing the exchanges to set ‘‘different In the Commission’s experience (i.e., would not need to make the sort of particularized necessity findings advocated by the plaintiffs in and separate position limits for different in the experience of its predecessor ISDA v. CFTC, and discussed by the district court. types of futures contracts, or for agency), it took at least four months to When the Commission imposed limits pre-Dodd- different delivery months, or from make a necessity finding with respect to Frank, it only had to determine that excessive exempting positions which are normally one commodity. The process of making speculation is harmful to the market and that limits on speculative positions are a reasonable means of known in the trade as ‘spreads, the sort of necessity findings that preventing price disruptions in the marketplace that straddles or arbitrage’ or from fixing plaintiffs urged upon the court with place an undue burden on interstate commerce. limits which apply to such positions respect to all agricultural commodities That is the determination that the Commission made in 1981 when it required the exchanges to which are different from limits fixed for and all exempt commodities would be 43 establish position limits on all futures contracts, other positions.’’ far more lengthy than the time allowed regardless of the characteristics of a particular The language that ultimately became by section 4a(a)(3) of the Act, i.e., 180 contract market. See 46 FR 50940 (‘‘[I]t is the section 737 of the Dodd-Frank Act, or 270 days. Commission’s view that this objective [‘‘the amending CEA section 4a(a), originated prevention of large and/or abrupt price movements which are attributable to extraordinarily large in substantially final form in H.R. 977, 27 See 887 F. Supp. 2d at 273. speculative positions’’] is enhanced by speculative introduced by Representative Peterson, 28 Id. at 269. position limits since it appears that the capacity of 29 See 3 FR 3145, Dec. 24, 1938. any contract market to absorb the establishment and 36 46 FR 50945. 30 See 2 FR 2460, Nov. 12, 1937. liquidation of large speculative positions in an 37 Id. 50939; see also id. 50938 (‘‘to ensure that 31 See 4 FR 3903, Sep. 14, 1939; 5 FR 3198, Aug. orderly manner is related to the relative size of such each futures and options contract traded on a 28, 1940. positions, i.e., the capacity of the market is not designated contract market will be subject to 32 unlimited.’’). In the immediate wake of that See 16 FR 321, Jan. 12, 1951; 16 FR 8106, Aug. speculative position limits’’). 16, 1951; see also 17 FR 6055, Jul. 4, 1952 (notice decision, Congress enacted legislation to give the 38 Compare id. at 50941–42, 50945 with 7 U.S.C. of hearing regarding proposed position limits for Commission the specific authority to enforce those 6a(a)(2)(A). cottonseed oil, soybean oil, and lard); 18 FR 443, omnibus limits. See CEA section 4a(e); 7 U.S.C. 39 Jan. 22, 1953 (orders setting limits for cottonseed 6a(e). 46 FR 50941–42, 50945. oil, soybean oil, and lard); 21 FR 1838, Mar. 24, 35 46 FR 50938, 50944–45, Oct. 16, 1981. The rule 40 Id. at 50941. 1956 (notice of hearing regarding proposed position adopted in 1981 tracked, in significant part, the 42 Id. at 50942. limits for onions), 21 FR 5575, Jul. 25, 1956 (order language of Section 4a(1). Compare 17 CFR 43 Id. at 50945 (§ 1.61(a)). Compare 7 U.S.C. 6a(1) setting position limits for onions). 1.61(a)(1) (1982) with 7 U.S.C. 6a(1) (1976). (1976).

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who was then Chairman of the House markets, delivery months, etc.49 the Commission would then, within one Agriculture Committee and who would Because the Commission concludes year, have to conduct another round of ultimately be a member of the Dodd- that, when Congress amended section studies with respect to each contract as Frank conference committee.44 H.R. 977 4a(a) of the Act and directed the to which it had imposed limits. The appears influenced by the Commission’s Commission to establish the ‘‘required’’ Commission does not believe that 1981 rulemaking, establishing that there limits, it did not want, much less Congress would have imposed such ‘‘shall’’ be position limits in accordance require the Commission to make an burdensome and duplicative with the ‘‘standards’’ identified in CEA antecedent finding of necessity for every requirements on the Commission. section 4a(a).45 Like the 1981 rule, H.R. position limit it imposes, the Moreover, Congress would not have 977 established (and the Dodd-Frank ‘‘standards’’ the Commission must required the Commission to conduct a Act ultimately adopted) a ‘‘good faith’’ apply in imposing the limits required by study of the effects, ‘‘if any,’’ of position exception for positions acquired prior to section 4a(a)(2) of the Act consist of the limits, and would not have imposed a the effective date of the mandated aggregation standard and the flexibility hearing requirement on itself, if the limits.46 The committee report standard of CEA section 4a(a)(1), the Commission had the discretion to not accompanying H.R. 977 described it as same standards the Commission impose any position limits at all.51 ‘‘Mandat[ing] the CFTC to set required the exchanges to apply the last Further, Congress was careful to make speculative position limits’’ and the time there was a mandatory, clear that its mandate only extends to section-by-section analysis stated that prophylactic position limits regime.50 agricultural and exempt commodities. If the legislation ‘‘requires the CFTC to set In addition, section 719 of the Dodd- there were no mandate, then the same appropriate position limits for all Frank Act (codified at 15 U.S.C. 8307) standards that apply to position limits physical commodities other than provides that the Commission ‘‘shall for excluded commodities would also excluded commodities.’’ 47 This closely conduct a study of the effects (if any) of apply to agricultural and exempt resembles the omnibus prophylactic the position limits imposed’’ pursuant commodities and, basically, the approach the Commission took in 1981, to CEA section 4a(a)(2), that ‘‘[w]ithin Commission would have only when the Commission required the 12 months after the imposition of permissive authority to promulgate establishment of position limits on all position limits,’’ the Commission position limits for any commodity—the futures contracts according to ‘‘shall’’ submit a report of the results of same permissive authority that existed ‘‘standards’’ it borrowed from CEA that study to Congress, and that, within prior to the Dodd-Frank Act. Finding section 4a(1), and the Commission finds 30 days of the receipt of that report, that a mandate exists is the only way to the history and interplay of the 1981 Congress ‘‘shall’’ hold hearings give effect to the distinction that rule and Dodd-Frank section 737 to be regarding the findings of that report. As Congress drew. further evidence that Congress intended explained above, if, as a precondition to The legislative history of the Dodd- to follow much the same approach as imposing position limits, the Frank amendments to CEA section 4a(a) the Commission did in 1981, mandating Commission were required to make the confirms that Congress intended to position limits as to all physical sort of necessity determinations make position limits mandatory for commodities.48 apparently contemplated by the district agricultural and exempt commodities. Consistent with this interpretation, court, the Commission would have to As initially introduced, the House which is based on the Commission’s conduct time-consuming studies and version of the bill that became Dodd- experience, CEA section 4a(a)(2)(A)’s then determine as a matter of discretion Frank provided the Commission with phrase ‘‘[i]n accordance with the whether a limit was necessary. The discretionary authority to issue position standards set forth in [CEA section Commission believes that, to comply limits by stating that the Commission 4a(a)(1)]’’ does not require a finding of with section 719 of the Dodd-Frank Act, ‘‘may’’ impose them.52 However, by the necessity as a prerequisite to the time the bill passed the House, it imposition of position limits, but rather 49 In its 1981 rulemaking in which the dispensed with the permissive approach has a different meaning. Section 4a(a)(1) Commission required exchanges to impose position in favor of a mandate, stating that the limits, the Commission interpreted the term Commission ‘‘shall’’ impose limits, and of the Act lists ‘‘standards’’ that the ‘‘standards,’’ to not require exchanges to make any Commission must consider, and has finding of necessity with respect to imposing historically considered, when it imposes position limits. See 46 FR. 50941–42 (preamble), 51 When Congress requires an agency to position limits. It contains an 50945 (text of § 1.61(a)(2)). promulgate a rule, it frequently requires the agency 50 to provide it with a report regarding the impact of aggregation standard, which provides The District Court expressed concern that, unless CEA section 4a(a)(2) incorporated a necessity that rule. See, e.g., 15 U.S.C. 6502, 6506 (provisions that, if one person controls the positions finding, then the language referring to such a of the Children’s Online Privacy Protection Act, of another, or if those persons finding in CEA section 4a(a)(1) might be rendered requiring the FTC to promulgate implementing coordinate their trading, then those surplusage. 887 F. Supp. 2d at 274–75. That is, the rules, and to report as to the impact thereof); 47 U.S.C. 227(b), (h) (requiring the FCC to implement positions must be aggregated. And it court believed that, unless a necessity finding were incorporated into any limits required by CEA rules restricting unsolicited fax advertising, and to contains a flexibility standard, section 4a(a)(2), then the ‘‘finds as necessary’’ report on enforcement); 15 U.S.C. 78m(p) (requiring providing the Commission with the language would serve no purpose in the CEA. But the SEC to issue rules requiring disclosures flexibility to impose different position there is no surplusage because CEA section 4a(a) regarding the use of certain ‘‘conflict minerals’’ limits for different commodities, only mandates position limits with respect to obtained from the Democratic Republic of Congo), physical commodity derivatives (i.e., agricultural and section 1502(d) of the Dodd-Frank Act commodities and exempt commodities). The (requiring the Comptroller General to report 44 H.R. 977, 11th Cong. (2009). mandate does not apply to excluded commodities regarding the effectiveness of the conflict minerals 45 7 U.S.C. 6. (i.e., intangible commodities such as interest rates, rule). 46 Compare H.R. 977, 11th Cong. (2009) with 46 exchange rates, or indexes, see CEA section 1a(19) 52 Initially, the House used the word ‘‘may’’ to FR 50944. (defining the term ‘‘excluded commodity’’). As a permit the Commission to impose aggregate 47 H.Rept. 111–385, at 15, 19 (Dec. 19, 2009). result, although a necessity finding does not apply positions on contracts based upon the same 48 See Union Carbide Corp. & Subsidiaries v. with respect to physical commodities as to which underlying commodity. See H.R. 4173, 11th Cong. Comm’r of Internal Revenue, 697 F.3d 104, (2d Cir. the Dodd-Frank Congress mandated position limits, section 3113(a)(2) (as introduced in the House, Dec. 2012) (explaining that when an agency must resolve it still applies to any limits the Commission may 2, 2009) (‘‘Introduced Bill’’); see also Brief of a statutory ambiguity, to do so ‘‘ ‘with the aid of choose to impose with respect to excluded Senator Levin et al as Amicus Curiae at 10–11, reliable legislative history is rational and prudent’ ’’ commodities. Thus, the mandate of CEA section ISDA v. CFTC, no. 12–5362 (D.C. Cir. Apr. 22, (quoting Robert A. Katzman, Madison Lecture: 4a(a) does not render the necessity language 2013), Document No. 1432046 (hereafter ‘‘Levin Statutes, 87 N.Y.U. L. Rev. 637, 659 (2012)). surplusage. Br.’’).

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in addition, the House added two new 3. Necessity Finding Position limits would help to deter subsections, mandating the imposition As explained above, the Commission and prevent manipulative corners and of limits for agricultural and exempt concludes that the CEA mandates the squeezes, such as the silver price spike commodities with the tight deadlines imposition of speculative position caused by the Hunt brothers and their 53 described above. Similarly, it was only limits. Because of this mandate, the cohorts in 1979–80. after the initial bill was amended to Commission need not make a A market is ‘‘cornered’’ when an make position limits mandatory that the prerequisite finding that such limits are individual or group of individuals House bill referred to the limits for necessary ‘‘to diminish, eliminate or acting in concert acquire a controlling or agricultural and exempt commodities as prevent excessive speculation causing ownership interest in a commodity that ‘‘required’’ in one instance.54 sudden or unreasonable fluctuations or is so dominant that the individual or Furthermore, Congress decided to unwarranted changes in the prices of’’ group of individuals can set or include the requirement that the manipulate the price of that commodities under pre-Dodd-Frank 62 Commission conduct studies on the CEA section 4a(a)(1). Nonetheless, out commodity. In a short squeeze, an ‘‘effects (if any) of position limits of an abundance of caution in light of excess of demand for a commodity imposed’’ 55 to determine if the required the district court decision in ISDA v. together with a lack of supply for that position limits were harming US CFTC, and without prejudice to any commodity forces the price of that markets only after position limits went argument the Commission may advance commodity upward. During a short from discretionary to mandatory.56 To in any forum, the Commission proposes, squeeze, individuals holding short remove all doubt, the House Report positions, i.e., sales for future delivery as a separate and independent basis for 63 accompanying the House Bill also made the proposed Rule, a preliminary of a commodity, are typically forced to clear that the House amendments to the finding herein that such limits are purchase that commodity in situations position limits bill ‘‘required’’ the necessary to achieve their statutory where the price increases rapidly, in Commission to impose limits.57 The 60 order to exit their short position and/or purposes. 64 Conference Committee adopted the Historically, speculative position cover, i.e., be able to deliver the provisions of the House bill with regard limits have been one of the tools used commodity in accordance with the 65 to position limits and then strengthened by the Commission to prevent, among terms of the sale. them by referring to the position limits other things, manipulation of prices. A rapid rise and subsequent sharp as ‘‘required’’ an additional three times Limits do so by restricting the size of decline in silver prices occurred from so that CEA section 4a(a), as enacted positions held by noncommercial the second half of 1979 to the first half of 1980 when the Hunt brothers 66 and referred, to position limits as ‘‘required’’ entities that do not have hedging needs 67 a total of four times.58 in the underlying physical markets. By colluding syndicates attempted to Considering the text, purpose and capping the size of speculative corner the silver market by hoarding legislative history of section 4a(a) as a positions, limits lessen the likelihood silver and executing a short squeeze. whole, along with its own experience that a trader can obtain a large enough Prices deflated only after the and expertise, the Commission believes position to potentially manipulate Commodity Exchange, Inc. (‘‘COMEX’’) that it is reasonable to conclude that prices, engage in corners or squeezes or unreasonable fluctuations or unwarranted changes Congress—notwithstanding the other forms of price manipulation. The in the price of commodities. See discussion below. ambiguity the district court found to position limits in this proposal are 62 See CFTC Glossary, A Guide to the Language arise from some of the words in the necessary as a prophylactic measure to of the Futures Industry (‘‘CFTC Glossary’’), statute—decided that position limits lessen the likelihood that a trader will available at http://www.cftc.gov/ were necessary with respect to physical accumulate excessively large ConsumerProtection/EducationCenter/ CFTCGlossary/glossary, which defines a corner as commodities, mandated the speculative positions that can result in ‘‘(1) [s]ecuring such relative control of a commodity Commission to impose them on corners, squeezes, or other forms of that its price can be manipulated, that is, can be physical commodities, and required that manipulation that cause unwarranted or controlled by the creator of the corner; or (2) in the 59 unreasonable price fluctuations. In the extreme situation, obtaining contracts requiring the the Commission do so expeditiously. delivery of more commodities than are available for Commission’s experience, position delivery.’’ 53 Levin Br. at 11 (citing H.R. 4173, 111th Cong. limits are also necessary as a 63 See CFTC Glossary, which defines a ‘‘short’’ as section 3113(a)(5)(2), (7) (as passed by the House prophylactic measure because ‘‘(1) [t]he selling side of an open futures contract; Dec. 11, 2009) (‘‘Engrossed Bill’’)). (2) a trader whose net position in the futures market 54 excessively large speculative positions Id. at 12. (citing Engrossed Bill at section may cause sudden or unreasonable price shows an excess of open sales over open 3113(a)(5)(3)). purchases.’’ 55 15 U.S.C. 8307. fluctuations even if not accompanied by 64 See CFTC Glossary, which defines ‘‘cover’’ as 56 See Levin Br. at 13–17; see also DVD: October manipulative conduct. Two examples ‘‘(1) [p]urchasing futures to offset a short position 21, 2009 Business Meeting (House Agriculture that inform the Commission’s (same as Short Covering); . . . (2) to have in hand Committee 2009), ISDA v. CFTC, Dkt. 37–2 Exh. B determinations are the silver crisis of the physical commodity when a short futures sale (Apr. 13, 2012) at 59:55–1:02:18. 1979–80 and events in the natural gas is made, or to acquire the commodity that might be 57 deliverable on a short sale’’ and offset as Levin Br. at 23 (citing H.R. Rep. No. 111–373 61 at 11 (2009)). markets in 2006. ‘‘[l]iquidating a purchase of futures contracts 58 Levin Br. at 17–18. through the sale of an equal number of contracts of 59 The district court noted that CEA sections physical commodity futures and options and the same delivery month, or liquidating a short sale 4a(a)(2), (3), and (5)(A) contain the words ‘‘as economically equivalent swaps, Congress at the of futures through the purchase of an equal number appropriate.’’ The court held that it was ambiguous same time delegated to the Commission the task of of contracts of the same delivery month.’’ whether those words referred to the Commission’s setting the limits at levels that would maximize 65 See CFTC Glossary, which defines a ‘‘squeeze’’ obligation to impose limits (i.e., the Commission Congress’ objectives. See CEA sections 4a(a)(3)(A)– as ‘‘[a] market situation in which the lack of shall, ‘‘as appropriate,’’ impose limits), or to the (B). supplies tends to force shorts to cover their level of the limits the Commission is to impose. 60 The CEA does not define ‘‘excessive positions by offset at higher prices.’’ Because, as explained above, the Commission speculation.’’ But the Commission has historically 66 The primary silver traders in the Hunt family believes it is reasonable to interpret CEA section associated it with extraordinarily large speculative were Nelson Bunker Hunt, William Herbert Hunt, 4a(a) to mandate the imposition of limits, the words positions. 76 FR at 71629 (referring to and Lamar Hunt. ‘‘as appropriate’’ must refer to the level of limits, ‘‘extraordinarily large speculative positions’’). 67 A group of individuals and firms trading i.e., the Commission must set limits at an 61 Since the 1920’s, Congressional and other through ContiCommodity Services, Inc. and ACLI appropriate level. Thus, while Congress made the official governmental investigations and reports International Commodity Services, Inc., both of threshold decision to impose position limits on have identified other instances of sudden or which were FCMs.

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and the Chicago Board of Trade general, the larger a position held by a deliveries and potential deliveries to (‘‘CBOT’’) imposed a series of trader, the greater is the potential that large long participants in the silver emergency rules imposing at various the position may affect the price of the futures markets contributed to the rise times position limits, increased margin contract. Throughout late 1979, the and fall in silver prices in both the cash requirements, and trading for Hunts continued to stand for delivery and futures markets. The rise appears to liquidation only on U.S. silver futures. and took care to ensure that their own have been caused in part by the It was the consensus view of staffs of the holdings were not re-delivered back to conversion of silver futures contracts to Commission, the Board of Governors of them when outstanding futures actual physical silver. The subsequent the Federal Reserve System, the contracts settled.74 Thus, through this fall in prices was then exacerbated by Department of the Treasury and the period, silver prices climbed as the the anticipated selling of some of the Securities and Exchange Commission Hunts accumulated more financial and Hunt’s physical silver by FCMs as well articulated in an interagency task force physical positions and the available as the liquidation of Hunt group and study of events in the silver market supply of silver decreased. As the possibly . . . [other large traders’] during that period that ‘‘[r]easonable interagency working group observed, futures positions.’’ 76 speculative position limits, if they had ‘‘[t]he biggest single source of the Figure 1 illustrates the rapid rise and been in place before the buildup of large change in demand for silver bullion sharp decline in the price of silver positions occurred, would have helped during the last half of 1979 and the first during the period in question.77 In prevent the accumulation of such large quarter of 1980 came from the silver January of 1979, the settlement price of positions and the resultant dislocations acquisitions of Hunt family members silver was approximately $6.00 per troy created when the holders of those and other large traders.’’ 75 ounce. By August, the price had risen to positions stood for delivery.’’ 68 That is, The exchanges and regulators were over $9.00, an increase of over 50 speculative position limits would have slow to react to events in the silver percent. Through most of October and helped to prevent the buildup of the market. However, to correct by then November 1979, silver traded within a silver price spike of 1979–80. The evident market imbalances, in late 1979 range of $15.00–$17.50 per troy ounce. Commission believes that this the CBOT introduced position limits of On November 28, the closing price rose conclusion remains correct. ‘‘Moreover, 3 million ounces of silver (i.e., 600 above $18.00. In December of 1979, the by limiting the ability of one person or contracts) per trader and raised margin price rose above $30.00 and continued group to obtain extraordinarily large requirements. Contracts over 3 million to climb until mid-January. On January positions, speculative limits diminish ounces were to be liquidated by 17, 1980, the closing price of silver the possibility of accentuating price February of 1980. On January 7, 1980, reached its apex at $48.70 per troy swings if large positions must be the larger COMEX instituted position ounce, more than five times the August liquidated abruptly in the face of limits of 10 million ounces of silver (i.e., price. On January 21, the price declined adverse price movements or for other 2,000 contracts) per trader, with to $44.00; on January 22 the closing reasons.’’ 69 contracts over that amount to be price slid to $34.00 per troy ounce. The Hunt brothers were speculators 70 liquidated by February 18. Then, on Through March 7, 1980, silver traded in who neither produced, distributed, January 21, COMEX suspended trading an approximate range of $30.00–$40.00 processed nor consumed silver. The in silver and announced that it would per troy ounce. On March 10, silver corner began in early 1979, when the only accept liquidation orders. The closed below $30.00. On March 17 and Hunt brothers accumulated large price of silver began to decline. When 18, silver closed below $20.00. After a physical holdings of silver by the price of a commodity starts to move brief rebound above $22.00, by March purchasing silver futures and taking against the cornerer, attempts by the 26 the price dropped to $15.80. On physical delivery of silver.71 By the fall cornerer to sell would tend to fuel a March 27, the price of silver hit a low of 1979, they had accumulated over 43 further price move against the cornerer of $10.80 per troy ounce, less than a million ounces of physical silver.72 In resulting in a vicious cycle of price quarter of the high of $48.70 two addition to their physical holdings, in decline. The Hunts were eventually months earlier. ‘‘After March 28, silver the fall of 1979 the Hunts and their unable to meet their margin calls and prices stabilized for a while in the $12– cohorts held over 12 thousand contracts took a huge loss on their positions. The $15 range.... During April through for March delivery, representing a interagency working group concluded December 1980, silver prices moved potential future delivery to the hoard of that the data relating to the episode generally in a range between $12 and another 60 million ounces of silver.73 In ‘‘support the hypothesis that the $20 per ounce.’’ 78

68 Commodity Futures Trading Commission, price change; or who purchases or sells futures as at http://www.rapidtrends.com/hunt-brothers- Report To The Congress In Response To Section 21 a temporary substitute for a cash transaction that demanded-physical-silver-delivery-too/. To provide Of The Commodity Exchange Act, May 29, 1981, will occur later. One can hedge either a long cash context, at this time COMEX and CBOT warehouses Part Two, A Study of the Silver Market, at 173 market position (e.g., one owns the cash held 120 million ounces of silver. (‘‘Interagency Silver Study’’). commodity) or a short cash market position (e.g., 73 Interagency Silver Study at 18. 69 Speculative Position Limits, 45 FR 79831, one plans on buying the cash commodity in the 74 79833, Dec. 2, 1980. future).’’ The Hunts had no apparent industrial use It has been reported that they moved vast 70 Speculators seek to profit by anticipating the for silver, although some attribute their early quantities of silver to warehouses in Switzerland to price movement of a commodity in which a futures activities in the silver market to an attempt to hedge prevent this possibility. position has been established. See CFTC Glossary, against Carter-era inflation and a defense against 75 Interagency Silver Study at 77. potential confiscation of precious metals in the which defines a speculator as, ‘‘[i]n commodity 76 Interagency Silver Study at 133. event of a national crisis. futures, a trader who does not hedge, but who 77 See CFTC Glossary, which defines ‘‘spot price’’ trades with the objective of achieving profits 71 Typically, delivery occurs in only a small as ‘‘[t]he price at which a physical commodity for through the successful anticipation of price percentage of futures transactions. The vast majority movements.’’ In contrast, a hedger is ‘‘[a] trader of contracts are liquidated by offsetting immediate delivery is selling at a given time and who enters into positions in a futures market transactions. place.’’ The prompt month is the nearest month to opposite to positions held in the cash market to 72 See, e.g., Matonis, Jon, Hunt Brothers the expiration date of a futures contract. minimize the risk of financial loss from an adverse Demanded Physical Silver Delivery Too, available 78 Interagency Silver Study at 35–36.

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Figure 2 shows the distortion in the degree to which the value of the front charted price spreads to look price of silver futures contracts due to month contract exceeded the value of comparatively much flatter. That is, the short squeeze during the run-up to other contracts was exaggerated. By there should not be that much the January 17 high and the effect of April of 1980, because the Hunts and difference between the price of the front ‘‘burying the corpse’’ after the squeeze their cohorts were forced to sell, month contract and other contracts ended. In January 1980, due to the physical supply had increased and because silver should not be subject to hoarding of the Hunts and their cohorts, silver was comparatively cheaper to seasonality such as would affect crops. physical supplies of silver were tight deliver. The front month contract was Moreover, because silver is relatively and the physical commodity was then worth substantially less than other cheap to store, the difference in the expensive to deliver. Scarcity in the contracts. In contrast, assuming price of the front month and other physical market for silver distorted equilibrium in production, use, and contracts should also be less sensitive to prices in the silver futures markets. The storage of silver, one would expect the the cost of carry.

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In section 4a(a)(1) of the Act, Congress or attempted manipulation, or they may the amount of pending offers to sell by identifies ‘‘sudden or unreasonable result from the excessive size and market participants may cause the fluctuations or unwarranted changes in disorderly trading of a speculative, i.e., commodity derivative contract price to the price of such commodity’’ 79 as an non-hedging, position. increase, as market participants may indication that excessive speculation Sudden or unreasonable fluctuations demand a higher price when entering may be present in a market for a or unwarranted changes in the price of new offers to sell. It follows that an commodity. The rapid rise and sharp a commodity derivative contract may be extraordinarily large position, relative to decline in the price of silver that caused by a trader establishing, the size of other participants’ positions, commenced in August 1979 and was maintaining or liquidating an may cause an unwarranted price spent by the end of March 1980 extraordinarily large position whether fluctuation. certainly fits the description advanced in a physical-delivery or cash-settled In the spot month for a physical- by Congress. Nevertheless, the contract. Prices for commodity delivery commodity derivative contract, Commission, based on its experience derivative contracts reflect expectations concerns regarding sudden or and expertise, does not believe that the about the price of the underlying unreasonable fluctuations or burdens on interstate commerce are commodity at a future date and, thus, unwarranted changes in the price of that limited solely to the temporary and reflect expectations about supply and contract are heighted because open unwarranted changes in price such as demand for that underlying commodity. positions in such a contract either: Must those exhibited during the silver price In contrast, the supply of a commodity be satisfied by delivery of the spike that resulted, at least in part, from derivative contract itself is not limited underlying commodity (which is of the deliberate behavior of the Hunt to the supply of the underlying limited supply and, thus, susceptible to 80 brothers and their cohorts. Indirect commodity. Rather, the supply of a corners or squeezes); or must be offset burdens on interstate commerce may commodity derivative contract is a before delivery obligations attach (that arise as a result of unwarranted changes function of the ability of a trader to requires trading with another in price such as occurred in this case. induce a counterparty to take the participant to offset the open Such burdens arise due to manipulation opposite side of the transaction.81 Thus, position).82 For example, a trader the capacity of the market (i.e., all 79 7 U.S.C. 6a(a)(1). participants) to absorb purchase or sale 82 Regarding cash-settled commodity derivative 80 The Interagency Silver Study identified three orders for commodity derivative contracts, there are a variety of methods for main factors contributing to the price increases in contracts is limited by the number of determining the final cash settlement price, such as silver at the time. by reference to (i) a survey price of cash market First, the state of the economy during the period participants that are willing to provide transactions, or (ii) the final (or daily) settlement in question affected all precious metals including liquidity, i.e., take the other side of the price of a physical-delivery futures contract. For silver. . . . order at a given price. For example, a example, in the case of a trader who holds an Second, changes in the supply and demand of trader that demands immediacy in extraordinarily large position in a cash-settled physical silver affected the price of silver. . . . contract based on a survey of prices of cash market Third, the accumulation of large amounts of both establishing a long position larger than transactions, where the price of the spot month physical silver and silver futures by individuals cash-settled contract is used by cash market such as the Hunt family of Dallas, Texas, had an 81 In a commodity derivative contract, the two participants in determining or setting their cash effect on the price of silver directly and on the parties to the contract have opposite positions. That market transaction prices, then an unwarranted expectations of others who became aware of these is, for every long position in a commodity price fluctuation in that cash-settled commodity actions. derivative contract held by one trader, there is a derivative contract could result in distorted prices Interagency Silver Study at 2. short position that another trader must hold. in cash market transactions and, thus, an artificial

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holding an extraordinarily large long silver in many of these uses is relatively potential for a decline in the value of loan position, absent position limits, could price inelastic, the substantial decline collateral.87 maintain a long position (requiring registered in the use of silver for The failure of an FCM with large delivery beyond the limited supply of industrial purposes underscores the silver exposures could have adversely the physical commodity) deep into the sizable magnitude of silver price affected clients without positions in spot month. By maintaining such an increases and the consequent disruption silver and potentially other participants extraordinarily large position, such a experienced by the industry. in the futures markets. The failure of a trader may cause an unwarranted Individual commercial operations large FCM could have negatively increase in the price of the commodity using silver were also disrupted. To affected the various exchanges and derivative contract, as holders of short illustrate, a major producer of X-ray film potentially the clearinghouses.88 The positions attempt to induce a discontinued production purportedly as solvency of FCMs and other counterparty to offset their position. a result of the sharply increased and Commission registrants crucial to Prices that deviate from the natural erratic behavior of the price of silver. In properly functioning futures markets is forces of supply and demand, i.e., addition, there were reports that trading clearly within the Commission’s artificial prices, may occur when there firms failed financially in early 1980 regulatory ambit. The failure of a is hoarding of a physical commodity in due to losses incurred in silver markets. commission registrant in the context of an attempted or perfected manipulative Finally, the financial condition of small unwarranted price spikes would be a activity (such as a corner). If a price of firms dependent on silver products burden on interstate commerce. a commodity is artificial, resources will (hearing aid batteries, printing supplies, Fallout from the silver price spike in be inefficiently allocated during the etc.) deteriorated as a result of high late 1979-early 1980 extended beyond time that the artificial price exists. silver prices and limited supplies.84 the silver markets. ‘‘Banks, by extending Similarly, prices that are unduly Moreover, after the settlement price of credit for futures market activity while influenced by the size of a very large accepting silver as collateral, exposed speculative position, or trading that silver peaked in mid-January 1980, the ensuing ‘‘rapid decline of silver prices themselves to higher than normal increases or reduces the size of such 89 subjected several FCMs and their parent risks.’’ Unusual activity was also very large speculative position, may observed in other futures markets, such lead to an inefficient allocation of companies to considerable financial 85 as precious metals and commodities resources to the extent that such prices stress.’’ In the view of the Commission and other regulators, other than silver in which the Hunts do not allocate resources to their highest 90 ‘‘[w]hile all FCMs carrying silver were thought to have had positions. and best use. These burdens were ‘‘On March 27, 1980, the date on which present during the Hunt brothers positions appear to have remained solvent during the period in question, the price of silver dropped to its lowest episode. The Interagency Silver Study point, $10.80 an ounce, a combination concluded that ‘‘the volatile conditions the potential for insolvency was significant.’’ 86 The Interagency Silver of factors, including news of the Hunts’ in silver markets and the much higher problems in meeting margin calls, the price levels . . . affected the industrial Study described a cascade of undesirable events; efforts of the Hunts to sell positions in and commercial sectors of the economy various exchange-listed securities in to a greater extent than would have been Falling prices reduced the equity in the order to meet those calls, and the the case if silver price changes had been accounts of some large, net long silver futures actions of the SEC in suspending trading less turbulent.’’ 83 The Interagency positions, necessitating margin calls. in Bache Group stock, appeared to have Silver Study described several negative Responsibility for the financial obligations of a direct impact on the securities consequences of resource misallocations some of these positions had to be assumed 91 by FCMs when large margin calls went markets.’’ Commenters noted the that occurred during the silver price marked changes in the rate of inflation spike. unmet. A significant proportion of the loans to major silver longs, collateralized by silver, concomitant with the rapid rise and fall Significant changes took place in the had been made by some FCMs acting for their of the price of silver.92 Potential bank use of silver as an industrial input parent companies. A major portion of this during silver’s price oscillation in 1979– collateral was rehypothecated for bank loans 87 Id. at 135–6 (footnote omitted). 80. In the photography industry, the by these companies. The FCMs and their 88 See id. at 140–41. ‘‘Although the consumption of silver from the first parent companies were thus exposed to two clearinghouses have contingency plans to deal with insolvent members, to date these plans have quarter of 1979 to the first quarter of related problems that threatened them with covered only the collapse of small FCMs. 1980 fell by nearly one third. Similarly, insolvency—the losses on customer accounts Conceivably, a major default could result in the use of silver in the production of and the possibility that silver prices would assessments of members that might, in turn, result silverware declined by over one half in fall to a point which would cause the banks in the insolvency of some members and the collapse this period. In addition, numerous other to demand payment on the hypothecated of the exchange.’’ loans. . . . The FCM was not only vulnerable 89 Interagency Silver Study at 145. ‘‘Bank loans to uses of silver exhibited sharp usage major silver traders were made both directly and declines equivalent to or in excess of because of its customers’ losses on the futures contracts, but also because of the indirectly through FCMs. . . . Default on a major these examples. These sharp reductions portion of these loans could have had a significant in silver use are indicative of the general effect on the overall banking industry, but 84 Id. (footnotes omitted). James M. Stone, particularly on those banks where the loan disruption caused by the sharp rise in formerly Chairman of the Commission, maintained concentration was the greatest.’’ Testimony of silver prices. Since the demand for that the negative effects of the price spike on Philip McBride Johnson, Chairman, Commodity commercials were borne out in employment figures: Futures Trading Commission, Before the final cash settlement price from a survey of such ‘‘In the case of silver, the employment impacts fell Subcommittee on Conservation, Credit and Rural distorted cash market transaction prices. hardest upon the makers of consumer products. Development, Committee on Agriculture, U.S. Alternatively, for example, in the case of a trader According to the Department of Labor’s Bureau of House of Representatives, Oct. 1, 1981, at 19 who holds an extraordinarily large position in a Labor Statistics some 6000 jobs in the jewelry, (‘‘Johnson Testimony’’). cash-settled contract based on the final settlement silverware and plateware industries were lost 90 See Interagency Silver Study at 147–8. See also price of a physical-delivery futures contract, then a between November of 1979 and February of 1980.’’ Johnson Testimony at 18–21. trader has an incentive to mark the close of that Additional Comments on the Interagency Silver 91 Interagency Silver Study at 148. physical-delivery futures contract to benefit her Study at 9 (‘‘Stone Comments’’). 92 See Stone Comments at 9; Johnson Testimony position in the cash-settled contract. 85 Id. at 135. at 20. Contra Philip Cagan, ‘‘Financial Futures 83 Id. at 150. 86 Id. at 140. Continued

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failures, disruptions in other futures belief is based on the following There are two limitations to the data markets, disruptions in the securities assessment: used in this analysis. First, the month- markets and volatile inflation rates In order to approximate a single- end open interest data do not include would be additional burdens on month and all-months-combined limit open interest from the MidAmerica interstate commerce. In highlighting the calculated using a methodology similar Commodity Exchange. Second, the ability of market participants to to that proposed in this release 94 for month-end open interest numbers are accumulate extraordinarily large silver during this time period, the for a short time-period starting at the speculative positions, thereby Commission used data regarding month- end of August 1979. If the proposed rule demoralizing the silver markets to the end open contracts from the Interagency had been in place at the time of the injury of producers and consumers, the Silver Study.95 These month-end open Hunt brothers price spike, the limits entirety of the Hunt brothers silver interest reports are for all silver futures would have been calculated using data episode called into question the combined for the Chicago Board of from two years and would likely have adequacy of futures regulation generally Trade and the Commodity Exchange in used data from an earlier period which 96 and the integrity of the futures markets. New York. Table 1 shows the month- could have caused the limit levels to be The Commission believes that if end open interest for all silver futures different. However, the Commission Federal speculative position limits had combined from August 1979 to April believes that the calculated limits are a been in effect that correspond to the 1980. Using these numbers, the average fair approximation of the limits that limits that the Commission proposes month-end open interest for this period would have applied during this time now, across markets now subject to is 190,545 contracts, and applying the period. Moreover, for speculative Commission jurisdiction, such limits 10, 2.5 percent formula to this average would have prevented the Hunt brothers would result in single-month and all- position limits not to have constrained and their cohorts from accumulating months-combined limits of 6,700 the Hunts at the end of 1975 when their such large futures positions.93 Such contracts. The Hunts would have net position was reported as 15,876 large positions were associated with the exceeded this single-month limit in the contracts, the average total open interest sudden fluctuations in price shown in fall of 1979 when they and their cohorts for the time period would have had to Figures 1 and 2. These unwarranted held over 12,000 contracts for March be over 500,000 contracts (of 5,000 troy changes in price imposed an undue and delivery.97 In addition, the Hunts and ounces). Moreover, the average total unnecessary burden on interstate their cohorts held net positions in silver open interest would have had to be over commerce, as described in greater detail futures on COMEX and CBOT that 900,000 contracts (of 5,000 troy ounces) on the preceding pages. If the Hunt exceeded the calculated all-months- before the all-months-combined limit brothers had been prevented from combined limits on multiple occasions would have exceeded the maximum net accumulating such large futures between September 1975 and February position reported by the Interagency positions, they would not have been 1980 as is shown in Table 2. Hence, if Silver Study (24,722 for September 30, able to demand delivery on such large the proposed rule had been in place, it 1979). According to the Interagency futures positions. The Hunts therefore could have limited the size of the Silver Study, it was at this point that the would have been unable to hoard as positions held by the Hunts and their Hunts began acquiring large quantities much physical silver. The Commission’s cohorts as early as the autumn of 1975. of physical silver.98

TABLE 1—MONTH-END OPEN INTEREST FOR CHICAGO BOARD OF TRADE (CBOT) AND THE COMMODITY EXCHANGE (COMEX), AUGUST 1979 THROUGH APRIL 1980, ALL SILVER FUTURES COMBINED 99

CBOT open COMEX open Total open Date interest interest interest

8/31/1979 ...... 185,031 157,952 342,983 9/30/1979 ...... 161,154 167,723 328,877 10/31/1979 ...... 105,709 145,611 251,320 11/30/1979 ...... 98,009 134,207 232,216 12/31/1979 ...... 93,748 127,225 220,973 1/31/1980 ...... 49,675 77,778 127,453 2/29/1980 ...... 28,211 63,672 91,884 3/31/1980 ...... 24,336 48,688 73,024 4/30/1980 ...... 19,008 27,166 46,174

Markets: Is More Regulation Needed?,’’ I J. Futures Referenced Contracts in a commodity. The actual and the MidAmerica Commodity Exchange Markets 169, 181–82 (1981). position limit level will be set based on a formula: (‘‘MCE’’) in Chicago. At this time, the COMEX and 93 See also Speculative Position Limits, 45 FR 10 percent of the open interest for the first 25,000 CBOT contracts were each 5,000 troy ounces of contracts and 2.5 percent of the open interest 79831, 79833, Dec. 2, 1980 (‘‘Had limits on the silver, and MCE’s contract was 1,000 troy ounces. thereafter. The 10, 2.5 percent formula is identified Month-end open interest numbers were not amount of total open commitments which any in 17 CFR 150.5(c)(2). available for MCE. trader or group can own been in effect, such 95 Interagency Silver Study at 117. occurrences may have been prevented.’’). 97 See discussion below. 96 During the time of the events discussed, silver 94 The formula for the non-spot-month position bullion futures contracts traded in the United States 98 Interagency Silver Study at 104. limits is based on total open interest for all on the COMEX in New York, the CBOT in Chicago, 99 Id. at 117.

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TABLE 2—ESTIMATED OWNERSHIP OF SILVER BY HUNT RELATED ACCOUNTS [Contracts of 5,000 troy ounces] 100

Net futures Net futures Futures total Date COMEX CBOT (from table)

9/30/1975 ...... 6,917 4,560 11,077 12/31/1975 ...... 6,865 9,011 15,876 3/31/1976 ...... 6,092 5,324 11,416 6/30/1976 ...... 4,061 (920) 3,141 9/30/1976 ...... 3,890 578 4,468 12/31/1976 ...... 3,910 571 4,481 3/31/1977 ...... 3,288 259 3,547 6/30/1977 ...... 4,540 816 5,356 9/30/1977 ...... 5,277 1,518 6,795 12/31/1977 ...... 5,826 2,016 7,344 3/31/1978 ...... 6,459 2,224 8,683 6/30/1978 ...... 4,200 2,451 6,651 9/30/1978 ...... 2,481 3,047 5,528 12/31/1978 ...... 4,076 1,317 5,393 3/31/1979 ...... 6,655 1,699 8,354 5/31/1979 ...... 8,712 4,765 13,477 6/30/1979 ...... 9,442 3,846 13,288 7/31/1979 ...... 10,407 4,336 14,743 8/31/1979 ...... 14,941 8,700 23,641 9/30/1979 ...... 15,392 9,330 24,722 10/31/1979 ...... 11,395 7,444 18,839 11/30/1979 ...... 12,379 5,693 18,072 12/31/1979 ...... 13,806 5,921 19,727 1/31/1980 ...... 7,432 1,344 8,776 2/29/1980 ...... 6,993 789 7,782 4/2/1980 ...... 1,056 388 1,444

The Commission finds that if the Amaranth Advisors L.L.C. funds consider trades of a few hundred position limits suggested by this data (‘‘Amaranth’’) was a hedge fund that, contracts to be large trades. Amaranth were applied as early as 1975, the Hunts until its spectacular collapse in held as many as 100,000 natural gas would not have been able to accumulate September 2006, held ‘‘by far the largest futures contracts at once, representing or hold their excessively large futures positions of any single trader in the one trillion cubic feet of natural gas, or positions and thereby the limits would 2006 U.S. natural gas financial 5% of the natural gas used in the United have restricted their ability to cause the markets.’’ 102 Amaranth’s activities are a States in a year. At times, Amaranth price fluctuations and other harms classic example of the market power controlled up to 40% of all of the open described above. that often typifies excessive speculation. interest on NYMEX for the winter Position limits would help to ‘‘Market power’’ in this context means months (October 2006 through March diminish or prevent unreasonable the ability to move prices by exerting 2007). Amaranth accumulated such fluctuations or unwarranted changes in outsize influence on expectations of large positions and traded such large the price of a commodity, such as the supply and/or demand for a commodity. volumes of natural gas futures that it extreme price volatility in the 2006 Amaranth accumulated such large distorted market prices, widened price natural gas markets.101 speculative natural gas futures positions spreads, and increased price that it affected expectations of demand volatility.’’ 104 for physical natural gas and prices rose Natural gas is one of the main sources 100 Id. at 103. to levels not warranted by the otherwise of energy for the United States. The 101 For purposes of discussion, the following natural forces of supply and demand for price of natural gas has a pervasive section recounts certain findings about the 2006 103 natural gas markets by the staff of the Permanent the commodity. effect throughout the U.S. economy. In Subcommittee on Investigations of the United ‘‘Prior to its collapse, Amaranth general, ‘‘[b]ecause one of the major States Senate (the ‘‘Permanent Subcommittee’’). See dominated trading in the U.S. natural uses of natural gas is for home heating, generally Excessive Speculation in the Natural Gas gas market. . . . All but a few of the natural gas demand peaks in the winter Market, Staff Report with Additional Minority Staff Views, Permanent Subcommittee on Investigations, largest energy companies and hedge month and ebbs during the summer United States Senate, Released in Conjunction with months.’’ 105 During the summer the Permanent Subcommittee on Investigations, PressReleases/pr5359-07; Amaranth Entities months, when demand for physical June 25 & July 9, 2007 Hearings (‘‘Subcommittee Ordered to Pay a $7.5 Million Civil Fine in CFTC Report’’). Separately, the Commission, on July 25, Action Alleging Attempted Manipulation of Natural natural gas falls, the spot price of 2007, charged Amaranth Advisors LLC, Amaranth Gas Futures Prices, August 12, 2009, available at natural gas tends to fall, with the excess Advisors (Calgary) ULC and its former head energy http://www.cftc.gov/PressRoom/PressReleases/ physical supply being placed into trader, Brian Hunter, with attempted manipulation pr5692-09. The Commission enforcement action is underground storage reservoirs for in violation of the Commodity Exchange Act. The still pending against Brian Hunter. The discussion charges against the Amaranth entities were later herein of the natural gas events and Subcommittee future use. During the winter, when settled, with a fine of $7.5 million levied against Report shall not be construed to alter any demand for natural gas exceeds them in August of 2009. See U.S. Commodity statements by or positions of the Commission and production and the spot price tends to Futures Trading Commission Charges Hedge Fund its staff in the pending enforcement matter. increase, natural gas is removed from Amaranth and its Former Head Energy Trader, 102 Subcommittee Report at 67. Brian Hunter, with Attempted Manipulation of the 103 Amaranth was a pure speculator that, for Price of Natural Gas Futures, July 25, 2007, example, could neither make nor take delivery of 104 Subcommittee Report at 51–52. available at http://www.cftc.gov/PressRoom/ physical natural gas. 105 Subcommittee Report at 17.

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underground storage and is between the summer and winter (October 2006 through March 2007), consumed.106 contracts; rather they were the including as much as 75% of the Amaranth believed that winter natural predominant cause.’’ 110 outstanding contracts to deliver natural gas prices would be much higher than Events in the 2006 natural gas markets gas in November 2008.’’ 116 Position summer natural gas prices, demonstrate the burdens on interstate limits that would prevent the notwithstanding an abundant supply of commerce of extreme price volatility. accumulation of such overly large natural gas in 2006. Seeking to profit In section 4a(a)(1) of the CEA speculative positions in deferred from this view, Amaranth engaged in Congress causally links excessive commodity contracts would help to spread trading: it bought contracts for speculative positions with ‘‘sudden or prevent unreasonable fluctuations or future delivery of natural gas in months unreasonable fluctuations or unwarranted changes in the price of a where it thought prices would be unwarranted changes in the price of’’ commodity that may occur when a such commodities. The precipitous relatively higher and sold contracts for speculator must substantially reduce its decline in natural gas prices from late- future delivery of natural gas in months position within a short period of time to August 2006 until Amaranth’s collapse were it thought prices would be the extent the price of such commodity relatively lower.107 Amaranth primarily in September 2006 demonstrates that during the unwind period does not traded the January/November spread link. The Permanent Subcommittee reflect fundamental values.117 and the March/April spread, although it found that ‘‘[p]urchasers of natural gas Moreover, position limits would help to took positions in other near months. during the summer of 2006 for delivery prevent disruptions to market integrity When Amaranth bet that the spread in the following winter months paid caused by the corrosive perception that between the two contracts would inflated prices due to Amaranth’s increase, it would make money by speculative trading’’ and that ‘‘[m]any of a market is unfair or prices in a market selling out of the position or the these inflated costs were passed on to do not reflect the fundamental forces of equivalent underlying legs at a higher consumers, including residential users supply and demand as occurred during price than it paid. Amaranth’s positions who paid higher home heating bills.’’ 111 2006 in the natural gas markets. were extremely large.108 The Permanent Such inflated costs are clearly a burden Commodity markets where artificial Subcommittee found that ‘‘Amaranth’s on interstate commerce. In the words of volatility discourages participation are large positions and trades caused the Permanent Subcommittee, ‘‘[t]he less likely to produce ‘‘a market significant price movements in key Amaranth experience demonstrates how consensus on correct pricing.’’ 118 natural gas futures prices and price excessive speculation can distort prices Based on certain assumptions relationships.’’ 109 The Permanent of futures contracts that are many described below, the Commission Subcommittee also found that months from expiration, with serious believes that if Federal speculative ‘‘Amaranth’s trades were not the sole consequences for other market position limits had been in effect that cause of the increasing price spreads participants.’’ 112 The Permanent correspond to the limits that the Subcommittee findings support the Commission proposes now, across 106 See id. imposition of speculative position limits markets now subject to Commission 107 Amaranth sought to benefit from changes in outside the spot month. Commercial jurisdiction, such limits would have the price relationship between two linked contracts. participants in the 2006 natural gas For instance, if a trader is long the front month at prevented Amaranth from accumulating 10 and short the back month at 8, the spread is 2. markets were reluctant or unable to such large futures positions and thereby If the price of the front month contract rises to 11, hedge.113 Speculators withdrew restrict its ability to cause unwarranted the spread is 3 and the position has a gain. If the liquidity from a market viewed as price effects. Using non-public data price of the back month contract declines to 7, the artificially expensive.114 To relieve the spread is 3 and the position has a gain. If the price reported to the Commission under Part of the front month contract rises to 11 and the price burdens on interstate commerce posed 16 of the Commission’s regulations for of the back month contract declines to 7, the spread by positions as large as Amaranth’s, open interest 119 for natural gas is 4 and the position has a gain. But if the front Congress directed the Commission to set month contract falls to 8 and the back month contracts, the Commission calculated contract falls to 6, the spread does not change. position limits to, among other things, the single-month and all-months- 108 ‘‘Amaranth also held large positions in other ensure sufficient market liquidity for combined limits using the same 115 winter and summer months spanning the five-year bona fide hedgers. methodology as proposed in this release period from 2006–2010. In aggregate, Amaranth ‘‘Amaranth held as many as 100,000 for the period January 1, 2004 to amassed an extraordinarily large share of the total natural gas contracts in a single month, open interest on NYMEX. During the spring and December 31, 2005. The results of this summer of 2006, Amaranth controlled between 25 representing 1 trillion cubic feet of analysis are presented in Table 3 below, and 48% of the outstanding contracts (open natural gas, or 5% of the natural gas in which shows that the resulting single- interest) in all NYMEX natural gas futures contracts the entire United States in a year. At month and all-months combined limits for 2006; about 30% of the outstanding contracts times Amaranth controlled 40% of all of (open interest) in all NYMEX natural gas futures would have each been 40,900 contracts. contracts for 2007; between 25 and 40% of the the outstanding contracts on NYMEX for outstanding contracts (open interest) in all NYMEX natural gas in the winter season 116 Subcommittee Report at 2. natural gas futures contracts for 2008; between 20 117 This is because, among other things, the and 40% of the outstanding contracts (open 110 Id. at 68 (emphasis in original). speculator’s influence on expectations of demand is interest) in all NYMEX natural gas futures contracts 111 for 2009; and about 60% of the outstanding Id. at 6. reduced as the speculator is no longer willing and 112 contracts (open interest) in all NYMEX natural gas Id. at 4. able to hold such a large net position in futures futures contracts for 2010.’’ Subcommittee Report at 113 See id. at 114. contracts. 52. 114 See id. at 71–77. 118 Subcommittee Report at 119. 109 Subcommittee Report at 2. 115 7 U.S.C. 6a(a)(3)(B)(iv). 119 See 17 CFR 16.01.

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TABLE 3—OPEN INTEREST AND CALCULATED LIMITS FOR NYMEX NATURAL GAS JANUARY 1, 2004, TO DECEMBER 31, 2005

Open interest Open interest Limit Limit Core referenced futures contract Year (daily average) (month end) (daily average) (month end) Limit

NYMEX Natural Gas ...... 2004 851,763 839,330 23,200 22,900 40,900 2005 1,559,335 1,529,252 40,900 40,200 ......

Using non-public data reported to the positions that could potentially cause would have required that limits are Commission under Part 17 of the unreasonable price fluctuations even in necessary to prevent manipulation, Commission’s regulation for large trader the absence of manipulative conduct. corners or squeezes. Former positions,120 the Commission also As the above examples illustrate, Commission Chair Philip McBride calculated Amaranth’s positions 121 as position limits are vital tools to prevent Johnson told Congress that position they would be calculated under the the accumulation of speculative limits were ‘‘predicated on several proposed rule for the period January 1, positions that can enable market different sections of the Commodity 2005 to September 30, 2006. During this manipulation. But these examples also Exchange Act which pertain to orderly time, Amaranth’s net position would show that limits are necessary to markets and the terms ‘manipulation, have exceeded the limits for the single achieve a broader statutory purpose — corners or squeezes’ refer to only one month and for all-months-combined on to prevent price distortions that can class of market disruption which the multiple days, starting as early as June potentially occur due to excessively limits established under this rule are 2006. It is important to note that ICE did large speculative positions even in the intended to diminish or prevent. For not report market open interest for its absence of manipulative conduct. instance, CEA section 4a contains the swap contracts or for large traders to the The text of section 4a(a)(1) of the Act Congressional finding that excessive Commission during this time period, so itself establishes its broader purpose: It speculation in the futures markets can the Commission cannot exactly replicate authorizes limits as the Commission cause sudden or unreasonable the calculations in the proposed rule. finds are necessary to prevent price fluctuations or unwarranted changes in However, even if ICE had the same distortions that can potentially occur the price of commodities. Accordingly, amount of open interest in futures- due to excessive speculation (i.e. a requirement that the Commission equivalent terms as all of the NYMEX excessively large speculative positions), make the suggested finding concerning natural gas contracts listed in 2005,122 without regard to whether it is ‘manipulation, corners, or squeezes’ the calculated limit would be 79,900 manipulative.125 The Commission has prior to requiring a contract market to contracts. According to the long interpreted the provision as establish speculative limits could Subcommittee Report, Amaranth would authorizing limits to achieve this significantly restrict the application of have exceeded this limit at the end of broader purpose and it has long found the current rule and undermine its more July 2006 with its holding of 80,000 that limits are necessary to do so. comprehensive regulatory purpose of long contracts in the January 2007 For example, in the 1981 Rule preventing excessive speculation which delivery month.123 Moreover, the requiring exchanges to set limits for all arises from extraordinarily large Subcommittee Report also shows that commodities, noted above, the positions.’’ 128 Amaranth tended to trade in the same Commission found that ‘‘historical and Congress effectively ratified the direction for the same delivery month current reason for imposing position Commission’s interpretation in 1982. As on ICE and NYMEX. Hence, the limits on individual contracts is to it explained: ‘‘the Senate Committee Commission believes that had the prevent unreasonable fluctuations or decided to retain [CEA section] 4a proposed rule been in effect in 2006, unwarranted changes in the price of a language concerning the burden which Amaranth would not have been able to commodity which may occur by excess speculation places on interstate build such large positions in natural gas allowing any one trader or group of commerce. This was due to the futures and swaps and thereby limits traders acting in concert to hold Committee’s belief that speculative would have restricted Amaranth’s extraordinarily large futures limits, in addition to their role in ability to cause harmful price effects positions.’’ 126 In a 2010 rulemaking, the preventing manipulations, corners, or 124 that limits are intended to prevent. Commission stated that ‘‘[f]rom the squeezes, are also important regulatory Position limits would prevent the earliest days of federal regulation of the tools for preventing unreasonable accumulation of extraordinarily large futures markets, Congress made it clear fluctuations or unwarranted changes in that unchecked speculative positions, commodity prices that may arise even in 120 See 17 CFR 17.00. even without intent to manipulate the the absence of manipulation.’’ 129 121 Because the Commission’s calculations are market, can cause price disturbances. To based on non-public information, the results of this The Commission has long found and analysis may be different from calculations based protect markets from the adverse again finds, based on its experience, that on publicly available information, including consequences associated with large unchecked speculative positions can information contained in the Subcommittee Report. speculative positions, Congress potentially disrupt markets. In general, 122 Since the main natural gas swap contracts on expressly authorized the [Commission] ICE are one quarter of the size of the NYMEX Henry the larger a position held by a trader, the Hub Natural Gas Futures contract, this would mean to impose speculative position limits greater is the potential that the position that the open interest for natural gas contracts on prophylactically.’’ 127 may affect the price of the contract. The ICE would have to be four times the open interest The Commission reiterated this view Commission reaffirms that, ‘‘the for natural gas contracts on NYMEX. before Congress in 1982 in opposing capacity of any contract to absorb the 123 See Subcommittee Report at 79. industry amendments to the CEA that 124 According to the Subcommittee Report, Amaranth reduced its positions on NYMEX as 128 Futures Trading Act of 1982: Hearings on S. directed by NYMEX in August 2006, and at the 125 See 7 U.S.C. 6a(a)(1). 2109 before the S. Subcomm. on Agricultural same time, increased its corresponding positions on 126 46 FR 50938, 50939, Oct. 16, 1981. Research, 97th Cong. 44 (1982). ICE. See Subcommittee Report at 97–98. 127 75 FR 4144, 4145–46, Jan. 26, 2010. 129 S. Rep. 97–384 at 45 (1982).

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establishment and liquidation of large ineffective; still others assert that determined that while speculation may speculative positions in an orderly imposing speculative position limits not cause a price movement, such manner is related to the relative size of will be harmful. There is a demonstrable activity may increase price pressures, such positions, i.e., the capacity of the lack of consensus in the studies. thereby exacerbating the price market is not unlimited.’’ 130 When Many of the studies were focused on movement.138 positions exceed the capacity of markets the impact of speculative activity in Several studies did generally address to absorb and liquidate them, futures markets, e.g., how the behavior the concept of position limits as part of unreasonable price fluctuations and of non-commercial traders affected price their discussion of speculative activity. volatility can potentially occur. ‘‘[B]y levels. Such studies did not provide a The authors of some of these works limiting the ability of one person or view on position limits in general or on expressed views that speculative group to obtain extraordinarily large the Commission’s implementation of position limits were an important positions, speculative limits diminish position limits in particular. Some regulatory tool and that the CFTC the possibility of accentuating price studies have found little or no evidence should implement limits to control swings if large positions must be of excessive speculation unduly moving excessive speculation.139 For example, liquidated abruptly in the face of prices,135 while others conclude there is adverse price movements or for other significant evidence of the impact of strategies that move prices and increase volatility. reasons.’’ 131 As former Commission speculation in commodity markets.136 Brunetti, Celso and Buyuksahin, Bahattin, ‘‘Is Speculation Destabilizing?,’’ April 22, 2009, at 4, Chair McBride Johnson explained to Even studies that questioned whether 22–23; see also Irwin, et al., ‘‘The Performance of Congress regarding the silver crisis: ‘‘It speculation affects prices were often CBOT Corn, Soybean, and Wheat Futures Contracts seems clear from the silver crisis that equivocal.137 Still other studies have after Recent Changes in Speculative Limits,’’ July the orderly imposition of speculative 29, 2007, at 1, 6 (concluding that there was ‘‘no large change in’’ price volatility after speculative 135 See, e.g., Harris, Jeffrey and Buyuksahin, limits before a crisis develops is one of limits were increased, but cautioning that ‘‘[w]ith Bahattin, ‘‘The Role of Speculators in the Crude Oil the more promising means of solving limited observations available for the period Futures Market,’’ June 16, 2009, at 2, 19 (‘‘We find 132 following the change in speculative limits . . . , such difficulties in the future . . . .’’ that the changing net positions of no specific trader conclusions about the impact on volatility are This statement is equally true of the groups lead to price changes . . . .’’ and ‘‘we fail tentative. Additional observations will be required to find the causality from these [speculative] natural gas events of 2006. Had the Hunt across varying scenarios of supply, demand, and traders’ positions to prices.’’); Byun, Sungje, brothers and Amaranth been prevented price level, to have full confidence in the ‘‘Speculation in Commodity Futures Market, conclusions.’’) (emphasis added); Parsons, John E., from amassing extraordinarily large Inventories and the Price of Crude Oil,’’ January 17, ‘‘Black Gold & Fool’s Gold: Speculation in the Oil speculative positions in the first place, 2013, at 3, 33 (noting that ‘‘ . . . evidence among Futures Market,’’ September 1, 2009, at 108 researchers is inconsistent’’ but that ‘‘we conclude their ability to cause unwarranted price (position limits will not prevent asset bubbles from there does not exist sufficient evidence on the fluctuations and volatility and other forming, but they are ‘‘necessary to insure the potential contribution of financial investors in the integrity of the market’’). harmful market effects attributable to crude oil market.’’); Irwin, Scott H.; Sanders, 138 See, e.g., Hamilton, James D., ‘‘Causes and such positions would have been Dwight R.; and Merrin, Robert P., ‘‘Devil or Angel: Consequences of the Oil Shock of 2007–08,’’ April The Role of Speculation in the Recent Commodity restricted. 1, 2009, at 258 (Hamilton raises ‘‘the possibility that Price Boom,’’ August 1, 2009, at 17 (‘‘There is little The Commission requests comment miscalculation of the long-run price elasticity of oil evidence that the recent boom and bust in on all aspects of this section. demand . . . was one factor in the oil shock of commodity prices was driven by a speculative 2007–2008, and that speculative investing in oil bubble . . . Economic fundamentals, as usual, Studies and Reports futures may have contributed to that provide a better explanation for the movements in miscalculation.’’); Juvenal, Luciana and Petrella, commodity prices.’’). In addition to those cited previously, Ivan, ‘‘Speculation in the Oil Market,’’ June 1, 2012, 136 the Commission has reviewed and See, e.g., Singleton, Kenneth J., ‘‘Investor (‘‘While global demand shocks account for the evaluated additional studies and reports Flows and the 2008 Boom/Bust in Oil Prices,’’ largest share of oil price fluctuations, speculative March 23, 2011, at 2–3 (Singleton presents shocks are the second most important driver.’’). (collectively, ‘‘studies’’) about various ‘‘ . . . new evidence that . . . there were issues relating to position limits. A list 139 See, e.g., Greenberger, Michael, ‘‘The economically and statistically significant effects of Relationship of Unregulated Excessive Speculation of studies that the Commission has investor flows on futures prices.’’); Tang, Ke and to Oil Market Price Volatility,’’ January 1, 2010, at reviewed is in appendix A to this Xiong, Wei, ‘‘Index Investment and Financialization 11 (On position limits: ‘‘The damage price volatility of Commodities,’’ November 1, 2012, at 72 (‘‘As a causes the economy by needlessly inflating energy preamble. result of the financialization process, the price of Some studies discuss whether or not and food prices worldwide far outweighs the an individual commodity is no longer determined concerns about the precise application of what for excessive speculation exists, the solely by its supply and demand. Instead, prices are over 70 years has been the historic regulatory definition of excessive speculation, and/ also determined by the aggregate risk appetite for technique for controlling excessive speculation in or whether excessive speculation has a financial assets and the investment behavior of risk-shifting derivative markets.’’.); Khan, Mohsin diversified commodity index investors.’’); Manera, S., ‘‘The 2008 Oil Price ‘‘Bubble’’,’’ August 2009, at negative impact on derivatives Matteo, Nicolini, Marcella, and Vignati, Ilaria, 133 8 (‘‘The policies being considered by the CFTC to markets. Those studies that do ‘‘Futures Price Volatility in Commodities Markets: put aggregate position limits on futures contracts generally discuss the impact of position The Role of Short-Term vs Long-Term and to increase the transparency of futures markets limits do not address or provide Speculation,’’ April 1, 2013, at 15 (‘‘We find that are moves in the right direction.’’); U.S. Senate speculation significantly affects the volatility of analysis of how the Commission should Permanent Subcommittee on Investigations, returns, although in contrasting ways. The scalping ‘‘Excessive Speculation in the Wheat Market,’’ June specifically implement position limits index has a positive and significant coefficient in 2009, at 12 (‘‘The activities of these index traders under section 4a of the CEA.134 Some the variance equation, suggesting that short term constitute the type of excessive speculation the studies may be read to support the speculation has a positive impact on volatility.’’). CFTC should diminish or prevent through the 137 Compare Technical Committee of the imposition and enforcement of position limits as imposition of Federal speculative International Organization of Securities intended by the Commodity Exchange Act.’’); U.S. position limits; others suggest that Commissions, Task for on Commodity Futures Senate Permanent Subcommittee on Investigations, speculative position limits will be Markets Final Report, March 1, 2009, at 3 ‘‘Excessive Speculation in the Natural Gas Market,’’ (‘‘economic fundamentals, rather than speculative June 25, 2007, at 8 (The Subcommittee activity, are a plausible explanation for recent price recommended that Congress give the CFTC 130 46 FR 50938, Oct. 16, 1981 (adopting then changes in commodities’’) with id. at 8 (‘‘short term authority over ECMs, noting that ‘‘[to] ensure fair § 1.61 (now part of § 150.5)). expectations can be influenced by sentiment and energy pricing, it is time to put the cop back on the 131 45 FR at 79833. investor behavior, which can amplify short-term beat in all U.S. energy commodity markets.’’); 132 Futures Trading Act of 1982: Hearings on S. price fluctuations, as in other asset markets’’). United Nations Conference on Trade and 2109 before the S. Subcomm. on Agricultural Another study opining that speculative activity in Development, ‘‘The Global Economic Crisis: Research, 97th Cong. 44 (1982). general may reduce volatility nevertheless Systemic Failures and Multilateral Remedies,’’ 133 76 FR at 71663. conceded that the authors could not rule out the March 1, 2009, at 14, (The UNCTAD recommends 134 Id. at 71664. possibility that a single trader might implement that ‘‘ . . . regulators should be enabled to

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one author opined that ‘‘ . . . strict Another study noted that while position Studies that militate against imposing position limits should be placed on limits are effective as an anti- any speculative position limits appear individual holdings, such that they are manipulation measure, they will not to conflict with the Congressional not manipulative.’’ 140 Another stated, prevent asset bubbles from forming or mandate (discussed above) that the ‘‘[s]peculative position limits worked stop them from bursting.145 A study Commission impose limits on futures well for over 50 years and carry no cautioned that while limits may be contracts, options, and certain swaps for unintended consequences. If Congress effective in preventing manipulation, agricultural and exempt commodities. takes these actions, then the speculative they should be set at an optimal level so Such studies also appear to conflict money that flowed into these markets as to not harm the affected markets.146 with Congress’ determination, codified will be forced to flow out, and with that Another study claimed that position in CEA section 4a(a)(1), that position the price of commodities futures will limits should be administered by DCMs, limits are an effective tool to address come down substantially. Until as those entities are closest to and most excessive speculation as a cause of speculative position limits are restored, familiar with the intricacies of markets sudden or unreasonable fluctuations or investor money will continue to flow and thus can implement the most unwarranted changes in the price of unimpeded into the commodities efficient position limits policy.147 such commodities.150 futures markets and the upward Another study suggested eliminating In any case, these studies overall pressure on prices will remain.’’ 141 The position limits, arguing that increasing show a lack of consensus regarding the authors of one study claimed that ex-post penalties for manipulation impact of speculation on commodity ‘‘[r]ules for speculative position limits would be more effective at deterring markets and the effectiveness of were historically much stricter than manipulative behavior.148 One study position limits. While there is not a they are today. Moreover, despite noted the similar efforts under consensus, the fact that there are studies rhetoric that imposing stricter limits discussion in European markets.149 on both sides, in the Commission’s would harm market liquidity, there is view, warrants erring on the side of no evidence to support such claims, in speculative limits has had a meaningful overall caution. In light of the Commission’s especially in light of the fact that the impact on price volatility to date.’’). experience with position limits, and its market was functioning very well prior 145 Parsons, John E., ‘‘Black Gold & Fool’s Gold: interpretation of congressional intent, it Speculation in the Oil Futures Market,’’ September to 2000, when speculative limits were 1, 2009, at 30 (‘‘Restoring position limits on all is the Commission’s judgment that tighter.’’ 142 nonhedgers, including swap dealers, is a useful position limits should be implemented Not all of the reviewed studies viewed reform that gives regulators the powers necessary to as a prophylactic measure, to protect position limits in a positive light. One ensure the integrity of the market. Although this against the potential for undue price reform is useful, it will not prevent another study claimed that position limits will speculative bubble in oil. The general purpose of fluctuations and other burdens on 143 not restrain manipulation, while speculative limits is to constrain manipulation . . . commerce that in some cases have been another argued that position limits in Position limits, while useful, will not be useful at least in part attributable to excessive the agricultural commodities have not against an asset bubble. That is really more of a speculation. 144 macroeconomic problem, and it is not readily In this regard, the Commission has significantly affected volatility. managed with microeconomic levers at the individual exchange level.’’). found two studies of actual market intervene when swap dealer positions exceed 146 Wray, Randall, ‘‘The Commodities Market events to be helpful and persuasive in speculative position limits and may represent Bubble: Money Manager Capitalism and the making its alternative necessity ‘excessive speculation’.); United Nations Financialization of Commodities,’’ October 1, 2008, finding.151 The first is the inter-agency Conference on Trade and Development, ‘‘The at 41, 43 (‘‘While the participation of traditional report on the silver crisis.152 This Financialization of Commodity Markets,’’ July 1, speculators offers clear benefits, position limits 2009, at 26 (The report recommends tighter must be carefully administered to ensure that their report, by a joint task force of the staffs restrictions, notably closing loopholes that allow activities do not ‘‘demoralize’’ markets. . . . The of the Commission, the Board of potentially harmful speculative activity to surpass CFTC must re-establish and enforce position Governors of the Federal Reserve position limits.). limits.’’). System, the Department of the Treasury 140 de Schutter, Olivier, ‘‘Food Commodities 147 CME Group, Inc., ‘‘Excessive Speculation and Speculation and Food Price Crises,’’ September 1, Position Limits in Energy Derivatives Markets,’’ and the Securities and Exchange 2010, United Nations Special Report on the Right CME Group White Paper, at 6 (‘‘Indeed, as the Commission, provides an in-depth to Food, at 8. Commission has previously noted, the exchanges description and analysis of the silver 141 Masters, Michael and White, Adam, ‘‘The have the expertise and are in the best position to crisis, the Hunt brothers’ build-up of Accidental Hunt Brothers: How Institutional fix position limits for their contracts. In fact, this massive positions, the manipulative Investors are Driving up Food and Energy Prices,’’ determination led the Commission to delegate to July 31, 2008, at 3. the exchanges authority to set position limits in 142 Medlock, Kenneth and Myers Jaffe, Amy, non-enumerated commodities, in the first instances, Commission to consider rules relating to the ‘‘Who is In the Oil Futures Market and How Has almost 30 years ago.’’) (available at http:// banning of purely speculative trading in It Changed?,’’ August 26, 2009, Baker Institute for www.cmegroup.com/company/files/ commodities and agricultural products, and the Public Policy, at 8. PositionLimitsWhitePaper.pdf). imposition of strict position limits especially with 143 Ebrahim, Muhammed and Rhys ap Gwilym, 148 Pirrong, Craig, ‘‘Squeezes, Corpses, and the regard to their possible impact on the price of ‘‘Can Position Limits Restrain Rogue Traders?,’’ Anti-Manipulation Provisions of the Commodity essential food commodities in developing countries March 1, 2013, Journal of Banking & Finance, at 27 Exchange Act,’’ October 1, 1994, at 2 (‘‘The and greenhouse gas emission allowances.’’). (‘‘. . . binding constraints have an unintentional efficiency of futures markets would be improved, 150 7 U.S.C. 6a(a)(1)–(2). effect. That is, they lead to a degradation of the and perhaps substantially so, by eliminating 151 Another study of actual market events equilibria and augmenting market power of position limits . . . and relying upon revitalized, analyzed position limits in the context of the ‘‘Flash Speculator in addition to other agents. We therefore harm-based sanctions to deter market Crash’’ of May 6, 2010. While this study concluded conclude that position limits are not helpful in manipulation.’’). that position limits would not have prevented the curbing market manipulation. Instead of curtailing 149 European Commission, ‘‘Review of the crash, and that price limits were more effective, it price swings, they could exacerbate them.’’). Markets in Financial Instruments Directive,’’ measured the impacts of potential limits on certain 144 Irwin, Scott H.; Garcia, Philip; and Good, December 1, 2010, at 82 note 282 (‘‘European financial contracts not implicated in the instant Darrel L., ‘‘The Performance of CBOT Corn, Parliament . . . calls on the Commission to develop rulemaking. Lee, Bernard; Cheng, Shih-Fen; and Soybean, and Wheat Futures Contracts after Recent measures to ensure that regulators are able to set Koh, Annie, ‘‘Would Position Limits Have Made Changes in Speculative Limits,’’ July 29, 2007, at 16 position limits to counter disproportionate price any Difference to the ’Flash Crash’ on May 6, 2010,’’ (‘‘The analysis of price volatility revealed no large movements and speculative bubbles, as well as to November 1, 2010, at 37. change in measures of volatility after the change in investigate the use of position limits as a dynamic 152 U.S Commodity Futures Trading Commission, speculative limits. A relatively small number of tool to combat market manipulation, most ‘‘Part Two, A Study of the Silver Market,’’ May 29, observations are available since the change was particularly at the point when a contract is 1981, Report to The Congress in Response to made, but there is little to suggest that the change approaching expiry. It also requests the Section 21 of The Commodity Exchange Act.

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conduct that those massive positions the definition of bona fide hedging from contract, whether at par, a fixed enabled, the resulting extreme price § 1.3(z) into part 150, and to amend and discount to par, or a premium to par; volatility, and consequent harms to the update it. Moreover, the Commission and (2) the price, at a different delivery economy. The second is the PSI Report proposes to delete the definition for location or pricing point than that of the on Excessive Speculation in the Natural ‘‘the first delivery month of the ‘crop same particular core referenced futures Gas market.153 As a Congressional year.’ ’’ The Commission notes that contract, directly or indirectly, of: (a) A report issued following hearings, it is several terms that are not currently in commodity deliverable on the same more helpful and persuasive than part 150 are not included in the current particular core referenced futures academic and other studies in rulemaking proposal even though contract, whether at par, a fixed indicating how Congress views limits as definitions for those terms were adopted discount to par, or a premium to par; or necessary to prevent the adverse effects in vacated part 151. The Commission (b) a commodity that is listed in of excessively large speculative does not view definition of these terms appendix B to this part as substantially positions. The PSI Report is also more as necessary for clarity in light of other the same as a commodity underlying the helpful because it thoroughly studied revisions proposed herein. The terms same core referenced futures contract.’’ actual market events involving a vital not currently proposed include The Commission notes that the energy commodity, natural gas, ‘‘swaption’’ and ‘‘trader.’’ 155 Separately, proposal excludes intercommodity examined how Amaranth’s buildup of the Commission is making a non- spread contracts, calendar spread massive speculative positions by itself substantive change to list the definitions contracts, and basis contracts from the created a risk of market harms, in alphabetical order rather than by use definition of ‘‘commodity index documented how Amaranth sought to of assigned letters. This last change will contract.’’ avoid existing limits, and analyzed how be helpful when looking for a particular The Commission is proposing its ability to do so was a cause of the definition, both in the near future, in appendix B to this part, Commodities attendant extreme price volatility light of the additional definitions Listed as Substantially the Same for documented in the report. proposed to be adopted, and in the Purposes of the Definition of Basis The Commission requests comment expectation that future rulemakings may Contract. The Commission proposes to on its discussion of studies and reports. adopt additional definitions. expand the definition of basis contract to include contracts cash-settled on the It also invites commenters to advise the a. Basis Contract Commission of any additional studies difference in prices of two different, but that the Commission should consider, While the term ‘‘basis contract’’ is not economically closely related defined in current § 150.1, a definition and why. commodities. The basis contract was adopted in vacated § 151.1. The definition in vacated part 151 targeted B. Proposed Rules definition adopted in § 151.1 defined the location differential. Now the basis contract as ‘‘an agreement, Commission is proposing a basis 1. Section 150.1—Definitions contract or transaction that is cash- contract definition that would expand to i. Various Definitions Found in § 150.1 settled based on the difference in price include certain quality differentials The Commission proposes to amend of the same commodity (or substantially (e.g., RBOB vs. 87 unleaded).157 The the definitions of ‘‘futures-equivalent,’’ the same commodity) at different intent of the expanded definition is to ‘‘independent account controller,’’ delivery locations.’’ When it adopted reduce the potential for excessive ‘‘long position,’’ ‘‘short position,’’ and part 151, the Commission noted that a speculation in referenced contracts ‘‘spot month’’ found in § 150.1 of its swap based on the difference in price of where, for example, a speculator regulations to conform them to the a commodity (or substantially the same establishes a large outright directional concepts and terminology of the CEA, as commodity) at different delivery position in referenced contracts and amended by the Dodd-Frank Act.154 The locations was a ‘‘basis contract and nets down that directional position with therefore not subject to the limits a contract based on the difference in Commission also is proposing to add to 156 § 150.1, definitions for ‘‘basis contract,’’ adopted therein. price of the commodity underlying the Under the proposal, the definition for ‘‘calendar spread contract,’’ referenced contracts and a close ‘‘basis contract’’ adopted in § 150.1 ‘‘commodity derivative contract,’’ economic substitute that was not would expand upon the definition of ‘‘commodity index contract,’’ ‘‘core deliverable on the core referenced basis contract adopted in vacated part referenced futures contract,’’ ‘‘eligible futures contract. In the absence of this 151, by defining basis contract to mean affiliate,’’ ‘‘entity,’’ ‘‘excluded expanded definition, the speculator ‘‘a commodity derivative contract that is commodity,’’ ‘‘intercommodity spread could then increase further the large cash-settled based on the difference in: contract,’’ ‘‘intermarket spread position in the referenced contracts. By (1) The price, directly or indirectly, of: way of comparison, the Commission positions,’’ ‘‘intramarket spread (a) A particular core referenced futures preliminarily believes there is greater positions,’’ ‘‘physical commodity,’’ contract; or (b) a commodity deliverable concern that (i) someone may ‘‘pre-enactment swap,’’ ‘‘pre-existing on a particular core referenced futures manipulate the markets by disguise of a position,’’ ‘‘referenced contract,’’ directional exposure through netting ‘‘spread contract,’’ ‘‘speculative position 155 ‘‘Swaption’’ was defined in vacated part 151 down the directional exposure using limit,’’ ‘‘swap,’’ ‘‘swap dealer’’ and to mean ‘‘an option to enter into a swap or a one of the legs of a quality differential ‘‘transition period swap.’’ In addition, physical commodity option.’’ ‘‘Trader’’ was defined (if that quality differential contract were the Commission is proposing to move in vacated part 151 to mean ‘‘a person that, for its own account or for an account that it controls, not exempted) than (ii) that someone makes transactions in Referenced Contracts or has may use certain quality differential 153 U.S. Senate Permanent Subcommittee on such transactions made.’’ The Commission notes Investigations, ‘‘Excessive Speculation in the that while vacated part 151 and several places in contracts that were exempted from Natural Gas Market,’’ June 25, 2007. current part 150 use the term ‘‘trader,’’ the term position limits to manipulate the 154 In a separate proposal approved on the same ‘‘person’’ is currently used in both § 1.3(z) and in date as this proposal, the Commission is proposing other places in part 150. The amendments in both 157 The expanded basis contract definition is not amendments to § 150.4—aggregation of positions the Aggregation NPRM and this NPRM use the term intended to include significant time differentials in (‘‘Aggregation NPRM’’) (Nov. 5, 2013), including ‘‘person’’ in a manner consistent with its current prices of the two commodities (e.g., the expanded amendments to the definitions of ‘‘eligible entity’’ use in part 150. basis contract definition would not include and ‘‘independent account controller.’’ 156 76 FR 71626, 71631 (n. 49), Nov. 18, 2011. calendar spreads for nearby vs. deferred contracts).

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outright price of a referenced contract. c. Commodity Index Contract of the provision, the definition of Historically, manipulation has occurred The term ‘‘commodity index contract’’ ‘‘commodity index contract’’ proposed though use of outright positions (as in is not currently defined in § 150.1; a in 150.1 mirrors that of the definition in the case of the Hunt brothers) or time definition for the term was adopted in 151.1, but with no anti-evasion proviso. spreads (Amaranth, for example, used vacated part 151.159 Under the Instead, an anti-evasion provision, calendar month spreads), rather than definition adopted in § 151.1, while similar to that contained in quality or locational differentials. commodity index contract means ‘‘an § 151.1, is included in proposed The Commission seeks comment on agreement, contract, or transaction that § 150.2(h).164 alternatives to the specification of is not a basis or any type of spread As in vacated part 151, and as noted quality standards for substantially the contract, based on an index comprised above, the definition of ‘‘referenced same commodity, such as a of prices of commodities that are not the contract’’ proposed in the current methodology to identify and define same or substantially the same; rulemaking also expressly excludes which differential contracts should be provided that, a commodity index commodity index contracts. However, excluded from position limits. (i) contract used to circumvent speculative as the Commission noted in the final Should the Commission expand the position limits shall be considered to be part 151 Rulemaking, part 20 of the definition of basis contract to include a Referenced Contract for the purpose of Commission’s regulations requires any commodity priced at a differential applying the position limits of reporting entities to report commodity to any of its products and by-products? § 151.4.’’ 160 reference price data sufficient to For example, should a basis contract The Commission noted in the vacated distinguish between commodity index include a soybean crush spread contract part 151 final rulemaking that the contract and non-commodity index or a crude oil crack spread contract, definition of ‘‘Referenced Contract’’ in contract positions in covered regardless of the number of § 151.1 expressly excluded commodity contracts.165 Therefore, for commodity components? (ii) Should the index contracts.161 The Commission index contracts, the Commission Commission expand the definition of also noted that ‘‘if a swap is based on intends to rely on the data elements in basis contract to include a product or prices of multiple different commodities § 20.4(b) to distinguish data records by-product of a particular commodity, comprising an index, it is a ‘commodity subject to § 150.2 position limits from priced at a differential to another index contract.’ ’’ 162 As the preamble those contracts that are excluded from product or by-product of that same pointed out, it would not, therefore, be § 150.2. This will enable the commodity? For example, should the subject to position limits.163 Commission to set position limits using basis contract definition include a The Commission proposes in the the narrower data set (i.e., referenced contract based on jet fuel priced at a current rulemaking to add into § 150.1 contracts subject to § 150.2 position differential to heating oil? Jet fuel and substantially the same definition for limits) as well as conduct surveillance heating oil are both products of the ‘‘commodity index contract’’ as was using the broader data set. same commodity, namely crude oil. (iii) adopted in vacated § 151.1, with one Should the Commission expand the change. The proviso included in § 151.1, d. Core Referenced Futures Contract definition of basis contract for a which required treatment of a position While current part 150 does not particular commodity to include other in a commodity index contract as a contain a definition of the term ‘‘core similar commodities? For example, Referenced Contract if the contract was referenced futures contracts,’’ a should the basis contract definition used to circumvent speculative position definition for the term was adopted in include a contract based on the limits, acted in the § 151.1 definition as vacated § 151.1 as a simple short-hand difference in prices of light sweet crude an anti-evasion provision, a substantive phrase to denote certain futures oil and a sour crude oil that is not regulatory requirement. Consequently, contracts, regarding which several deliverable on the WTI contract? to provide greater clarity as to the effect position limit rules were then applied. b. Commodity Derivative Contract The definition adopted in § 151.1 ‘‘bona fide hedging position,’’ ‘‘inter-market spread provided that a core referenced futures The Commission proposes in position,’’ ‘‘intra-market spread position,’’ ‘‘pre- contract was ‘‘a futures contract defined § 150.1(l) to define the term existing position,’’ ‘‘speculative position limits,’’ and ‘‘spot month’’), §§ 150.2(f)(2), 150.3(d), in § 151.2’’; section 151.2 provided a list ‘‘commodity derivative contract’’ for 150.3(h), 150.5(a), 150.5(b), 150.5(e), 150.7(d), of 28 physical commodity futures and position limits purposes as shorthand 150.7(f), appendix A to part 150, and appendix C option contracts.166 for any futures, option, or swap contract to part 150. The Commission proposes to include in a commodity (other than a security 159 76 FR at 71685. 160 in § 150.1 the same definition as was futures product as defined in CEA See id. adopted in vacated § 151.1—such that section 1a(45)). Part 150 refers only to 161 Id. at 71656. 162 Id. at 71631 n.49. the definition would cite to futures futures and options, while vacated part 167 163 Id. The Commission clarifies here, that, as was contracts listed in § 151.2. 151 was drafted without the use of any noted in the vacated part 151 Rulemaking, if a swap similar concise phrase. It was is based on the difference between two prices of e. Eligible Affiliate determined during the process of two different commodities, with one linked to a The term ‘‘eligible affiliate,’’ used in core referenced futures contract price (and the other updating part 150 that the use of such either not linked to the price of a core referenced proposed § 150.2(c)(2), is not defined in a generic term would be a useful way to futures contract or linked to the price of a different current § 150.1. The Commission streamline and simplify references in core referenced futures contract), then the swap is proposes to amend § 150.1 to define an part 150 to the various kinds of an ‘‘intercommodity spread contract,’’ is not a commodity index contract, and is a Referenced 164 contracts to which the position limits Contract subject to the position limits specified in See discussion below. regime applies. As such, this new § 150.2. The Commission further clarifies that, again 165 76 FR at 71632. definition can be found frequently as was noted in the vacated part 151 Rulemaking, 166 The Commission clarified in adopting § 151.2, a contract based on the prices of a referenced that core referenced futures contracts included throughout the Commission’s proposed options that expire into outright positions in such 158 contract and the same or substantially the same amendments to part 150. commodity (and not based on the difference contracts. See 76 FR at 71631. between such prices) is not a commodity index 167 The selection of the core referenced futures 158 See, e.g., proposed amendments to § 150.1 (the contract and is a referenced contract subject to contracts is explained in the discussion of proposed definitions of: ‘‘basis contract,’’ the definition of position limits specified in § 150.2. See id. § 150.2. See discussion below.

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‘‘eligible affiliate’’ as ‘‘an entity with financial results of such entity. In tool in addressing the same provisions, respect to which another person: (1) addition, for purposes of the position and so proposes to adopt into § 150.1 Directly or indirectly holds either: (i) A limits regime, an eligible affiliate, as the definition used in § 151.1.174 majority of the equity securities of such proposed in § 150.1, must be required to h. First Delivery Month of the Crop Year entity, or (ii) the right to receive upon aggregate the positions of such entity dissolution of, or the contribution of, a under § 150.4 and does not claim an The term ‘‘first delivery month of the majority of the capital of such entity; (2) exemption from aggregation for such crop year’’ is currently defined in reports its financial statements on a entity.170 § 150.1(c), with a table of the first consolidated basis under Generally The Commission requests comment delivery month of the crop year for the Accepted Accounting Principles or on the proposed definition. Is the commodities for which position limits International Financial Reporting definition an appropriate one for are currently provided in § 150.2. The Standards, and such consolidated purposes of the position limits regime? crop year definition has been pertinent financial statements include the Should the Commission consider for purposes of the spread exemption to financial results of such entity; and (3) adopting a definition that more closely the single month limit in current is required to aggregate the positions of tracks the ‘‘eligible affiliate § 150.3(a)(3), which limits spread such entity under § 150.4 and does not counterparties’’ definition adopted in positions in a single month to a level no claim an exemption from aggregation for § 50.52 or is the difference appropriate more than that of the all-months limit. such entity.’’ 168 in light of the differing regulatory The Commission did not adopt this The definition of ‘‘eligible affiliate’’ purposes of the two regulations? definition in vacated part 151.175 In the proposed in the current NPRM qualifies current proposal, the Commission f. Entity persons as eligible affiliates based on proposes to amend § 150.1 to delete the requirements similar to those recently The current proposal defines ‘‘entity’’ definition of ‘‘crop year.’’ The adopted by the Commission in a to mean ‘‘a ‘person’ as defined in elimination of the definition reflects the separate rulemaking. On April 1, 2013, section 1a of the Act.’’ 171 The term is fact that the definition is no longer the Commission provided relief from not defined in either current § 150.1, but needed, since the current proposal, like the mandatory clearing requirement of was defined in vacated § 151.1; the the approach adopted in part 151, section 2(h)(1)(A) of the Act for certain language proposed here tracks that would raise the level of individual affiliated persons if the affiliated adopted in § 151.1. The term ‘‘entity,’’ month limits to the level of the all- persons (‘‘eligible affiliate like that of ‘‘person,’’ is used in a month limits. number of contexts, and in various counterparties’’) meet requirements i. Futures Equivalent contained in § 50.52.169 Under both definitions. Defining the term, therefore, § 50.52 and the current proposed provides a clear and unambiguous The term ‘‘futures-equivalent’’ is definition, a person is an eligible meaning, and prevents confusion. currently defined in § 150.1(f) to mean ‘‘an option contract which has been affiliate if the person, directly or g. Excluded Commodity indirectly, holds a majority ownership adjusted by the previous day’s risk interest in the other counterparty (a The phrase ‘‘excluded commodity’’ factor, or delta coefficient, for that majority of the equity securities of such was added into the CEA in the CFMA, option which has been calculated at the entity, or the right to receive upon but was not defined or used in part 150. close of trading and published by the dissolution of, or the contribution of, a CEA section 4a(a)(2)(A), as amended by applicable exchange under § 16.01 of majority of the capital of such entity), the Dodd-Frank Act, utilizes the phrase this chapter.’’ 176 The Commission reports its financial statements on a ‘‘excluded commodity’’ when it proposes to retain the definition consolidated basis under Generally provides a timeline under which the currently found in § 150.1(f), while Accepted Accounting Principles or Commission is charged with setting broadening it in light of the Dodd-Frank International Financial Reporting limits for futures and option contracts Act amendments to CEA section 4a.177 172 Standards, and such consolidated other than on excluded commodities. The proposed amendments would also financial statements include the Part 151 included in the definition delete, as unnecessary, the reference to section of vacated § 151.1, a definition § 16.01 found in the current definition. 168 See proposed § 150.1. which simply incorporated into part 151 As proposed, ‘‘futures equivalent’’ 169 See Clearing Exemption for Swaps Between the statutory meaning, as a useful term would be defined in § 150.1 as ‘‘(1) An Certain Affiliated Entities, 78 FR 21749, 21783, Apr. for purposes of a number of the changes option contract, whether an option on a 11, 2013. Section 50.52(a) addresses eligible affiliate made by part 151 to the position limits future or an option that is a swap, which counterparty status, allowing a person not to clear regime. For example, the phrase was a swap subject to the clearing requirement of has been adjusted by an economically section 2(h)(1)(A) of the Act and part 50 if the used in vacated § 151.11, in the reasonable and analytically supported person meets the requirements of the conditions provision of acceptable practices for risk factor, or delta coefficient, for that contained in paragraphs (a) and (b) of § 50.52. The DCMs and SEFs in their adoption of conditions in paragraph (a) of § 50.52 specify either rules and procedures for monitoring and 174 one counterparty holds a majority ownership See e.g., proposed § 150.1 definitions for bona interest in, and reports its financial statements on enforcing position accountability fide hedging and proposed amendments to a consolidated basis with, the other counterparty, provisions; it was also used in the § 150.5(b). or both counterparties are majority owned by a amendments to the definition of bona 175 See 76 FR at 71685. 176 third party who reports its financial statements on fide hedging.173 Similarly, the 17 CFR 150.1(f). a consolidated basis with the counterparties. 177 Amendments to CEA section 4a(1) authorize The conditions in paragraph (b) of § 50.52 address Commission believes that the adoption the Commission to extend position limits beyond factors such as the decision of the parties not to into part 150 of the excluded futures and option contracts to swaps traded on a clear, the associated documentation, audit, and commodity definition will be a useful DCM or SEF and swaps not traded on a DCM or SEF recordkeeping requirements, the policies and that perform or affect a significant price discovery function with respect to regulated entities (‘‘SPDF procedures that must be established, maintained, 170 and followed by a dealer and major swap See proposed amendments to the definition of swaps’’). 7 U.S.C. 6a(a)(1). In addition, under new participant, and the requirement to have an ‘‘eligible affiliate’’ in proposed § 150.1. CEA sections 4a(a)(2) and 4a(a)(5), speculative appropriate centralized risk management program, 171 CEA section 1a(38); 7 U.S.C. 1a(38). position limits apply to agricultural and exempt rather than the nature of the affiliation. As such, 172 CEA section 4a(2)(A); 7 U.S.C. 6a(2)(A). commodity swaps that are ‘‘economically those conditions are less pertinent to the definition 173 See 17 CFR 1.3(z) as amended by the vacated equivalent’’ to DCM futures and option contracts. 7 of eligible affiliate. part 151 Rulemaking. U.S.C. 6a(a)(2) and (5).

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option computed as of the previous referenced futures contract for delivery k. Intermarket Spread Position day’s close or the current day’s close or at the same location or locations as The term ‘‘intermarket spread contemporaneously during the trading specified in that particular core position’’ is not defined in current part day, and; (2) A swap which has been referenced futures contract, and defines 150, and was not adopted in part 151. converted to an economically equivalent such derivative products, collectively, But in conjunction with the amount of an open position in a core as ‘‘referenced contracts.’’ Therefore, the amendments to part 150 to address the referenced futures contract.’’ position limits amendments proposed in changes to CEA section 4a made by the Vacated § 151.1 did not retain a this current rulemaking, similar to the Dodd-Frank Act,181 the Commission definition for ‘‘futures-equivalent;’’ position limits regime established in proposes to add into § 150.1 a definition instead final part 151 referred to vacated part 151, apply across different for ‘‘intermarket spread position’’ to guidance on futures equivalency trading venues to economically mean ‘‘a long position in a commodity provided in appendix A to part 20.178 equivalent contracts, as that term is derivative contract in a particular The Commission notes that while the commodity at a particular designated part 20 ‘‘futures equivalent’’ definition defined in § 150.1, that are based on the same underlying commodity. As contract market or swap execution is consistent with the ‘‘futures- facility and a short position in another equivalent’’ definition proposed herein, discussed supra, however, current part 150 defines ‘‘futures-equivalent’’ commodity derivative contract in that it addresses only swaps, and cites to, same commodity away from that narrowly to mean ‘‘an option contract,’’ and relies on, the guidance provided in particular designated contract market or 179 and makes no mention of broadly appendix A to part 20. The definition swap execution facility.’’ Among the proposed herein addresses both options defined ‘‘referenced contracts.’’ changes to CEA section 4a, new section on futures and options that are swaps; Consequently, as noted above, and 4a(a)(6) of the Act requires the it also includes and expands upon consistent with these changes to the Commission to apply position limits on clarifications that are incorporated into position limits regime, including the an aggregate basis to contracts based on the current definition regarding the applicability of aggregate position limits the same underlying commodity across computation time and the adjustment by to economically equivalent ‘‘referenced certain markets.182 The Commission an economically reasonable and contracts’’ across different trading believes that the term ‘‘intermarket analytically supported risk factor, or venues, the Commission proposes to spread position’’ simplifies the delta coefficient. expand the strict ‘‘futures-equivalent’’ proposed changes to § 150.5, which As noted above, the current § 150.1(f) standard set forth in current part 150. provide acceptable exemptions DCMs definition of ‘‘futures-equivalent’’ is and SEFs may choose to grant from narrowly defined to mean ‘‘an option j. Intercommodity Spread Contract speculative position limits.183 contract,’’ and nothing else. Although certain contracts, from a practical Current part 150 does not include a l. Intramarket Spread Position standpoint, may be economically definition of the term ‘‘intercommodity Neither current part 150, nor vacated equivalent to futures contracts, as that spread contract,’’ which was introduced part 151, includes a definition of the terms is defined in § 150.1, such and adopted in vacated part 151. The term ‘‘intramarket spread contract.’’ The products are not ‘‘futures-equivalent’’ Commission proposes to add into Commission now proposes to add into under the narrow definition of current § 150.1 the definition adopted in § 150.1 the definition, such that § 150.1(f) unless they are options on § 151.1,180 such that an ‘‘intramarket spread position’’ means ‘‘a those actual futures. Therefore, current ‘‘intercommodity spread contract’’ long position in a commodity derivative § 150.1(f) is narrowly tailored to target means ‘‘a cash-settled agreement, contract in a particular commodity and only specifically enumerated futures contract or transaction that represents a short position in another commodity contracts on ‘‘legacy’’ agricultural the difference between the settlement derivative contract in the same commodities and their equivalent price of a referenced contract and the commodity on the same designated options. settlement price of another contract, contract market or swap execution The current rulemaking, like vacated agreement, or transaction that is based facility.’’ part 151, establishes federal position on a different commodity.’’ The Current part 150 includes exemptions limits and limit formulas for 28 physical Commission determined, however, to for certain spread positions. For commodity futures and option adopt the term ‘‘intercommodity spread example, current § 150.3(a)(3) provides contracts, or ‘‘core referenced futures contract’’ as part of the definition of an exemption for spread (or arbitrage) positions, but this exemption is limited contracts,’’ and applies these limits to reference contract rather than as a to those between single months for all derivatives that are directly or separate term, since the phrase futures contracts and/or, options indirectly linked to the price of a core ‘‘intercommodity spread contract’’ is referenced futures contracts, or based on thereon, if outside of the spot month, used solely for purposes of defining the the price of the same commodity and only if in the same crop year. While term ‘‘referenced contract.’’ The underlying that particular core current § 150.3(a)(3) limits the spread inclusion of the term as part of the 178 76 FR at 71633 (n. 67) (stating that ‘‘For definition of referenced contract is 181 See e.g., discussions of Dodd-Frank changes to purposes of applying the limits, a trader shall intended to simplify the definition CEA section 4a above and below. convert and aggregate positions in swaps on a section and make it easier to 182 CEA section 4a(a)(6) requires the Commission futures equivalent basis consistent with the understand. to apply position limits on an aggregate basis to (1) guidance in the Commission’s appendix A to Part contracts based on the same underlying commodity 20, Large Trader Reporting for Physical Commodity across DCMs; (2) with respect to foreign boards of Swaps.’’). See also 76 FR 43851, 43865, Jul. 22, 180 In vacated part 151, ‘‘intercommodity spread trade (‘‘FBOTs’’), contracts that are price-linked to 2011. contract’’ was defined to mean ‘‘a cash-settled a DCM or SEF contract and made available from 179 See 17 CFR 20.1 (‘‘Futures equivalent means agreement, contract or transaction that represents within the United States via direct access; and (3) an economically equivalent amount of one or more the difference between the settlement price of a SPDF swaps. 7 U.S.C. 6a(a)(6). See also, futures contracts that represents a position or Referenced Contract and the settlement price of consideration of proposed changes to § 150.2 for transaction in one or more paired swaps or another contract, agreement, or transaction that is further discussion. swaptions consistent with the conversion based on a different commodity.’’ See vacated 183 See e.g., § 150.5(a)(2)(B)(ii); see also guidelines in appendix A of this part.’’). § 151.1. 150.5(b)(5)(b)(iv).

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exemption provided thereunder, the adopted in vacated part 151.187 As was included options that expire into exemption under current § 150.5(a) is noted when part 151 was adopted, the outright positions in such contracts.192 not so limited. Instead, under current Commission identified 28 core In response to comments that the § 150.5(a), exchanges may exempt from referenced futures contracts and Commission should broaden the scope position limits ‘‘positions which are proposed to apply aggregate limits on a of Referenced Contracts, the normally known in the trade as futures equivalent basis across all Commission noted that expanding the ‘‘spreads, straddles, or arbitrage. derivatives that [met the definition of scope of position limits based, for . . .’’ 184 The Commission notes that the Referenced Contracts’].’’ 188 example, on cross-hedging relationships definition it now proposes for The vacated § 151.1 definition of or other historical price analysis would ‘‘intramarket spread position’’ is a Referenced Contracts included: (1) The be problematic as historical generic term, and not limited only to Core Referenced Futures Contract; (2) relationships may change over time and, futures and/or options thereon.185 In a ‘‘look-alike’’ contracts (i.e., those that additionally, would require similar manner to adoption of the term settle off of the Core Referenced Futures individualized determinations. In light ‘‘intermarket spread position,’’ the term Contract and contracts that are based on of these circumstances, the Commission ‘‘intramarket spread position,’’ the same commodity for the same determined that it was not necessary to therefore, simplifies the Commissions delivery location as the Core Referenced expand the scope of position limits amendments to exemptions for spread Futures Contract); (3) contracts with a beyond what was adopted. The positions, including proposed changes reference price based only on the Commission also noted that the to § 150.5, which, as noted above, combination of at least one Referenced commenters did not provide specific provide acceptable exemptions DCMs Contract price and one or more prices in criteria or thresholds for making and SEFs may choose to grant from the same or substantially the same determinations as to which price- speculative position limits. commodity as that underlying the correlated commodity contracts should relevant Core Referenced Futures be subject to limits, further noting that m. Long Position Contract; and (4) intercommodity it would consider amending the scope The term ‘‘long position’’ is currently spreads with two components, one or of economically equivalent contracts defined in § 150.1(g) to mean ‘‘a long both of which are Referenced Contracts. (and the relevant identifying criteria) as call option, a short put option or a long According to the Commission, these it gained experience in this area.193 underlying futures contract,’’ but the criteria captured contracts with prices The definition for ‘‘referenced phrase was not retained in vacated that are or should be closely correlated contract’’ proposed in § 150.1 mirrors § 151.1. The Commission proposes to to the prices of the Core Referenced the definition proposed in § 151.1, with retain the definition, but to update it to Futures Contract, as defined in vacated the delineation of several related terms make it also applicable to swaps such § 151.1.189 In addition, the definition incorporated into the definition.194 The that a long position would include a included categories of Referenced long futures-equivalent swap. Contract based on objective criteria and that position limits extend to contracts traded at a readily available data (i.e., derivatives fixed differential to a Core Referenced Futures n. Physical Commodity Contract (e.g., a swap with the commodity reference that are directly or indirectly linked to price NYMEX Light, Sweet Crude Oil + $3 per The Commission proposes to amend or based on the same commodity for barrel is a Referenced Contract) or based on the § 150.1 by adding in a definition of the delivery at the same delivery location as same commodity at the same delivery location as term ‘‘physical commodity’’ for position a Core Referenced Futures Contract).190 that covered by the Core Referenced Futures limits purposes. Congress used the term At that time, the Commission clarified Contract, and not to unfixed differential contracts ‘‘physical commodity’’ in CEA sections (e.g., a swap with the commodity reference price that a swap contract using as its sole Argus Sour Crude Index is not a Referenced 4a(a)(2)(A) and 4a(a)(2)(B) to mean floating reference price the prices Contract because that index is computed using a commodities ‘‘other than excluded generated directly or indirectly from the variable differential to a Referenced Contract).’’). commodities as defined by the price of a single Core Referenced 192 Id. at 71631. 193 Commission.’’ Therefore, the Futures Contract or a swap priced based Id. Commission interprets ‘‘physical 194 In the current rulemaking, the term on a fixed differential to a Core ‘‘referenced contract’’ is defined in § 150.1 to mean, commodities’’ to include both exempt Referenced Futures Contract, were look- on a futures-equivalent basis with respect to a and agricultural commodities, but not alike Referenced Contracts, and subject particular core referenced futures contract, ‘‘a core excluded commodities, and proposes to to the limits adopted in vacated part referenced futures contract listed in § 151.2(d) of define the term as such.186 191 this part, or a futures contract, options contract, or 151. In addition, the definition swap, other than a guarantee of a swap, a basis o. Referenced Contracts contract, or a commodity index contract: (1) That 187 Vacated § 151.1 defined ‘‘Referenced is: (a) Directly or indirectly linked, including being Part 150 currently does not include a Contract’’ to mean ‘‘on a futures-equivalent basis partially or fully settled on, or priced at a fixed definition of the phrase ‘‘Referenced with respect to a particular Core Referenced Futures differential to, the price of that particular core Contract,’’ which was introduced and Contract, a Core Referenced Futures Contract listed referenced futures contract; or (b) Directly or in § 151.2, or a futures contract, options contract, indirectly linked, including being partially or fully swap or swaption, other than a basis contract or settled on, or priced at a fixed differential to, the 184 The Commission notes that the exemption contract on a commodity index that is: (1) Directly price of the same commodity underlying that provided in § 150.5(a) for ‘‘positions which are or indirectly linked, including being partially or particular core referenced futures contract for normally known in the trade as ‘spreads, straddles, fully settled on, or priced at a fixed differential to, delivery at the same location or locations as or arbitrage,’ ’’ tracks CEA section 4a(a)(1). 7 U.S.C. the price of that particular Core Referenced Futures specified in that particular core referenced futures 6a(a)(1). Also, various DCMs currently have rules in Contract; or (2) Directly or indirectly linked, contract; and (2) Where: (a) Calendar spread place that provide exemptions for such as ‘‘spreads, including being partially or fully settled on, or contract means a cash-settled agreement, contract, straddles, or arbitrage’’ positions. See, e.g., ICE priced at a fixed differential to, the price of the or transaction that represents the difference Futures U.S. rule 6.27 and CME rule 559.C. same commodity underlying that particular Core between the settlement price in one or a series of 185 For further discussion regarding the Referenced Futures Contract for delivery at the contract months of an agreement, contract or exemptions for intramarket spread positions, see same location or locations as specified in that transaction and the settlement price of another infra, discussion regarding § 150.5(a)(2) and (b)(5). particular Core Referenced Futures Contract.’’ contract month or another series of contract 188 186 For position limits purposes, proposed § 150.1 76 FR at 71629. months’ settlement prices for the same agreement, would define ‘‘physical commodity’’ to mean ‘‘any 189 Id. at 71630. contract or transaction; (b) Commodity index agricultural commodity as that term is defined in 190 Id. at 71630–31. contract means an agreement, contract, or § 1.3 of this chapter or any exempt commodity as 191 Id. at 71631 n.50 (‘‘The Commission has transaction that is not a basis or any type of spread that term is defined in section 1a(20) of the Act.’’ clarified in its definition of ‘Referenced Contract’ contract, based on an index comprised of prices of

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beginning of the current definition means ‘‘a short call option, a long put one contract market’’ as 2,000,000 parallels the definition in vacated option or a short underlying futures bushels ‘‘in any one future or in all § 151.1, differing only with the addition contract, or a short futures-equivalent futures combined.’’ 200 of a clarification that the definition of swap.’’ This revised definition reflects Another example is found in the ‘‘referenced contract’’ does not include the fact that under the Dodd-Frank Act, glossaries published by the Commission guarantees of a swap. This clarification the Commission is charged with for many years. Various Commission is added into the list of products that are applying the position limits regime to documents over the years have included not included in the definition.195 In the swaps. a glossary. For example, the proposed definition, ‘‘referenced Commission’s annual report for 1983 q. Speculative Position Limit contract’’ would not include ‘‘a includes in its glossary ‘‘Position Limit guarantee of a swap, a basis contract, or The term ‘‘speculative position limit’’ The maximum position, either net long a commodity index contract.’’ 196 In is currently not defined in § 150.1 and or net short, in one commodity future addition, for the sake of clarify, the was not defined in vacated part 151. combined which may be held or proposal incorporates into the definition The Commission now proposes to controlled by one person as prescribed of ‘‘referenced contract’’ several related define the term ‘‘speculative position by any exchange or by the CFTC.’’ The terms. Consequently, the definition for limit’’ to mean ‘‘the maximum position, version of the staff glossary currently ‘‘referenced contract’’ delineates the either net long or net short, in a posted on the CFTC Web site defines meaning of ‘‘calendar spread contract,’’ commodity derivatives contract that speculative position limit as ‘‘[t]he ‘‘commodity index contract,’’ ‘‘spread may be held or controlled by one maximum position, either net long or contract,’’ and ‘‘intercommodity spread person, absent an exemption, such as an net short, in one commodity future (or contract.’’ 197 The incorporation of these exemption for a bona fide hedging option) or in all futures (or options) of terms into the definition of ‘‘referenced position. This limit may apply to a one commodity combined that may be contract’’ is intended to retain in one person’s combined position in all held or controlled by one person (other place the various parts and meanings of commodity derivative contracts in a than a person eligible for a hedge the definition, thereby facilitating particular commodity (all-months- exemption) as prescribed by an comprehension of the definition. combined), a person’s position in a exchange and/or by the CFTC.’’ single month of commodity derivative p. Short Position contracts in a particular commodity, or r. Spot Month The term ‘‘short position’’ is currently a person’s position in the spot month of Vacated part 151 adopted an amended defined in § 150.1(c) to mean ‘‘a short commodity derivative contacts in a definition for ‘‘spot month’’ that call option, a long put option, or a short particular commodity. Such a limit may replaced the definition for spot month underlying futures contract.’’ Vacated be established under federal regulations currently found in § 150.1 by citing to part 151 did not retain this definition. or rules of a designated contract market the definition provided in § 151.3. The current proposal would amend the or swap execution facility. An exchange Vacated § 151.3 provided detailed lists definition to state that a short position may also apply other limits, such as a of spot months separately for limit on gross long or gross short agricultural, metals and energy commodities that are not the same or substantially positions, or a limit on holding or commodities. the same; (c) Spread contract means either a controlling delivery instruments.’’ calendar spread contract or an intercommodity The Commission proposes to adopt a spread contract; and (d) Intercommodity spread This proposed definition is similar to simplified update to the definition of contract means a cash-settled agreement, contract or definitions for position limits used by ‘‘spot month’’ by expanding upon the transaction that represents the difference between the Commission for many years; the current § 150.1 definition. The the settlement price of a referenced contract and the various regulations and defined terms settlement price of another contract, agreement, or definition, as expanded, would transaction that is based on a different commodity.’’ included use of maximum amounts ‘‘net specifically address both physical- 195 As defined in vacated § 151.1, ‘‘Referenced long or net short,’’ which limited what delivery contracts and cash-settled Contract’’ excludes ‘‘a basis contract or contract on any one person could ‘‘hold or control,’’ contracts, and clarify the duration of a commodity index.’’ See vacated § 151.1. ‘‘one grain on any one contract market’’ ‘‘spot month.’’ Under the proposed 196 The Commission proposes to exclude a (or in ‘‘in one commodity’’ or ‘‘a guarantee of a swap from the definition of a changes, the term ‘‘spot month’’ does referenced contract due to regulatory developments particular commodity’’), and ‘‘in any not refer to a month of time. Rather, the that occurred after the vacated part 151 one future or in all futures combined.’’ definition clarifies that the ‘‘spot Rulemaking. In connection with further defining For example, in 1936, Congress enacted the term ‘‘swap’’ jointly with the Securities and Exchange Commission, (see generally Further the CEA, which authorized the CFTC’s 200 17 CFR 150.1 (1938) (Part 150—Orders of The Definition of ‘‘Swap,’’ ‘‘Security-Based Swap,’’ and predecessor, the CEC, to establish limits Commodity Exchange Commission)(‘‘Limits on ‘‘Security-Based Swap Agreement’’; Mixed Swaps; on speculative trading. Congress position and daily trading in grain for future Security-Based Swap Agreement Recordkeeping, 77 empowered the CEC to ‘‘fix such limits delivery. The following limits on the amount of FR 48208, Aug. 13, 2012 (‘‘Product Definitions trading under contracts of sale of grain for future Adopting Release’’)), the Commission interpreted on the amount of trading . . . as the delivery on or subject to the rules of contract the term ‘‘swap’’ (that is not a ‘‘security-based [CEC] finds is necessary to diminish, markets which may be done by any person are swap’’ or ‘‘mixed swap’’) to include a guarantee of eliminate, or prevent such burden.’’ 198 hereby proclaimed and fixed, to be in full force and such swap, to the extent that a counterparty to a The first speculative position limits effect on and after December 31, 1938: (a) Position swap position would have recourse to the guarantor limits. (1) The limit on the maximum net long or in connection with the position. See id. at 48226. were issued by the CEC in December net short position which any one person may hold Excluding guarantees of swaps from the definition 1938.199 Those first speculative position or control in any one grain on any one contract of referenced contract should help avoid any limits rules provided in § 150.1 for market, except as specifically authorized by potential confusion regarding the application of limits on position and daily trading in paragraph (a) (2), is: 2,000,000 bushels in any one position limits to guarantees of swaps, which could future or in all futures combined. (2) To the extent impede the Commission’s efforts to monitor grain for future delivery, adopting a that the net position held or controlled by any one compliance with the requirements of the CEA. In maximum amount ‘‘net long or net short person in all futures combined in any one grain on addition, if the rules proposed in the Aggregation position which any one person may any one contract market is shown to represent NPRM are adopted, it would obviate the need to hold or control in any one grain on any spreading in the same grain between markets, the include guarantees of swaps in the definition of limit on net position in all futures combined set referenced contracts. forth in paragraph (a)(1) may be exceeded on such 197 Compare vacated § 151.1 with proposed 198 CEA section 6a(1) (Supp. II 1936). contract market, but in no case shall the excess § 150.1. 199 3 FR 3145, Dec. 24, 1938. result in a net position of more than 3,000,000.’’).

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month’’ is the trading period s. Spot-Month, Single-Month, and All- u. Swap immediately preceding the delivery Months-Combined Position Limits The definitions of several terms period for a physical-delivery futures In addition to a definition for ‘‘spot adopted in vacated part 151 relied on contract as well as for any cash-settled month,’’ current part 150 includes the statutory definition in some cases in swaps and futures contracts that are definitions for ‘‘single month,’’ and for conjunction with a further definition linked to the physical-delivery contract. ‘‘all-months’’ where ‘‘single month’’ is adopted by the Commission in other The definition continues to define the defined as ‘‘each separate futures rulemakings.207 Other defined terms spot month as the period of time trading month, other than the spot that rely on the statutory definition in beginning at of the close of trading on month future,’’ and ‘‘all-months’’ is included: ‘‘entity,’’ ‘‘excluded the trading day preceding the first day defined as ‘‘the sum of all futures commodity,’’ and ‘‘swap dealer.’’ Since on which delivery notices can be issued trading months including the spot the adoption of part 151, the to the clearing organization of a contract month future.’’ Commission, in a joint rulemaking with market, while adding in a clarification Vacated part 151 retained only the the Securities and Exchange that this definition applies only to definition for spot month, and, instead, Commission, adopted a further physical-delivery commodity adopted a definition for ‘‘spot-month, definition for ‘‘swap’’ in § 1.3(xxx).208 derivatives contracts. For physical- single-month, and all-months-combined Consequently, the definition of ‘‘swap’’ delivery contracts with delivery position limits.’’ The definition proposed in the current rulemaking, beginning after the last trading day, the provided that, for Referenced Contracts while paralleling that of the definition proposal defines the spot month as the based on a commodity identified in included in vacated § 151.1, and while close of trading on the trading day § 151.2, the maximum number of substantially the same, additionally preceding the third-to-last trading day, contracts a trader may hold was as cites to the definition of ‘‘swap’’ found until the contract is no longer listed for provided in § 151.4. in § 1.3(xxx). trading (or available for transfer, such as In the current rulemaking proposal, as v. Swap Dealer through exchange for physical noted above, the Commission proposes transactions). This definition is to amend § 150.1 by deleting the The term ‘‘swap dealer’’ is not consistent with the current spot month definitions for ‘‘single month,’’ and for currently defined in § 150.1, but was for each of the 28 core referenced ‘‘all-months.’’ Unlike the vacated part defined in vacated 151.1 to mean futures contracts. The definition 151 Rulemaking, the current proposal ‘‘ ‘swap dealer’ as that term is defined in proposes similar, but slightly different does not include a definition for ‘‘spot- section 1a of the Act and as further language for cash-settled contracts, month, single-month, and all-months- defined by the Commission.’’ 209 Similar providing that the spot month begins at combined position limits.’’ Instead, the to the definition of ‘‘swap,’’ the the earlier of the start of the period in current rulemaking proposes to adopt a Commission adopted a definition for which the underlying cash-settlement definition for ‘‘speculative position ‘‘swap dealer’’ since part 151 was price is calculated or the close of trading limits’’ that should obviate the need for finalized.210 Under the current proposal, on the trading day preceding the third- these definitions.203 § 150.1 would be amend to define to-last trading day and continues until ‘‘swap dealer’’ to mean ‘‘ ‘swap dealer’ the contract cash-settlement price is t. Spread Contract as that term is defined in section 1a of 201 determined. In addition, the Spread contract was defined in the Act and as further defined in section definition includes a proviso that, if the vacated part 151 as ‘‘either a calendar 1.3 of this chapter.’’ This revised cash-settlement price is determined spread contract or an intercommodity definition reflects the fact that the based on prices of a core referenced spread contract.’’ 204 The Commission definition of ‘‘swap dealer,’’ while futures contract during the spot month proposes to add the same definition into paralleling that of the definition period for that core referenced futures § 150.1 in conjunction with the proposal included in § 151.1, and while contract, then the spot month for that to define ‘‘referenced contract.’’ 205 substantially the same, additionally cash-settled contract is the same as the The Commission also notes that while cites to the definition of ‘‘swap dealer’’ spot month for that core referenced the proposed definition of ‘‘referenced found in § 1.3(ggg). futures contract.202 contract’’ specifically excludes ii. Bona Fide Hedging Definition guarantees of a swap, basis contracts 201 For example, a ‘‘look-alike’’ contract that and commodity index contracts, spread The core of the Commission’s references a calendar-month average of settlement approach to defining bona fide hedging prices would have the same spot-month limit as the contracts are not excluded from the core referenced futures contract (CRFC) but the proposed definition of ‘‘referenced over the years has focused on limit would be in effect beginning with the first contract.’’ 206 transactions that offset a recognized calendar day of the cash-settlement period; a ‘‘look- physical price risk.211 Once a bona fide alike’’ contract that references a single day’s settlement price in the spot-month of the CRFC spot month period that is the same as that of the on an index comprised of prices of commodities would have a spot-month limit at the same level as physical-delivery NYMEX Henry Hub Natural Gas that are not the same nor substantially the same.’’ the CRFC but the limit would be in effect only futures contract. 203 Vacated § 151.1. during the spot month of the CRFC. See supra discussion of the proposed 207 Under vacated § 151.1, the term ‘‘[s]wap 202 For example, the physical-delivery NYMEX definition of ‘‘speculative position limit.’’ 204 means ‘swap’ as defined in section 1a of the Act and Henry Hub Natural Gas futures contract would Vacated § 151.1. as further defined by the Commission.’’ have, as is currently the case for the exchange spot 205 See supra discussion of proposed § 150.1 208 month limit, a spot period beginning on close of ‘‘referenced contract’’ definition. See 77 FR 48208, 48349, Aug. 13, 2012. trading three business days prior to the last trading 206 The Commission notes that this is consistent 209 See vacated § 151.1. day of that core referenced futures contract. The with vacated part 151. See, e.g., the final part 151 210 77 FR 30596, May 23, 2012. NYMEX Henry Hub Natural Gas Penultimate Rulemaking, which noted that commodity index 211 For an historical perspective on the bona fide Financial futures contract (which is cash-settled contracts, which by the definition in vacated hedging provision prior to the Dodd-Frank based on the NYMEX Henry Hub Natural Gas § 151.1 were expressly excluded from the definition amendments, see Testimony of General Counsel Futures contract settlement price on the business of ‘‘Referenced Contract,’’ were not spread Dan M. Berkovitz, Commodity Futures Trading day preceding the last trading day for that physical- contracts. 76 FR at 71656. See also, the definition Commission, ‘‘Position Limits and the Hedge delivery contract, and is currently subject to of ‘‘commodity index contract,’’ which is defined as Exemption, Brief Legislative History,’’ July 28, position accountability effective on the last three ‘‘a contract, agreement, or transaction ‘‘that is not 2009, available at http://www.cftc.gov/PressRoom/ trading days of the futures contract), would have a a basis or any type of spread contract, [and] based SpeechesTestimony/berkovitzstatement072809.

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hedge is implemented, the hedged hedging unless their bona fide purpose substitute for . . . positions to be taken entity should be price insensitive was to offset price risks incidental to at a later time in a physical marketing because any change in the value of the commercial cash or spot operations, and channel,’’ and requires such position to underlying physical commodity is offset such positions were established and be ‘‘economically appropriate to the by the change in value of the entity’s liquidated in an orderly manner and in reduction of risks in the conduct of a physical commodity derivative position. accordance with sound commercial commercial enterprise,’’ and where the Because a firm that has hedged its practices.213 Shortly thereafter, the risks arise from the potential change in price exposure is price neutral in its newly formed Commission sought value of assets, liabilities or services.219 overall physical commodity position, comment on amending that Such bona fide hedges also must have the hedged entity should have little definition.214 Given the large number of a purpose ‘‘to offset price risks incentive to manipulate or engage in issues raised in comment letters, the incidental to commercial cash or spot other abusive market practices to affect Commission adopted the predecessor’s operations’’ and must be ‘‘established prices. By contrast, a party that definition with minor changes as an and liquidated in an orderly manner in maintains a derivative position that interim definition of bona fide hedging accordance with sound commercial leaves them with exposure to price transactions or positions, effective practices.’’ Thus a bona fide hedge changes is not neutral as to price and, October 18, 1975.215 exemption was appropriate where there therefore, may have an incentive to In 1977, the Commission proposed a was a demonstrated physical price risk affect prices. Further, the intention of a revised definition of bona fide hedging that had been recognized. This also hedge exemption is to enable a that largely forms the basis of the applies, for example, to bona fide hedge commercial entity to offset its price risk; current definition of bona fide exemptions for unfilled anticipated it was never intended to facilitate taking hedging.216 The 1977 proposed requirements, where processors or on additional price risk. definition set forth: (i) A general manufacturers are exposed to price risk The Commission recognizes there are definition of bona fide hedging on such unfilled anticipated complexities to analyzing the various positions under economically requirements necessary for their commercial price risks applicable to appropriate circumstances and subject manufacturing or processing.220 particular commercial circumstances in to other conditions (noted below); (ii) an The 1977 proposed definition did not order to determine whether a hedge enumerated list of specific positions include the modifying adverb exemption is warranted. These that conform to the general definition; ‘‘normally’’ to the verb ‘‘represent.’’ 221 complexities have led the Commission, and (iii) a procedure to consider non- The Commission explained in the 1977 from time to time, to issue rule changes, enumerated cases.217 The 1977 preamble it intended to recognize bona interpretations, and exemptions. proposal, as adopted, established the fide hedging positions ‘‘on the basis of Congress, too, has periodically revised concept of portfolio hedging and net risk related to changes in the values the Federal statutes applicable to bona recognized cross-commodity hedges and reflected on balance sheets.’’ 222 The fide hedging, most recently in the Dodd- hedges of anticipated production or Commission introduced the adverb Frank Act. These complexities will be unfilled anticipated requirements, normally in the 1977 final rulemaking further explored below. provided such hedges were not in order to make clear it would a. Bona Fide Hedging History recognized in the five last days of recognize as bona fide such balance trading in any particular futures sheet hedging and ‘‘other [at the time] Prior to 1974, the term bona fide contract (the ‘‘five-day rule’’ in current relatively infrequent but potentially hedging transactions or positions was § 1.3(z)(2)).218 important examples of risk reducing defined in section 4a(3) of the Act. That The general definition of bona fide futures transactions’’ that would definition only applied to agricultural hedging in current § 1.3(z), as was the otherwise not have met the general commodities. When the Commission case when adopted in 1977, advises that definition of bona fide hedging.223 The was created in 1974, the Act’s definition a position should ‘‘normally represent a Commission noted: ‘‘One form of of commodity was expanded. At that balance sheet hedging would involve time, Congress was concerned that the 213 Pending promulgation of a definition by the offsetting net exposure to changes in limited hedging definition, even if Commission, the Secretary of Agriculture currency exchange rates for the purpose applied to newly regulated commodity promulgated § 1.3(z) pursuant to section 404 of the CFTC Act. 40 FR 11560, Mar. 12, 1975. This of stabilizing the domestic dollar futures, would fail to accommodate the definition of bona fide hedging in new § 1.3(z) accounting value of assets which are commercial risk management needs of deviated in only minor ways from the hedging held abroad. In the case of depreciable definition contained in section 4a(3) of the Act. The market participants that could emerge capital assets, such hedging transactions over time. Accordingly, Congress, in Commodity Exchange Commission subsequently issued conforming amendments to various rules. 40 section 404 of the Commodity Futures FR 15086, Apr. 4, 1975. 219 17 CFR 1.3(z)(1) (2010). The Commission Trading Commission Act of 1974, 214 40 FR 34627, Aug. 18, 1975. The Commission cautions that the e-CFR version of § 1.3(z) reflects repealed the statutory definition and sought comment on many issues, including whether changes made by the vacated 2011 final rule. gave the Commission the authority to to include in the definition of bona fide hedging 220 The Commission notes that the definition of define bona fide hedging.212 In response transactions and positions ‘‘the practice of many bona fide hedging transactions or positions traders which results in hedging of gross cash historically included an exemption for unfilled to the 1974 legislation, the positions rather than a net cash position—so-called anticipated requirements. As the Commission stated Commission’s predecessor adopted in ‘double hedging.’ ’’ Id. at 34628. The Commission in 1974, in its proposal to adopt § 1.3(z), the 1975 a bona fide hedging definition in later noted ‘‘that net cash positions do not regulation on the hedging definition proposed by § 1.3(z) of its regulations stating, among necessarily measure total risk exposure and in such the Secretary of Agriculture was intended to cases the hedging of gross cash positions does not comply with the intent of section 404 of Public Law other requirements, that transactions or constitute ‘double hedging.’ ’’ 42 FR 42748, 42750, 93–463, enacted October 23, 1974, as stated in the positions would not be classified as Aug. 24, 1977. Conference Report accompanying HR. 13113, pp. 215 40 FR 48688, Oct. 17, 1975. The Commission 40–1. The Commission noted in its proposal that 212 Section 404 of Public Law 93–463, October 23, re-issued all regulations, with rule 1.3(z) essentially the new statutory language was intended to allow 1974, (CFTC Act), amended section 4a(3) of the Act, unchanged, in 1976. 41 FR 3192, 3195, Jan. 21, processors and manufacturers to hedge unfilled deleting the statutory definition of bona fide 1976. annual requirements. 39 FR 39731, Nov. 11, 1974. hedging position or transaction and directing the 216 42 FR 14832, Mar. 16, 1977. 221 See 42 FR 42748, Aug. 24, 1977. newly-established Commission to issue a rule 217 Id. 222 Id. defining that term. 218 42 FR 42748, Aug. 24, 1977. 223 42 FR at 42749.

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might not represent a substitute for or exceed an amount which the alternative to this risk reduction subsequent transactions in a physical exchange determines may be established standard.’’ 235 marketing channel.’’ 224 or liquidated in an orderly fashion. The Commission heeded Congress’s With respect to the five-day rule in In 1986, in response to concerns recommendation, and the Commission current § 1.3(z)(2) for anticipatory issued two 1987 interpretive statements raised in testimony regarding the hedges of unfilled anticipated regarding the definition of bona fide constraints on investment decisions requirements, the Commission observed hedging. The first 1987 interpretative imposed by position limits, the House that historically there was a low statement clarified the meaning of Committee on Agriculture, in its report utilization of this provision in terms of current § 1.3(z)(1).236 The Commission accompanying the Commission’s 1986 actual positions acquired in the futures interpreted the regulatory ‘‘temporary market.225 For cross commodity and reauthorization legislation, instructed substitute’’ criterion 237 not to be a short anticipatory hedge positions, the the Commission to reexamine its necessary condition for classification of Commission did ‘‘not believe that approach to speculative position limits positions as hedging. The Commission 231 persons who do not possess or do not and its definition of hedging. interpreted the ‘‘incidental test’’ 238 to have a commercial need for the Specifically, the Committee Report be a ‘‘requirement that the risks that are commodity for future delivery will ‘‘strongly urge[d] the Commission to offset by a futures or option hedge must normally wish to participate in the undertake a review of its hedging arise from commercial cash market delivery process.’’ 226 definition . . . and to consider giving activities.’’ The Commission also noted In 1979, the Commission eliminated certain concepts, uses, and strategies bona fide hedges could include balance daily speculative trading volume limits ‘non-speculative’ treatment . . . sheet and other trading strategies that and concluded such daily trading limits whether under the hedging definition are risk reducing, such as ‘‘strategies were ‘‘not necessary to diminish, or, if appropriate, as a separate category that provide protection equivalent to a eliminate or prevent excessive similar to the treatment given certain put option for an existing portfolio of speculation.’’ 227 The Commission noted spread, straddle or arbitrage positions securities.’’ 239 eliminating daily trading limits had no ... ’’232 The Committee Report singled The second 1987 interpretative effect on the limits on the size of out four categories of trading and statement provides assistance to an speculative positions which any one positions that the Commission should exchange who may wish to recognize person may hold or control on a single consider recognizing as non-speculative: risk management exemptions from contract market. The Commission also (i) ‘‘Risk management’’ trading by exchange speculative position limit noted the speculative position limits portfolio managers as an alternative to rules.240 ‘‘The Commission note[d] that apply to positions throughout the day as the concept of ‘‘risk reduction;’’ (ii) providing risk management exemptions well as to positions at the close of the futures positions taken as alternatives to commercial entities who are typically trading session.228 The Commission to, rather than as temporary substitutes engaged in buying, selling or holding continues to apply position limits for, cash market positions; (iii) other cash market instruments is similar to a throughout the day and will continue positions acquired to implement provision in the Commission’s hedging under this proposal. strategies involving the use of financial definition, [namely], the risks to be In the aftermath of the silver futures futures including, but not limited to, hedged arise in the management and market crisis during late 1979 to early asset allocation (altering portfolio conduct of a commercial enterprise.’’ 241 1980,229 in 1981 the Commission exposure in certain areas such as equity The Commission believed that it would adopted § 1.61, subsequently and debt), portfolio immunization be consistent with the objectives of incorporated into § 150.5, requiring (curing mismatches between the section 4a of the Act and § 1.61 [now DCMs to adopt speculative position duration and sensitivity of assets and incorporated as § 150.5] for exchange limits and providing an exemption for liabilities to ensure that portfolio assets rules to exempt from speculative limits ‘‘bona fide hedging positions as defined will be sufficient to fund the payment a number of risk management positions by a contract market in accordance with of liabilities), and portfolio duration in debt-based, equity-based and foreign 242 § 1.3(z)(1) of the Commission’s (altering the average maturity of a currency futures and options. Those regulations.’’ 230 That rule permits portfolio’s assets); and (iv) certain positions included: Unleveraged long DCMs to limit bona fide hedging options trading, in particular the writing positions (covered by cash set aside); positions which it determines are not in of covered puts and calls.233 short calls on securities or currencies accord with sound commercial practices owned (i.e., covered calls); and long The Senate Committee on Agriculture, positions in asset allocation strategies Nutrition and Forestry, in its report on 224 Id. at 42749 (n. 1). 225 Id. at 42749. The five-day rule in current the 1986 CFTC reauthorization 235 Id. at 22. § 1.3(z)(2) for anticipatory hedges permits an legislation, also directed the 236 See, Clarification of Certain Aspect of the exception for a person with a long anticipatory Commission to reassess its Hedging Definition, 52 FR 27195, Jul. 20, 1987 (July hedging need, for up to two months unfilled interpretation of bona fide hedging.234 1987 Interpretative Statement). 237 anticipated requirements. Specifically, the Senate Committee In current § 1.3(z)(1), the phrase ‘‘where such 226 Id. transactions or positions normally represent a 227 44 FR 7124, Feb. 6, 1979. directed the Commission to consider substitute for transactions to be made or positions 228 Id. at 7125. ‘‘whether the concept of prudent risk to be taken at a later time in a physical marketing channel’’ has been termed the ‘‘temporary 229 See, In re Nelson Bunker Hunt et al., CFTC management [should] be incorporated in substitute criterion.’’ (Emphasis added.) Docket No. 85–12. the general definition of hedging as an 238 In current § 1.3(z)(1), the phrase ‘‘price risks 230 46 FR 50938, 50945, Oct. 16, 1981. With the incidental to commercial cash or spot operations’’ passage of the Commodity Futures Modernization 231 has been termed the ‘‘incidental test.’’ Act in 2000 and the Commission’s subsequent House Committee on Agriculture, Futures 239 adoption of the part 38 regulations covering DCMs Trading Act of 1986, H.R. Rep. No. 624, 99th Cong., 52 FR at 27197. in 2001 (66 FR 42256, Aug. 10, 2001), part 150’s 2d Sess. 44–46 (1986). 240 See, Risk Management Exemptions from approach to exchange-set speculative position 232 Id. at 46. Speculative Position Limits Approved under limits was incorporated as an acceptable practice 233 Id. Commission Regulation 1.61, 52 FR 34633, Sep. 14, under DCM Core Principle 5—Position Limitations 234 Senate Committee on Agriculture, Nutrition 1987. and Accountability. 72 FR 66097, 66098 n.1, Nov. and Forestry, Futures Trading Act of 1986, S. Rep. 241 Id. at 34637. 27, 2007. No. 291, 99th Cong., 2d Sess. at 21–22 (1986). 242 Id. at 34636.

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covered by hedged debt securities or In 2007, the Commission proposed a current form, or some variation currencies owned.243 risk management exemption to federal thereof.253 In 1987, the Commission also added position limits, in addition to the bona In January of 2010, the Commission an enumerated hedging position for fide hedging exemption.249 A risk proposed an integrated speculative spread positions which offset unfixed- management position would have been position framework for the major energy price cash sales and unfixed-price cash defined as a futures or futures contracts listed on DCMs.254 The purchases that are priced basis different equivalent position held as part of a proposed rules would not have delivery months in a futures contract broadly diversified portfolio of long- recognized futures and option (that is, floating-price cash purchases only or short-only futures or futures transactions offsetting exposure coupled with floating-price cash equivalent positions, that is based on acquired pursuant to swap dealing sales).244 In this regard, the Commission either tracking a broadly diversified activity as bona fide hedges. Instead, extended the cross-commodity hedging index for clients or a portfolio upon compliance with several provisions to offsets of such coupled diversification plan that included an conditions including reporting and floating-price cash contracts that were exposure to a broadly diversified index. disclosure obligations, the proposed not cash market transactions in the same In either case, the exemption would regulations would have allowed swap commodity underlying the futures have been conditioned on the futures dealers to seek a limited exemption contract.245 positions being passively managed, from the proposed speculative position The Commission adopted federal unleveraged, and outside of the spot limits for the major energy contracts.255 limits on soybean meal and soybean oil month. The Commission withdrew that The proposed framework was futures contracts in 1987, in response to proposal in 2008, citing a lack of withdrawn after enactment of the Dodd- a petition by the Chicago Board of consensus.250 Frank Act, which the Commission Trade.246 In the final rule, the In March of 2009, the Commission interprets as expanding the range of Commission noted: ‘‘Crush positions issued a concept release on whether to derivative contracts, beyond contracts allow the processor to determine or fix eliminate the bona fide hedge listed on DCMs, on which the his processing margin in advance and exemption for certain swap dealers and Commission must impose position are included within the exemptions create a new limited risk management limits. permitted for anticipatory hedging exemption from speculative position Since 1974, the Commission has had under Commission Rule 1.3(z)(2).’’ 247 limits.251 The Commission explained authority under the Act to define the Specifically, the Commission noted for that, beginning in 1991, the Commission term bona fide hedging position. With a crush position established by a had granted bona fide hedge exemptions the enactment on July 21, 2010 of the soybean processor, the short positions under § 1.47 to a number of swap Dodd-Frank Act, section 4a(c)(1) of the in soybean oil and soybean meal futures intermediaries who were seeking to Act,256 continues to provide that would be permitted to the extent of manage price risk on their books as a position limits do not apply to positions twelve months unsold anticipated result of their serving as counterparties shown to be bona fide hedging positions production; and the long positions in to their swap clients in commodity as defined by the Commission.257 soybean futures would be permitted to index swap contracts or commodity However, Dodd-Frank added section the extent of twelve months unfilled swap contracts.252 The swap clients 4a(c)(2) of the Act, which the anticipated requirements. The included pension funds and other Commission interprets as directing the Commission declined to adopt an passive investors who were not using Commission to narrow the bona fide exemption for a reverse crush position. swaps to offset risks in the physical hedging position definition for physical The Commission stated its belief, based marketing channel. In order to protect commodities from the definition found upon comments received and its own itself from the risks of such swaps, the in current § 1.3(z)(1), as discussed analysis, ‘‘that there are important swap intermediary would establish a further below.258 Separately, Dodd- differences between the crush and portfolio of long futures positions in the Frank added section 4a(a)(7) of the Act reverse crush positions from the commodities making up the index or the to give the Commission plenary standpoint of bona fide hedging by commodity underlying the swap, in authority to grant general exemptive soybean processors.’’ The results of a such amounts as would offset its relief from the position limit rules.259 crush position, plus or minus basis exposure under the swap transaction. On November 18, 2011, the variation, are known once the position By design, the commodity index did not Commission adopted part 151 to is established. In contrast, the include contract months in the spot establish a position limits regime for Commission noted with a reverse crush month. The exemptions did not cover spread position, ‘‘the intended results 253 positions carried into the spot month. The comments are available for review on the transpire only if, and when, the futures Commission’s Web site at http://www.cftc.gov/ The comments on the March 2009 markets reflect the expected or LawRegulation/PublicComments/09-004. concept release were about equally 254 anticipated more favorable crushing 75 FR 4144, Jan. 26, 2010 (withdrawn 75 FR divided between those who favored 50950, Aug. 18, 2010). margin and the position can be lifted.’’ eliminating the bona fide hedge 255 75 FR at 4152. Accordingly, the Commission noted it exemption for swap dealers (or 256 7 U.S.C. 6a(c)(1). did not appear appropriate to recognize 257 Id. The Dodd-Frank Act did not change the the reverse crush spread position as an restricting the exemption to positions offsetting swap dealers’ exposure to language found in prior 7 U.S.C. 6a(c) (2010). enumerated category of bona fide 258 See infra discussion of ‘‘temporary substitute hedging.248 traditional commercial market users) test.’’ and those who favored retaining the 259 Section 4a(a)(7) of the Act provides: ‘‘The Commission, by rule, regulation, or order, may 243 Id. swap dealer hedge exemption in its exempt, conditionally or unconditionally, any 244 52 FR 38914, 38919, Oct. 20, 1987. person or class of persons, any swap or class of 245 is bona fide hedging should be made on a case-by- Id. at 38922. swaps, any contract of sale of a commodity for case basis under § 1.47. 246 Petition for rulemaking of the CBOT, dated future delivery or class of such contracts, any 249 July 24, 1986, cited in 52 FR 6814, Mar. 5, 1987. 72 FR 66097, Nov. 27, 2007. option or class of options, or any transaction or 247 52 FR 38914, 38920, Oct. 20, 1987. 250 73 FR 32261, Jun. 6, 2008. class of transactions from any requirement it may 248 Id. The Commission noted at that time that the 251 74 FR 12282, Mar. 24, 2009. establish under this section with respect to position determination of whether a reverse crush position 252 Id. at 12284. limits.’’ 7 U.S.C. 6a(a)(7).

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twenty-eight exempt and agricultural [§ ] 151.1 of the Position Limit Rules substantively similar to Request Eight of commodity futures and options [(‘Other Requests)].’’ 265 In connection the Working Group Petition. contracts and the physical commodity with any relief ultimately granted as a With the court’s September 28, 2012, swaps that are economically equivalent result of the Petition, the Working order vacating part 151, the Commission to such contracts.260 In connection with Group also requested that the now re-proposes a definition of bona issuing the part 151 limits, the Commission ‘‘confirm that any relief fide hedging position. Commission defined bona fide hedging granted is generally applicable to the b. Proposed Definition of Bona Fide transactions or positions in § 151.5(a) entire market.’’ 266 Hedging Position and enumerated eight transactions or In addition to the Working Group positions that would constitute bona The Commission proposes to delete fide hedging transactions or positions Petition, on March 13, 2012, the § 1.3(z), the current definition of ‘‘bona and, thus, would be exempt from the American Petroleum Institute (‘‘API’’) fide hedging transactions or positions,’’ part 151 limits.261 also filed a petition pursuant to both and replace it with a new definition of In addition to the exemptions section 4a(a)(7) of the Act and ‘‘bona fide hedging position’’ in enumerated in § 151.5(a)(2) and (5) § 151.5(a)(5) (the ‘‘API Petition’’).267 The § 150.1.270 Section 4a(c)(1) of the Act, as provided that, ‘‘Any person engaging in API Petition generally endorsed the added by the Dodd-Frank Act, other risk reducing practices commonly Working Group petition and requested authorizes the Commission to define used in the market which they believe that the Commission recognize as bona bona fide hedging positions ‘‘consistent may not be specifically enumerated in fide hedging transactions certain routine with the purposes of this Act.’’ 271 The § 151.5(a)(2) may request relief from energy market transactions that are proposed definition of bona fide Commission staff under § 140.99 of this priced at monthly average index hedging position builds on the chapter 262 or the Commission under prices.268 The request in the API Commission’s history, both in section 4a(a)(7) of the Act concerning Petition is essentially a restatement of administering a regulatory exemption to the applicability of the bona fide Requests One through Three of the federal limits and in providing guidance hedging transaction exemption.’’ 263 Working Group Petition. The API to exchanges in establishing exchange On January 20, 2012, the Working Petition also requested relief for pass- limits, and is grounded for physical Group of Commercial Energy Firms (the through swaps. commodities on the new requirements in section 4a(c)(2) of the Act, as ‘‘Working Group’’) filed a petition Further, the CME Group, on April 26, pursuant to both section 4a(a)(7) of the amended by section 737 of the Dodd- 2012, filed a petition pursuant to section Frank Act in July 2010.272 Act and § 151.5(a)(5) (the ‘‘Working 4a(a)(7) of the Act and § 151.5(a)(5) (the Group Petition’’) 264 requesting that the Organization. The proposed ‘‘CME Petition’’).269 The CME Petition definition of bona fide hedging position Commission ‘‘grant exemptive relief for generally requested that the [ten] classes of risk-reducing is organized into six sections: an Commission recognize as bona fide transactions described [in the petition] opening paragraph with two general hedging transactions certain purchases to the extent that such transactions are requirements for all hedges; and five by persons engaged in processing, not covered by [§§ ] 151.5(a)(1) or (2) of numbered paragraphs (paragraphs (1)– manufacturing or feeding that were the Position Limit Rules or, in the (5)). Paragraph (1) of the proposed permitted under § 1.3(z)(2)(ii)(C) during alternative, clarify that such classes of definition sets forth requirements for transactions qualify as ‘bona fide the last five trading days in physical- hedges of an excluded commodity, and hedging transactions or positions’ delivery contracts, not to exceed incorporates guidance on risk within the meaning of [§§ ] 151.5(a)(1) anticipated requirements for that month management exemptions that may be 273 and (2); [(‘‘Requests One–Ten’’)] and and the next succeeding month. The adopted by an exchange. Paragraph provide exemptive relief regarding the request in the CME Petition is (2) lists requirements for hedges of a definition of (a) ‘‘spot month’’ set forth physical commodity. Paragraphs (3) and in [§ ] 151.3(c) of the Position Limit 265 See Working Group Petition at 1. (4) list enumerated exemptions. Rules, and (b) ‘‘swaption’’ set forth in 266 See Working Group Petition at 3. In letters Paragraph (5) specifies the requirements dated March 1,2012, and March 26, 2012, for cross-commodity hedges. respectively, a group of three energy trade 260 See generally 76 FR 71626, Nov. 18, 2011. associations (Edison Electric Institute, American c. General Requirements for All Bona 261 See 17 CFR 151.5(a)(2)(i)–(viii). The Gas Association, and Electric Power Supply Fide Hedges—Opening Paragraph Commission also recognized pass-through swaps Association), and the Futures Industry Association and pass-through swap offsets as bona fide hedging submitted comments in support of the Working The opening paragraph of the transactions. 17 CFR 151.5(a)(3)–(4). Group Petition, available at http://www.cftc.gov/ proposed definition sets forth two 262 Section 140.99 sets out general procedures and stellent/groups/public/@rulesandproducts/ general requirements for any legitimate requirements for requests to Commission staff for documents/ifdocs/eei-aga-epsa_comments.pdf and exemptive, no-action and interpretative letters. http://www.cftc.gov/stellent/groups/public/@ hedging position: (i) The purpose of the 263 17 CFR § 151.5(a)(5). rulesandproducts/documents/ifdocs/ position must be to offset price risks 264 The Working Group Petition is available at fialtr032612.pdf. incidental to commercial cash http://www.cftc.gov/stellent/groups/public/@ 267 The API Petition is available at http:// operations (the ‘‘incidental test’’); and rulesandproducts/documents/ifdocs/ www.cftc.gov/stellent/groups/public/@ wgbfhpetition012012.pdf. The Working Group rulesandproducts/documents/ifdocs/ 270 supplemented the petition in a letter dated April apiltr031312.pdf. As noted in their submission, API The proposed definition does not reference 17, 2012, available at http://www.cftc.gov/stellent/ is a national trade association representing more ‘‘transactions’’ because the Commission has not had groups/public/@rulesandproducts/documents/ than 450 oil and natural gas companies. Its trading volume limits on transactions since 1979. ifdocs/workinggroupltr041712.pdf. As noted in members transact in physical and financial, See generally Elimination of Daily Speculative their submission, the Working Group is a diverse exchange-traded, and over-the-counter markets trading Limits, 44 FR 7124, Feb. 6, 1979. group of commercial firms in the energy industry primarily to hedge or mitigate commercial risks 271 7 U.S.C. 6a(c)(1). whose primary business activity is the physical associated with their core business of delivering 272 7 U.S.C. 6a(c)(2). delivery of one or more energy commodities to, energy to wholesale and retail customers. 273 Regarding the definition of bona fide hedging among others, industrial, commercial and 268 See API Petition at 1. positions in excluded commodities, the residential consumers. Members of the Working 269 The CME Petition is available at http:// Commission notes this proposed definition also Group and their affiliates actively trade futures and www.cftc.gov/stellent/groups/public/@ would provide flexibility to exchanges adopting swaps and they assert that they would be materially rulesandproducts/documents/ifdocs/ exemptions for securities futures contracts impacted by position limit rules under part 151. cmeltr042612.pdf. consistent with § 41.25(a)(3)(iii).

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(ii) the position must be established and market impact in establishing, for remote months.’’ 280 Further, in liquidated in an orderly manner in maintaining or liquidating a position in fulfilling their duty of ordinary care accordance with sound commercial excess of position limitations.278 The when entering, maintaining and exiting practices (the ‘‘orderly trading Commission believes the proposed a position, market participants should requirement’’). These general orderly trading requirement is assess market conditions and consider requirements are found in current consistent with the policy objectives of how their trading practices and conduct § 1.3(z)(1).274 position limits to diminish, eliminate or affect the orderly execution of Incidental test. Consistent with its prevent excessive speculation and to transactions when establishing, prior interpretation of the incidental test ensure that the price discovery function maintaining or liquidating a position in under § 1.3(z)(1), discussed above, the of the underlying market is not excess of a speculative position limit. Commission intends the proposed disrupted.279 The Commission believes d. Requirements and Guidance for incidental test to be a requirement that the orderly trading requirement is Hedges in an Excluded Commodity— the risks offset by a commodity particularly important since the Paragraph (1) derivative contract hedging position Commission intends to set the initial must arise from commercial cash market levels of position limits at the outer The proposed definition of bona fide activities.275 The Commission believes bound of the range of levels of position hedging position for contracts in an this requirement is consistent with the limits that may serve to maximize the excluded commodity 281 includes the statutory guidance to define bona fide statutory policy objectives. Thus, bona general requirements in the opening hedging positions to permit hedging fide hedgers likely would only need an paragraph and would require that the ‘‘legitimate anticipated business exemption for extraordinarily large position is economically appropriate to needs.’’ 276 In the absence of a positions. the reduction of risks in the conduct requirement for a legitimate business The Commission believes that and management of a commercial need, the Commission believes it would negligent trading, practices, or conduct enterprise (the ‘‘economically be difficult to distinguish between should be a sufficient basis for the appropriate’’ test) and is either (i) hedging and speculative activities. The Commission to disallow a bona fide specifically enumerated in paragraphs Commission believes the concept of hedging exemption. The Commission (3)–(5) of the definition of bona fide commercial cash market activities is believes that an evaluation of ‘‘orderly hedging position; or (ii) recognized as a also embodied in the economically trading’’ should be based on the totality bona fide hedging position by a DCM or appropriate test for physical of the facts and circumstances as of the SEF consistent with the guidance on commodities in section 4a(c)(2) of the time the person engaged in the relevant risk management exemptions in Act, discussed below. The proposed trading, practices, or conduct—i.e., the proposed appendix A to part 150.282 incidental test amends the incidental Commission intends to consider The economically appropriate test in test in current § 1.3(z)(1) by clarifying whether the person knew or should section 4a(c)(2) of the Act, applicable to that forward commercial operations may have known, based on the information physical commodities, also should also serve as the basis for a bona fide apply to excluded commodities because 277 available at the time, he or she was hedging position. This is consistent engaging in the conduct at issue. it has long been a fundamental with the Commission’s long-standing The Commission proposes to apply its requirement of a bona fide hedging 283 recognition of fixed-price purchase and policy regarding orderly markets for position. Current § 1.3(z)(1) contains 284 fixed-price sales contracts (which may purposes of the disruptive trading the economically appropriate test. specify forward delivery dates) as the practice prohibitions, to its orderly basis of certain enumerated hedges in 280 trading requirement for purposes of See Interpretive Guidance and Policy current § 1.3(z)(2). Statement on Antidisruptive Practices Authority, 78 Orderly trading requirement. The position limits. ‘‘The Commission’s FR 31890, 31895–96 (May 28, 2013) (available at proposed orderly trading requirement is policy is that an orderly market may be http://www.cftc.gov/ucm/groups/public/@ characterized by, among other things, lrfederalregister/documents/file/2013-12365a.pdf). intended to impose on bona fide 281 parameters such as a rational ‘‘Excluded commodity’’ is defined in section hedgers a duty of ordinary care when 1a(19) of the Act. 7 U.S.C. 1a(19). relationship between consecutive entering, maintaining and exiting the 282 See the discussion below of proposed market in the ordinary course of prices, a strong correlation between § 150.5(b)(5), requiring exchange hedge exemptions business and in order to avoid as price changes and the volume of trades, to exchange limits on contracts in an excluded levels of volatility that do not commodity to conform to the definition of bona fide practicable the potential for significant hedging position in § 150.1. The Dodd-Frank Act dramatically reduce liquidity, accurate expanded the authority of the Commission with 274 In relevant part, current § 1.3(z)(1) provides: relationships between the price of a respect to core principles applicable to exchange ‘‘Notwithstanding the foregoing, no transaction or derivative and the underlying such as a traded contracts in an excluded commodity, but did position shall be classified as bona fide hedging for physical commodity or financial not address directly the definition of bona fide purposes of section 4a of the Act unless their instrument, and reasonable spreads hedging positions for excluded commodities. The purpose is to offset price risks incidental to Dodd-Frank Act amended the core principles for commercial cash or spot operations and such between contracts for near months and DCMs and established core principles for SEFs, position are established and liquidated in an authorizing the Commission, by rule or regulation, orderly manner in accordance with sound 278 Compare, section 4c(a)(5)(B) of the Act, which to restrict the reasonable discretion of the exchange commercial practices and [unless other] provisions makes it unlawful for any person to engage in any in complying with core principles. 7 U.S.C. [of this definition] have been satisfied.’’ 17 CFR trading, practice, or conduct on or subject to the 7(d)(1)(B) and 7b–3(f)(1)(B). 1.3(z)(1). The second characteristic was contained rules of a registered entity that, for example, 283 See, e.g., the definition of bona fide hedging in vacated § 151.5(a)(1)(v). demonstrates intentional or reckless disregard for promulgated by the Commission’s predecessor in 275 See, Clarification of Certain Aspect of the the orderly execution of transactions during the § 1.3(z) of its regulations in 1975. 40 FR 11560, Hedging Definition, 52 FR 27195, Jul. 20, 1987 (July closing period. 7 U.S.C. 6c(a)(5)(B). Section 4c(a)(6) 11561, Mar. 12, 1975 (‘‘Bona fide hedging 1987 interpretative statement). of the Act authorizes the Commission to promulgate transactions or positions . . . shall mean sales of or 276 7 U.S.C. 6a(c)(1). such ‘‘rules and regulations as, in the judgment of short positions in any commodity for future 277 The incidental test was not contained in the Commission, are reasonable necessary to delivery . . . ,’’ (emphasis added)). vacated § 151.5(a)(1). This omission was not prohibit . . . any other trading practice that is 284 The Commission adopted this requirement in discussed in the preambles to the proposed or final disruptive of fair and equitable trading.’’ 7 U.S.C. § 1.3(z)(1) in 1977. 42 FR 42748, 42751, Aug. 24, rule. However, the incidental test was retained in 6c(a)(6). 1977. Prior to that time, the concept of amended § 1.3(z)(1) for excluded commodities. 76 279 See sections 4a(3)(B)(i) and (iv) of the Act. 7 economically appropriate to the reduction of risk in FR at 71683. U.S.C. 6a(3)(B)(i) and (iv). Continued

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The Commission notes that the concept exemptions for: (i) Unleveraged long the same definition to economically of the reduction of risk was long positions (covered by cash set aside); (ii) equivalent contracts would promote embodied in the statutory concept of short calls on securities or currencies administrative efficiency. Applying the ‘‘offset’’ prior to 1974.285 The owned (i.e., covered calls); and (iii) long same definition to economically economically appropriate test is positions in asset allocation strategies equivalent contracts also is consistent discussed further, below. covered by hedged debt securities or with congressional intent as embodied Under the proposed definition, an currencies owned (i.e., unleveraged in the expansion of the Commission’s exchange would be permitted to grant synthetic positions).287 The Commission authority to apply position limits to an exemption based on its rules that is proposing to withdraw the 1987 risk swaps (i.e., those that are economically were consistent with the enumerated management exemption interpretative equivalent to futures and swaps that exemptions in paragraphs (3)–(5) of the statement in light of incorporating its serve a significant price discovery proposed definition of bona fide concepts in proposed appendix A to function) and to direct-access linked hedging position. Current § 1.3(z)(1) also part 150, thus rendering that FBOT contracts.291 requires a bona fide hedging position to interpretative statement redundant. The be either (i) an enumerated exemption Commission requests comment on all Paragraph (2)(i) of the proposed in current § 1.3(z)(2) or (ii) a non- aspects of proposed appendix A to part definition would recognize as bona fide enumerated exemption under current 150. a position in a commodity derivative § 1.3(z)(3) (a non-enumerated exemption In addition, under the proposed contract that (i) represents a substitute may be granted under current § 1.47 as guidance for excluded commodities and for positions taken or to be taken at a a risk management exemption). The as is currently the case, there need not later time in the physical marketing enumerated exemptions in paragraphs be any temporary substitute test for a channel (i.e., the ‘‘temporary substitute’’ (3)–(5) of the proposed definition of bona fide hedging position in an test); (ii) is economically appropriate to bona fide hedging position contain all of excluded commodity. This is consistent the reduction of risks (i.e., the the enumerated exemptions in current with the Commission’s July 1987 ‘‘economically appropriate’’ test); and § 1.3(z)(2). The specifically enumerated interpretative statement that the (iii) arises from the potential change in exemptions also are discussed temporary substitute component need value of assets, liabilities or services separately, below. not apply to a bona fide hedging (i.e., the ‘‘change in value’’ The Commission is proposing to position in an excluded commodity.288 requirement), provided the position is incorporate as guidance in appendix A enumerated in paragraphs (3) through to part 150 the concepts in the 1987 risk e. Requirements for Hedges in a (5) of the definition, as discussed below. Physical Commodity—Paragraph (2) management exemptions interpretative This subparagraph would incorporate statement.286 The Commission believes The Commission is proposing to the provisions of section 4a(c)(2)(A) of that it would be consistent with the implement the statutory directive of the Act for futures and option contracts objectives of section 4a of the Act for section 4a(c)(2) of the Act in paragraph and also would include the provisions exchange rules to exempt from (2) of the proposed definition of bona of section 4a(c)(2)(B)(ii) of the Act, speculative limits a number of risk fide hedging position under § 150.1. The regarding swaps, by using the term management positions in commodity proposed definition for physical commodity derivative contracts, which derivative contracts in an excluded commodities would also include the includes swaps, futures and futures commodity. Such risk management general requirements of the opening option contracts. exemption positions would include, but paragraph, as is the case under current Temporary substitute test. The not be limited to, three types of § 1.3(z)(1) and as discussed above. Section 4a(c)(2) of the Act directs the temporary substitute test requires that a the operation of a commercial enterprise was not Commission to define what constitutes bona fide hedging position must separately articulated, but was reflected in the a bona fide hedging position for futures represent ‘‘a substitute for . . . positions incidental test (‘‘unless their bona fide purpose is and option contracts on physical taken or to be taken at a later time in to offset price risks incidental to commercial cash 292 289 a physical marketing channel.’’ or spot operations’’) in § 1.3(z)(1) as amended in commodities listed by DCMs. The 1975. 40 FR 11560, 11561, Mar. 12, 1975. Current Commission proposes to apply the same Paragraph (2)(i) of the proposed § 150.5(d) provides guidance to DCMs that definition to (i) swaps that are definition incorporates the temporary exchange regulations for bona fide hedging position economically equivalent to futures substitute test of section 4a(c)(2)(A)(i) of exemptions (including exemptions for excluded the Act. The express language of section commodity contracts) should be granted in contracts and (ii) direct-access linked accordance with current § 1.3(z)(1). 17 CFR 150.5(d) FBOT futures contracts that are 4a(c)(2)(A)(i) of the Act requires the See, for example, Chicago Mercantile Exchange economically equivalent to futures temporary substitute test to be a Rule 559.A., Bona Fide Hedging Positions, available contracts listed by DCMs.290 Applying necessary condition for classification of at http://www.cmegroup.com/rulebook/CME/I/5/ positions in physical commodities as 5.pdf, that provides: ‘‘The Market Regulation Department may grant exemptions from position 287 Id. at 34626. bona fide hedging positions. Section limits for bona fide hedge positions as defined by 288 52 FR 27195, Jul. 20, 1987 (July 1987 4a(c)(2)(A) of the Act incorporates many CFTC Regulation § 1.3(z)(1). Approved bona fide Interpretative Statement). See also House of aspects of the general definition of bona hedgers may be exempted from emergency orders Representatives Committee Report quoted at 52 FR fide hedging in current § 1.3(z)(1). that reduce position limits or restrict trading.’’ 34633, 34634, September 14, 1987, regarding 285 Prior to 1974, section 4a of the Act defined ‘‘futures positions taken as alternatives rather than However, there are significant bona fide hedging transactions as: ‘‘For the temporary substitutes for cash market positions.’’ differences. Section 4a(c)(2)(A)(i) of the purposes of this paragraph, bona fide hedging H.R. Rep No. 624, 99th Cong., 2d Sess. 1, 45–46 Act does not include the adverb transactions shall mean sales of any commodity for (1986). However, the Commission is proposing to ‘‘normally’’ to modify the verb future delivery on or subject to the rules of any withdraw the July 1987 Interpretative Statement, board of trade to the extent that such sales are offset since the temporary substitute test was added by ‘‘represents’’ in the phrase ‘‘represents a in quantity by the ownership or purchase of the the Dodd-Frank Act as a statutory requirement for substitute for transactions made or to be same cash commodity or, conversely, purchases of a bona fide hedging position in a physical made or positions taken or to be taken any commodity for future delivery on or subject to commodity. 7 U.S.C. 4a(c)(2)(A)(i). at a later time in a physical marketing the rules of any board of trade to the extent that 289 7 U.S.C. 6a(c)(2). such purchases are offset by sales of the same cash 290 This is consistent with the approach the commodity.’’ 7 U.S.C. 6a (1940). Commission took in vacated § 151.5. 76 FR 71643 291 7 U.S.C. 6a(a)(5)–(6). 286 52 FR 34633, Sep. 14, 1987. n.168. 292 7 U.S.C. 6a(c)(2)(A)(i).

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channel.’’ 293 In addition, Congress the unfilled anticipated requirement for would not qualify as a bona fide provided explicit requirements for the input commodity and the unsold hedging position. recognizing swaps as bona fide hedging anticipated production; such a hedge In order for a position to be positions in section 4a(c)(2)(B), would, for example, fully lock in the economically appropriate to the recognizing positions that reduce either value of soybean crush processing. reduction of risks in the conduct and the risk of swaps that meet the Alternatively, a processor may wish to management of a commercial enterprise, requirements of section 4a(c)(2)(A) of establish a calendar month hedge solely the enterprise generally should take into the Act or swaps that are executed in terms of the input commodity, to account all inventory or products that opposite a counterparty whose offset the price risk of the anticipated the enterprise owns or controls, or has transaction would qualify as bona fide input commodity and to cross- contracted for purchase or sale at a fixed under section 4a(c)(2)(A) of the Act. The commodity hedge the unsold price. For purposes of reporting cash statutory requirements are more anticipated production. In such an market positions under current part 19, stringent than the conditions for swap alternative, a processor has hedged the the Commission historically has risk management exemptions the commercial enterprise’s exposure to the allowed a reporting trader to ‘‘exclude Commission previously granted under value of the input commodity at the certain products or byproducts in § 1.3(z)(3) and § 1.47. As discussed expected time of acquisition and to the determining his cash positions for bona above, the Commission granted risk input commodity’s value component of fide hedging’’ if it is ‘‘the regular management exemptions for persons to the processed commodity at the business practice of the reporting offset the risk of swaps that did not expected later time of production and trader’’ to do so.296 The Commission has represent substitutes for transactions or sale. Unfilled anticipated requirements, determined to clarify the meaning of positions in a physical marketing unsold anticipated production and ‘‘economically appropriate’’ in light of channel, neither by the intermediary nor cross-commodity hedging are also this reporting exclusion of certain cash the counterparty. Thus, positions that discussed as enumerated hedges, below. positions. reduce the risk of such speculative The Commission affirms that gross Originally, the Commission intended swaps would no longer meet the hedging may be appropriate under for the optional part 19 reporting requirements for a bona fide hedging certain circumstances, when net cash exclusion to cover only cash positions transaction or position under the new positions do not measure total risk that were not capable of being delivered statutory criteria. exposure due to differences in the under the terms of any derivative Economically appropriate test. timing of cash commitments, the contract.297 The Commission Paragraph (2)(A)(ii) of the proposed location of stocks, and differences in differentiated between ‘‘products and definition incorporates the grades or types of the cash commodity byproducts’’ of a commodity and the 295 economically appropriate test of section being hedged. By way of example, a underlying commodity itself, the former 4a(c)(2)(A)(ii) of the Act. This statutory merchant may have sold a certain capable of exclusion from part 19 provision mirrors the provisions in quantity of a commodity for deferred reporting under normal business current § 1.3(z)(1). The Commission has delivery in the current year (i.e., a fixed- practices due to the absence of any provided interpretations and guidance price cash sales contract) and purchased derivative contract in such product or over the years as to the meaning of that same quantity of that same byproduct.298 This intention ultimately ‘‘economically appropriate’’ in current commodity for deferred receipt in the evolved to allow cross-commodity § 1.3(z)(1). For example, the next year (i.e., a fixed-price cash hedging of products and byproducts of purchase contract). Such a merchant Commission has indicated that hedges a commodity that were not necessarily would be exposed to value risks in the of processing margins by a processor, deliverable under the terms of any two cash contracts arising from different such as a soybean processor that derivative contract.299 establishes long positions in the delivery periods (that is, from a timing soybean contract and short positions in difference). Thus, although the 296 See current § 19.00(b)(1) (providing that ‘‘[i]f the soybean meal contact and the merchant has bought and sold the same the regular business practice of the reporting trader soybean oil contract, may be quantity of the same commodity, the is to exclude certain products or byproducts in economically appropriate.294 merchant may elect to offset the price determining his cash position for bona fide hedging risk arising from the cash purchase . . . , the same shall be excluded in the report’’). By way of example, a manufacturer 17 CFR 19.00(b)(1). may anticipate using a commodity that contract separately from the price risk 297 43 FR 45825, 45827, Oct. 4, 1978 (explaining it does not own as an input to its arising from the cash sales contract, that the allowance for eggs not kept in cold storage manufacturing process; however, the with each offsetting commodity to be excluded from reporting a cash position in manufacturer expects to change output derivative contract regarded as a bona eggs under part 19 ‘‘was appropriate when the only futures contract being traded in fresh shell eggs prices to offset substantially a change in fide hedging position. However, if such required delivery from cold storage warehouses.’’). price of the input commodity. For a merchant were to offset only the cash 298 See id. Prior to the Commission’s revision of example, processing by a soybean crush purchase contract, but not the cash sales the part 19 reporting exclusion for eggs, the operation or a fuel blending operation contract (or vice versa), then it exclusion allowed ‘‘eggs not in cold storage or reasonably would appear the offsetting certain egg products’’ not to be reported as a cash may add relatively little value to the position. 26 FR 2971, Apr. 7, 1961 (emphasis price of the input commodity. In such commodity derivative contract would added). Additionally, the title to the revised circumstances, it would be result in an increased value exposure of exclusion read, ‘‘Excluding products or byproducts economically appropriate for the the enterprise (that is, the risk of of the cash commodity hedged.’’ See 43 FR 45825, changes in the value of the cash 45828 (Oct. 4, 1978). So, in addition to a processor to offset the price risks of both commodity itself that was not deliverable under any commodity contract that was not offset derivative contract, the Commission also recognized 293 In contrast and as noted above, in current is likely to be higher than the risk of a separate class of ‘‘products and byproducts’’ that § 1.3(z)(1), the phrase ‘‘where such transactions or changes in the value of the calendar resulted from the processing of a commodity that positions normally represent a substitute for spread difference between the nearby it did not believe at the time were capable of being transactions to be made or positions to be taken at and deferred delivery period) and, so, hedged by any derivative contract for purposes of a later time in a physical marketing channel’’ has a bona fide hedge. been termed the ‘‘temporary substitute’’ criterion. the commodity derivative contract 299 See 42 FR 42748, Aug. 24, 1977. Cross- (Emphasis added.) commodity hedging is discussed as an enumerated 294 52 FR 38914, 38920, Oct. 20, 1987. 295 42 FR 14832, 14834, Mar. 16, 1977. hedge, below.

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The instructions to current Form 204 Commission is proposing that it will not the instant cases of swaps, the go a step further than current recognize as bona fide hedges the offset Commission has observed generally low § 19.00(b)(1) by allowing for a reporting of such swaps with physical-delivery usage among all traders of the physical- trader to exclude ‘‘certain source contracts during the lesser of the last delivery futures contract during the spot commodities, products, or byproducts in five days of trading or the time period month, relative to the existing exchange determining [ ] cash positions for bona for the spot month in such physical- spot-month position limits.305 The fide hedging.’’ (Emphasis added.) In line delivery commodity derivative contract Commission invites comments as to the with its historical approach to the (the ‘‘five-day’’ rule). extent to which traders actually have reporting exclusion, the Commission The Commission is proposing to use offset the risk of swaps during the spot does not believe that it would be its exemptive authority under section month in a physical-delivery futures economically appropriate to exclude 4a(a)(7) of the Act to net positions in contract with a position in excess of an large quantities of a source commodity futures, futures options, economically exchange’s spot-month position limit. held in inventory when an enterprise is equivalent swaps and direct-access The Commission has reviewed its calculating its value at risk to a source linked FBOT contracts in the same historical policy position regarding the commodity and it intends to establish a referenced contract for purposes of five-day rule for speculative limits in long derivatives position as a hedge of single month and all-months-combined the spot month in light of position unfilled anticipated requirements. As limits under proposed § 150.2, explained in the revisions to part 19, discussed below.302 Thus, a pass- information, including positions in through swap exemption would not be physical-delivery energy futures discussed below, a source commodity 306 itself can only be excluded from a necessary for a swap portfolio in contracts. For example, the calculation of a cash position if the referenced contracts that would Commission reviewed three years of amount is de minimis, impractical to automatically be netted with futures and confidential large trader data in cash- account for, and/or on the opposite side futures options in the same referenced settled and physical-delivery energy of the market from the market contract outside of the spot month contracts. The review covered actual participant’s hedging position. under the proposed rules. The positions held in the physical-delivery Change in value requirement. Commission historically has permitted energy futures markets during the three- Paragraph (2)(A)(iii) of the proposed non-enumerated risk management day spot period, among all traders definition incorporates the potential positions under § 1.3(z)(3) and § 1.47. (including those who had received change in value requirement of section Almost all exemptions historically hedge exemptions from their DCM). It 4a(c)(2)(A)(iii) of the Act. This statutory requested and granted under these showed that, historically, there have provision largely mirrors the provisions provisions were for risk management of been relatively few positions held in in current § 1.3(z)(1).300 The swap positions related to the excess (and those few not greatly in Commission notes that it uses the term agricultural commodities subject to excess) of the spot month limits. ‘‘price risk’’ to mean a ‘‘potential change federal position limits under part 150. Accordingly, the Commission generally in value.’’ To satisfy the change in value As noted above, the proposed rule is not inclined to change its long-held requirement, the purpose of a bona fide would impose a five-day rule during the policy views regarding physical- hedge must be to offset price risks spot-month. In the risk management incidental to a commercial enterprise’s exemptions for swaps issued to date by 305 Compare 76 FR at 71690. Vacated cash operations. The change in value the Commission under current § 151.5(a)(2)(3) recognized a pass-through swap offset during the spot period as an exception to the requirement is embedded in the concept § 1.3(z)(3) and § 1.47, the exemptions for swap offsets did not run to the spot five-day rule if the ‘‘pass-through swap position of offset of price risks. continues to offset the cash market commodity Pass-through Swaps and Offsets. month. As discussed above, the price risk of the bona fide hedging counterparty.’’ Subparagraph (2)(B) of the proposed Commission has long imposed a five- Based on a review of open positions in physical- definition would recognize as bona fide day rule in current § 1.3(z)(2) for other delivery futures contracts, the Commission no exemptions. For example, for hedges of longer believes it necessary to recognize offsets of a commodity derivative contract that swaps in the last few days of the expiring physical- reduces the risk of a position resulting unfilled anticipated requirements, the delivery contract and has not provided this from a swap executed opposite a Commission observed that historically additional provision in the current proposal. counterparty for which the position at there was a low utilization of this Rather, the Commission has decided to forego this provision in terms of actual positions exception to the five-day rule in the interest of the time of the transaction would ensuring that the price discovery function of the 303 qualify as a bona fide hedging position acquired in the futures market. For underlying market is not disrupted during the last under subparagraph (2)(A). This cross-commodity and short anticipatory few days of the spot period. Further, the provision generally mirrors the hedge positions, the Commission did Commission believes it would have been not believe that persons who do not administratively burdensome for a trader to provisions of section 4a(c)(2)(B)(i) of the demonstrate that its counterparty continued to have Act,301 and clarifies that the swap itself possess or do not have a commercial a bona fide hedging need through the spot period. is also a bona fide hedging position to need for the commodity for future 306 The Commission also relies upon the the extent it is offset. However, the delivery will normally wish to congressional shift evidenced in the Dodd-Frank participate in the delivery process.304 In Act amendments to the CEA, that directed the Commission, to the maximum extent practicable, in 300 Compare 7 U.S.C. 6a(c)(2)(A)(iii) and 17 CFR its discretion, (i) to diminish, eliminate, or prevent 1.3(z)(1). Note that § 1.3(z)(1)(ii) uses the phrase 302 This is consistent with netting permitted in excessive speculation, (ii) to deter and prevent ‘‘liabilities which a person owes or anticipate vacated § 151.4(b) of swaps with futures for market manipulation, squeezes, and corners, (iii) to incurring,’’ while section 4a(c)(2)(A)(iii)(II) uses the purposes of single-month and all-months-combined ensure sufficient market liquidity for bona fide phrase ‘‘liabilities that a person owns or anticipates limits. The Commission noted in that final hedgers, and (iv) to ensure that the price discovery incurring.’’ (Emphasis added.) The Commission rulemaking that it did ‘‘not believe that including function of the underlying market is not disrupted. interprets the word ‘‘owns’’ to be an error and the a risk management provision is necessary or 7 U.S.C. 6a(a)(3)(B). The five-day rule would serve word ‘‘owes’’ to be correct. appropriate given that the elimination of the class to prevent excessive speculation as a physical- 301 The Commission interprets the statutory limits outside of the spot-month will allow entities, delivery contract nears expiration, thereby deterring provision that requires that ‘‘the transaction would including swap dealers, to net Referenced Contracts or preventing types of market manipulations such qualify as a bona fide hedging transaction’’ to mean whether futures or economically equivalent swaps.’’ as squeezes and corners and protecting the price the swap position at the time of the transaction 76 FR at 71644. discovery function of the market. The restriction of would qualify as a bona fide hedging position. 7 303 42 FR 42748, Aug. 24, 1977. the five-day rule does not appear to deprive the U.S.C. 6a(c)(2)(B)(i). 304 Id. 42749. market of sufficient liquidity for bona fide hedgers.

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delivery futures contracts at this result in the sale of an exempt or the Commission adopt an anti-evasion time.307 agricultural commodity for immediate provision to address this concern? The Commission typically does not or deferred shipment or delivery.313 Furthermore, might some additional publish ‘‘general statistical Qualifying trade options are exempt safeguards be included to allow the information’’ 308 regarding large trader from all requirements of the CEA and Commission to provide administrative positions in the expiring physical- Commission’s regulations, except for simplicity through use of the delivery energy futures contracts certain enumerated provisions, presumption, while also limiting use of because of concerns that such data may including position limits.314 the presumption to evade other reveal information about the amount of The Commission is making regulations? market power a person may need to conforming changes to the trade option Further, the Commission requests ‘‘mark the close’’ 309 or otherwise exemption requirement that position comment on whether it would be manipulate the price of an expiring limits still apply. Under § 32.3(c)(2), appropriate to exclude trade options contract.310 ‘‘Part 151 (Position Limits)’’ of the from the definition of referenced Commission’s regulations applies to contracts and, thus, to exempt trade f. Trade Option Exemption every counterparty to a trade option ‘‘to options from the proposed position The Commission previously amended the same extent that [part 151] would limits. If trade options were excluded part 32 of its regulations to allow apply to such person in connection with from the definition of reference commodity options to trade subject to any other swap.’’ The Commission is contracts, then commodity derivative the same rules applicable to any other replacing the reference to ‘‘Part 151,’’ contracts that offset the risk of trade swap, unless the commodity option now vacated, with ‘‘Part 150’’ to clarify options would not automatically be qualifies under the new § 32.3 trade that the position limit requirements netted with such trade options for option exemption.311 In order to qualify proposed herein still would be purposes of non-spot month position for the trade option exemption, (i) both applicable to trade options qualifying limits. The Commission notes that offeror and offeree must be a producer, under the exemption. forward contracts are not subject to the processor, or commercial user of, or The Commission also is requesting proposed position limits; however, merchant handling the commodity that comment as to whether the Commission certain forward contracts may serve as is the subject of the commodity option should use its exemptive authority the basis of a bona fide hedging position transaction, or the products or under CEA section 4a(a)(7) 315 to exemption, e.g., an enumerated bona byproducts thereof, and both offeror and provide that the offeree of a commodity fide hedging position exemption is offeree must be offering or entering into option qualifying for the trade option available for the offset of the risk of a the commodity option transaction solely exemption would be presumed to be a fixed price forward contract with a short for purposes related to their business as ‘‘pass-through swap counterparty’’ for futures position. Should the such,312 and (ii) the option is intended purposes of the offeror of the trade Commission include trade options as to be physically settled such that, if option qualifying for the pass-through one of the enumerated exemptions (e.g., exercised, the commodity option would swap offset.316 Although the proposed paragraphs (3)(ii) and (iii) of Commission is proposing generally to the definition of bona fide hedging 307 Nevertheless, the Commission requests net futures and swaps in reference position under proposed § 150.1)? As an comment on whether the five-day rule should be contracts in the same commodity under alternative to excluding trade options waived for pass-through swaps and offsets in the event a position of the bona fide counterparty in the proposed § 150.2, as discussed below, from the definition of referenced physical-delivery futures contract would have been the Commission notes that cross- contract, should the Commission recognized as a bona fide hedging position. If so, commodity offsets of pass-through provide an exemption under CEA should a person be required to document the swaps would not be recognized unless section 4a(a)(7) that permits the offeree continuing bona fides of the counterparty to such swaps through the spot period, that is, in addition the counterparty to the swap is a bona or offeror to submit a notice filing to to the time of the transaction? Further, should a fide hedger. Would this presumption exclude their trade options from person also be required to have an unfixed-price help offerors determine the position limits? If so, why and under forward contract with the bona fide counterparty, appropriateness of carrying out cross- what circumstances? Are there any so that a person would have a bona fide need and other characteristics of trade options or ability to make or take delivery on the physical- commodity hedge transactions? delivery futures contract, analogous to the agent In addition, the Commission requests the parties to trade options that the provisions in proposed paragraph (3)(iv) of the comments on whether adopting such a Commission should consider? Would definition of bona fide hedging position? presumption might allow use of the any of these alternatives permit 308 As authorized by CEA section 8(a)(1). 7 U.S.C. exemption to evade Commission rules commodity options that should be 12(a)(1). regulated as swaps to circumvent the 309 Marking the close refers to, among other pertaining to swap transactions. Should things, the practice of acquiring a substantial protections established in the Dodd- position leading up to the closing period of trading 313 The Commission noted in the preamble to the Frank Act for the forward contract in a futures contract, followed by offsetting the trade option exemption that in determining delivery exclusion for non-financial position before the end of the close of trading, in intent, market participants could refer to the commodities? an attempt to manipulate prices in the closing guidance provided for the forward contract period. exclusion in the Product Definition rulemaking. See g. Enumerated Hedges—Paragraphs 310 The Commission gathers large trader position 77 FR at 25326. This guidance conveyed that the (3)–(5). reports on reportable traders in futures under part Commission’s ‘‘Brent Interpretation’’ is equally 17 of the Commission’s rules. That data has applicable to the forward exclusion from the swap Proposed paragraph (1)(i) would historically remained confidential pursuant to CEA definition as it was to the forward exclusion from require a bona fide hedging position in section 8. The Commission does, however, publish the ‘‘future delivery’’ definition, which allows for summary statistics for all-months-combined in its subsequently, separately negotiated book-out an excluded commodity to be Commitments of Traders Report, available on transactions to qualify for the forward contract enumerated under paragraphs (3), (4), or http://www.cftc.gov/MarketReports/ exclusion. See 77 FR 48208, 48228, Aug. 13, 2012 (5) of the definition or to be granted an CommitmentsofTraders/index.htm. (citing Statutory Interpretation Concerning Forward exemption under exchange rules 311 Transactions, 55 FR 39188, Sep. 25, 1990). See 17 CFR 32.2; Commodity Options, 77 FR consistent with the risk management 25320 (Apr. 27, 2012). 314 See 17 CFR 32.3(b)–(d). 312 Additionally, the offeror can be an eligible 315 7 U.S.C. 6a(a)(7). guidance of appendix A to part 150. contract participant (‘‘ECP’’) as defined in CEA 316 See the proposed § 150.1 definition of ‘‘bona Proposed paragraph (2)(i)(D) would section 1a(18). fide hedge exemption’’ at paragraph (2)(ii). require a bona fide hedging position in

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a physical commodity to be enumerated fide hedging positions in § 1.3(z)(2) for Commission is providing a summary under paragraphs (3), (4), or (5) of the physical commodities. Each of the comparison of the various provisions of definition. The Commission has enumerated provisions is discussed the proposed rule, vacated part 151, and historically enumerated acceptable bona below. For convenience, the current rules, in Table 4 below.

TABLE 4—PROPOSED, CURRENT, AND VACATED ENUMERATED BONA FIDE HEDGES

Paragraph in proposed definition Cash position underlying bona fide of bona fide hedging position Current § 1.3(z) and related hedging position under § 150.1 and related provisions Vacated part 151 definition provisions

Inventory and fixed-price cash com- (3)(i) ...... 1.3(z)(2)(i)(A) ...... 151.5(a)(2)(i)(A). modity purchase contracts. Fixed-price cash commodity sales (3)(ii) ...... 1.3(z)(2)(ii)(A) and (B) ...... 151.5(a)(2)(ii)(A) and (B). contracts. Unfilled anticipated requirements (3)(C)(i) ...... 1.3(z)(2)(ii)(C) ...... 151.5(a)(2)(ii)(C). for same cash commodity. Unfilled anticipated requirements (3)(C)(ii) ...... N/A ...... N/A. for resale by a utility. Hedges by agents ...... (3)(iv) ...... 1.3(z)(3) ...... 151.5(a)(2)(iv). Discussed as example of non- enumerated hedge. Unsold anticipated production ...... (4)(i) ...... 1.3(z)(2)(i)(B) ...... 151.5(a)(2)(i)(B). Offsetting unfixed-price cash com- (4)(ii) ...... 1.3(z)(2)(iii) ...... 151.5(a)(2)(iii). modity sales and purchases. Scope expanded in comparison to part 151. Anticipated royalties ...... (4)(iii) ...... N/A ...... 151.5(a)(2)(vi). Scope reduced in comparison to part 151 to ownership of royal- ties. Services ...... (4)(iv) ...... N/A ...... 151.5(a)(2)(vii). Cross-commodity hedges ...... (5) ...... 1.3(z)(2)(iv) ...... 151.5(a)(2)(viii). Scope expanded to permit cross- hedge of pass-through swap in comparison to part 151. Pass-through swap offset ...... (2)(ii)(A) ...... 1.3(z)(3) and 1.47 ...... 151.5(a)(3). Non-enumerated exemption for futures used in risk manage- ment of swaps. Pass-through swap ...... (2)(ii)(B) ...... N/A, as not subject to current fed- 151.5(a)(4). eral limits. Non-enumerated hedges ...... 150.3(e) ...... 1.3(z)(3) and 1.47 ...... 151.5(a)(5). Filing for anticipatory hedges ...... 150.7 ...... 1.3(z) and 1.48 ...... 151.5(d). N/A denotes not applicable.

For clarity, the proposed definition context of position limits.318 Second, the proposed definition would be uses the terms long positions and short applicable to positions in commodity positions in commodity derivative 318 The statutory definition of bona fide hedging derivative contracts (i.e., futures, contracts as those terms are proposed to in section 4a(3) of the Act (prior to the CFTC Act options thereon, swaps and direct- of 1974) used the terms ‘‘sales of any commodity be defined, rather than the terms for future delivery . . . to the extent that such sales access linked FBOT contracts) rather purchases or sales of any commodity for are offset in quantity by the ownership or purchase than only to futures and options future delivery, used in current of the same cash commodity’’ and ‘‘purchases of contracts. As noted above, the § 1.3(z)(2). These clarifications are for any commodity for future delivery . . . to the Commission preliminarily believes it extent that such purchases are offset by sales of the two reasons. First, the proposed same cash commodity.’’ 7 U.S.C. 6a(3) (1940). appropriate to apply the same definition definition only addresses bona fide Following enactment of the CFTC Act, the Secretary of bona fide hedging positions to all hedging positions, and does not address of Agriculture’s initial proposed definition of bona physical commodity derivative fide hedging transactions or positions makes clear contracts subject to federal limits. bona fide hedging transactions. this understanding, as that definition provided, in Although the language of current relevant part, for ‘‘sales of, or short positions in any The Commission notes that DCMs and § 1.3(z)(2) was written to address commodity for future delivery . . . to the extent SEFs may impose additional conditions purchase or sales transactions, the that such sales or short positions are offset in quantity by the ownership or fixed-price purchase on holders of positions in commodity Commission eliminated daily of the same cash commodity’’ and for ‘‘purchases derivative contracts, particularly in the speculative trading volume limits in of, or long positions in, any commodity for future spot month. The Commission has long 1979, as noted above.317 The delivery . . . to the extent that such purchases or relied on the DCMs to protect the Commission and its predecessor has long positions are offset by fixed-price sales of the same cash commodity. . . .’’ 39 FR 39731, Nov. 11, integrity of the exchange’s delivery long interpreted the terms sales or 1974. The Commission adopted that same language process in physical-delivery contracts. purchases of futures contracts in in its initial definition of bona fide hedging Congress recognizes this obligation, § 1.3(z)(2) to mean short or long transactions or positions. 40 FR 48688, 48689, Oct. including in core principle 5, which positions in futures contracts in the 17, 1975. In both the proposed and final rules in 1977, the Commission was silent as to why it omitted the clarifying phrases ‘‘long positions’’ and Mar. 16, 1977; Final Rule, 42 FR 42748, Aug. 24, 317 44 FR 7124, Feb. 6, 1979. ‘‘short positions.’’ Proposed Rule, 42 FR 14832, 1977.

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requires DCMs to consider position A person can use a commodity This provision mirrors the requirement limitations or position accountability for derivative contract to hedge inventories of current § 1.3(z)(2)(ii)(C). An speculators to reduce the potential of a cash commodity that is deliverable appropriate hedge of unfilled threat of market manipulation or on that physical-delivery contract. Such anticipated requirements would be to congestion, especially during trading in a deliverable cash commodity inventory establish a long position in a commodity the delivery month.319 Exchanges will need not be in a delivery location. derivative contract to offset the risk of typically impose on large short position However, the Commission notes that a such unfilled anticipated requirements. holders in a physical-delivery contract a DCM or SEF may prudentially require Under the proposal, such long continuing obligation to compare cash such short positions holders to positions may not be held into the lesser market and futures market prices in the demonstrate the ability to move the of the last five days of trading or the spot month and to liquidate the commodity into a deliverable location, time period for the spot month in a derivative position (i.e., buy back the particularly during the spot month.322 physical-delivery commodity derivative short position) if the commodity may be Once inventory has been sold, a contract (the five-day rule), with the sold at a more favorable (higher) price person is permitted a commercially exception that a person may hold long in the cash market. Further, exchanges reasonable time period, as necessary to positions that do not exceed the will typically impose on large long exit the market in an orderly manner, to person’s unfilled anticipate position holders in a physical-delivery liquidate a position in commodity requirements of the same cash contract a continuing obligation to derivative contracts in excess of a commodity for the next two months. As compare cash market and futures market position limit. Generally, the noted above, the CME Group and the prices in the spot month and to Commission believes such time period Working Group pointed out that liquidate the derivative position (i.e., would be less than one business day. previously, persons engaged in sell the long position) if the commodity Cash commodity sales contracts— purchases of futures contracts have been may be purchased at a more favorable paragraph (3)(B). Fixed-price cash permitted to hold up to twelve months (lower) price in the cash market. commodity sales have long served as the unfilled anticipated requirements of the Exchanges can continue these practices basis of a bona fide hedging position.323 same cash commodity for processing, under the proposed rule. This provision is in current manufacturing, or feeding by the same § 1.3(z)(2)(ii)(A) and (B). A commercial (1) Exemption-by-Exemption Discussion person, provided that such transactions enterprise is exposed to price risk if it and positions in the five last trading Inventory and cash commodity has entered into a fixed-price sales days of any one futures do not exceed purchase contracts—paragraph (3)(A). contract, whether spot or forward, the person’s unfilled anticipated Inventory and fixed-price cash calling for delivery in the physical requirements of the same cash commodity purchase contracts have marketing channel of a commodity and commodity for that month and for the long served as the basis of a bona fide has not offset that price risk, for next succeeding month. hedging position.320 This provision is in example, by entering into a fixed-price Utility hedging unfilled anticipated current § 1.3(z)(2)(i)(A). A commercial purchase contract. An appropriate requirements of customers—paragraph enterprise is exposed to price risk if it hedge of a fixed-price sales contract (3)(iii)(B). The Commission is proposing has (i) obtained inventory in the normal would be to establish a long position in a new exemption for unfilled course of business or (ii) entered into a a commodity derivative contract to anticipated requirements for resale by a fixed-price purchase contract, whether offset the risk of such cash market utility. This provision is analogous to spot or forward, calling for delivery in contact. Such long position may be held the unfilled anticipated requirements the physical marketing channel of a into the spot month in a physical- provision of paragraph (3)(iii)(A), except commodity; and has not offset that price delivery contract if economically the commodity is not for use by the risk. For example, an enterprise may appropriate. same person—that is, the utility—but offset such price risk in the cash market Unfilled anticipated requirements— rather for anticipated use by the utility’s by entry into fixed-price sales contracts. paragraph (3)(C)(i). Unfilled anticipated customers. The proposed new An appropriate hedge of inventory or a requirements for the same cash exemption would recognize a bona fide fixed-price purchase contract would be commodity have long served as the hedging position where a utility is basis of a bona fide hedging position.324 to establish a short position in a required or encouraged to hedge by its commodity derivative contract to offset public utility commission (‘‘PUC’’). the risk of such position. Such short 322 Further, the Commission notes an exchange, pursuant to its position accountability rules, may at Request Six of the Working Group position may be held into the spot any time direct a trader that is in excess of petition asked the Commission to grant month in a physical-delivery contract if accountability levels to reduce a position in a relief with respect to a long position in economically appropriate.321 contract traded on that exchange. a commodity derivative contract that 323 See, e.g., 7 U.S.C. 6a(3)(1970). That statutory definition of bona fide hedging included arises from natural gas utilities’ desire to 319 7 U.S.C. 7(d)(5). hedge the price of gas that they expect 320 ‘‘purchases of, or long positions in, any commodity See, e.g., 7 U.S.C 6a(3) (1970). That statutory for future delivery on or subject to the rules of any definition of bona fide hedging included ‘‘sales of, to purchase and supply to their retail contract market made or held by such person to the customers. In support of its petition, the or short positions in, any commodity for future extent that such purchases or long positions are delivery on or subject to the rules of any contract offset by sales of the same cash commodity by the Working Group provided evidence that market made or held by such person to the extent same person.’’ hedging natural gas price risk, which that such sales or short positions are offset in 324 See, e.g., 7 U.S.C. 6a(3)(C) (1970). That quantity by the ownership or purchase of the same includes some combination of fixed- statutory definition of bona fide hedging included price supply contracts, storage and cash commodity by the same person.’’ ‘‘an amount of such commodity the purchase of 321 For example, it would not appear to be which for future delivery shall not exceed such derivatives, is a prudent risk economically appropriate to hold a short position person’s unfilled anticipated requirements for management practice that limits in the spot month of a commodity derivative processing or manufacturing during a specified volatility in the prices ultimately paid contract against fixed-price purchase contracts that operating period not in excess of one year: 325 provide for deferred delivery in comparison to the Provided, That such purchase is made and by consumers. delivery period for the spot month commodity liquidated in an orderly manner and in accordance derivative contract. This is because the commodity with sound commercial practice in conformity with 325 See, e.g., ‘‘Use of Hedging by Local Gas under the cash contract would not be available for such regulations as the Secretary of Agriculture may Distribution Companies: Basic Considerations and delivery on the commodity derivative contract. prescribe.’’ Continued

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Materials submitted in support of the agent has a contractual arrangement The Commission is considering Working Group petition 326 make it clear with the person who owns the permitting the exchange listing the that the risk management transactions— commodity or holds the cash market physical-delivery commodity derivative fixed-price contracts, storage, and commitment being offset. The contract to administer exemptions to the derivatives—engaged in by a typical Commission historically has recognized five-day rule upon application to such natural gas utility to reduce risk a merchandising transaction as a bona exchange specifying the unsold forward associated with anticipated fide hedge in the narrow circumstances production that could be moved into requirements of natural gas are used to of an agent responsible for delivery position. The Commission fulfill its obligation to serve retail merchandising a cash market position requests comment on this alternative. customers and are typically considered which is being offset.327 Offsetting unfixed-price cash by the state PUC as prudent. The PUC Other enumerated hedging commodity sales and purchases— may indeed obligate the natural gas positions—paragraph (4). Each of the paragraph (4)(ii). Offsetting unfixed- utility to hedge some portion of the other enumerated hedging positions price cash commodity sales and supply of natural gas needed to meet the would be subject to the five-day rule for purchases basis different delivery needs of its customers and may take physical-delivery contracts. The months in the same commodity regulatory action if the utility fails to do Commission reiterates the intent of the derivative contract have long served as so. As a result, in order to mitigate the five-day rule is to protect the integrity the basis of a bona fide hedging impact of natural gas price volatility on of the delivery process in physical- position. 330 This provision is in current the cost of natural gas acquired to serve delivery contracts. The reorganization § 1.3(z)(2)(iii). The Commission its regulated retail natural gas into new paragraph (4) of existing explained a major rationale for this customers, a utility may enter into long provisions in 1.3(z) subject to the five- exemption for spread positions was to positions in commodity derivative day rule is intended for administrative facilitate commercial risk shifting contracts to hedge a specified ease. positions which may not have otherwise percentage of such customers’ Unsold anticipated production— conformed to the definition of bona fide anticipated natural gas requirements paragraph (4)(i). Unsold anticipated hedging.331 over a multi-year horizon. The utility’s production has long served as the basis The proposed enumerated provision PUC considers such hedging practices to of a bona fide hedging position.328 This would be expanded from current be prudent and has allowed gains and provision is in current § 1.3(z)(2)(i)(B). § 1.3(z)(2)(iii) to include unfixed-price losses related to such hedging activities The Commission historically has cash contracts basis different to be retained by its regulated retail recognized twelve months of unsold commodity derivative contracts in the natural gas customers. anticipated production in an same commodity, regardless of whether The Commission recognizes the agricultural commodity as the basis of a the commodity derivative contracts are highly regulated nature of the natural bona fide hedging position. Under the in the same calendar month.332 The gas market, where state-regulated public proposal, this twelve-month restriction Commission notes a commercial utilities may have rules or guidance would not apply to physical-delivery enterprise may enter into the described concerning locking in the costs of contracts that were not in an transactions to reduce the risk arising anticipated requirements for retail agricultural commodity. from either (or both) a location customers through a number of means, The Commission is considering differential or a time differential in including fixed-price purchase relaxing the five-day rule to permit a unfixed price purchase and sale contracts, storage, and commodity person to hold a position in a physical- contracts in the same cash delivery commodity derivative contract, derivative contracts. Moreover, since the commodity.333 The contemplated other than in an agricultural public utility typically does not directly derivative transactions represent a commodity, through the close of the profit from the results of its hedging substitute for two transactions to be spot month that does not exceed in activity (because most or all of the gains made at a later time in a physical quantity the reasonably anticipated derived from hedging are passed on to marketing channel: a fixed-price unsold forward production that would customers, e.g., through the price purchase and a fixed-price sale of the charged for natural gas), the utility has be available for delivery under the terms of a physical-delivery commodity no incentive to speculate. have been recognized as a basis for a bona fide The Commission invites comments on derivative contract. For example, a hedging position under the five-day rule. all aspects of this new enumerated bona person with a significant number of 330 The Commission added this enumerated fide hedging exemption. producing natural gas wells may be exemption to the definition of bona fide hedging in Hedges by agents—paragraph (3)(iv). highly certain that she can be a position 1987. 52 FR 38914, Oct. 20, 1987. 331 51 FR 31648, 31650, September 4, 1986. ‘‘In The Commission is proposing an to deliver natural gas on the physical- 329 particular, a cotton merchant may contract to enumerated exemption for hedges by an delivery natural gas futures contract. purchase and sell cotton in the cash market in agent who does not own or has not relation to the futures price in different delivery contracted to sell or purchase the 327 This provision is included in current months for cotton, i.e., a basis purchase and a basis § 1.3(z)(3) as an example of a potential non- sale. Prior to the time when the price is fixed for offsetting cash commodity at a fixed enumerated case. 17 CFR 1.3(z)(3). Compare each leg of such a cash position, the merchant is price, provided that the agent is vacated § 151.5(a)(2)(iv). subject to a variation in the two futures contracts responsible for merchandising the cash 328 See 7 U.S.C 6a(3)(A) (1940). That statutory utilized for price basing. This variation can be offset positions that are being offset in definition of bona fide hedging, enacted in 1936, by purchasing the future on which the sales were included ‘‘the amount of such commodity such based [and] selling the future on which [the] commodity derivative contracts and the person is raising, or in good faith intends or expects purchases were based.’’ Id. (n. 3). to raise, within the next twelve months, on land (in 332 The Working Group requested this expansion Regulatory Issues,’’ K. Costello and J. Cita, The the United States or its Territories) which such in Requests One and Two. National Regulatory Research Institute at the Ohio person owns or leases.’’ 333 A location differential is the difference in State University (May 2001). All supporting 329 In contrast, prior to harvest, a farmer must price between two derivative contracts in the same materials provided by the Working Group are plant and manage a crop until it is ripe. Anticipated commodity (or substantially the same commodity) available at http://sirt.cftc.gov/sirt/sirt.aspx? agricultural production may not be available timely at two different delivery locations on the same (or Topic=CommissionOrdersandOtherActionsAD& at a delivery location for a futures contract. Thus, similar) delivery dates. A location differential also Key=23082. historically, only inventories of agricultural may underlie a single derivative contract that is 326 Id. commodities, rather than anticipated production, called a basis contract.

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same cash commodity. The commercial derivative contracts that would be historically, royalties have been paid for enterprise intends to later take delivery ‘‘offset by the anticipated change in use of land in agricultural on one unfixed-price cash contract and value of royalty rights that are owned by production,339 the Commission has not to re-deliver the same cash commodity the same person . . . [and] arise out of received any evidence of a need for a on another unfixed-price cash contract. the production, manufacturing, bona fide hedging exemption from There may be no substantive difference processing, use, or transportation of the owners of agricultural production in time between taking and making commodity underlying the [commodity royalties. The Commission nonetheless delivery in the physical marketing derivative contract], which may not invites comment on all aspects of this channel, but the derivative contracts do exceed one year for agricultural’’ new royalty exemption. not offset each other because they are in commodity derivative contracts; such Services—paragraph (4)(iv). The two different contracts (e.g., the NYMEX positions would be subject to the five- Commission is proposing the hedging of Light Sweet Crude Oil futures contract day rule. services as a new enumerated hedge in versus the ICE Europe Brent crude The Commission has reconsidered subparagraph (4)(iv) of the proposed futures) or two different instruments that exemption in vacated definition. This new exemption is not (e.g., swaps versus futures). The § 151.5(a)(2)(vi) and now re-proposes it without Commission precedent. For contemplated derivative positions will as an enumerated exemption for short example, in 1977, the Commission offset the risk that the difference in the positions in commodity derivative noted that the existence of futures expected delivery prices of the two contracts offset by the anticipated markets for both source and product unfixed-price cash contracts in the same change in value of mineral royalty rights commodities, such as soybeans and commodity will change between the that are owned by the same person and soybean oil and meal, afford business time the hedging transaction is entered arise out of the production of a mineral firms increased opportunities to hedge and the time of fixing of the prices on commodity (e.g., oil and gas); such the value of services.340 The the purchase and sales cash contracts. positions would be subject to the five- Commission’s current proposal is Therefore, the contemplated derivative day rule. This proposed exemption similar to vacated § 151.5(a)(2)(vii).341 positions are economically appropriate differs from the exemption in vacated That provision would have recognized to the reduction of risk. § 151.5(a)(2)(vi) because it applies only ‘‘sales or purchases’’ in commodity In the case of reducing the risk of a to: (i) Short positions; (ii) arising from derivative contracts that would be location differential, and where each of production; and (iii) in the context of ‘‘offset by the anticipated change in the underlying transactions in separate mineral extraction. value of receipts or payments due or derivative contracts may be in the same A royalty arises as ‘‘compensation for expected to be due under an executed contract month, the Commission notes the use of property . . . [such as] contract for services held by the same that a position in a basis contract would natural resources, expressed as a person . . . [and] the contract for not be subject to position limits, as percentage of receipts from using the services arises out of the production, discussed in the proposed definition of property or as an account per unit manufacturing, processing, use, or referenced contract. produced.’’ 337 A short position is the transportation of the commodity The Commission notes that upon proper offset of a yet-to-be received underlying the [commodity derivative fixing the price of, or taking delivery on, payment based on a percentage of contract], which may not exceed one the purchase contract, the owner of the receipts per unit produced for a royalty year for agricultural’’ commodity cash commodity may hold the short that is owned. This is because a short derivative contracts; such positions derivative leg of the spread as a hedge position fixes the price of the would be subject to the five-day rule. against a fixed-price purchase or anticipated receipts, removing exposure That provision also made such positions inventory.334 However, the long to change in value of the person’s share subject to a provision for cross- derivative leg of the spread would no of the production revenue.338 In commodity hedging, namely that, ‘‘The longer qualify as a bona fide hedging contrast, a person who has issued a fluctuations in the value of the position position since the commercial entity has royalty has, by definition, agreed to in [commodity derivative contracts] are fixed the price or taken delivery on the make a payment in exchange for value substantially related to the fluctuations purchase contract. Similarly, if the received or to be received (e.g., the right in value of receipts or payments due or commercial entity first fixed the price of to extract a mineral). Upon extraction of expected to be due under a contract for the sales contract, the long derivative a mineral and sale at the prevailing cash services.’’ 342 leg of the spread may be held as a hedge market price, the issuer of a royalty The Commission has reconsidered its against a fixed-price sale,335 but the remits part of the proceeds in proposed exemption in vacated short derivative leg of the spread would satisfaction of the royalty agreement. § 151.5(a)(2)(vii) and now re-proposes no longer qualify as a bona fide hedging Thus, the issuer of a royalty does not an enumerated exemption that is largely position. have price risk arising from that royalty the same, save for deleting the cross- Anticipated royalties—paragraph agreement. commodity hedging provision in this (4)(iii). The new enumerated exemption The Commission preliminarily enumerated exemption, as that would permit an owner of a royalty to believes that ‘‘manufacturing, provision is included under the cross- lock in the price of anticipated mineral processing, use, or transportation’’ of a production. The Commission initially commodity does not conform to the 339 For example, corn ‘‘rents’’ were cited in An recognized the hedging of anticipated meaning of the term royalty. Further, Inquiry into the Nature and Causes of the Wealth royalties in vacated § 151.5(a)(2)(vi).336 of Nations, Smith, Adam, 1776, at cp. 5, available while the Commission recognizes that, at: http://www.gutenberg.org/files/3300/3300-h/ That provision would have recognized 3300-h.htm. This eBook is for the use of anyone ‘‘sales or purchases’’ in commodity 337 Black’s Law Dictionary, 6th Ed. anywhere at no cost and with almost no restrictions 338 A short position fixes the price at the entry whatsoever. You may copy it, give it away, or re- 334 See proposed paragraph (3)(i) of the definition price to the commodity derivative contract. For any use it under the terms of the Project Gutenberg of bona fide hedging position under § 150.1. decrease (increase) in price of the commodity License included with this eBook or online at 335 See proposed paragraph (3)(ii) of the produced, the expected royalty would decline www.gutenberg.org. definition of bona fide hedging position under (increase) in value, but the commodity derivative 340 42 FR 14832, 14833, Mar. 16, 1977. § 150.1. contract would increase (decrease) in value, 341 76 FR at 71689. 336 76 FR at 71689. offsetting the price risk in the royalty. 342 Vacated § 151.5(a)(2)(vii)(B).

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commodity hedging exemption, Under the proposed enumerated relative to all traders. Such large discussed below. Thus, the proposed exemption, cross-commodity hedging positions may interfere with exemption would recognize ‘‘sales or would be conditioned on: (i) The convergence of the commodity purchases’’ in commodity derivative fluctuations in value of the position in derivative contract with the cash market contracts that are ‘‘offset by the the commodity derivative contract (or price, since the supply and demand anticipated change in value of receipts the commodity underlying the expectations for cross-commodity or payments due or expected to be due commodity derivative contract) are hedgers may differ from those of under an executed contract for services substantially related to the fluctuations persons hedging price risks of the by the same person . . . [and] the in value of the actual or anticipated cash commodity underlying the physical- contract for services arises out of the position or pass-through swap (the delivery derivative. production, manufacturing, processing, ‘‘substantially related’’ test); and (ii) the Substantially related test. The use, or transportation of the commodity five-day rule being applied to positions Commission is proposing guidance on which may not exceed one year for in any physical-delivery commodity the meaning of the substantially related agricultural’’ commodity derivative derivative contract.346 As discussed contracts; such positions would be above, the five-day rule would not test. The Commission is proposing a subject to the five-day rule. non-exclusive safe harbor for cross- restrict positions in cash-settled 347 As the Commission previously noted contracts, but would restrict only commodity hedges. The safe harbor and under this proposed exemption, positions in physical-delivery would have two factors: (i) Qualitative; ‘‘crop insurance providers and other commodity derivative contracts. Thus, and (ii) quantitative. agents that provide services in the the Commission is protecting the Qualitative factor: As a first factor in physical marketing channel could integrity of the delivery process in the assessing whether a cross-commodity qualify for a bona fide hedge of their physical-delivery contract. Further, as hedge is bona fide, the target commodity contracts for services arising out of the noted above, few traders typically hold should have a reasonable commercial production of the commodity a position in excess of the position relationship to the commodity underlying a [commodity derivative limits during the last few days of the underlying the commodity derivative 343 contract].’’ The Commission invites spot month. Hence, a cross-commodity contract. For example, there is a comment on all aspects of this new hedger who held a position deep into reasonable commercial relationship services exemption. the spot month in excess of the spot between grain sorghum (commonly (2) Cross-Commodity Hedges— position limit likely would be large called milo), used as a food grain for Paragraph (5) humans or as animal feedstock, with commercial need to maintain cross-hedge positions The proposed cross-commodity corn underlying a commodity derivative during the last five trading days of any expiring contract.348 hedging provision would apply to all contract. It believed the five-day restriction was enumerated hedges in paragraphs (3) necessary to guarantee the integrity of the markets. In contrast, there does not appear to and (4) of the definition of bona fide The Commission considered there was little be a reasonable commercial relationship commercial utility of such positions during the last hedging position, as well as to pass- five days of trading to offset anticipated production, between a physical commodity and a 344 through swaps under paragraph (2). which at that time was limited to agricultural stock price index; while long-term price The Commission has long recognized commodities. The Commission considered its series of such commodities may be cross-commodity hedging, noting in responsibility for orderly markets and concluded statistically related by either inflation or not to propose an enumerated exemption in the last 1977 that sales for future delivery of any five days of trading for anticipatory production. See measures of economic activity, such product or byproduct which is offset by also 7 U.S.C. 6a(3)(B) (1970). That statutory disparate commodities do not appear to the ownership of fixed-price purchase of definition of bona fide hedging included ‘‘an have the requisite commercial the source commodity would be covered amount of such commodity the sale of which for relationship. Such correlation appears by the general provisions for cross- future delivery would be a reasonable hedge against the products or byproducts of such commodity for this purpose to be spurious. 345 commodity hedging in § 1.3(z)(2). owned or purchased by such person, or the purchase of which for future delivery would be a 347 The Commission understands that cross- 343 76 FR at 71654. reasonable hedge against the sale of any product or commodity hedges in physical commodities are not 344 Compare with vacated § 151.5(a)(2)(viii), byproduct of such commodity by such person.’’ Id. generally recognized by accountants as eligible for which provided for cross-commodity hedges in 346 Compare with current § 1.3(z)(2)(iv), which hedge accounting treatment. enumerated positions but not for pass-through requires compliance with the substantially related 348 See, e.g., ‘‘The Alternative Field Crops swaps. test and with the five-day rule, and does not Manual,’’ University of Minnesota, November 1989, 345 42 FR 14832, 14834, Mar. 16, 1977. The provide an exception to the five-day rule for cash- Commission noted its belief that there is little settled contracts. available at http://www.hort.purdue.edu/newcrop/ afcm/sorghum.html.

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Quantitative factor: The target series data of at least daily frequency give rise to spurious values for the commodity should also be offset by a should be used, if available. ‘‘goodness of fit’’ and other statistics.351 position in a commodity derivative The Commission will presume that Thus, a quantitative analysis should be contract that provides a reasonable positions in a commodity derivative performed using first differences or quantitative correlation and in light of contract that does not meet the safe returns (percentage price changes) so as available liquid commodity derivative harbor are not bona fide cross- to render the time series stationary.352 contracts. The Commission will commodity hedging positions. However, However, the Commission is not presume an appropriate quantitative a person may rebut this presumption proposing to condition the substantially relationship exists when the correlation upon presentation of facts and related test on any particular hedge ratio (R), between first differences or returns circumstances demonstrating a methodology. reasonable relationship between the in daily spot price series for the target By way of example, the Commission spot price series for the commodity to commodity and the price series for the believes that fluctuations in the value of be hedged and either the spot price commodity underlying the derivative electricity contracts typically will not be series for the commodity underlying the substantially related to fluctuations in contract (or the price series for the commodity derivative contract or the value of natural gas. There may not be derivative contract used to offset risk), price series for the commodity a substantial relation, for example, is at least 0.80 for a time period of at derivative contract to be used for 349 because the marginal pricing in a spot least 36 months. When less granular hedging. A person should consider market may be driven by the price of price series than daily are used, R whether there is an actively traded something other than natural gas, such typically will be higher. Thus, price commodity derivative contract that as nuclear, coal, transmission, outages, would meet the safe harbor, in light of or water/hydroelectric power 349 By way of comparison, accounting practice liquidity considerations. A person may generation. Table 5 below shows may look to goodness of fit (R2) to be at least 0.80. seek interpretative relief under § 140.99 The proposed correlation (R) of 0.80 corresponds to illustrative simple correlations, both in an R2 of 0.64, substantially less than accounting for recognition of such a position as a terms of levels and returns, between practice. Further, accounting practice may look to bona fide hedging position. spot electricity prices and natural gas the coefficient (hedge ratio) from a regression Generally, a regression or time series (both spot Henry Hub prices and the analysis to be in the range of negative 0.80 to 1.25. analysis of prices should be performed nearby NYMEX Henry Hub Natural Gas The Commission notes that the size of this coefficient is dependent upon the unit of trading for to determine an appropriate hedge futures prices, assuming a roll to the 350 the hedging instrument and the unit of trading for ratio. Many price series are non- next deferred futures contract on the the target of the hedge. To the extent both may be stationary because the prices increase eleventh calendar day of each month). expressed in similar terms, the coefficient may fall with time and, thus, do not revert to a These correlations are much lower than within the range suggested by accounting practice. mean (i.e., stationary) price level. A However, given standardized hedging instruments the proposed safe harbor level of 0.80. such as futures are fixed in terms of a particular regression on non-stationary data can price quote for a commodity (such as in dollars per 351 ‘‘Goodness of fit’’ is defined as: ‘‘A general bushel) and the target of a cross-commodity hedge 350 The Commission notes this safe harbor is term describing the extent to which an may not have units fixed in the same terms (such intentionally written in general terms. Appropriate econometrically estimated equation fits the data. as in dollars per hundred weight), the hedge ratio hedge ratios may be determined using an There are various ways of summarizing this will depend on a fairly arbitrary choice of units to appropriate model, including but not limited to concept, including the coefficient of determination express the price series of the target of the hedge. ordinary lease squares (OLS), autoregressive and adjusted R2.’’ ‘‘The MIT Dictionary of Modern Thus, the Commission is not proposing any conditional heteroscedasticity (ARCH), generalized Economics,’’ 4th Ed. (1996). particular safe harbor or requirement for a hedge autoregressive conditional heteroscedasticity 352 ratio. (GARCH), or an error-correction model (ECM). See, e.g., ‘‘A Guide to Econometrics,’’ 5th Ed., The MIT Press (2003), at p.319.

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TABLE 5—CORRELATIONS—SPOT ELECTRICITY PRICES AND NATURAL GAS (SPOT AND FUTURES) PRICES JANUARY 2, 2009 TO MAY 14, 2013

Price series: Correlations using: Henry Hub spot Henry Hub futures

Houston electricity ...... Levels ...... 0.1333 0.0630 Returns ...... 0.1264 0.0488 PJM electricity ...... Levels ...... 0.4415 0.2724 Returns ...... 0.0987 0.0153 New England electricity ...... Levels ...... 0.3450 0.2422 Returns ...... 0.1808 0.0121 Data sources: Henry Hub Gulf Coast Natural Gas Spot Price ($ per mmBTUs) and Natural Gas Futures Contracts ($ per mmBTU), source: US Energy Information Administration, available at http://www.eia.gov/dnav/ng/ng_pri_fut_s1_d.htm; Wholesale Day Ahead Prices at Selected Hubs, Peak (5/16/2013), source: US Energy Information Administration, republished from the Intercontinental Exchange (ICE), available at http:// www.eia.gov/electricity/wholesale/.

Alternatively, a generator of specifically enumerated in paragraphs merchandising transactions as bona fide electricity that owns or leases a natural (3), (4), and (5) of the proposed hedges due to its historic view that gas generator may qualify for an unfilled definition of bona fide hedging position, merchandizing transactions generally anticipated requirements bona fide the extent to which such hedging fail to meet the economically hedge to meet a fixed price power practices reflect industry standards or appropriate test.354 The Commission commitment (sale of electricity). The best practices and the particular sources explained, ‘‘A merchant may anticipate position that is hedged is the quantity of changes in value that such hedging that it will purchase and sell a certain equivalent of natural gas through the positions offset. amount of a commodity, but has not generator to meet the contracted fixed Under the proposal for hedges of acquired any inventory or entered into price power commitment.353 A natural physical commodities, additional fixed-price purchase or sales contracts. gas hedge exemption can also be enumerated hedges could only be added Although the merchant may anticipate applied to operating characteristics of to the proposed definition of bona fide such activity, the price risk from the plant and sources of revenue such hedging position by way of notice and merchandising activity is yet to be as ancillary services. comment rulemaking. Should the assumed and therefore a transaction in (3) Examples of Bona Fide Hedging Commission adopt, as an alternative, an [commodity derivative contracts] could Positions in Appendix B administrative procedure that would not reduce this yet-to-be-assumed risk.’’ The Commission is providing allow the Commission to add additional In response to comments, the examples to illustrate enumerated bona enumerated bona fide hedges without Commission opined that, ‘‘in some fide hedging positions. The Commission requiring notice and comment circumstances, such as when a market invites comment on all aspects of the rulemaking? If so, what procedures participant owns or leases an asset in examples. should be used? Is current § 1.47 an the form of storage capacity, the market appropriate process? And what participant could establish market h. Non-Enumerated Hedging positions to reduce the risk associated Exemptions standards, in addition to the statutory standards of CEA section 4a(c)(2), with returns anticipated from owning or The Commission proposes to replace should be applicable to any such leasing that capacity. In these narrow the existing procedures for persons administrative procedure? The circumstances, the transaction in seeking non-enumerated hedging Commission is particularly concerned question may meet the statutory exemptions under current § 1.3(z)(3) about the absence of standards in definition of a bona fide hedging and § 1.47 with proposed § 150.3(e), current § 1.47. If the Commission were transaction.’’ discussed further below, that would to adopt such an administrative With the benefit of further review, the Commission now sees a strong basis to provide guidance for persons seeking procedure, how should the Commission doubt that such a position generally will non-enumerated hedging exemptions address the factors in CEA section meet the economically appropriate test. through filing of a petition under 4a(a)(3)(B) in such an administrative This is because the value fluctuations in section 4a(a)(7) of the Act. As noted procedure? a calendar month spread in a above, practically all non-enumerated No Proposal of Unfilled Storage hedging exemption requests were from commodity derivative contract will Capacity as an Anticipated likely have at best a low correlation persons seeking to offset the risk arising Merchandizing Hedge. The Commission from swap books, which the with value fluctuations in expected is not re-proposing a hedge for unfilled returns (e.g., rents) on unfilled storage Commission has addressed in the storage capacity that was in vacated proposed pass-through swaps and pass- capacity. There are at least two factors § 151.5(a)(2)(v). That exemption would that contribute to the size of a calendar through swap offsets, and in the have permitted a person to establish as proposal to net positions in futures and month spread.355 One factor is the cost a bona fide hedge offsetting sales and of carry, comprised of the anticipated swap reference contracts for purposes of purchases of commodity derivative single-month and all-months-combined storage cost plus the interest paid to contracts that did not exceed in quantity finance purchase of the physical position limits. the amount of the same cash commodity The Commission requests comment that was anticipated to be on industry practices involving the 354 76 FR at 71646. merchandized. That exemption was 355 hedging of risks of cash market activities A calendar month spread generally means the limited to the current or anticipated in a physical commodity that are not purchase of one delivery month of a given futures amount of unfilled storage capacity that contract and simultaneous sale of a different the person owned or leased. delivery month of the same futures contract. See 353 A generator must also be able to satisfy any CFTC Glossary, available at http://www.cftc.gov/ operating constraints, including minimum The Commission previously noted it ConsumerProtection/EducationCenter/ production runs. had not recognized anticipated CFTCGlossary/index.htm.

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commodity over the time period of the particular types of transactions could exemption provided in paragraph (4)(ii) calendar month spread.356 A second reduce the value at risk of unfilled because both sides of the cash factor, and likely the factor that most storage space that could support such an transactions have not been contracted. contributes to value fluctuations in the exemption. Locking in the spread for the same calendar month spread, is the difference commodity between two markets is i. Summary of Disposition of Working in the anticipated supply and demand prudent risk management when a Group Petition Requests of a commodity on the different dates of commercial trader has a contractual the calendar month spread. In this As noted above, the Working Group commitment both to buy and sell the context, a calendar month spread made ten requests for exemptions under physical commodity at unfixed prices in position would likely increase, rather vacated part 151.359 The Commission the same two markets. A commercial than decrease, risk in the operation of a summarizes and addresses in a brief merchant may expect to match an commercial enterprise. Accordingly, for statement each request, below. unfixed-price purchase with an unfixed- these reasons, the Commission is not re- Request One. Unfixed Price price sale, regardless of which came proposing to recognize a bona fide Transactions Involving a Non- first, and at that point, will qualify for hedging position based on an unfilled Referenced Contract: In a hedge of an a hedge exemption for the basis risk, storage bin and any of a number of unfixed price purchase and unfixed under paragraphs (4)(ii) and (5), as commodities that a merchant might price sale of a physical commodity in discussed in Requests One and Two, store in such bin. which one leg of the hedge is a above. For example, the Commission referenced contract and the other leg is However, a trader has not established recognizes there is commercial risk in a non-referenced contract, the Working a definite exposure to a value change operating off-farm storage, including the Group requests that the referenced when that trader has established only an risk that total grain production may not contract leg of the hedge be treated as unfixed price purchase or sales contract. be sufficient to ensure capacity a bona fide hedging position. This cash position fails the change in utilization of such storage. Business The proposed definition of bona fide value requirement. Considering the costs of providing off-farm storage hedging position would permit Request anticipated merchandizing transaction, include the fixed cost of the storage One under proposed paragraphs a merchant may assert her intention, but facility and the variable costs for labor (4)(ii)(B) and (5), discussed above. merchandizing intentions alone are not and fuel, in addition to other costs such Request Two. Offsetting Unfixed Price sufficient to recognize a price risk (that as insurance. However, as the Transactions Hedged with Derivatives is, the yet-to-be established pair of Commission noted above, based on its in the Same Calendar Month: The unfixed-price cash purchase and sales experience, the value fluctuations in a Working Group requests that hedges of contracts). The Commission is calendar month spread in a commodity an unfixed price purchase and an concerned that exempting such a yet-to- derivative contract will likely have at unfixed price sale of a physical be established cash position would best a low correlation with value commodity in which the separate legs of make it difficult or impossible for the fluctuations in expected returns (e.g., the hedge are in the same calendar Commission to distinguish hedging rents) on unfilled storage capacity. month, but which do not offset each from speculation. For example, a trader Therefore, the Commission requests other, because they are in different could maintain a derivatives position, comment on what positions in contracts or for any other reason, be exempt from position limits, until that commodity derivative contracts, if any, treated as bona fide hedging positions. trader enters into a subsequent cash market transaction that results in a would offset the value changes in the The proposed definition of bona fide book-out of the first unfixed-price cash commercial risks (e.g., changes in hedging position would permit Request market transaction. The trader could anticipated rental income or changes in Two under proposed paragraphs assert that changed conditions resulted other revenue streams) arising from a (4)(ii)(B) and (5), discussed above. in a change in intentions. Since market commodity storage business. And for Request Three. Unpriced Physical prices are continually changing to those positions that would offset value Purchase or Sale Commitments: The reflect new information and, thus, changes in the commercial risks, what Working Group requests that referenced changing conditions, the Commission data should the Commission obtain to contracts used to lock in a price believes an exemption standard based verify such claims? By way of differential where one leg of the on merchandizing intentions alone underlying transaction is an unpriced comparison, the Commission has would be no standard at all. recognized unsold anticipated commitment to buy or sell a physical The Commission recognizes there can production and unfilled anticipated energy commodity, and the offsetting be a gradation of probabilities that an requirements for processing, sale or purchase has not been anticipated transaction will occur. manufacturing or feeding, as the basis of completed, be treated as bona fide However, the example above offers no 357 a bona fide hedging position. The hedging transactions or positions. context in which to evaluate the nature Commission has required persons This request would not be permitted or probability of an anticipated seeking to claim such production or under the proposed definition of bona merchandising transaction, and such requirements exemptions to file fide hedging position. The transaction context is essential to determining the statements showing historical described in Request Three concerns a nature of any price risk that has been production or usage and anticipated commercial entity that has entered into realized and could support the existence production or usage.358 either an unfixed-price sale or an of a bona fide hedge. The Commission The Commission invites commenters unfixed-price purchase, but has not notes that in such cases, the only way to provide specific, empirical analysis entered into an offsetting purchase or to evaluate the nature of any price risk and data that would demonstrate how sale contract. This differs from the would be for the Commission to be proposed enumerated bona fide hedge provided with particulars of the 356 For a brief discussion of cost of carry, see, e.g., transaction. This can be done, under the ‘‘Options, Futures, and Other Derivatives,’’ 3rd Ed., 359 The Working Group Petition is available at Hull, (1997) at p. 67. http://www.cftc.gov/stellent/groups/public/@ current proposal, either by requesting a 357 See current § 1.3(z)(2)(i)(B) and (C). rulesandproducts/documents/ifdocs/ staff interpretive letter under § 140.99 or 358 See current § 1.48. wgbfhpetition012012.pdf. seeking CEA section 4a(a)(7) exemptive

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relief. Furthermore, in instances where direction as the cover transaction. If the continually changing to reflect new an entity can establish that the nature of Commission were to grant relief with information and, thus, changing their commercial operation is such that respect to such positions, then all conditions, the Commission believes an they have committed physical or persons who made good-faith bids or exemption standard based on financial resources towards the offers on a particular cash market merchandizing intentions alone (even if anticipated transaction, they should solicitation would be eligible to enter the merchant were engaged in good faith consider whether they can avail into derivatives to cover their potential negotiations) would be no standard at themselves of the exemption for unsold exposure, in addition to holding all. anticipated production or unfilled speculative positions on the same side In the case where the anticipated anticipated requirements exemptions. of the market at the limit. Under such merchandizing transaction is ‘‘naked,’’ Request Four. Binding, Irrevocable relief, such persons, in the aggregate, or not backed by any existing physical Bids or Offers: The Working Group could hold derivatives as cover in an exposure, the Commission is not aware requests that referenced contracts used amount several times larger than the of a methodology for distinguishing to hedge exposure to market price total amount to be awarded under the naked merchandizing from speculation. volatility associated with binding and solicitation. Undue volatility could In the case of a firm bid or offer not irrevocable fixed-price bids or offers be result when the winning bid is accepted offset by existing physical exposure, an treated as bona fide hedging positions. and all the losing bidders entity can, at the time the bid or offer The contemplated transactions are not simultaneously reduce their total is accepted, enter into a corresponding consistent with the enumerated hedges positions to get below the speculative hedge transaction or, in the alternative, in proposed paragraphs (3)(i), as a hedge position limit level. an entity can enter into a corresponding of a purchase contract, or (3)(ii), as a In contrast, under the Commission’s hedge transaction at the time the bid or hedge of a sales contract, because the proposed rules a commercial entity may offer is made provided the entity cash transaction is tentative and, cover the risk of a yet to be accepted bid remains within the speculative position therefore, neither a sale nor a purchase or offer, provided its total position does limits. The Commission invites agreement. not exceed the Commission’s comment on why hedging in this In the Commission’s view, a binding speculative position limits. Thus, when manner is insufficient to offset physical bid or offer by itself is too tenuous to such person’s bid or offer is not risks. The Commission asks that parties serve as the basis for an exemption from accepted and that person’s speculative submitting comments detail the nature speculative position limits, since it is an position is appropriately limited, that of their merchandizing operations and uncompleted merchandising transaction person need not liquidate any of its how they realize and account for that, historically, has not been position to come into compliance with physical risks related to anticipatory recognized as the basis for a bona fide limits. As discussed further below, the merchandizing transactions not offset by hedging transaction under § 1.3(z)(2). Commission proposes to set speculative anticipated production or processing Any related derivative would cover a limits at relatively high levels. Thus, a requirements. In particular, the conditional price risk for a bid or offer commercial entity is not likely to be Commission requests comment on that would depend on that bid or offer constrained in covering bids or offers appropriate measures to address the being accepted and, therefore, would unless it also has a relatively large risks for contingent bids or offers. Under not be economically appropriate to the speculative position on the same side of what circumstances should the reduction of risk. The commercial entity the market. Commission recognize contingent bids submitting a binding, fixed-price bid or Request Five. Timing of Hedging or offers as the basis of a bona fide offer is essentially subject to a Physical Transactions: The Working hedging position? If the Commission contingent price risk.360 The Group requests that referenced contracts were to do so, should only the expected Commission also understands that some used to hedge a physical transaction value of the risk of such position be commercial entities submit bids or that is subject to ongoing, good-faith recognized? And what would be an offers merely to obtain information negotiations, and that the hedging party appropriate methodology for about the request for proposal, without reasonably expects to conclude, be distinguishing naked merchandizing an intention of submitting a quote that treated as bona fide hedging from speculation? How should the is likely to be accepted. transactions or positions. Commission address the varying ex ante Moreover, the Working Group’s As with Request Four, the subjective probability of completion of suggestion that the Commission contemplated transactions are not such bids or offers? For example, is an condition its relief on a good-faith consistent with the enumerated hedges ex post measure of completion, e.g., the showing and immediate reclassification in proposed paragraphs (3)(i), as a hedge ratio of completed transactions to bids of the portion of the position not of a purchase contract, or (3)(ii), as a or offers, an acceptable proxy to impute awarded against the bid or offer does hedge of a sales contract, because the the probability of acceptance for not protect the market against the cash transaction is tentative (here, purposes of determining an ex ante prospect that multiple participants may subject to negotiation) and, therefore, hedge ratio, regardless of the expected hold such a good-faith belief and may neither a sale nor a purchase agreement. probability of completion on a also hold a position in the same The Commission is concerned that a particular bid or offer? Should the trader has not established a definite Commission require a person, seeking to 360 For example, if the entity submits a fixed-price exposure to a value change when that claim an exemption based on contingent bid, it runs the risk that either (a) it did not enter trader has only entered into negotiations bids or offers, keep complete records of into a derivative hedge position that would cover for a fixed-price purchase or sales all such cash market bids or offers? If so, an accepted bid, and before its bid was accepted, the cash market price decreased (so that it ends up contract. This tentative cash position what record format and specific data paying an above-market price); or (b) it did enter thus fails the change in value elements should be kept? into a derivatives position (a short position) that requirement. Request Six. Local Natural Gas Utility would cover an accepted bid, and before its bid was Further, a trader could assert that Hedging of Customer Requirements: The rejected, the derivative price increased so that the entity loses money when it lifts the short position. changed conditions resulted in a change Working Group requests that long Either outcome would create a loss for the in intentions and a failure to complete positions in referenced contracts commercial entity. negotiations. Since market prices are purchased by a state-regulated public

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utility to hedge the anticipated natural Second, following the establishment of subsequent period of time when the gas requirements of its retail customers the spread positions in WTI futures refinery holds only a short position in be treated as bona fide hedging contracts, the refinery engages in WTI futures 364 and has a fixed price transactions or positions. exchange of futures for physical purchase contract on which it receives The proposed definition of bona fide commodity (EFP) transactions, crude oil that it processes into distillate hedging position would permit Request obtaining a short nearby WTI futures products. Six under proposed paragraph position in exchange for entering into Regarding the first time period, when (3)(iii)(B), discussed above. cash market contracts for purchase of considered as a whole with the long Request Seven. Use of Physical- crude oil at a fixed price over the positions covering the unfilled Delivery Referenced Contracts to Hedge following calendar month.362 These anticipated requirements, the refinery’s Physical Transactions Using Calendar nearby short WTI futures positions short positions would be risk reducing Month Average Pricing: The Working offset the nearby long WTI futures transactions, and therefore would Group argues that referenced contracts positions of the calendar month spread. qualify under proposed paragraphs (4)(i) used to hedge in connection with Alternatively, the refinery stands for and (5), so long as the long futures calendar month average (‘‘CMA’’) delivery on the nearby long WTI futures positions (meeting the unfilled pricing are not speculative in nature and positions. As a result, the refinery holds anticipated requirements of paragraph should be exempt from speculative only short deferred month WTI futures (3)(iii)) fix the input price and the short position limits. The Working Group positions. Third, as the refinery takes futures positions fix a significant requests that firms engaged in CMA- deliveries of crude oil over the portion of the price of the expected priced transactions involving physical- following calendar month on the cash output of petroleum distillate products delivery referenced contracts be market contracts (or alternatively under that are not yet sold at a fixed price. The permitted to hold those positions the physical delivery provisions of the refinery’s short position in referenced through the spot month as bona fide futures contracts), the refinery processes contracts would be an economically hedging positions. the crude oil then sells the distillate appropriate cross-commodity hedge, as The discussion below summarizes products on the spot market. As the contemplated by paragraph (5), to the and addresses the petitioner’s scenarios sales of distillate products occur, the extent the fluctuations in value of the under Request Seven and notes the refinery buys back the short WTI futures anticipated processed cash commodities proposed exemptions that would be positions in the next two contract (that is, the petroleum distillates) are applicable or the reasons for denial. months. substantially related to fluctuations in Summary of Scenario 1: Refinery The contemplated long positions are value of the referenced contracts in hedging unfilled anticipatory consistent with proposed paragraph crude oil.365 requirements for crude oil on a calendar (3)(iii) to the extent a refinery does not During the second time period, the month average basis and cross-hedging establish a long position in excess of refinery, for example, contracts for the the sale of anticipated processed that refinery’s unfilled anticipated purchase of crude oil at a fixed price (as 361 distillate products requirements for crude oil for the next a result of the EFP transaction) or The Working Group noted that a two months. Further, in the case of a subsequently holds crude oil in refinery may buy crude oil on a CMA refinery, the Commission notes that, inventory (e.g., through taking delivery basis. The petitioner describes a three- unless the refinery has fixed price on the WTI futures contracts). Thus, the step program whereby a refinery might sales 363 or offsetting short positions of refinery in the second time period buy crude oil on a CMA basis and the expected processed cash products, initially holds a bona fide hedging subsequently sell distillate products on such contemplated long positions in position under paragraph (3)(A). Once a CMA basis. First, on each trading day WTI futures alone may not be the crude oil is processed, the refinery over approximately a one month period economically appropriate to the also may continue to hold short crude prior to expiration of the nearby reduction of risk in the conduct and oil futures contracts as a cross-hedge of NYMEX light sweet crude oil (WTI) management of a commercial enterprise; distillate products under paragraph (5). futures contract, the refinery purchases hence, the Commission also views the Proposed paragraph (5) permits a cross- futures contracts in the nearby contract short positions in WTI futures to be an commodity hedge when the fluctuations month and sells an equivalent amount integral component of the contemplated in value of the position in the of futures in the next two deferred calendar spreads. commodity derivative contract are contract months in that same futures Regarding the short positions, the substantially related to the fluctuations contract. The resulting positions are Commission considers the economic in value of the actual or anticipated cash calendar month spreads in WTI futures consequences of the positions over two 364 contracts that are acquired at an average time periods: (1) the period of time the The refinery’s long position in WTI futures price over the one-month period. would be liquidated as a result of the EFP refinery holds a calendar spread transaction that established the fixed price purchase position (long nearby and short deferred contract. 361 The petitioner separately requested relief for a WTI contract months); and (2) the 365 Regarding the first time period, there is seller of crude oil on a CMA basis that had another enumerated bona fide hedging exemption contracted to deliver crude oil ratably to a refiner involving offsetting commodity derivative 362 during a month at the daily average spot price. That Under NYMEX rules regarding EFP contracts. Offsetting sales and purchases of is, the seller entered into an unfixed price forward transactions in WTI futures, the buyer and seller of commodity derivative contracts would be sales contract to the refiner. Such a transaction futures must be the seller and buyer of an recognized as bona fide hedging positions to reduce would be covered by the existing bona fide hedging approximately equivalent quantity of the physical the risk of unfixed price purchase and sales rules. Such an unfixed price sales contract would product underlying the futures. See NYMEX rule contracts of the cash commodity (paragraph (4)(ii)). become partially fixed as each day in the month 200.20 (available at http://www.cmegroup.com/ This provision does not recognize positions as bona locked in the daily spot price that would be used rulebook/NYMEX/2/200.pdf), and NYMEX rule 538 fide hedges under the five-day rule (i.e., during the to fix the price of deliveries in the forward delivery (available at http://www.cmegroup.com/rulebook/ lesser of the last five days of trading or the spot period. Thus, to the extent the price of the forward NYMEX/1/5.pdf). month for physical-delivery commodity derivative contract was partially fixed, a seller could use long 363 A refinery with fixed price sales contracts contracts). The refinery short positions are not positions in commodity derivative contracts to may, as appropriate, enter into a long position in similar to positions established to offset the risk of offset the risk of the partially-fixed-price sales commodity derivative contracts as a bona fide unfixed price sales and purchases, in that the contract under the provisions of proposed hedging position or cross-commodity hedging refinery has not entered into open price purchase paragraph (3)(i). position under proposed paragraphs (3)(ii) and (5). and sales contracts.

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position. In this example, the aggregate the aggregator holds a bona fide hedging but cautions that such person should price fluctuations of all of the distillate position under paragraph (3)(A), which trade so as not to disrupt the settlement products of crude oil are substantially continues to be a bona fide hedging price of the physical-delivery contract. related to the price fluctuations of crude position under that rule after the Working Group Petition Requests Eight, oil, with such prices expected to differ aggregator takes delivery of the oil. Nine, and Ten by refining costs and an expected The Commission has not recognized processing margin. Thus, the refinery in as bona fide hedging a long futures Request Eight. Holding a Hedge Using the second time period holds a short position (as a synthetic sales price for a Physical-Delivery Contract into the futures position that is a bona fide the same commodity), when a person Spot Month; Generally: The Working inventory hedge or a bona fide cross- holds either inventory or a fixed-price Group requests that firms that use commodity hedge permitted under purchase contract, the price risk of physical-delivery referenced contracts existing and proposed rules. which has been offset using a short (in commodities other than metals or Summary of Scenario 2: Merchant futures position. From the scenario and agriculture) as bona fide hedging short hedge of CMA price purchase of alternative presented, it is not clear that transactions or positions be permitted to crude oil from producer, and long there is a price risk that is being hold these hedges into the spot month. position to cover anticipated re-sale of reduced. Rather, the aggregator appears Request Nine. Holding a Cross- crude oil at CMA. to seek to establish a sales price, Commodity Hedge Using a Physical In its January 20, 2012, petition, the without a corresponding uncovered Delivery Contract into the Spot Month: Working Group gives the example of a price risk in either inventory or fixed- The Working Group requests that firms producer that sells oil at the price at price sales or fixed-price purchase that use physical-delivery referenced which it was valued (basis WTI futures) contracts. Thus, the transactions do not contracts as a cross-commodity hedge be on each day it was extracted from the satisfy the requirements of the proposed permitted to hold these hedges into the earth. The buyer is an aggregator that definition of bona fide hedging position. spot month. pays each producer for crude oil on a In considering the petition, the Request Ten. Holding a Cross- CMA basis for the production of the Commission reviewed its historical Commodity Hedge Using a Physical- prior month. The aggregator seeks to policy position with respect to bona fide Delivery Contract to Meet Unfilled ensure the CMA selling price for the oil hedges in light of position information Anticipated Requirements: 367 The purchased from the producers. regarding physical-delivery energy Working Group argued that the The aggregator sells the nearby WTI futures contracts. The Commission Commission should ‘‘reinstate’’ futures each trading day over a one reviewed three years of confidential § 1.3(z)(2)(ii)(C) 368 to permit firms to month period and buys an equivalent large trader data in cash-settled and hold cross-commodity hedges involving quantity of WTI futures contracts in the physical-delivery energy contracts.366 physical-delivery referenced contracts subsequent two deferred WTI contract The review covered actual positions into the spot month in order to meet months. held in the physical-delivery energy their unfilled anticipated requirements. Subsequently, the aggregator intends, futures markets during the three-day The proposed definition of bona fide in an EFP transaction, to exchange long spot period, among all traders hedging position would permit Request futures in the nearby contract month, for (including those who had received Eight under proposed paragraphs (3)(C), a sales contract to be delivered ratably hedge exemptions from their D.C.M). It discussed above, for hedges of unfilled over the delivery period of that nearby showed that, historically, there have anticipated requirements.369 contract month. (The long futures from been relatively few positions held in However, the proposed definition the EFP transaction would offset the excess (and those few not greatly in does not recognize the other requests as short WTI futures in the nearby contract excess) of the spot month limits. bona fide hedging positions. As month.) The aggregator would sell the Accordingly, the Commission does not discussed above, the Commission long futures contracts each day as oil is propose to grant the Working Group’s continues to believe that, as a physical- delivered ratably during the month. By requests regarding Scenario 2. delivery commodity derivative contract ratably selling the long futures as the Nonetheless, the Commission notes approaches expiration, it is necessary to physical barrels are delivered, the that a person desiring to establish a protect orderly trading and the integrity aggregator effectively realizes the price synthetic sales price may hold a of the markets. A person holding a large of the prompt barrel on that trading day. position subject to the spot month limit, physical-delivery futures position who Alternatively, in its April 17, 2012 supplement, the Working Group argues 366 The Commission typically does not publish 367 Request Ten is similar to Request Eight, which that it should be sufficient that an ‘‘general statistical information’’ as authorized by also deals with unfilled anticipated requirements. aggregator wants to lock in CMA pricing CEA section 8(a)(1) regarding large trader positions However, Request Eight deals with requirements for for a sales commitment by entering into in the expiring physical-delivery energy futures the same commodity, whereas Request Ten involves contracts because of concerns that such data may cross-hedging in a different commodity. the spread position described above, reveal information about the amount of market 368 Prior to the court’s order vacating part 151, regardless of the facts relating to the power a person may need to ‘‘mark the close’’ or § 1.3(z) was amended to in November 2011 to apply purchase side of the transaction. otherwise manipulate the price of an expiring only to excluded (i.e., financial, not physical) Because the aggregator is selling contract. Marking the close refers to, among other commodities. Therefore, by requesting that this things, the practice of acquiring a substantial particular section of § 1.3(z) be ‘‘reinstated,’’ futures daily as the price on the position leading up to the closing period of trading petitioner is asking that it be applied once again to aggregator’s contractual purchase in a futures contract, followed by offsetting the physical delivery (exempt and agricultural) commitment is being fixed for each position before the end of the close of trading, in commodities. However, § 1.3(z)(2)(iv) has never day’s production, the aggregator builds an attempt to manipulate prices in the closing permitted a cross-commodity hedge under period. The Commission gathers large trader § 1.3(z)(2)(ii)(C) to be held into the five last trading a short futures position to offset the position reports on reportable traders in futures days. crude oil it will eventually purchase under part 17 of the Commission’s rules. That data 369 The CME Petition also requested that the from the producer under the CMA cash generally is confidential pursuant to section 8 of the Commission recognize as bona fide hedges contract at a price that is partially fixed Act. The Commission does, however, publish positions held into the five last trading days in summary statistics for all-months-combined in its physical-delivery referenced contracts that reduce each day the short position is acquired. Commitments of Traders Report, available at http:// the risk of two months unfilled anticipated Once the aggregator is committed at a www.cftc.gov/MarketReports/ requirements in the same cash commodity, as fixed price to take delivery of the oil, CommitmentsofTraders/index.htm. provided in § 1.3(z)(2)(ii)(C).

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has no intention to make or take contracts in certain energy commodities futures and option contracts for delivery may cause an unwarranted (‘‘2010 Energy Proposal’’).374 In the agricultural and exempt commodities price fluctuation by demanding to 2010 Energy Proposal, the Commission under new CEA section 4a(a)(2).379 liquidate such position deep into the included a discussion of past and Similarly, new CEA section 4a(a)(6) delivery period in a physical-delivery present position limits for certain requires the Commission to apply agricultural contract or a metal futures agricultural contracts under part 150 position limits on an aggregate basis to contract or during the three-day spot stating that current § 150.2 applies only contracts based on the same underlying period in a physical-delivery energy to specific agricultural futures and commodity across: (1) DCMs; (2) with futures contract. Further, as noted options contracts: respect to foreign boards of trade above, a review of large trader positions [t]he current Federal speculative position (‘‘FBOTs’’), contracts that are price- in physical-delivery energy futures limits of regulation 150.2 apply only to linked to a DCM or SEF contract and contracts does not show a current specific futures contracts [and] (on a futures- made available from within the United practice of traders holding large equivalent basis) specific option contracts. States via direct access; and (3) SPDF positions in the spot period of the Historically, all trading volume in a specific swaps.380 physical-delivery energy referenced contract tended to migrate to a single In 2011, the Commission proposed contracts relative to the exchange spot [futures] contract on a single exchange. and, after comment, adopted rules to month limits. Consequently, speculative position limits that applied to a single [futures] contract and establish an expanded position limits The Commission invites comments on regime pursuant to the mandate all aspects of the Working Group’s options thereon effectively applied to a single market. The current speculative position contained in the Dodd-Frank Act petition and the Commission review. limits of regulation 150.2 for certain amendments to CEA section 4a.381 2. Section 150.2—Position limits agricultural contracts follow this However, in an Order dated September approach.375 28, 2012, the U.S. District Court for the i. Current § 150.2 The Commission withdrew the 2010 District of Columbia vacated the 2011 The Commission currently sets and Energy Proposal when the Dodd-Frank Position Limits Rulemaking, with the enforces speculative position limits Act became law.376 exception of the revised position limit with respect to certain enumerated The limited scope and applicability of levels in amended § 150.2.382 Therefore, agricultural products.370 Current § 150.2 the speculative position limits in part 150 continues to apply, as provides in its entirety that ‘‘[n]o person current § 150.2, as well as in the 2010 amended, as if part 151 had not been may hold or control positions, Energy Proposal, are inconsistent with finally adopted by the Commission.383 separately or in combination, net long or the congressional shift evidenced in the Vacated part 151 would have net short, for the purchase or sale of a Dodd-Frank Act amendments to section established federal position limits and commodity for future delivery or, on a 4a of the Act, upon which the limit formulas for 28 physical futures-equivalent basis, options Commission relies in this release. commodity futures and option thereon, in excess of [enumerated Amended CEA section 4a(a)(1) contracts, or ‘‘Core Referenced Futures levels].’’ 371 As such, the speculative authorizes the Commission to extend Contracts,’’ and would have applied position limits set forth in current position limits beyond futures and these limits to all derivatives that are § 150.2 apply only to specific futures option contracts to swaps traded on a directly or indirectly linked to the price contracts traded on specific exchanges DCM or SEF and swaps not traded on of a Core Referenced Futures Contract and, on a futures-equivalent basis, to a DCM or SEF that perform or affect a (collectively, ‘‘Referenced 372 specific option contracts thereon. significant price discovery function Contracts’’).384 Therefore, the position ‘‘Futures-equivalent’’ is defined in with respect to regulated entities limits in vacated part 151 would have current § 150.1(f) as ‘‘an option (‘‘SPDF swaps’’).377 Further, new CEA applied across different trading venues 373 contract,’’ and nothing else. section 4a(a)(5) requires that speculative to economically equivalent Referenced Accordingly, current § 150.2 establishes position limits apply to swaps that are Contracts (as specifically defined in part federal position limits only for ‘‘economically equivalent’’ 378 to DCM 151) that are based on the same specifically enumerated futures underlying commodity, a concept contracts on ‘‘legacy’’ agricultural 374 75 FR 4142, Jan. 26, 2010. known as aggregate limits. Vacated commodities and options on those 375 Id. at 4152–54. futures contracts. 376 75 FR 50950, Aug. 18, 2010. locations as specified in that particular core 377 In 2010, the Commission proposed to 7 U.S.C. 6a(a)(1). referenced futures contract . . .’’ Other similarities implement additional speculative 378 Section 4a(a)(5) of the Act requires the or differences that exist between futures and swaps position limits for futures and option Commission to impose the same limits on ‘‘swaps’’ are not material to the Commission’s interpretation that are ‘‘economically equivalent’’ to futures and of economic equivalence under 7 U.S.C. 6a(a)(5). options contracts. The statute does not define the 370 379 7 U.S.C. 6a(a)(2), (5). The ‘‘enumerated’’ agricultural products refer term. But the Commission construes it, consistent 380 7 U.S.C. 6a(a)(6). The Commission refers to to the list of commodities contained in the with the policy objectives of the Dodd-Frank this requirement in section 4a(a)(6) of the Act as a definition of ‘‘commodity’’ in CEA section 1a; 7 amendments, to require the Commission to requirement for position aggregation. U.S.C. 1a. This list of agricultural contracts includes expeditiously impose limits on physical commodity 381 nine currently traded contracts: Corn (and Mini- swaps that are price-linked to futures contracts, or The Commission instructed market Corn), Oats, Soybeans (and Mini-Soybeans), Wheat to satisfy other defined equivalence criteria. The participants to continue to comply with the existing (and Mini-wheat), Soybean Oil, Soybean Meal, Hard Commission accordingly construes the term position limit regime contained in part 150 and any Red Spring Wheat, Hard Winter Wheat, and Cotton ‘‘economically equivalent’’ to require swaps to applicable DCM position limits or accountability No. 2. See 17 CFR 150.2. The position limits on satisfy the definition of ‘‘referenced’’ contract in levels until the compliance date for the position these agricultural contracts are referred to as proposed § 150.1. It requires that a swap be, among limits rules in new part 151. After such date, part ‘‘legacy’’ limits because these contracts on other things, ‘‘directly or indirectly linked, 150 would have been revoked and compliance with agricultural commodities have been subject to including being partially or fully settled on, or part 151 would have been required. 76 FR 71632. federal positions limits for decades. priced at a fixed differential to, the price of that 382 See 887 F. Supp. 2d 259 (D.D.C. 2012). 371 17 CFR 150.2. Footnote 1 to § 150.2 adds, ‘‘for particular core referenced futures contract; or . . . 383 The District Court’s order vacated the final purposes of compliance with these limits, positions directly or indirectly linked, including being rule and the interim final rule promulgated in the in the regular sized and mini-sized contracts shall partially or fully settled on, or priced at a fixed 2011 Position Limits Rulemaking, with the be aggregated.’’ Id. differential to, the price of the same commodity exception of the rule’s amendments to 17 CFR 372 See id. underlying that particular core referenced futures 150.2. 373 See 17 CFR 150.1(f). contract for delivery at the same location or 384 76 FR at 71629.

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§ 151.1 defined ‘‘Referenced Contract’’ trading venues subject to the The Commission also proposes to to mean: Commission’s jurisdiction. Proposed amend § 150.2 by deleting the on a futures equivalent basis with respect to § 150.2 would also specify Commission potentially ambiguous phrase a particular Core Referenced Futures procedures for computing position ‘‘separately or in combination.’’ The Contract, a Core Referenced Futures Contract limits levels. Commission first proposed adding the listed in § 151.2, or a futures contract, phrase ‘‘separately or in combination’’ a. Spot Month Limits options contract, swap or swaption, other to § 150.2 in 1992.391 While the text of than a basis contract or commodity index Proposed § 150.2(a) provides that no current § 150.2 could be read in context contract, that is: (1) Directly or indirectly person may hold or control positions in to apply limits to futures or option linked, including being partially or fully referenced contracts in the spot month, settled on, or priced at a fixed differential to, positions, separately or in combination, the price of that particular Core Referenced net long or net short, in excess of the the preamble to that rulemaking Futures Contract; or (2) Directly or indirectly level specified by the Commission for proposal stated otherwise, indicating linked, including being partially or fully physical-delivery referenced contracts the Commission was proposing a settled on, or priced at a fixed differential to, and, specified separately, for cash- ‘‘unified approach’’ to limits on futures the price of the same commodity underlying settled referenced contracts.389 and options positions combined.392 that particular Core Referenced Futures Proposed § 150.2(a) requires that a When considering at that time whether Contract for delivery at the same location or trader’s positions in the physical- to extend the existing federal position locations as specified in that particular Core delivery referenced contract and cash- Referenced Futures Contract.385 limits on futures contracts also to option settled referenced contract are to be contracts (on a futures equivalent basis), In addition to establishing federal calculated separately under the separate the Commission explained that a position limits for all Referenced spot month position limits fixed by the unified futures and options level limit Contracts, vacated part 151 would have, Commission. Therefore, a trader may was ‘‘more appropriate for several among other things, implemented a new hold positions up to the spot month reasons’’ than position limits on futures statutory definition of bona fide hedging limit in the physical-delivery contracts, that are separate from position limits on transactions, revised the standards for as well as positions up to the applicable options.393 Further, the Commission position aggregation, and established spot month limit in cash-settled noted in the 1992 preamble that position visibility reporting contracts (i.e., cash-settled futures and ‘‘proposed Rule 150.2 provides that 386 requirements. swaps), but a trader in the spot month ‘[n]o person may hold or control net ii. Proposed § 150.2 may not net across physical-delivery long or net short positions in excess of and cash-settled contracts. Absent such the stated limits.’’ 394 Although the 1992 Proposed § 150.2 would list spot a restriction in the spot month, a trader preamble stated the limit rule was to month, single month, and all-months- could stand for 100 percent of apply on a net basis to futures and combined position limits for 28 core deliverable supply during the spot options combined, the regulatory text referenced futures contracts. Consistent could be read to suggest a different with section 4a(a)(5) of the Act, month by holding a large long position in the physical-delivery contract along approach, i.e., applying to futures or proposed § 150.2 would apply such options on both a separate basis and a position limits to all referenced with an offsetting short position in a cash-settled contract, which effectively combined basis. The phrase ‘‘separately contracts (as that term is defined in the or in combination’’ was not discussed in proposed amendments to § 150.1) 387 would corner the market. The Commission will closely monitor the any subsequent Federal Register including economically equivalent notice.395 swaps.388 Consistent with section effects of its spot-month position limits. 4a(a)(6) of the Act, proposed § 150.2 b. Single-Month and All-Months- month limits. The Commission discusses how many would apply position limits across all Combined Limits traders historically held positions over the levels of Proposed § 150.2(b) provides that no non-spot month limits below. 385 Id. at 71685. 391 See Revision of Federal Speculative Position 386 See generally 76 FR 71626, Nov. 18, 2011. person may hold or control positions, Limits, Proposed Rules, 57 FR 12766, Apr. 13, 1992. 387 See discussion of proposed § 150.1 above. net long or net short, in referenced 392 Id. at 12768. 388 Section 4a(a)(5) of the Act requires the contracts in a single-month or in all- 393 Id. at 12769. Commission to impose the same limits on ‘‘swaps’’ months-combined in excess of the levels 394 Id. at 12770. that are ‘‘economically equivalent’’ to futures and specified by the Commission. Proposed 395 Indeed, the Commission noted in 1993 when options contracts. The statute does not define the it adopted an interim final rule that ‘‘as proposed, term. But the Commission construes it, consistent § 150.2(b) permits traders to net all speculative position limits for both futures and with the policy objectives of the Dodd-Frank positions in referenced contracts options thereon are being combined into a single amendments, to require the Commission to (regardless of whether such referenced limit.’’ See interim final rule at 58 FR 17973, Apr. expeditiously impose limits on physical commodity contracts are physical-delivery or cash- 7, 1993. The Commission noted it ‘‘proposed to swaps that are price-linked to futures contracts, or unify speculative position limits for both futures to satisfy other defined equivalence criteria. The settled) when calculating the trader’s and options thereon, reasoning that, because price Commission accordingly construes the term positions for purposes of the proposed movements in the two markets are highly related, ‘‘economically equivalent’’ to require swaps to single-month or all-months-combined the unified system more readily reflects the satisfy the definition of ‘‘referenced’’ contract in position limits.390 economic reality of a position in its totality. proposed § 150.1. It requires that a swap be, among Moreover, unified speculative limits provide the other things, ‘‘directly or indirectly linked, trader with greater flexibility. Further, traders including being partially or fully settled on, or 389 The Commission proposes to adopt an should find such a unified speculative position priced at a fixed differential to, the price of that amended definition of spot month in proposed limit easier to use and to understand. Finally, as a particular core referenced futures contract; or . . . § 150.1 (as discussed above), simplified from the consequence of the simpler structure, unified directly or indirectly linked, including being spot-month definitions listed in vacated § 151.3. speculative position limits would be easier to partially or fully settled on, or priced at a fixed The term ‘‘spot month’’ does not refer to a month administer, resulting in more accurate and timely differential to, the price of the same commodity of time. market surveillance.’’ Id. at 17974. underlying that particular core referenced futures 390 The Commission would allow traders to net In discussing comments on the 1992 proposed contract for delivery at the same location or positions in physical-delivery and cash-settled rule, the Commission noted an objection by a DCM locations as specified in that particular core contracts outside the spot month because the to the proposed unified futures and options limits, referenced futures contract. . . .’’ Other similarities Commission is less concerned about corners and preferring the DCM’s proposed separate futures and or differences that exist between futures and swaps squeezes outside the spot month. Permitting such options limits. Id. at 17976. The Commission are not material to the Commission’s interpretation netting will significantly reduce the number of discussed views of other commenters regarding the of economic equivalence under 7 U.S.C. 6a(a)(5). traders with positions over the levels of non-spot proposed ‘‘unified limits.’’ Id. at 17977. The

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c. Selection of Initial Commodity core referenced futures contracts, and limits would be established in this Derivative Contracts in Physical related swap and futures contracts, on release. As such, the Commission Commodities the basis that such contracts (i) have proposes in this release to set position 397 As discussed above, the Commission high levels of open interest and limits in 19 core referenced futures interprets the CEA to mandate position significant notional value of open contracts for agricultural commodities, 4 398 limits for futures contracts in physical interest or (ii) serve as a reference core referenced futures contracts for commodities other than excluded price for a significant number of cash energy commodities, and 5 core 399 commodities (i.e., position limits are market transactions. Thus, in the first referenced futures contracts for metals required for futures contracts in phase, the Commission generally is commodities. The Commission agricultural and exempt commodities). proposing limits on those contracts that currently sets limits for 9 legacy The Commission is proposing a it believes are likely to play a larger role agricultural contracts under part 150.400 phased approach to implement the in interstate commerce than that played In selecting the 16 agricultural statutory mandate. The Commission is by other physical commodity derivative commodities, the Commission used oats proposing in this release to establish contracts. as its baseline since oats has the lowest speculative position limits on 28 core In selecting the list of 28 core notional value of open interest and the referenced futures contracts in physical referenced futures contracts in proposed lowest open interest among the 9 legacy commodities.396 The Commission § 150.2(d), the Commission calculated agricultural contracts. Hence, the anticipates that it will, in subsequent the open interest and notional value of Commission selected all agricultural releases, propose to expand the list of open interest for all futures, futures commodities that have notional value of core referenced futures contracts in options, and significant price discovery open interest and open interest that physical commodities. The Commission contracts as of December 31, 2012 in all exceed that of oats.401 The Commission believes that a phased approach will (i) agricultural and exempt commodities. has determined to defer consideration of reduce the potential administrative The Commission identified those speculative position limits on contracts burden by not immediately imposing commodities with the largest notional in other agricultural commodities position limits on all commodity value of open interest and open interest because the Commission must marshal derivative contracts in physical for agricultural commodities, energy its resources. The Commission commodities at once, and (ii) facilitate commodities, and metals commodities. anticipates that it will consider adoption of monitoring policies, The Commission then selected 16 speculative position limits on contracts procedures and systems by persons not agricultural commodities, 4 energy in other agricultural commodities in a currently subject to positions limits commodities, and 5 metals subsequent rulemaking. commodities. Once these commodities (such as traders in swaps that are not Table 6 below provides the notional significant price discovery contracts). were selected, the Commission determined the most important futures value of open interest and open interest The Commission proposes, initially, for agricultural contracts by type of to establish position limits on these 28 contract, or contracts, within each commodity, generally by selecting the commodity contract reported under the Commission’s reporting rules.402 With Commission concluded that it would adopt the physical-delivery contracts with the unified limits, noting it ‘‘will combine futures and highest levels of open interest, and respect to the type of commodity, it option limits.’’ The preamble also made clear the deemed these as the core referenced should be noted, for example, that limits would not apply separately, noting further futures contracts for which position ‘‘wheat’’ refers to the general type of that ‘‘because such positions would be netted physical commodity, and includes automatically under a unified speculative position limit, the Commission is removing and reserving 397 Open interest for this purpose is the sum of contracts listed on three different DCMs. § 150.3(a)(2) which exempts from Federal open contracts, as defined in § 1.3(t), in futures speculative position limits positions in option contracts and in futures option contracts converted 400 17 CFR 150.2. contracts which offset the futures positions.’’ Id. at to a futures-equivalent amount, as defined in 401 While cheese has a notional value of open 17978–79. § 150.1(f), and open swaps, as defined in § 20.1, on interest that is higher than oats, it has an open 396 The 28 core referenced futures contracts are: a future equivalent basis, as defined in § 20.1, interest that is lower than that of oats (the open where such swaps are significant price discovery Chicago Board of Trade Corn, Oats, Rough Rice, interest of the cheese contract was less than 10,000 contracts as determined by the Commission under Soybeans, Soybean Meal, Soybean Oil and Wheat; contracts as of year-end 2012). Furthermore, all Chicago Mercantile Exchange Feeder Cattle, Lean § 36.3(d). futures and options contracts in cheese are on the Hog, Live Cattle and Class III Milk; Commodity 398 Notional value of open interest for this Exchange, Inc., Gold, Silver and Copper; ICE purpose is open interest times the unit of trading same DCM (which currently has a single month Futures U.S. Cocoa, Coffee C, FCOJ–A, Cotton No. for the relevant futures contract times the price of position limit set at 1,000 contracts) and had no 2, Sugar No. 11 and Sugar No. 16; Kansas City that futures contract. Large Trader Reporting for physical commodity Board of Trade Hard Winter Wheat (on September 399 The Commission, in the vacated part 151 swaps as reported under part 20 during January 6, 2013, CBOT and the Kansas City Board of Trade Rulemaking, selected for what was also intended as 2013. The Commission intends to address cheese (‘‘KCBT’’) requested that the Commission permit a first phase, the same 28 core referenced futures when it proposes, in subsequent releases, the transfer to CBOT, effective December 9, of all contracts on the same basis. 76 FR at 71629. As was expansions to the list of referenced contracts in contracts listed on the KCBT, and all associated noted when part 151 was adopted, the 28 core physical commodities. open interest); Minneapolis Grain Exchange Hard referenced futures contracts were selected on the 402 17 CFR Part 16. Commission staff computed Red Spring Wheat; and New York Mercantile basis that such contracts: (1) had high levels of open Exchange Palladium, Platinum, Light Sweet Crude interest and significant notional value; or (2) served notional values of open interest from data reported Oil, NY Harbor ULSD, RBOB Gasoline and Henry as a reference price for a significant number of cash under § 16.01. Data reported under § 16.01 includes Hub Natural Gas. market transactions. Id. significant price discovery contracts in compliance with core principle VI for exempt commercial markets, app. B to part 36.

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TABLE 6—LARGEST AGRICULTURAL COMMODITIES RANKED BY NOTIONAL VALUE OF OPEN INTEREST IN FUTURES, FUTURES OPTIONS, AND SIGNIFICANT PRICE DISCOVERY CONTRACTS, AS OF DECEMBER 31, 2012

Type and rank within type by Number of notion value of open interest Commodity contracts Notional value of open interest Open interest

Agricultural: 1 ...... Soybeans ...... 6 $54.07 billion...... 765,030 2 ...... Corn ...... 6 $51.54 billion...... 1,545,135 3 ...... Wheat ...... 10 $41.06 billion...... 767,006 4 ...... Sugar ...... 5 $39.06 billion...... 896,082 5 ...... Live Cattle ...... 2 $19.91 billion ...... 394,385 6 ...... Coffee ...... 3 $13.89 billion...... 211,147 7 ...... Soybean Oil ...... 4 $11.01 billion ...... 344,412 8 ...... Soybean Meal ...... 2 $10.46 billion ...... 253,361 9 ...... Cotton ...... 3 $9.75 billion...... 234,367 10 ...... Lean Hogs ...... 1 $9.68 billion ...... 280,451 11 ...... Cocoa ...... 1 $5.13 billion...... 218,224 12 ...... Feeder Cattle ...... 1 $2.64 billion ...... 34,816 13 ...... Milk ...... 3 $1.45 billion...... 40,690 14 ...... Frozen Orange Juice ...... 1 $609 million ...... 29,652 15 ...... Rice ...... 1 $445 million...... 14,783 16 ...... Cheese ...... 2 $282 million...... 8,601 17 ...... Oats ...... 1 $187 million...... 10,755

For exempt commodity contracts, the futures contracts, the Commission The Commission has determined to Commission proposes to initially select would establish federal position limits defer consideration of speculative the commodities in the energy and on ninety-eight percent of the open position limits on contracts in iron ore metals markets that have the largest interest in U.S. metals markets. and other metal commodities because open interest and notional value of The next largest commodity in metals the Commission must marshal its interest. For metals, the Commission after palladium in terms of notional resources. The Commission anticipates proposes to initially target the 5 largest value is iron ore, which has open that it will consider speculative position commodities in terms of notional value interest that is about one-quarter that of limits on contracts in iron ore and other 403 of open interest, as listed in Table 7 palladium. Furthermore, there are metal commodities in a subsequent below, and selected 1 core referenced less than 50 reportable traders 404 in iron rulemaking. futures contract for each of the 5 metals. ore, while in the 5 selected metals, each In selecting these 5 core referenced has more than 200 reportable traders.

TABLE 7—LARGEST METALS COMMODITIES BY NOTIONAL VALUE OF OPEN INTEREST IN FUTURES, FUTURES OPTIONS, AND SIGNIFICANT PRICE DISCOVERY CONTRACTS, AS OF DECEMBER 31, 2012

Type and rank within type by Number of notion value of open interest Commodity contracts Notional value of open interest Open interest

Metals: 1 ...... Gold ...... 6 $100.41 billion...... 604,853 2 ...... Silver ...... 5 $27.77 billion...... 180,576 3 ...... Copper ...... 3 $13.28 billion...... 146,865 4 ...... Platinum ...... 1 $4.78 billion...... 61,467 5 ...... Palladium ...... 1 $2.08 billion...... 32,293

For energy commodities, the The fifth largest commodity in energy in electricity and other energy Commission similarly proposes to select is electricity, and the Commission has commodities because the Commission the 4 largest commodities for this first determined to defer consideration of must marshal its resources. The phase of the expansion of speculative speculative position limits on contracts Commission anticipates that it will position limits and selected 1 core 403 The open interest in iron ore futures, futures consider speculative position limits on referenced futures contract in each of options, and significant price discovery contracts as of December 31, 2012, was 8,195 contracts and the contracts in electricity and other energy these 4 commodities. Each of these notional value of open interest was $236.63 million. commodities in a subsequent commodities has a notional value of 404 A reportable trader is a trader with a rulemaking. open interest in excess of $40 billion. reportable position as defined in § 15.00(p).

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TABLE 8—LARGEST ENERGY COMMODITIES BY NOTIONAL VALUE OF OPEN INTEREST IN FUTURES, FUTURES OPTIONS, AND SIGNIFICANT PRICE DISCOVERY CONTRACTS, AS OF DECEMBER 31, 2012

Type and rank within type by Number of notion value of open interest Commodity contracts Notional value of open interest Open interest

Energy: 1 ...... Crude Oil ...... 76 $516.42 billion ...... 6,188,201 2 ...... Heating Oil/Diesel ...... 89 $470.69 billion ...... 1,192,036 3 ...... Natural Gas ...... 216 $225.74 billion ...... 21,335,777 4 ...... Gasoline ...... 54 $46.13 billion...... 402,369

d. Setting Levels of Spot-Month Limits As an alternative to the initial spot deliverable supply for any commodity Proposed § 150.2(e)(1) establishes the month limits in proposed appendix D to as reasonable, then the Commission may initial levels of speculative position part 150, the Commission is considering determine to adopt the initial spot limits for each referenced contract at the setting the initial spot month limits month limits in proposed appendix D levels listed in appendix D to this part. based on estimated deliverable supplies for such commodity, or such higher These levels would become effective 60 submitted by the CME Group in level based on the Commission’s days after publication in the Federal correspondence dated July 1, 2013.406 estimated deliverable supply for such Register of a final rule adopted by the Under this alternative, the Commission commodity, but not greater than would Commission. The Commission proposes would use the exchange’s estimated result from the exchange’s estimated to set the initial spot month position deliverable supplies and apply the 25 deliverable supply. The Commission limit levels for referenced contracts at percent formula to set the level of the requests comment on whether the initial the existing DCM-set levels for the core spot month limits in a final rule if the spot month limits should be based on referenced futures contracts because the Commission verifies the exchange’s the exchange’s July 1, 2013, estimations Commission believes this approach is estimated deliverable supplies are of deliverable supplies, once verified. consistent with the regulatory objectives reasonable. For purposes of setting The spot month limits that would result of the Dodd-Frank Act amendments to initial spot month limits in a final rule, from the CME’s estimated deliverable the CEA and many market participants in the event the Commission is not able supplies are show in Table 9 below. are already used to these levels.405 to verify an exchange’s estimated

TABLE 9—ALTERNATIVE PROPOSED INITIAL SPOT MONTH LIMIT LEVELS FOR CERTAIN CORE REFERENCED FUTURES CON- TRACTS (BASED ON CME GROUP ESTIMATES OF DELIVERABLE SUPPLY SUBMITTED TO THE COMMISSION ON JULY 1, 2013)

Alternative proposed spot- month limit CME Group Current spot- (25% of deliv- deliverable Contract month limit erable supply CME Group deliverable supply estimate supply rounded up to estimate in the next 100 contracts contracts)

Legacy Agricultural

Chicago Board of Trade Corn (C) ...... 600 1,000 19,590,000 bushels ...... 3,918 Chicago Board of Trade Oats (O) ...... 600 1,500 29,470,000 bushels ...... 5,894 Chicago Board of Trade Soybeans (S) ...... 600 1,200 23,900,000 bushels ...... 4,780 Chicago Board of Trade Soybean Meal (SM) 720 4,400 1,753,047 tons ...... 17,531 Chicago Board of Trade Soybean Oil (SO) .... 540 5,300 1,253,000 lbs ...... 20,883 Chicago Board of Trade Wheat (W) ...... 600 3,700 73,790,000 bushels ...... 14,757 Kansas City Board of Trade Hard Winter 600 4,100 81,710,000 bushels...... 16,342 Wheat (KW).

Other Agricultural

Chicago Board of Trade Rough Rice (RR) .... 600 1,800 14,100,000 cwt ...... 7,050 Chicago Mercantile Exchange Class III Milk 1500 5,300 4,170,000,000 lbs...... 20,850 (DA).

Energy

New York Mercantile Exchange Henry Hub 1,000 3,900 154,200,000 mmBtu...... 15,420 Natural Gas (NG).

405 DCMs currently set spot-month position limits 406 Letter from Terrance A. Duffy, Executive Oversight Director Richard Shilts, dated July 1, based on their own estimates of deliverable supply. Chairman and President, CME Group, to CFTC 2013 (available at www.cftc.gov). The Commission Federal spot-month limits can, therefore, be Chairman Gensler, Commissioner Chilton, notes the CME Group did not propose to set the implemented by the Commission relatively Commissioner Sommers, Commissioner O’Malia, level of spot month limits using the 25 percent expeditiously. Commissioner Wetjen, and Division of Market formula in this letter.

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TABLE 9—ALTERNATIVE PROPOSED INITIAL SPOT MONTH LIMIT LEVELS FOR CERTAIN CORE REFERENCED FUTURES CON- TRACTS (BASED ON CME GROUP ESTIMATES OF DELIVERABLE SUPPLY SUBMITTED TO THE COMMISSION ON JULY 1, 2013)—Continued

Alternative proposed spot- month limit CME Group Current spot- (25% of deliv- deliverable Contract month limit erable supply CME Group deliverable supply estimate supply rounded up to estimate in the next 100 contracts contracts)

New York Mercantile Exchange Light Sweet 3,000 12,100 48,100,000 barrels...... 48,100 Crude Oil (CL). New York Mercantile Exchange NY Harbor 1,000 5,500 20,000,000 barrels...... 22,000 ULSD (HO). New York Mercantile Exchange RBOB Gaso- 1,000 7,300 29,000,000 barrels...... 29,000 line (RB).

Metal

Commodity Exchange, Inc. Copper (HG) ...... 1,200 1,700 161,850,000 lbs ...... 6,474 Commodity Exchange, Inc. Gold (GC) ...... 3,000 27,300 10,911,100 troy ounces ...... 109,111 Commodity Exchange, Inc. Silver (SI) ...... 1,500 5,700 113,375,000 troy ounces ...... 22,675 New York Mercantile Exchange Palladium 650 1,500 578,900 troy ounces ...... 5,789 (PA). New York Mercantile Exchange Platinum (PL) 500 800 152,150 troy ounces ...... 3,043

The Commission is considering a every two calendar years.407 Under the month limits, the Commission has further alternative to setting the spot proposal, each DCM listing a core reconsidered requiring annual updates month limit at a level based on 25 referenced futures contract would be for referenced contracts in agricultural percent of estimated deliverable supply. required to report to the Commission an commodities.410 When compared with This alternative would permit the estimate of spot-month deliverable annual updates to the spot month Commission, in its discretion, both for supply, accompanied by a description of position limits, biennial updates would setting an initial spot month limit and the methodology used to derive the reduce the burden on market subsequent resets, to use the estimate and any statistical data participants in updating speculative 408 recommended level, if any, of the spot supporting the estimate. Proposed position limit monitoring systems.411 month limit as submitted by each DCM § 150.2(e)(3) provides a cross-reference to appendix C to part 38 for guidance on The term ‘‘estimated deliverable listing a CRFC (if lower than 25 percent 409 supply’’ means the amount of a of estimated deliverable supply). Under how to estimate deliverable supply. The Commission proposes to utilize the commodity that can reasonably be this alternative, the Commission would estimated spot-month deliverable expected to be readily available to short have discretion to set the level of any supply provided by a DCM unless the traders to make delivery at the spot month limit to the DCM’s Commission decides to rely on its own recommended level, a level estimate of deliverable supply. 410 In any event, core principle 5 in section corresponding to 25 percent of The Commission proposes to update 5(d)(5) of the Act imposes a continuing obligation estimated deliverable supply, or a level spot-month limits every two years for on a DCM, where the DCM has set a position limit in proposed appendix D. The as necessary and appropriate, to ensure levels of each of the 28 referenced contracts, and position limits are set to reduce the potential threat Commission requests comment on all to stagger the dates on which DCMs of market manipulation or congestion (especially aspects of this alternative. Specifically, must submit estimates of deliverable during the spot month). 7 U.S.C. 7(d)(5). Thus, a is the Commission’s discretion in supply. The Commission has re- DCM appropriately would reduce the level of its administering levels of spot month exchange-set spot month limit if the level of evaluated data on the frequency with deliverable supply declined significantly. Core limits appropriately constrained by the which DCMs historically have changed principle 6 in section 5h(f)(6) of the Act imposes choice, in its discretion, of the DCM’s the levels of spot month limits in the 28 a similar obligation on a SEF that is a trading recommended level or the level physical-delivery core referenced facility. 7 U.S.C. 7b–3(f)(6). corresponding to 25 percent of futures contracts. Given the low 411 Proposed § 150.2(e)(3) also provides the Commission with flexibility to reset spot month deliverable supply or a level in frequency of changes to DCM spot position limits more frequently than every two proposed appendix D? years, but the proposed rule would require DCMs Proposed § 150.2(e)(3) explains how 407 Federal spot month limits have historically to submit estimated deliverable supplies only every been set at one-quarter of estimated deliverable two years. This means, for example, that a DCM the Commission will calculate spot supply. See, e.g., 64 FR 24038, 24041, May 5, 1999. may with discretion provide the Commission with month position limit levels. The Further, current guidance on complying with DCM updated estimated deliverable supplies and petition Commission proposes to fix the levels of core principle 5 calls for spot month levels to be the Commission to reset spot month limits more set at ‘‘no greater than one-quarter of the estimated frequently than every two years. Similarly, the spot-month limits for referenced spot month deliverable supply. . . .’’ 17 CFR proposed § 150.2(e)(4) provides the Commission contracts based on one-quarter of the 150.5(c)(1). with flexibility to change non-spot month position estimated spot-month deliverable 408 The timing for submission of such reports limits more frequently than every two years. This supply in the relevant core referenced varies by commodity type—see proposed means, for example, that a DCM may petition the § 150.2(e)(ii)(A)–(D). Commission to reset non-spot month position limits futures contract, no less frequently than 409 See 17 CFR part 38, appendix C, at section based on the most recent calendar-year’s open (b)(1)(i). interest.

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expiration of a futures contract.412 The physical-delivery contracts, the spot- the Commission prosecutes and that this use of estimated deliverable supply to month limit should not exceed 25 proposal seeks to prevent.420 set spot-month limits is wholly percent of the estimated deliverable In the final part 38 rulemaking, the consistent with DCM core principles 3 supply.415 The Commission believes, Commission instructed DCMs, when and 5.413 Currently, in determining based on its experience and expertise, estimating deliverable supplies, to take whether a physical-delivery contract that the formula would be an effective into consideration the individual complies with core principle 3, the prophylactic tool to reduce the threat of characteristics of the underlying Commission considers whether the corners and squeezes, and promote commodity’s supply and the specific specified contract terms and conditions convergence without compromising delivery features of the futures may result in an estimated deliverable market liquidity.416 contract.421 In this regard, the supply that is sufficient to ensure that Furthermore, the Commission has Commission notes that DCMs the contract is not readily susceptible to observed generally low usage among all historically have set or maintained price manipulation or distortion. The traders of the physical-delivery futures exchange spot month limits at levels Commission has previously indicated contract during the spot month, relative below 25 percent of deliverable supply. that it would be an acceptable practice to the existing exchange spot-month Setting such a lower level of a spot for a DCM to set spot-month limits position limits. Thus, the Commission month limit may also serve the pursuant to core principle 5 based on an infers that few, if any, traders offset the objectives of preventing excessive analysis of estimated deliverable risk of swaps in physical-delivery speculation, manipulation, squeezes supplies.414 Accordingly, the futures contracts during the spot month and corners, while ensuring sufficient Commission is adopting estimated with positions in excess of the market liquidity for bona fide hedgers in deliverable supply as the basis of setting exchange’s current spot month limits.417 the view of the listing DCM and spot-month limits. The Commission invites comments as to ensuring the price discovery function of The Commission proposes to adopt the extent to which traders actually the market is not disrupted. Hence, the the 25 percent level of estimated have offset the risk of swaps during the Commission observes that there may be deliverable supply for setting spot- spot month in a physical-delivery a range of spot month limits, including month limits because, based on the futures contract with a position in limits set at levels below 25 percent of Commission’s surveillance and excess of an exchange’s spot-month deliverable supply, which may serve as enforcement experience, this formula position limit. practicable to maximize these policy narrowly targets the trading that may be Additionally, the Commission objectives. most susceptible to, or likely to imposes spot-month limits using the facilitate, price disruptions. The same formula to restrict the size of e. Setting Levels of Single-Month and Commission believes this spot month positions in cash-settled contracts that All-Months-Combined Limits limit formula best maximizes the would potentially benefit from a trader’s Proposed § 150.2(e)(4) explains how statutory objectives expressed in CEA distortion of the price of the underlying the Commission would calculate non- section 4a(a)(3)(B) of preventing referenced contract (or other cash price spot-month position limit levels, which excessive speculation and market series) that serves as the basis of cash 418 the Commission proposes to fix no less manipulation, ensuring market liquidity settlement. The Commission has frequently than every two calendar for bona fide hedgers, and promoting found that traders with positions in years. In contrast to spot month position efficient price discovery. This formula is look-alike cash-settled contracts have an limits which are set as a function of consistent with the longstanding incentive to manipulate and undermine estimated deliverable supply, the acceptable practices for DCM core price discovery in the physical-delivery formula for the non-spot-month position principle 5 which provide that, for contract to which the cash-settled limits is based on total open interest for contract is linked by price. This practice all referenced contracts in a commodity. 412 As part of its recently published guidance for is known as ‘‘banging’’ or ‘‘marking the The actual position limit level will be complying with DCM core principle 3, the close,’’ 419 a manipulative practice that Commission provided guidance on how to calculate set based on a formula: 10 percent of the deliverable supplies in appendix C to part 38 (at 415 open interest for the first 25,000 paragraph (b)(1)(i)). 77 FR 36612, 36722, Jun. 19, Id. 416 The Commission also has established contracts and 2.5 percent of the open 2012. Typically, deliverable supply reflects the 422 quantity of the commodity that potentially could be requirements for a DCM to monitor a physical- interest thereafter. The Commission made available for sale on a spot basis at current delivery contract’s terms and conditions as they has used the 10, 2.5 percent formula in prices at the contract’s delivery points. For a relate to the convergence between the futures administering the level of the legacy all- physical-delivery commodity contract, this estimate contract price and the cash price of the underlying might represent product which is in storage at the commodity. 17 CFR 38.252. See the preamble delivery point(s) specified in the futures contract or discussion of § 38.252 in the final part 38 demonstrates intentional or reckless disregard for can be moved economically into or through such rulemaking. 77 FR 36612, 36635, June 19, 2012. The the orderly execution of transactions during the points consistent with the delivery procedures set spot month limits will be set at levels that target closing period.’’ 7 U.S.C. 6c(a)(5)(B). ‘‘Banging’’ or forth in the contract and which is available for sale only extraordinarily large traders. For example, the ‘‘marking the close’’ is discussed in the on a spot basis within the marketing channels that spot month limit for CBOT Wheat will be set at 600 Commission’s Antidisruptive Practices Authority, normally are tributary to the delivery point(s). contracts. The contract size for CBOT Wheat is Interpretive guidance and policy statement, 78 FR ∼ 413 DCM core principle 3 specifies that a board of 5,000 bushels ( 136 metric tons). The current price 31890, 31894–96, May 28, 2013. trade shall list only contracts that are not readily of a bushel of wheat is approximately $7 per bushel. 420 See, e.g., DiPlacido v. CFTC, 364 Fed. Appx. susceptible to manipulation. See CEA section Therefore, a speculative trader would be permitted 657 (2d Cir. 2009) (upholding Commission finding ∼ 5(d)(3); 7 U.S.C. 7(d)(3). DCM core principle 5 to carry a $21 million position in wheat into the that DiPlacido manipulated the market where (discussed in detail below) requires a DCM to spot month under the proposed position limits DiPlacido’s closing trades accounted for 14% of the establish position limits or position accountability regime. market). provisions where necessary and appropriate ‘‘to 417 See 76 FR at 71635 (n. 100–01) (discussing 421 See 77 FR 36611, 36723, Jun. 12, 2012. DCM reduce the threat of market manipulation or data in CME natural gas contract). estimates of deliverable supplies (and the congestion, especially during the delivery month.’’ 418 The Commission also has established supporting data and analysis) will continue to be CEA section 5(d)(5); 7 USC 7(d)(5). See also requirements for DCMs to monitor the pricing of subject to Commission review. guidance and discussion of estimated deliverable cash-settled contracts. 17 CFR 38.253. 422 The Commission proposes to use the futures supply in Core Principles and Other Requirements 419 Section 4c(a)(5) of the Act lists certain position limits formula (the 10, 2.5 percent formula) for Designated Contract Markets, Final Rule, 77 FR unlawful disruptive trading practices, including to determine non-spot-month position limits for 36612, 36722, Jun. 19, 2012. ‘‘any trading, practice, or conduct on or subject to referenced contracts. The 10, 2.5 percent formula is 414 See 17 CFR 150.5(b). the rules of a registered entity that . . . identified in 17 CFR 150.5(c)(2).

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months position limits since 1999.423 continue to address the § 4a(a)(3) (1) Initial Levels The Commission believes the non-spot regulatory objectives. month position limits would restrict the The Commission also proposes to For setting the levels of initial non- market power of a speculator that could estimate average open interest in spot month limits, the Commission otherwise be used to cause unwarranted referenced contracts based on the largest proposes to use open interest for price movements. The Commission annual average open interest computed calendar years 2011 and 2012 in futures solicits comment on its single-month for each of the past two calendar years, contracts, options thereon, and in swaps and all-months-combined limits, using either month-end open contracts that are significant price discovery or open contracts for each business day including whether the proposed formula contracts that are traded on exempt in the time period, as the Commission has effectively addressed and will commercial markets. finds in its discretion to be reliable.

TABLE 10—OPEN INTEREST AND CALCULATED LIMITS BY CORE FUTURES REFERENCED CONTRACT, JANUARY 1, 2011, TO DECEMBER 31, 2012

Legacy Agricultural ...... CBOT Corn (C) ...... 2011 2,063,231 1,987,152 53,500 51,600 53,500 ...... 2012 1,773,525 1,726,096 46,300 45,100 CBOT Oats (O) ...... 2011 15,375 15,149 1,600 1,600 1,600 ...... 2012 12,291 11,982 1,300 1,200 CBOT Soybeans (S) ...... 2011 822,046 798,417 22,500 21,900 26,900 ...... 2012 997,736 973,672 26,900 26,300 CBOT Soybean Meal (SM) 2011 237,753 235,945 7,900 7,800 9,000 ...... 2012 283,304 281,480 9,000 9,000 CBOT Soybean Oil (SO) .. 2011 392,658 382,100 11,700 11,500 11,900 ...... 2012 397,549 388,417 11,900 11,600 CBOT Wheat (W) ...... 2011 565,459 550,251 16,100 15,700 16,200 ...... 2012 572,068 565,490 16,200 16,100 ICE Cotton No. 2 (CT) ...... 2011 275,799 272,613 8,800 8,700 8,800 ...... 2012 259,608 261,789 8,400 8,500 KCBT Hard Winter Wheat 2011 183,400 177,998 6,500 6,400 6,500 (KW)...... 2012 155,540 155,074 5,800 5,800 MGEX Hard Red Spring 2011 55,938 54,546 3,300 3,300 3,300 Wheat (MWE)...... 2012 40,577 40,314 2,900 2,900 Other Agricultural ...... CBOT Rough Rice (RR) ... 2011 21,788 21,606 2,200 2,200 2,200 ...... 2012 15,262 14,964 1,600 1,500 CME Milk Class III (DA) ... 2011 55,567 57,490 3,300 3,400 3,400 ...... 2012 47,378 47,064 3,100 3,100 CME Feeder Cattle (FC) .. 2011 44,611 43,730 3,000 3,000 3,000 ...... 2012 44,984 43,651 3,000 3,000 CME Lean Hog (LH) ...... 2011 284,211 288,281 9,000 9,100 9,400 ...... 2012 296,822 297,882 9,300 9,400 CME Live Cattle (LC) ...... 2011 433,581 440,229 12,800 12,900 12,900 ...... 2012 409,501 417,037 12,200 12,400 ICUS Cocoa (CC) ...... 2011 191,801 198,290 6,700 6,900 7,100 ...... 2012 202,886 206,808 7,000 7,100 ICE Coffee C (KC) ...... 2011 174,845 176,079 6,300 6,300 7,100 ...... 2012 204,268 207,403 7,000 7,100 . ICE FCOJ–A (OJ) ...... 2011 37,347 36,813 2,900 2,800 2,900 ...... 2012 30,788 29,867 2,700 2,700 ICE Sugar No. 11 (SB) ..... 2011 814,234 806,887 22,300 22,100 23,500 ...... 2012 855,375 862,446 23,300 23,500 ICE Sugar No. 16 (SF) ..... 2011 11,532 11,662 1,200 1,200 1,200 ...... 2012 10,485 10,530 1,100 1,100 Energy ...... NYMEX Henry Hub Nat- 2011 4,831,973 4,821,859 122,700 122,500 149,600 ural Gas (NG)...... 2012 5,905,137 5,866,365 149,600 148,600 NYMEX Light Sweet 2011 4,214,770 4,291,662 107,300 109,200 109,200 Crude Oil (CL)...... 2012 3,720,590 3,804,287 94,900 97,000 NYMEX NY Harbor ULSD 2011 559,280 566,600 15,900 16,100 16,100 (HO)...... 2012 473,004 485,468 13,800 14,100

423 See 64 FR 24038, 24039, May 5, 1999. The 12766, 12770, Apr. 13, 1992. The Commission speculative positions is a congressionally endorsed Commission applies the open interest criterion by implemented the 10, 2.5 percent formula in two regulatory objective of the Commission. Further, it using a formula that specifies appropriate increases steps, the first step in 1993 and the second step in is the Commission’s view that this objective is to the limit level as a percentage of open interest. 1999. See Revision of Federal Speculative Limits, enhanced by the speculative position limits since As the total open interest of a futures market Interim Final Rules, 58 FR 17973, 17978, Apr. 7, it appears that the capacity of any contract to absorb increases, speculative position limit levels can be 1993. See also Establishment of Speculative the establishment and liquidation of large raised. The Commission proposed using the 10, 2.5 Position Limits, 46 FR 50938, Oct. 16, 1981 (‘‘[T]he speculative positions in an orderly manner is percent formula in 1992. See Revision of Federal prevention of large or abrupt price movements related to the relative size of such positions, i.e., the Speculative Position Limits, Proposed Rules, 57 FR which are attributable to the extraordinarily large capacity of the market is not unlimited.’’).

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TABLE 10—OPEN INTEREST AND CALCULATED LIMITS BY CORE FUTURES REFERENCED CONTRACT, JANUARY 1, 2011, TO DECEMBER 31, 2012—Continued NYMEX RBOB Gasoline 2011 362,349 370,207 11,000 11,200 11,800 (RB)...... 2012 388,479 393,219 11,600 11,800 Metals ...... COMEX Copper (HG) ...... 2011 134,097 131,688 5,300 5,200 5,600 ...... 2012 148,767 147,187 5,600 5,600 COMEX Gold (GC) ...... 2011 782,793 746,904 21,500 20,600 21,500 ...... 2012 685,618 668,751 19,100 18,600 COMEX Silver (SI) ...... 2011 179,393 172,567 6,400 6,200 6,400 ...... 2012 165,670 164,064 6,100 6,000 NYMEX Palladium (PA) .... 2011 22,327 22,244 2,300 2,300 5,000 ...... 2012 23,869 24,265 2,400 2,500 NYMEX Platinum (PL) ...... 2011 40,988 40,750 2,900 2,900 5,000 ...... 2012 54,838 54,849 3,300 3,300

Given the levels of open interest for positions typically held in futures calendar years, the table also provides the calendar years of 2011 and 2012 for contracts.424 Few persons held positions counts of persons over 60, 80, 100, and futures contracts and for swaps that are over the levels of the proposed position 500 percent of the levels of the proposed significant price discovery contracts limits in the past two calendar years, as position limits. Note that the 500 traded on exempt commercial markets, illustrated in Table 11 below. To percent line is omitted from Table 11 this formula would result in levels for provide the public with additional where no person held a position over non-spot month position limits that are information regarding the number of that level. high in comparison to the size of large position holders in the past two

TABLE 11—UNIQUE PERSONS OVER PERCENTAGES OF PROPOSED POSITION LIMIT LEVELS, JANUARY 1, 2011, TO DECEMBER 31, 2012

Unique persons over level Commodity type/core referenced futures contract Percent of Spot month level (physical- Spot month Single month All months delivery) (cash-settled)

Legacy Agricultural

CBOT Corn (C) ...... 60 243 4 9 16 80 167 * 6 8 100 53 * * 5 500 7 ...... CBOT Oats (O) ...... 60 5 ...... 15 15 80 4 ...... 8 9 100 * ...... 6 8 CBOT Soybeans (S) ...... 60 119 ...... 14 17 80 88 ...... 9 12 100 27 ...... 6 8 500 9 ...... CBOT Soybean Meal (SM) ...... 60 52 * 20 35 80 32 * 9 16 100 12 * 6 9 CBOT Soybean Oil (SO) ...... 60 114 ...... 31 37 80 70 ...... 15 20 100 20 ...... 10 12 500 * ...... CBOT Wheat (W) ...... 60 46 ...... 22 32 80 31 ...... 14 16 100 14 ...... 9 12 500 * ...... ICE Cotton No. 2 (CT) ...... 60 12 ...... 16 19 80 7 ...... 11 14 100 6 ...... 9 11 500 * ...... KCBT Hard Winter Wheat (KW) ...... 60 33 ...... 36 40 80 18 ...... 13 21 100 14 ...... 9 13 500 * ...... MGEX Hard Red Spring Wheat (MWE) ...... 60 11 ...... 17 24 80 10 ...... 11 15 100 6 ...... 9 9

424 A review of preliminary swap open interest in swap referenced contracts is low, in comparison referenced contracts would serve to increase the reported under part 20 indicates that open interest to futures open interest. Any open interest in swap levels of the positions limits.

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TABLE 11—UNIQUE PERSONS OVER PERCENTAGES OF PROPOSED POSITION LIMIT LEVELS, JANUARY 1, 2011, TO DECEMBER 31, 2012—Continued

Unique persons over level Commodity type/core referenced futures contract Percent of Spot month level (physical- Spot month Single month All months delivery) (cash-settled)

Other Agricultural

CBOT Rough Rice (RR) ...... 60 9 ...... 7 9 80 6 ...... 5 5 100 ...... * * CME Milk Class III (DA) ...... 60 NA 6 * 19 80 NA 4 ...... 14 100 NA * ...... 7 CME Feeder Cattle (FC) ...... 60 NA 76 4 13 80 NA 55 * 7 100 NA 16 * * CME Lean Hog (LH) ...... 60 NA 52 20 30 80 NA 41 11 18 100 NA 28 7 13 500 NA * ...... CME Live Cattle (LC) ...... 60 37 ...... 13 27 80 * ...... 7 17 100 * ...... 4 12 ICUS Cocoa (CC) ...... 60 * ...... 24 29 80 * ...... 14 18 100 * ...... 10 12 ICE Coffee C (KC) ...... 60 14 ...... 19 24 80 13 ...... 8 14 100 8 ...... 5 6 500 2 ...... ICE FCOJ–A (OJ) ...... 60 8 ...... 13 16 80 7 ...... 9 9 100 6 ...... 6 7 ICE Sugar No. 11 (SB) ...... 60 33 ...... 28 31 80 23 ...... 20 24 100 15 ...... 12 18 500 * ...... ICE Sugar No. 16 (SF) ...... 60 6 ...... 10 16 80 5 ...... 7 14 100 5 ...... 7 13

Energy

NYMEX Henry Hub Natural Gas (NG) ...... 60 177 221 * 5 80 131 183 ...... 100 61 148 ...... 500 ...... 35 ...... NYMEX Light Sweet Crude Oil (CL) ...... 60 98 89 ...... 4 80 72 62 ...... * 100 39 33 ...... * 500 ...... NYMEX NY Harbor ULSD (HO) ...... 60 76 45 9 18 80 53 35 6 15 100 33 24 5 8 500 ...... * ...... NYMEX RBOB Gasoline (RB) ...... 60 71 45 21 30 80 48 32 12 16 100 30 22 7 11 500 ...... * ......

Metals

COMEX Copper (HG) ...... 60 14 ...... 29 28 80 13 ...... 21 22 100 * ...... 16 16 COMEX Gold (GC) ...... 60 13 ...... 24 21 80 9 ...... 19 19 100 5 ...... 12 12 COMEX Silver (SI) ...... 60 5 ...... 25 21 80 * ...... 15 13 100 * ...... 10 9 NYMEX Palladium (PA) ...... 60 6 ...... 5 5 80 * ...... * *

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TABLE 11—UNIQUE PERSONS OVER PERCENTAGES OF PROPOSED POSITION LIMIT LEVELS, JANUARY 1, 2011, TO DECEMBER 31, 2012—Continued

Unique persons over level Commodity type/core referenced futures contract Percent of Spot month level (physical- Spot month Single month All months delivery) (cash-settled)

100 * ...... * * NYMEX Platinum (PL) ...... 60 11 ...... 15 18 80 5 ...... 11 12 100 * ...... 9 10 Legend: * means fewer than 4 unique owners exceeded the level. — means no unique owners exceeded the level. NA means not applicable.425

The Commission has also reviewed set initial levels based on open interest below. As discussed below, the data preliminary data submitted to it under in futures, options on futures, and SPDC reported during the month of January part 20. The Commission preliminarily swaps. Thus, the proposed initial levels 2013, reflected improved data reporting has decided not to use the data represent lower bounds for the initial quality. However, the Commission is currently reported under part 20 for levels the Commission may establish in concerned that the longer time series of purposes of setting the initial levels of final rules. The Commission is this data has been less reliable and thus the proposed single month and all- providing the public with average open has not used it for purposes of setting months-combined positions limits. positions reported under part 20 for the proposed initial position limit levels. Instead, the Commission is proposing to month of January 2013, in the table

TABLE 12—SWAPS REPORTED UNDER PART 20—AVERAGE DAILY OPEN POSITIONS, FUTURES EQUIVALENT, JANUARY 2013

Uncleared Covered swap contract swaps Cleared swaps

Chicago Board of Trade (‘‘CBOT’’) Corn ...... 110,533 3,060 CBOT Ethanol ...... * 15,905 CBOT Oats ...... CBOT Rough Rice ...... CBOT Soybean Meal ...... 20,594 ...... CBOT Soybean Oil ...... 35,760 ...... CBOT Soybeans ...... 39,883 1,306 CBOT Wheat ...... 64,805 2,856 Chicago Mercantile Exchange (‘‘CME’’) Butter ...... CME Cheese ...... CME Dry Whey ...... CME Feeder Cattle ...... * ...... CME Hardwood Pulp ...... CME Lean Hog ...... 12,809 ...... CME Live Cattle ...... 17,617 ...... CME Milk Class III ...... CME Non Fat Dry Milk ...... CME Random Length Lumbar ...... CME Softwood Pulp ...... Commodity Exchange, Inc. (‘‘COMEX’’) Copper Grade No. 1 ...... 9,259 ...... COMEX Gold ...... 38,295 ...... COMEX Silver ...... 5,753 ...... ICE Futures U.S. (‘‘ICE’’) Cocoa ...... 8,933 ...... ICE Coffee C ...... 3,465 ...... ICE Cotton No. 2 ...... 14,627 ...... ICE Frozen Concentrated Orange Juice ...... * ...... ICE Sugar No. 11 ...... 287,434 ...... ICE Sugar No. 16 ...... Kansas City Board of Trade (‘‘KCBT’’) Wheat ...... 2,565 ...... Minneapolis Grain Exchange (‘‘MGEX’’) Wheat ...... 2,419 ...... NYSE LIFFE (‘‘NYL’’) Gold, 100 Troy Oz...... NYL Silver, 5000 Troy Oz...... New York Mercantile Exchange (‘‘NYMEX’’) Cocoa ...... NYMEX Brent Financial ...... 93,825 ...... NYMEX Central Appalachian Coal ...... NYMEX Coffee ...... 2,320 ...... NYMEX Cotton ...... 8,315 ......

425 Table notes: (1) Aggregation exemptions were persons; (2) the position data was for futures, futures options and swaps that are significant price not used in computing the counts of unique discovery contracts (SPDCs).

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TABLE 12—SWAPS REPORTED UNDER PART 20—AVERAGE DAILY OPEN POSITIONS, FUTURES EQUIVALENT, JANUARY 2013—Continued

Uncleared Covered swap contract swaps Cleared swaps

NYMEX Crude Oil, Light Sweet ...... 507,710 ...... NYMEX Gasoline Blendstock (RBOB)...... 10,110 ...... NYMEX Hot Rolled Coil Steel ...... * ...... NYMEX Natural Gas ...... 1,060,468 96,057 NYMEX No. 2 Heating Oil, New York Harbor ...... 35,126 ...... NYMEX Palladium ...... * ...... NYMEX Platinum ...... * ...... Legend: * means fewer than 1,000 futures equivalent contracts reported in the category. Leaders mean no contracts reported.

The part 20 data are comprised of order to establish higher initial levels in data is collected by swap data positions resulting from cleared and a final rule.428 Further, the Commission repositories under part 45, and would uncleared swaps, which are reported by is considering using data from swaps convert such data to futures-equivalent different reporting entities. Clearing data repositories, as practicable. In open positions in order to fix numerical members of derivative clearing either case, the Commission is position limits through the application organizations (‘‘DCOs’’) have reported considering excluding inter-affiliate of the proposed open-interest-based paired swap positions in cleared swaps swaps, since such swaps would tend to position limit formula. The resultant since November 11, 2011, and paired inflate open interest. limits are purposely designed to be high swap positions in uncleared swaps Based on the forgoing, the enough to ensure sufficient liquidity for since January 20, 2012. DCOs have also Commission believes the initial levels bona fide hedgers and to avoid reported aggregate positions of each proposed herein should ensure adequate disrupting the price discovery process clearing member’s house and customer liquidity for hedges yet nevertheless given the limited information the accounts for each paired swap since prevent a speculative trader from Commission has with respect to the size November 11, 2011. Data reports acquiring excessively large positions of the physical commodity swap submitted by clearing members have above the limits, and thereby help to markets, including preliminary data had various errors (e.g., duplicate prevent excessive speculation and to collected under part 20 as of January records, inconsistent reporting of data deter and prevent market manipulation. 2013. The Commission further proposes fields)—Commission staff continues to to publish on the Commission’s Web (2) Subsequent Levels work with these reporting entities to page such estimates of average open improve data reporting. For setting subsequent levels of non- interest in referenced contracts on a Beginning March 1, 2013, swap spot month limits, the Commission monthly basis to make it easier for dealers that were not clearing members proposes to estimate average open market participants to estimate changes were required to submit data reports interest in referenced contracts using in levels of position limits. under § 20.4(c). Additionally, some data reported by DCMs and SEFs swap dealers began reporting such data pursuant to parts 16, 20, and/or 45.429 f. Grandfather of Pre-Existing Positions voluntarily prior to March 1, 2013.426 While the Commission does not The Commission proposes in new As these new reporters submitted currently possess all data needed to § 150.2(f)(2) to conditionally exempt position data reports, the Commission fully enforce the position limits from federal non-spot-month observed a substantial increase in open proposed herein, the Commission speculative position limits any interest for uncleared swaps that believes that it should have adequate referenced contract position acquired by appeared unreasonable; it became data to reset the overall concentration- a person in good faith prior to the apparent that part of this increase was based percentages for the position limits effective date of such limit, provided caused by data reporting errors.427 The two years after initial levels are set.430 that such pre-existing referenced Commission believes it would be The Commission intends to use contract position is attributed to the difficult to distinguish the true level of comprehensive positional data on person if such person’s position is open interest because some reporting physical commodity swaps once such increased after the effective date of such errors may cause open interest to be limit.431 This conditional exemption for underestimated while others may cause 428 Several reporting entities have submitted data pre-existing positions is consistent with open interest to be overestimated. that contained stark errors. For example, certain the provisions of CEA section 4a(b)(2) in Alternatively, the Commission is reporting entities submitted position sizes that the Commission determined to be 1000 times, or even 431 Such pre-existing positions that are in excess considering using part 20 data, should 10,000 times, too large. of the proposed position limits would not cause the it determine such data to be reliable, in 429 Options listed on DCMs would be adjusted trader to be in violation based solely on those using an option delta reported to the Commission positions. To the extent a trader’s pre-existing 426 Further, other firms have begun to report pursuant to 17 CFR part 16; swaps would be positions would cause the trader to exceed the non- under part 20 after March 1, 2013, following counted on a futures equivalent basis, equal to the spot-month limit, the trader could not increase the registration as swap dealers. economically equivalent amount of core referenced directional position that caused the positions to 427 For example, reported total open interest in futures contracts reported pursuant to 17 CFR part exceed the limit until the trader reduces the swaps, both cleared and uncleared, linked to or 20 or as calculated by the Commission using swap positions to below the position limit. As such, based on NYMEX Natural Gas futures contracts data collected pursuant to17 CFR part 45. persons who established a net position below the averaged approximately 1.2 million contracts 430 While the Commission has access to some data speculative limit prior to the enactment of a between January 1, 2013 and March 1, 2013 and on physical-commodity swaps from swaps data regulation would be permitted to acquire new approximately 97 million contracts between March repositories, the Commission continues to work positions, but the Commission would calculate the 1 and May 31, 2013 (with a peak value close to 300 with SDRs and other market participants to fully combined position of a person based on pre-existing million contracts). implement the swaps data reporting regime. positions with any new position.

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that it is designed to phase in position Additionally, Dodd-Frank added section ii. Proposed § 150.3 limits without significant market 4a(a)(7) to the CEA, which gives the In this release, the Commission disruption, while attributing such pre- Commission authority to provide proposes organizational and substantive existing positions to the person if such exemptions from any requirement the amendments to § 150.3, generally person’s position is increased after the Commission establishes under section resulting in an increase in the number effective date of a position limit is 4a with respect to speculative position of exemptions to speculative position consistent with the provisions of CEA limits.437 limits. First, the Commission proposes section 22(a)(5)(B). Notwithstanding this The existing exemptions promulgated to amend the three exemptions from exemption for pre-existing positions in under pre-Dodd-Frank CEA section 4a federal speculative limits currently non-spot months, proposed § 150.2(f)(1) and set forth in current § 150.3 are contained in § 150.3. These would require a person holding a pre- fundamental to the Commission’s amendments would update cross existing referenced contract position (in regulatory framework for speculative references, relocate the IAC exemption a commodity derivative contract other position limits. Current § 150.3 specifies and consolidate it with the than a pre-enactment and transition the types of positions that may be Commission’s separate proposal to period swaps as defined in proposed exempted from, and thus may exceed, amend the aggregation requirements of § 150.1) to comply with spot month 443 the federal speculative position limits. § 150.4, and delete the calendar speculative position limits.432 The First, the exemption for bona fide month spread provision which is Commission remains particularly hedging transactions and positions as unnecessary under proposed changes to concerned about protecting the spot defined in current § 1.3(z) permits a § 150.2 that would increase the level of month in physical-delivery futures commercial enterprise to exceed the single month position limits. contracts from squeezes and corners. positions limits to the extent the Second, the Commission proposes to Proposed § 150.2(g) would apply positions are reducing price risks add exemptions from the federal position limits to foreign board of trade incidental to commercial operations.438 speculative position limits for financial (‘‘FBOT’’) contracts that are both: (1) Second, the exemption for spread or distress situations, certain spot-month Linked contracts, that is, a contract that arbitrage positions between single positions in cash-settled referenced settles against the price (including the months of a futures contract (and/or, on contracts, and grandfathered pre-Dodd- daily or final settlement price) of one or a futures-equivalent basis, options) Frank and transition period swaps. more contracts listed for trading on a outside of the spot month, permits any Third, the Commission proposes to DCM or SEF; and (2) direct-access trader’s spread position to exceed the revise recordkeeping and reporting contracts, that is, the FBOT makes the single month limit.439 Third, positions requirements for traders claiming any contract available in the United States carried for an eligible entity 440 in the exemption from the federal speculative through direct access to its electronic separate account of an independent position limits. trading and order matching system 441 account controller (‘‘IAC’’) that a. Proposed Amendments to Existing through registration as an FBOT or via manages customer positions need not be 433 Exemptions a staff no action letter. Proposed aggregated with the other positions § 150.2(g) is consistent with CEA section owned or controlled by that eligible (1) New Cross-References 4a(a)(6)(B), which directs the entity (the ‘‘IAC exemption’’).442 Because the Commission proposes to Commission to apply aggregate position replace the definition of bona fide limits to FBOT linked, direct-access definition of bona fide hedging positions in hedging in 1.3(z) with the definition in 434 contracts. proposed § 150.1. proposed § 150.1, proposed 437 3. Section 150.3—Exemptions 7 U.S.C. 6a(a)(7). Section 4a(a)(7) of the CEA § 150.3(a)(1)(i) updates the cross- provides the Commission plenary authority to grant references to reflect this change.444 i. Current § 150.3 exemptive relief from position limits. Specifically, under Section 4a(a)(7), the Commission ‘‘by rule, Proposed § 150.3(a)(3) would add a new CEA section 4a(c)(1) exempts bona regulation, or order, may exempt, conditionally or cross-reference to the reporting fide hedging transactions or positions, unconditionally, any person, or class of persons, requirements proposed to be amended any swap or class of swaps, any contract of sale of in part 19.445 As is currently the case for which terms are to be defined by the a commodity for future delivery or class of such Commission, from any rule promulgated contracts, any option or class of options, or any bona fide hedgers, persons who wish to by the Commission under CEA section transaction or class of transactions from any claim any exemption from federal requirement it may establish . . . with respect to position limits, including hedgers, 4a concerning speculative position position limits.’’ 435 would need to satisfy the reporting limits. Current § 150.3, adopted by 438 17 CFR 150.3(a)(1). The current definition of 446 the Commission before the Dodd-Frank bona fide hedging transactions and positions in requirements in part 19. As discussed Act was enacted, contains an exemption 1.3(z) is discussed above. elsewhere in this release, the from federal position limits for bona 439 The Commission clarifies that a spread or Commission is proposing amendments fide hedging transactions.436 arbitrage position in this context means a short to update part 19 reporting.447 For position in a single month of a futures contract and purposes of simplicity, the Commission a long position in another contract month of that 432 Nothing in proposed § 150.2(f) would override same futures contract, outside of the spot month, in is retaining the current placement of the exemption set forth in proposed § 150.3(d) for the same crop year. The short and/or long positions many reporting requirements, including pre-enactment and transition period swaps from may also be in options on that same futures those related to claimed exemptions speculative position limits. See discussion of contract, on a futures equivalent basis. Such spread from the federal position limits, within proposed § 150.3(d) below. or arbitrage positions, when combined with any 433 Proposed § 150.2(g) is identical in substance to other net positions in the single month, must not vacated § 151.8. Compare 76 FR 71693. exceed the all-months limit set forth in current 443 See Aggregation NPRM. 434 See supra discussion of CEA section 4a(a)(6) § 150.2, and must be in the same crop year. 17 CFR 444 See supra discussion of the Commission’s concerning aggregate position limits and the 150.3(a)(3). revised definition of bona fide hedging position in treatment of FBOT contracts. 440 ‘‘Eligible entity’’ is defined in current 17 CFR proposed § 150.1. 435 7 U.S.C. 6a(c)(1). 150.1(d). 445 See infra discussion of proposed revisions of 436 Bona fide hedging transactions and positions 441 ‘‘Independent account controller’’ is defined 17 CFR part 19. for excluded commodities are currently defined at in 17 CFR 150.1(e). 446 See 17 CFR part 19. 17 CFR § 1.3(z). As discussed above, the 442 See 17 CFR 150.3(a)(4). See also discussion of 447 See infra discussion of proposed revisions of Commission has proposed a new comprehensive the IAC exemption in the Aggregation NPRM. 17 CFR part 19.

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parts 15–21 of the Commission’s (3) Relocating Independent Account such an exemption by Commission regulations.448 Lastly, proposed Controller (‘‘IAC’’) Exemption to Order due to concerns regarding § 150.3(i) would add a cross-reference to proposed § 150.4 timeliness and flexibility. Furthermore, the updated aggregation rules in In a separate rulemaking, the the Commission clarifies that this 449 proposed § 150.4. The Commission Commission has proposed § 150.4(b)(5) exemption for financial distress proposes to retain the current practice of to replace the existing IAC exemption in situations is not a hedging exemption. considering entities required to current § 150.3(a)(4).454 Proposed (2) Conditional Spot-Month Limit aggregate accounts or positions under § 150.4(b)(5) sets forth an exemption for Exemption proposed § 150.4 to be the same person accounts carried by an IAC that is Proposed § 150.3(c) would provide a when determining whether they are substantially similar to current conditional spot-month limit exemption eligible for a bona fide hedging position § 150.3(a)(4). Thus, the Commission is 450 that permits traders to acquire positions exemption. proposing to delete the IAC exemption up to five times the spot-month limit if in current § 150.3(a)(4) because it is (2) Deleting Exemption for Calendar such positions are exclusively in cash- duplicative. Spread or Arbitrage Positions settled contracts. This conditional The Commission proposes to delete b. Proposed Additional Exemptions exemption would only be available to the exemption in current § 150.3(a)(3) From Position Limits traders who do not hold or control for spread or arbitrage positions As discussed above, CEA section positions in the spot-month physical- between single months of a futures 4a(a)(7) provides that the Commission delivery referenced contract. contract or options thereon, outside the may ‘‘by rule, regulation, or order . . . Historically, the Commission and 451 spot month. The Commission has exempt . . . any person or class of Congress have been particularly proposed to maintain the current persons’’ from any requirement that the concerned about protecting the spot practice in § 150.2, which the district Commission may establish under month in physical-delivery futures 456 court did not vacate, of setting single- section 4a of the Act. Pursuant to this contracts. For example, new CEA month limits at the same levels as all- authority, the Commission proposes to section 4c(a)(5)(B) makes it unlawful for months limits, rendering the ‘‘spread’’ add new exemptions in § 150.3 for any person to engage in any trading, exemption unnecessary. The spread financial distress situations and practice, or conduct on or subject to the exemption set forth in current qualifying positions in cash-settled rules of a registered entity that § 150.3(a)(3) permits a spread trader to referenced contracts. The Commission demonstrates intentional or reckless exceed single month limits only to the also proposes to add guidance to disregard for the orderly execution of 452 extent of the all months limit. Since persons seeking exemptive relief for transactions during the closing period. proposed § 150.2 sets single month certain qualifying non-enumerated risk- The Commission interprets the closing limits at the same level as all months reducing transactions. Additionally, the period to be defined generally as the limits, the spread exemption no longer Commission proposes to grandfather period in the contract or trade when the provides useful relief. Furthermore, as pre-Dodd-Frank enactment swaps and settlement price is determined under discussed below in this release, the transition swaps entered into before the rules of a trading facility such as a Commission would codify guidance in from position limits. DCM or SEF, and may include the time proposed § 150.5(a)(2)(B) that would period in which a daily settlement price allow a DCM or SEF to grant exemptions (1) Financial Distress Exemption is determined and the expiration day for for intramarket and intermarket spread The Commission proposes to add an a futures contract.457 positions (as those terms are defined in exemption from position limits for This proposed conditional exemption proposed § 150.1) involving commodity certain market participants in certain for cash-settled contracts generally derivative contracts subject to the financial distress scenarios to § 150.3(b). tracks exchange-set position limits federal limits.453 During periods of financial distress, it currently implemented for certain cash- may be beneficial for a financially settled energy futures and swaps.458 The 448 The Commission notes this is a change from sound entity to take on the positions the organization of vacated § 151.5, that included 456 See, for example, the guidance for DCMs to both exemptions and related reporting requirements (and corresponding risk) of a less stable market participant. The Commission establish a spot month limit in physical-delivery in a single section. futures contracts that is no greater than 25 percent 449 See Aggregation NPRM. historically has provided for an of estimated deliverable supply in 17 CFR 150.5(b). 450 See Aggregation NPRM. The Commission exemption from position limits in these 457 See Antidisruptive Practices Authority, clarifies that whether it is economically appropriate types of situations, to avoid sudden Interpretive guidance and policy statement, 78 FR for one entity to offset the cash market risk of an liquidations that could potentially 31890, 31894, May 28, 2013. See also the affiliate depends, in part, upon that entity’s discussion above of ‘‘banging the close’’ and the ownership interest in the affiliate. It would not be reduce liquidity, disrupt price DiPlacido case. economically appropriate for an entity to offset all discovery, and/or increase systemic 458 For example, this is the same methodology for the risk of an affiliate’s cash market exposure unless risk.455 Therefore, the Commission now spot-month speculative position limits that applies that entity held a 100 percent ownership interest in to cash-settled Henry Hub natural gas contracts on the affiliate. For less than a 100 percent ownership proposes to codify in regulation its prior exemptive practices to accommodate NYMEX and ICE, beginning with the February 2010 interest, it would be economically appropriate for contract months (with the exception of the an entity to offset no more than a pro rata amount situations involving, for example, a exchange-set requirement that a trader not hold of any cash market risk of an affiliate, consistent customer default at a FCM, or in the large cash commodity positions). In response to with the entity’s ownership interest in the affiliate. context of potential bankruptcy. The concerns regarding increasing trading volumes in 451 In its entirety, 17 CFR 150.3(a)(3) sets forth an Commission historically has not granted standardized swaps, in 2008 Congress amended exemption from federal position limits for [s]pread section 2(h) of the Act to establish core principles or arbitrage positions between single months of a for exempt commercial markets (‘‘ECMs’’) trading futures contract and/or, on a futures-equivalent 454 For purposes of simplicity, the IAC exemption swap contracts that the Commission determined to basis, options thereon, outside of the spot month, would be placed within the regulatory section be significant price discovery contracts (‘‘SPDCs’’). in the same crop year; provided however, that such providing for aggregation of positions. See 7 U.S.C. 2(h)(7) (2009). See also section 13201 of spread or arbitrage positions, when combined with Aggregation NPRM. the Food, Conservation and Energy Act of 2008, any other net positions in the single month, do not 455 See Release 5551–08, ‘‘CFTC Update on Efforts H.R. 2419 (May 22, 2008). Core principle (IV) exceed the all-months limit set forth in § 150.2. Underway to Oversee Markets,’’ September 19, 2008 directed ECMs to ‘‘adopt, where necessary and 452 See id. (available at http://www.cftc.gov/PressRoom/ appropriate, position limitations or position 453 As discussed above. PressReleases/pr5551-08). accountability for speculators . . . to reduce the

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Commission has examined market data reporting regime may serve to provide physical-delivery prices to benefit their on the effectiveness of conditional spot- sufficient information to conduct an leveraged cash-settled positions. Thus, month limits for cash-settled energy adequate surveillance program to detect the exemption would establish a higher futures swaps, including the data and potentially deter excessively large conditional limit for cash-settled submitted as part of the prior position positions or manipulative schemes contracts than for physical delivery limits rulemaking,459 and preliminarily involving the cash market. contracts, so long as such positions are believes that the conditional approach The Commission notes that the decoupled from positions in physical effectively addresses the § 4a(a)(3) proposed conditional spot month limit delivery contracts which set or affect the regulatory objectives. Since spot-month is a change of course from the expanded value of such cash-settled positions. limit levels for cash-settled referenced spot month limit that was only for The Commission preliminarily contracts will be set at no more than natural gas referenced contracts in believes this proposed exemption would 25% of the estimated spot-month vacated § 151.4.462 In proposing to not encourage price discovery to migrate deliverable supply in the relevant core expand the scope of derivatives to the cash-settled contracts in a way referenced futures contract, the contracts for which the conditional spot that would make the physical-delivery proposed conditional exemption would month limit is available, the contract more susceptible to sudden therefore permit a speculator to own Commission has reconsidered the risks price movements near expiration. The positions in cash-settled referenced to the market of permitting a speculative Commission has observed, repeatedly, contracts equivalent to no more than trader to hold an expanded position in that open interest in physical-delivery 125% of the estimated deliverable a cash-settled contract when that contracts typically declines markedly in supply. speculative trader also is active in the the period immediately preceding the As proposed, this broad conditional underlying physical-delivery contract. spot month. Open interest typically spot month limit exemption for cash- The Commission preliminarily believes declines to minimal levels prior to the settled contracts would be similar to the the conditional natural gas spot month close of trading in physical-delivery conditional spot month limit for cash- limits of the exchanges generally have contracts. The Commission notes a settled contracts in proposed § 151.4.460 served to further the purposes Congress hedger with a long position need not However, unlike proposed § 151.4, articulated for positions limits in stand for delivery when the price of a proposed § 150.3(c) would not require a sections 4a(a)(3)(B) and 4c(a)(5)(B) of physical-delivery contract has trader to hold physical commodity the Act, such as deterring market adequately converged to the underlying inventory of less than or equal to 25 manipulation, ensuring the price cash market price; rather, such long percent of the estimated deliverable discovery function of the underlying position holder may offset and purchase supply in order to qualify for the market is not disrupted, and deterring needed commodities in the cash market conditional spot month limit disruptive trading during the closing at a comparable price that meets the exemption. Rather, the Commission period. The Commission notes those hedger’s specific location and quality proposes to require enhanced reporting exchange-set conditional limits, as is the needs. Similarly, the Commission notes of cash market holdings of traders case for the proposed rule, prohibit a a hedger with a short position need not availing themselves of the conditional speculative trader who is holding an give notice of intention to deliver and spot month limit exemption, as expanded position in a cash-settled deliver when the price of a physical- discussed in the proposed changes to contract from also holding any position delivery contract has adequately 461 part 19, below. The Commission in the physical-delivery contract. converged to the underlying cash preliminarily believes that an enhanced The proposed conditional exemption market price; rather, such short position would satisfy the goals set forth in CEA holder may offset and sell commodities potential threat of market manipulation or section 4a(a)(3)(B) by: Eliminating all held in inventory or current production congestion, especially during trading in the delivery in the cash market at a comparable price month.’’ 7 U.S.C. 2(h)(7)(C)(ii)(IV)(2009). Under the speculation in a physical-delivery Commission’s rules for ECMs trading SPDCs, the contract during the spot period by a that is consistent with the hedger’s Commission provided an acceptable practice that trader availing herself of the conditional specific storage location and quality of 463 an ECM trading a SPDC that is economically- spot month limit exemption; ensuring inventory or production. Concerns equivalent to a contract traded on a DCM should sufficient market liquidity in the cash- regarding corners and squeezes are most set the spot-month limit at the same level as that acute in the markets for physical specified for the economically-equivalent DCM settled contract for bona fide hedgers, in contract. 17 CFR part 36 (2010). In practice, for light of the typically rapidly decreasing contracts in the spot month, which is example, ICE complied with this requirement by levels of open interest in the physical- why speculative limits in physical establishing a spot month limit for its natural gas delivery contract during the spot month delivery markets are generally set at SPDC at the same level as the spot month limit in levels that are stricter during the spot the economically-equivalent NYMEX Henry Hub as hedgers exit the physical-delivery Natural Gas futures contract. Both ICE and NYMEX contract; and protecting the price month. The Commission seeks comment established conditional spot month limits in their discovery process in the physical- on whether a conditional spot-month cash-settled natural gas contracts at a level five delivery contract from the risk that times the level of the spot month limit in the 463 Once the price of a physical-delivery contract physical-delivery futures contract. traders with leveraged positions in cash- has converged adequately to cash market prices, 459 See 76 FR 71635 (n. 100–01)(discussing data settled contracts (in comparison to the long and short position holders typically offset for the CME natural gas contract). level of the limit in the physical- physical-delivery contracts. Prior to such adequate 460 With respect to cash-settled contracts, delivery contract) would otherwise convergence, the Commission has observed when a proposed § 151.4 incorporated a conditional spot- physical-delivery contract is trading at a price month limit permitting traders without a hedge attempt to mark the close or distort above prevailing cash market prices, commercials exemption to acquire position levels that are five with inventory tend to sell contracts with the intent times the spot-month limit if such positions are 462 Under vacated § 151.4, the Commission would of making delivery, causing physical-delivery prices exclusively in cash-settled contracts (i.e., the trader have applied spot-month position limits for cash- to converge to cash market prices. Similarly, the does not hold positions in the physical-delivery settled contracts using the same methodology as Commission has observed when a physical-delivery referenced contract) and the trader holds physical applied to the physical-delivery core referenced contract is trading at a price below prevailing cash commodity positions that are less than or equal to futures contracts, with the exception of natural gas market prices, commercials with a need for the 25 percent of the estimated deliverable supply. See contracts, which would have a class limit and commodity or merchants active in the cash market Proposed Rule, 76 FR 4752, 4758, Jan. 26, 2011. aggregate limit of five times the level of the limit tend to buy the contract with the intent of taking 461 See infra discussion of proposed revisions to for the physical-delivery Core Referenced Futures delivery, causing physical-delivery prices to part 19. Contract. 76 FR 71635. converge to cash market prices.

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limit exemption adequately protects the conditional spot month limit: Setting an particular products? Would anti- price discovery function of the expanded spot-month limit for cash- competitive behavior be more or less underlying physical-delivery market. settled contracts at five times the level likely to result from any of the proposed Further, the Commission solicits of the limit for the physical-delivery conditional spot month limit or the comment on its conditional spot month core referenced futures contract, alternatives? Does any of the proposed limit, including whether it is advisable regardless of positions in the underlying conditional spot month limit or the to expand this conditional limit to all physical-delivery contract. This alternatives increase the potential for contracts. Additionally, the Commission alternative would not prohibit a trader manipulation? If yes, please provide solicits comment on whether the from carrying a position in the spot- detailed arguments and analyses. conditional spot-month limit has month of the physical-delivery contract. (3) Exemption for Pre-Dodd-Frank effectively addressed and will continue Consequently, this alternative would Enactment Swaps and Transition Period to address the CEA section 4a(a)(3) give more weight to protecting liquidity Swaps regulatory objectives. Are there other for bona fide hedgers in the physical- concerns or issues regarding the delivery contract in the spot month, and Proposed § 150.3(d) would provide an proposed conditional spot month limit less weight to protecting the price exemption from federal position limits exemption that the Commission has not discovery function of the underlying for (1) swaps entered into prior to July addressed? physical-delivery contract in the spot 21, 2010 (the date of the enactment of While traders who avail themselves of month.465 Given Congressional concerns the Dodd-Frank Act of 2010), the terms a conditional spot month limit regarding disruptive trading practices in of which have not expired as of that exemption could not directly influence the closing period, as discussed above, date, and (2) swaps entered into during particular settlement prices by trading would this second alternative the period commencing July 22, 2010, in the physical-delivery referenced adequately address the policy factors in the terms of which have not expired as contract, the Commission remains CEA section 4a(a)(3)(B)? of that date, and ending 60 days after concerned about such traders’ activities The Commission is also considering a the publication of final § 150.3 in the in the underlying cash commodity. third alternative: Limiting application of Federal Register.466 However, the Accordingly, the Commission proposes an expanded spot-month limit to a Commission would allow both pre- new reporting requirements in part 19, trader holding positions in cash-settled enactment and transition swaps to be as discussed below.464 The Commission contracts that settle to an index based netted with commodity derivative invites comment and empirical analysis on cash-market transactions prices. contracts acquired more than 60 after as to whether these reporting Under this third alternative, cash-settled publication of final § 150.3 in the requirements adequately address contracts that settle to the underlying Federal Register for the purpose of concerns regarding: (1) Protecting the physical-delivery contract would be complying with any non-spot-month price discovery function of the physical- restricted by a spot-month limit set at position limit. delivery market, including deterring the same level as that of the underlying attempts to mark the close in the physical-delivery contract. The (4) Other Exemptions for Non- physical-delivery contract; and (2) Commission is considering an aggregate Enumerated Risk-Reducing Practices providing adequate liquidity for bona spot-month limit on all types of cash- The Commission notes that the fide hedgers in the physical-delivery settled contracts set at five times the enumerated list of bona fide hedging contracts. In light of these two concerns, level of the limit of the underlying positions as set forth in proposed the Commission is also proposing physical-delivery contract for this § 150.1 represents an expanded list of alternatives to the conditional spot- alternative to the proposed conditional exemptions that has evolved over many month limit exemption, as discussed spot month limit. Would this third years of the Commission’s experience in below, including the possibility that it alternative adequately address the administering speculative position would not adopt the proposed policy factors in CEA section limits. The Commission has carefully conditional spot-month limit 4a(a)(3)(B)? Would this third alternative expanded the list of exemptions in light exemption. better address such policy factors than of the statutory directive to define a As one alternative to the proposed the second alternative? bona fide hedging position in section conditional spot month limit, the The Commission requests comment 4a(c)(2) of the Act. Commission is considering whether to on all aspects of the proposed The Commission previously restrict a trader claiming the conditional conditional spot limit and the three permitted a person to file an application spot-month limit exemption to positions alternatives discussed above, including seeking approval for a non-enumerated in cash-settled contracts that settle to an whether conditional spot month limit position to be recognized as a bona fide index based on cash-market transactions exemptions should vary based on the hedging position under § 1.47. The prices. This would prohibit traders from underlying commodity. Should the Commission proposes to delete § 1.47 claiming a conditional exemption if the Commission consider any other for several reasons. First, § 1.47 did not trader held positions in the spot-month alternatives? If yes, please describe any provide guidance as to the standards the of cash-settled contracts that settle to alternative in detail. Would any of the Commission would use to determine prices based on the underlying physical- proposed conditional spot month limit whether a position was a bona fide delivery futures contract. If the or the alternatives be more or less likely Commission adopted this alternative to increase or decrease liquidity in 466 This exemption is consistent with CEA section instead of the proposal, would the 4a(b)(2). The time period for transition swaps for 465 purposes of position limits differs from the time physical-delivery futures contract This second alternative would effectively adopt for all commodity derivative contract limits period for transition swaps for purposes of swap market be better protected? Why or why certain provisions of vacated § 151.4 (that would data recordkeeping and reporting requirements. In not? have been applicable only to contracts in natural both cases, the time periods for transition swaps The Commission is also considering a gas). As noted above, under vacated § 151.4, the begins on the date of enactment of the Dodd-Frank second alternative to the proposed Commission would have applied a spot-month Act. However, the time periods for transition swaps position limit for cash-settled contracts in natural end prior to the compliance date for each relevant gas at a level of five times the level of the limit for rule. Swap data recordkeeping and reporting 464 See infra discussion of proposed revisions of the physical-delivery Core Referenced Futures requirements for pre-enactment and transition part 19. Contract in natural gas. Id. period swaps are listed in 17 CFR part 46.

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hedging position. Second, in the § 140.99 468 concerning the applicability determinations and exemptions from Commission’s experience, the of the bona fide hedging position Federal position limits, filers would overwhelming number of applications exemption, or the person may seek furnish information to demonstrate, filed under § 1.47 were from swap exemptive relief from the Commission among other things, that the described intermediaries seeking to offset the risk under section 4a(a)(7) of the Act.469 transactions and positions were economically appropriate to the of swaps. Section 4a(c)(2) of the Act (5) Previously Granted Risk reduction of risk exposure attendant to addresses the application of the bona Management Exemptions fide hedging definition to certain the conduct and management of a positions that reduce risks attendant to Until about mid-2008, the commercial enterprise.473 On this basis, a position resulting from certain swaps. Commission accepted and approved the Division provided relief to dealers, As discussed in the definitions section filings pursuant to § 1.3(z) and § 1.47 for market makers and ‘‘risk above, those statutory provisions have recognition of transactions and intermediaries’’ facing not only been incorporated into the proposed positions described in such filings as producers and consumers of definition of a bona fide hedging bona fide hedging for purposes of commodities but hedge funds, pension position under § 150.1; further, as compliance with Federal position funds and other financial institutions discussed in the position limits section limits. Since then, the Division of who lacked the capacity to make or take above, the provisions of proposed Market Oversight (the ‘‘Division’’), on delivery of, or otherwise handle, a § 150.2 include relief outside of the spot behalf of the Commission, has only physical commodity.474 The exemptions month to permit automatic netting of considered revisions to previously granted by the Division were not limited 470 swaps that are referenced contracts with recognized filings. Prior to the Dodd- to futures to offset price risks associated futures contracts that are referenced Frank Act and pursuant to authority with commodity index swaps that could 471 contracts and, where appropriate, to delegated to it under § 140.97, the be hedged in the component futures recognize as a bona fide hedging Division recognized a broad range of contracts. Filers obtained exemptions position the offset of certain non- transactions and positions as bona fide for futures transactions used to hedge referenced contract swaps with futures hedges based on facts and price risks from transactions involving that are referenced contracts.467 Third, representations contained in such options, warrants, certificates of deposit, 472 § 1.47 provided specific, limited filings. In seeking these structured notes and various other timeframes (of 30 days or 10 days) for structured products and hybrid 468 the Commission to determine whether 17 CFR 140.99 defines three types of staff instruments referencing commodities or letters—exemptive letters, no-action letters, and embedding transactions linked to the the position may be classified as bona interpretative letters—that differ in scope and fide hedging. The Commission effect. An interpretative letter is written advice or payout or performance of a commodity preliminarily believes it should not guidance by the staff of a division of the or basket of commodities (collectively, constrain itself to such limited Commission or its Office of the General Counsel. It ‘‘financial products’’). In sum, the binds only the staff of the division that issued it (or Division provided relief to ‘‘persons timeframes for review of potentially the Office of the General Counsel, as the case may complex and novel risk-reducing be), and third-parties may rely upon it as the using the futures markets to manage transactions. interpretation of that staff. See description of CFTC risks associated with financial Nevertheless, the Commission Staff Letters, available at http://www.cftc.gov/ investment portfolios’’ and granted lawregulation/cftcstaffletters/index.htm. exemptions from speculative position proposes in § 150.3(e) to provide 469 See supra discussion of CEA section 4a(a)(7). limits to a broad range of ‘‘trading guidance to persons seeking exemptive 470 On May 29, 2008, the Commission announced relief. A person that engages in risk- a number of initiatives to increase transparency of strategies to reduce financial risks, reducing practices commonly used in the energy futures markets. In particular, the regardless of whether a matching the market that the person believes may Commission would review the trading practices of transaction ever took place in a cash index traders in the futures markets. CFTC Press market for a physical commodity.’’ 475 In not be included in the list of Release 5503–08, May 29, 2008, available at enumerated bona fide hedging http://www.cftc.gov/PressRoom/PressReleases/ transactions may apply to the pr5503-08. On June 3, 2008, the Commission program that would be consistent with the announced policy initiatives aimed at addressing examples of bona fide hedging positions in Commission for an exemption from concerns raised at an April 22, 2008 roundtable proposed appendix B to part 150. position limits. As proposed, market regarding events affecting the agricultural futures 473 Section 1.3(z)(1) includes the language, participants would be guided in markets. Among other things, the Commission ‘‘economically appropriate to the reduction of risks § 150.3(e) first to consult proposed withdrew proposed rulemakings that would have in the conduct and management of a commercial increased the Federal speculative position limits on enterprise.’’ 17 CFR 1.3(z)(1). Section 1.47(b)(2) appendix C to part 150 to see whether certain agricultural futures contracts and created a includes the language, ‘‘economically appropriate their practices fall within a non- risk-management hedge exemption from the Federal to the reduction of risk exposure attendant to the exhaustive list of examples of bona fide speculative position limits for agricultural futures conduct and management of a commercial hedging positions as defined under and options contracts. At the time, Acting Chairman enterprise.’’ 17 CFR 1.47(b)(2). proposed § 150.1. Lukken and Commissioners Dunn, Sommers and 474 The Commission notes that both the filings Chilton said, ‘‘. . . the Commission will be cautious received by the Commission requesting such A person engaged in risk-reducing and guarded before granting additional exemptions exemptions and the responding exemption letters practices that are not enumerated in the in this area.’’ CFTC Press Release 5504–08, June 3, issued by the Division are confidential in light of revised definition of bona fide hedging 2008, available at http://www.cftc.gov/PressRoom/ section 8 of the Act since, as noted above, the in proposed § 150.1 may use two PressReleases/pr5504-08. filings included information that described 471 17 CFR 140.97. transactions and positions in order to demonstrate, different avenues to apply to the 472 Almost all requests pursuant to § 1.47 have among other things, that the transactions and Commission for relief from federal been for ‘‘risk-management’’ exemptions. See positions were economically appropriate to the position limits: The person may request generally Risk Management Exemptions from reduction of risk exposure attendant to the conduct an interpretative letter from Speculative Position Limits Approved under and management of a commercial enterprise, while Commission Regulation 1.61, 52 FR 34633, Sep. 14, the Division’s responding letters included Commission staff pursuant to 1987; Clarification of Certain Aspects of the information regarding the nature of the price risks Hedging Definition, 52 FR 27195, Jul. 20, 1987. The that the transactions would entail. 467 All the exemptions granted by the Commission first approved a request for a risk- 475 Staff Report, S. Permanent Subcomm. on Commission pursuant to § 1.47 involving swaps management exemption in 1991. The Commission Investigations, ‘‘Excessive Speculation in the Wheat were restricted to recognition of the futures offset has also approved a request by a foreign Market,’’ S. Hrg. 111–155 (Jul. 21, 2009) at 13 as a bona fide hedging position only outside of the government to recognize certain positions (‘‘Wheat Report’’). The Wheat Report was issued spot month. associated with a governmental agricultural support before the Dodd-Frank Act became law.

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recognizing such trading strategies as Federal position limits. This is because example, a pension fund enters into a bona fide hedges, the Commission was some transactions and positions swap to receive the rate of return on a responding to Congressional previously characterized as ‘‘risk- particular commodity index (such as the direction476 to update its approach at a management’’ and recognized as bona Standard & Poor’s–Goldman Sachs time when many sought to encourage fide hedges are inconsistent with the Commodity Index or the Dow Jones– what was then thought to be benign or revised definition of bona fide hedging UBS Commodity Index) with a swap beneficial financial innovation. In positions proposed in this release and dealer. The pension fund thus has a hindsight, the sum of these the purposes of the Dodd-Frank Act synthetic long position in the index. determinations may have exceeded amendments to the CEA.480 As noted The swap dealer, in turn, must pay the what would be appropriate ‘‘to permit above, some pre-Dodd-Frank Act rate of return on the index to the producers, purchasers, sellers, exemptions recognized offsets of risks pension fund, and purchases middlemen, and users of a commodity from financial products. But the commodity futures contracts to hedge or product derived therefrom to hedge Commission now proposes to its short exposure to the index. Prior to their legitimate anticipated business incorporate the ‘‘temporary substitute’’ the Dodd-Frank Act, the swap dealer needs’’ and adequate ‘‘to prevent test of section 4a(c)(2)(A)(i) of the Act in might have obtained a bona fide hedge unwarranted price pressures by large paragraph (2)(i) of the proposed exemption for its position. This would hedgers.’’ 477 definition of bona fide hedging no longer be the case. The Commission now proposes a position.481 Financial products are not The effect of revoking these definition of bona fide hedging position substitutes for positions taken or to be exemptions for intermediaries may be that would apply to all referenced taken in a physical marketing channel. mitigated in part by the absence of class contracts, and proposes to remove Thus, the offset of financial risks arising limits in the proposed rules.484 The § 1.47.478 The Commission is also from financial products is inconsistent proposing in § 150.3(f) that risk- with the proposed definition of bona Text=Better%20Markets. The speculative position management exemptions granted by the limits that the Commission now proposes do not fide hedging for physical commodities. directly address these concerns as they relate to Commission under § 1.47 shall not Moreover, the Commission interprets commodity index funds, commodity index apply to swap positions entered into CEA section 4a(c)(2)(B) as a direction speculation and passive investment in the after the effective date of a final position from Congress to narrow the scope of commodity derivatives markets. The speculative position limits that the Commission proposes apply limits rulemaking, i.e., revoking the what constitutes a bona fide hedge.482 479 only to transactions involving one commodity or exemptions for new swap positions. Other things being equal, a narrower the spread between two commodities (e.g., the This means that certain transactions and definition of bona fide hedging would purchase of one delivery month of one commodity positions (and, by extension, persons logically subject more speculative against the sale of that same delivery month of a party to such transactions or holding different commodity). They do not apply to positions to Federal limits. diversified commodity index contracts involving such positions) heretofore exempt from Many of the Commission’s bona fide more than two commodities. This means that index Federal position limits may be subject to hedging exemptions prior to the Dodd- speculators remain unconstrained on the size of Frank Act provided relief from Federal positions in diversified commodity index contracts 476 See generally CFTC Staff Report on that they can accumulate so long as they can find Commodity Swap Dealers & Index Traders with speculative position limits for persons someone with the capacity to take the other side of Commission Recommendations (Sep. 2008) at 13– acting as intermediaries in connection their trades. These commenters assert that such 15 (‘‘Index Trading Report’’). with index trading activities.483 For contracts, which this proposal does not address, 477 7 U.S.C. 6a(c)(1). consume liquidity and damage the price discovery 478 function of the market. Contra Bessembinder et al., Section 1.3(z), the definition of bona fide 480 Section 4a(c)(1) of the CEA authorizes the ‘‘Predatory or Sunshine Trading? Evidence from hedging transactions and positions for excluded Commission to define bona fide hedging commodities, was revised (but retained as Crude Oil Rolls’’ (working paper, 2012) available at transactions or positions ‘‘consistent with the http://business.nd.edu/uploadedFiles/ amended) by the vacated part 151 Rulemaking. purposes of this Act.’’ 7 U.S.C. 6a(c)(1). _ _ _ _ Section 1.47 of the Commission’s regulations was Faculty and Research/Finance/Finance Seminar 481 Section 4a(c)(2)(A)(i) of the Act provides that removed and reserved by the vacated part 151 Series/2012%20Fall%20Finance%20Seminar%20 the Commission shall define what constitutes a Rulemaking. On September 28, 2012, the District Series%20-%20Hank%20Bessembinder bona fide hedging position as a position that Court for the District of Columbia vacated the part %20Paper.pdf. represents a substitute for transactions made or to 484 151 Rulemaking with the exception of the In the vacated part 151 Rulemaking Proposal, be made or positions taken or to be taken at a later amendments to § 150.2. 887 F. Supp. 2d 259 (D.D.C. the Commission proposed to create two classes of time in a physical marketing channel. 7 U.S.C. 2012). Vacating the part 151 Rulemaking, with the contracts for non-spot month limits: (1) Futures and 6a(c)(2)(A)(i). The proposed definition of bona fide exception of the amendments to § 150.2, means that options on futures contracts and (2) swaps. The as things stand now, it is as if the Commission had hedging position requires that, for a position in a proposed part 151 rule would have applied single- never adopted any part of the part 151 Rulemaking commodity derivative contracts in a physical month and all-months-combined position limits to other than the amendments to § 150.2. That is, the contract to be a bona fide hedging position, such each class separately. The aggregate position limits definition of bona fide hedging transactions and position must represent a substitute for transactions across contract classes would have been in addition positions in § 1.3(z) remains unchanged, and § 1.47 made or to be made or positions taken or to be to the position limits within each contract class. is still in effect. As discussed above, the new taken, at a later time in a physical marketing The class limits were designed to diminish the definition of bona fide hedging positions in channel. See supra discussion of the temporary possibility that a trader could have market power proposed § 150.1 is different from the changes to substitute test. as a result of a concentration in any one submarket § 1.3(z) adopted by the Commission in the vacated 482 See discussion above. and to prevent a trader that had a flat net aggregate part 151 Rulemaking. See 76 FR 71683–84. The 483 Index trading activities have emerged as an position in futures and swap from establishing Commission proposes to delete § 1.47 for several area of special concern to both Congress and the extraordinarily large offsetting positions. 76 FR at reasons, as discussed above. Proposed § 150.3(e) Commission. See generally the Wheat Report and 71642. In response to comments received on the would provide guidance for persons seeking non- the Index Trading Report. The Commission proposed part 151 rule, the Commission determined enumerated hedging exemptions through filing of a continues to consider the concerns of commenters to eliminate class limits from the final rule. This is petition under section 4a(a)(7) of the Act, 7 U.S.C. who argue that some transactions and positions because the Commission believed that comments 6a(a)(7), replacing the current process, as discussed recognized before the Dodd-Frank Act as bona fide regarding the ability of market participants to net above, under § 1.3(z)(3) and § 1.47 of the hedging may, in fact, facilitate excessive swaps and futures positions that are economically Commission’s regulations. speculation. See, e.g., Testimony of Michael W. equivalent had merit. The Commission believed 479 This approach is consistent with the limited Masters before the Commodity Futures Trading that concerns regarding the potential for market exemption to provide for transition into position Commission, Aug. 5, 2009, available at http:// abuses through the use of futures and swaps limits for persons with existing § 1.47 exemptions www.cftc.gov/ucm/groups/public/@newsroom/ positions could be addressed adequately, for the under vacated § 151.9(d) adopted in the vacated documents/file/hearing080509_masters.pdf; time being, by the Commission’s large trader part 151 Rulemaking. See 76 FR 71655–56. This Comment Letter from Better Markets, Inc., Mar. 28, surveillance program. The Commission stated in the limited grandfather is similarly designed to limit 2013, available at http://comments.cftc.gov/Public vacated part 151 Rulemaking that it would closely market disruption. Comments/ViewComment.aspx?id=34010&Search monitor speculative positions in Referenced

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absence of class limits means that speculative position limits, and should goals. The Commission’s reporting rules market participants will be able to net also provide market participants with are implemented pursuant to the economically equivalent derivatives more flexibility when both hedging and authority of CEA sections 4g and 4i, contracts that are referenced contracts, speculating. among other CEA sections. Section 4g of i.e., futures against swaps, outside of the the Act imposes reporting and c. Proposed Recordkeeping spot month, which would have the recordkeeping obligations on registered Requirements effect of reducing the size of a net entities, and obligates FCMs, position, perhaps below applicable Proposed § 150.3(g) specifies introducing brokers, floor brokers, and speculative limits, in the case of an recordkeeping requirements for persons floor traders to file such reports as the intermediary who enters into multiple who claim any exemption set forth in Commission may require on proprietary swap positions in individual proposed § 150.3. Persons claiming and customer positions executed on any commodities to replicate a desired exemptions under proposed § 150.3 board of trade.490 Section 4i of the Act commodity index exposure in lieu of must maintain complete books and requires the filing of such reports as the executing a swap on the commodity records concerning all details of their Commission may require when index.485 Netting would also permit related cash, forward, futures, options positions equal or exceed Commission- larger speculative positions in futures and swap positions and transactions.487 set levels.491 alone outside of the spot month for Furthermore, such persons must make Current part 19 of the Commission’s traders who did not previously have a such books and records available to the regulations sets forth reporting bona fide hedge exemption, but who Commission upon request under requirements for persons holding or have positions in swaps in the same proposed § 150.3(h), which would controlling reportable futures and commodity that would be netted against preserve the ‘‘special call’’ rule set forth option positions which constitute bona futures in the same commodity.486 in current § 150.3(e). This ‘‘special call’’ fide hedge positions as defined in Declining to impose class limits might rule sets forth that any person claiming § 1.3(z) and for merchants and dealers in seem to be at cross-purposes with an exemption under § 150.3 must, upon cotton holding or controlling reportable narrowing the scope of the bona fide request, provide to the Commission positions for future delivery in hedging definition. However, the such information as specified in the call cotton.492 In the several markets with Commission is concerned that class relating to the positions owned or federal speculative position limits— limits could impair liquidity in futures controlled by that person; trading done namely those for grains, the soy or swaps, as the case may be. For pursuant to the claimed exemption; the complex, and cotton—hedgers that hold example, a speculator with a large commodity derivative contracts or cash positions in excess of those limits must portfolio of swaps near a particular class market positions which support the file a monthly report pursuant to part 19 limit would be assumed to have a strong claim of exemption; and the relevant on CFTC Form 204: Statement of Cash preference for executing futures business relationships supporting a Positions in Grains,493 which includes transactions in order to maintain a claim of exemption.488 the soy complex, and CFTC Form 304 swaps position below the class limit. If The proposed rules concerning Report: Statement of Cash Positions in there were many similarly situated detailed recordkeeping and special calls Cotton.494 These monthly reports, speculators, the market for such swaps would help to ensure that any person collectively referred to as the could become less liquid. The absence who claims any exemption set forth in Commission’s ‘‘series ’04 reports,’’ must of class limits should decrease the § 150.3 can demonstrate a legitimate show the trader’s positions in the cash possibility of illiquid markets for purpose for doing so. market and are used by the Commission contracts subject to Federal speculative to determine whether a trader has 4. Part 19—Reports by Persons Holding position limits. Economically equivalent sufficient cash positions that justify Bona Fide Hedge Positions Pursuant to swaps and futures contracts outside of futures and option positions above the § 150.1 of This Chapter and by the spot month are close substitutes for speculative limits.495 Merchants and Dealers in Cotton each other. The absence of class limits ii. Proposed Amendments to Part 19 should allow greater integration i. Current Part 19 The Commission proposes to amend between the swaps and futures markets The market and large trader reporting for contracts subject to Federal part 19 so that it conforms with the rules are contained in parts 15 through Commission’s proposed changes to part 21 of the Commission’s regulations.489 Contracts and may revisit this issue as appropriate. Collectively, these reporting rules 76 FR 71643. The Commission has determined to 490 See CEA section 4g(a); 7 U.S.C. 6g(a). omit class limits from the rules proposed in this effectuate the Commission’s market and 491 See CEA section 4i; 7 U.S.C. 6i. release for the same reasons that it eliminated class financial surveillance programs by 492 See 17 CFR part 19. Current part 19 cross- limits in the vacated part 151 Rulemaking. providing information concerning the references a provision of the definition of reportable 485 Netting of commodity index contracts with size and composition of the commodity position in 17 CFR 15.00(p)(2). As discussed below, referenced contracts would not be permitted futures, options, and swaps markets, that provision would be incorporated into proposed because a commodity index contract is not a § 19.00(a). substitute for a position taken or to be taken in a thereby permitting the Commission to 493 Current CFTC Form 204: Statement of Cash physical marketing channel. monitor and enforce the speculative Positions in Grains is available at http:// 486 For example, a swap intermediary seeking to position limits that have been www.cftc.gov/ucm/groups/public/@forms/ manage price risk on its books from serving as a established, among other regulatory documents/file/cftcform204.pdf. counterparty to swap clients in commodity index 494 Current CFTC Form 304 Report: Statement of swap contracts or commodity swap contracts could Cash Positions in Cotton is available at http:// establish a portfolio of long futures positions in the 487 Such positions and transactions include www.cftc.gov/ucm/groups/public/@forms/ commodities in the index or the commodity anticipated requirements, production and royalties, documents/file/cftcform304.pdf. underlying the swap above applicable speculative contracts for services, cash commodity products 495 In addition, in the cotton market, merchants limits if it had obtained a risk-management and by-products, and cross-commodity hedges. and dealers file a weekly CFTC Form 304 Report of exemption. If the Commission adopts this proposal, 488 In order to capture information relating to their unfixed-price cash positions, which is used to the intermediary would not be able to hedge above swaps positions, the term ‘‘futures, options’’ in 17 publish a weekly Cotton On-call report, a service to the limits pursuant to the exemption, but could net CFR 150.3(e) would be replaced in proposed the cotton industry. The Cotton On-Call Report economically equivalent contracts, which would § 150.3(g) with the broader term ‘‘commodity shows how many unfixed-price cash cotton have the effect of reducing the size of the position derivative contracts’’ (defined in proposed § 150.1). purchases and sales are outstanding against each below applicable speculative limits. 489 17 CFR parts 15–21. cotton futures month.

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150. First, the Commission proposes to position definition essentially identifies Rulemaking.500 Proposed Form 504 amend part 19 by adding new and futures and option positions in excess of would be added for use by persons modified cross-references to proposed speculative position limits. Proposed claiming the conditional spot month part 150, including the new definition § 19.00(a) simply makes clear that the limit exemption pursuant to proposed of bona fide hedging position in reporting requirement applies to § 150.3(c).501 Proposed Form 604 would proposed § 150.1. Second, the commodity derivative contract positions be added for use by persons claiming a Commission proposes to amend (including swaps) that exceed bona fide hedge exemption for either of § 19.00(a) by extending reporting speculative position limits, as discussed two specific pass-through swap position requirements to any person claiming below. types, as discussed further below.502 any exemption from federal position Proposed Form 704 would be added for limits pursuant to proposed § 150.3. The b. List of Persons Who Must File Series use by persons claiming a bona fide Commission proposes to add three new ’04 Reports Extended To Include Any hedge exemption for certain series ’04 reporting forms to effectuate Person Claiming an Exemption Under anticipatory bona fide hedging these additional reporting requirements. Proposed § 150.3 positions.503 Third, the Commission proposes to c. Manner of Reporting update the manner of part 19 reporting. The reporting requirements of current Lastly, the Commission proposes to part 19 apply only to persons holding (1) Excluding Certain Source update both the type of data that would bona fide hedge positions and Commodities, Products or Byproducts of be required in series ’04 reports, as well merchants and dealers in cotton holding the Cash Commodity Hedged as the time allotted for filing such or controlling reportable positions for 497 For purposes of reporting cash market reports. future delivery in cotton. The Commission proposes to extend the positions under current part 19, the For purposes of clarity and simplicity, Commission historically has allowed a reach of part 19 by requiring all persons the Commission seeks to retain the reporting trader to ‘‘exclude certain who wish to avail themselves of any current organization of grouping many products or byproducts in determining exemption from federal position limits reporting requirements, including those his cash positions for bona fide related to claimed exemptions from the under proposed § 150.3 to file 498 hedging’’ if it is ‘‘the regular business federal position limits, within parts 15– applicable series ’04 reports. practice of the reporting trader’’ to do 21 of the Commission’s regulations. The Collection of this information would so.504 The Commission has determined Commission notes this is a change from facilitate the Commission’s surveillance to clarify the meaning of ‘‘economically the organization of vacated § 151.5, program with respect to detecting and appropriate’’ in light of this reporting which included both exemptions and deterring trading activity that may tend exclusion of certain cash positions.505 In related reporting requirements within a to cause sudden or unreasonable order for a position to be economically single section. fluctuations or unwarranted changes in appropriate to the reduction of risks in the prices of the referenced contracts a. Amended Cross-References the conduct and management of a and their underlying commodities. By commercial enterprise, the enterprise As discussed above, the Commission broadening the scope of persons who generally should take into account all has proposed to replace the definition of must file series ’04 reports, the inventory or products that the enterprise bona fide hedging transaction found in Commission seeks to ensure that any owns or controls, or has contracted for § 1.3(z) with a new proposed definition person who claims any exemption from purchase or sale at a fixed price. For of bona fide hedging position in federal speculative position limits can example, in line with its historical proposed § 150.1. Therefore, proposed demonstrate a legitimate purpose for approach to the reporting exclusion, the part 19 would replace cross-references doing so. The list of positions set forth Commission does not believe that it to § 1.3(z) with cross-references to the in proposed § 150.3 that are eligible for would be economically appropriate to new definition of bona fide hedging exemption from the federal position exclude large quantities of a source positions in proposed § 150.1. includes, but is not limited to, bona fide commodity held in inventory when an Proposed part 19 will be expanded to hedging positions (including pass- enterprise is calculating its value at risk include reporting requirements for through swaps and anticipatory bona to a source commodity and it intends to positions in swaps, in addition to fide hedge positions), qualifying spot establish a long derivatives position as futures and options positions, for any month positions in cash-settled part of which a person relies on an referenced contracts, and qualifying 500 Forms 404, 404A and 404S were required exemption. Therefore, positions in non-enumerated risk-reducing under provisions of vacated part 151. 501 ‘‘commodity derivative contracts,’’ as transactions. See supra discussion of proposed § 150.3(c). defined in proposed § 150.1, would 502 Proposed Form 604 would replace Form 404S replace ‘‘futures and option positions’’ Series ’04 reports currently refers to (as contemplated in vacated part 151). 503 throughout amended part 19 as Form 204 and Form 304, which are The updated definition of bona fide hedging 499 in proposed § 150.1 incorporates several specific shorthand for any futures, option, or listed in current § 15.02. The types of anticipatory transactions: unfilled swap contract in a commodity (other Commission proposes to add three new anticipated requirements, unsold anticipated than a security futures product as series ’04 reporting forms to effectuate production, anticipated royalties, anticipated services contract payments or receipts, and 496 the expanded reporting requirements of defined in CEA section 1a(45)). This anticipatory cross-commodity hedges. See, amendment would harmonize the part 19. The Commission will avoid paragraphs (3)(iii), (4)(i), (iii), and (iv), and (5), reporting requirements of part 19 with using any form numbers with ‘‘404’’ to respectively, of the Commission’s amended avoid confusion with the part 151 definition of bona fide hedging transactions in proposed amendments to part 150 that proposed § 150.1 as discussed above. encompass swap transactions. 504 See 17 CFR 19.00(b)(1) (providing that ‘‘[i]f the Proposed § 19.00(a) would eliminate 497 See 17 CFR part 19. Current part 19 cross- regular business practice of the reporting trader is the cross-reference to the definition of references the definition of reportable position in 17 to exclude certain products or byproducts in reportable position in § 15.00(p)(2). In CFR 15.00(p). determining his cash position for bona fide hedging 498 Furthermore, anyone exceeding the federal . . ., the same shall be excluded in the report’’). this regard, the current reportable limits who has received a special call must file a 505 See supra discussion of the ‘‘economically series ’04 form. appropriate test’’ as it relates to the definition of 496 See discussion above. 499 17 CFR 15.02. bona fide hedging position.

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a hedge of unfilled anticipated For it would not be economically cross-hedged.512 In lieu of that, the requirements. Therefore, under appropriate behavior for a person who Commission proposes to instead proposed § 19.00(b)(1), a source is, for example, long derivative contracts maintain the special call status commodity itself can only be excluded to exclude inventory when calculating concerning such information as set forth from a calculation of a cash position if unfilled anticipated requirements. Such in current § 19.00(b)(3).513 Furthermore, the amount is de minimis, impractical behavior would call into question since proposed § 19.00(b)(3) would to account for, and/or on the opposite whether an offset to unfilled anticipated maintain the requirement that cross- side of the market from the market requirements is, in fact, a bona fide hedged positions be shown both in participant’s hedging position.506 hedging position, since such inventory terms of the equivalent amount of the Originally, the Commission intended would fill the requirement. As such, a commodity underlying the commodity for the optional part 19 reporting trader can only underreport cash market derivative contract used for hedging and exclusion to cover only cash positions activities on the opposite side of the in terms of the actual cash commodity that were not capable of being delivered market from her hedging position as a (as provided for on the appropriate under the terms of any derivative regular business practice, unless the series ’04 form), the Commission will be contract.507 The Commission unreported inventory position is de able to determine the hedge ratio used differentiated between ‘‘products and minimis or impractical to account for. merely by comparing the reported byproducts’’ of a commodity and the By way of example, the alternative positions. Thus, the Commission will be underlying commodity itself, the former manner of reporting in proposed positioned to review whether a hedge capable of exclusion from part 19 § 19.00(b)(1) would permit a person who ratio appears reasonable in comparison reporting under normal business has a cash inventory of 5 million to, for example, other similarly situated practices due to the absence of any bushels of wheat, and is short 5 million traders, without requiring reporting of derivative contract in such product or bushels worth of commodity derivative the conversion methodology. byproduct.508 This intention ultimately contracts, to underreport additional (3) Standards and Conversion Factors evolved to allow cross-commodity cash inventories held in small silos in hedging of products and byproducts of disparate locations that are Proposed § 19.00(b)(3) maintains the a commodity that were not necessarily administratively difficult to count. This requirement that standards and deliverable under the terms of any person could instead opt to calculate conversion factors used in computing derivative contract.509 The instructions and report these hard-to-count cash positions for reporting purposes to current Form 204 go a step further inventories and establish additional must be made available to the than current § 19.00(b)(1) by allowing short positions in commodity derivative Commission upon request. Proposed for a reporting trader to exclude ‘‘certain contracts as a bona fide hedge against § 19.00(b)(3) would clarify that such source commodities, products, or such additional inventories. information would include hedge ratios byproducts in determining [ ] cash used to convert the actual cash positions for bona fide hedging.’’ (2) Cross-Commodity Hedges commodity to the equivalent amount of (Emphasis added.) Proposed § 19.00(b)(2) sets forth the commodity underlying the The Commission’s proposed instructions, which are consistent with commodity derivative contract used for clarification of the § 19.00(b)(1) the provisions in the current section, for hedging, and an explanation of the reporting exclusion would prevent the reporting a cash position in a methodology used for determining the definition of bona fide hedging commodity that is different from the hedge ratio. positions in proposed § 150.1 from commodity underlying the futures (4) Examples of Completed ’04 Forms being swallowed by this reporting rule. contract used for hedging.510 A person who is unsure of whether a commodity To assist filers in completing Forms 506 Proposed § 19.00(b)(1) adds a caveat to the may serve as the basis of a cross- 204, 304, 504, 604 and 704, illustrative alternative manner of reporting: when reporting for commodity hedge should refer to the examples are provided in appendix A to the cash commodity of soybeans, soybean oil, or part 19, adjacent to the blank forms and soybean meal, the reporting person shall show the deliverable commodities listed by the cash positions of soybeans, soybean oil and soybean relevant DCM under the terms of a instructions. Once finalized, filers meal. This proposed provision for the soybean particular core referenced futures would be able to contact Commission complex is included in the current instructions for contract. Persons who wish to avail staff in the Office of Data and preparing Form 204. Technology (ODT) and/or surveillance 507 43 FR 45825, 45827, Oct. 4, 1978 (explaining themselves of cross-commodity hedges that the allowance for eggs not kept in cold storage are required to file an appropriate series staff in the Division of Market Oversight to be excluded from reporting a cash position in ’04 form.511 for additional guidance. eggs under part 19 ‘‘was appropriate when the only Under vacated § 151.5(g), traders futures contract being traded in fresh shell eggs d. Information Required and Timing engaged in hedging commercial activity required delivery from cold storage warehouses.’’). Proposed § 19.01(b)(3) would require 508 (or hedging swaps that in turn hedge Prior to the Commission revising the part 19 series ‘04 reports to be transmitted using reporting exclusion for eggs, see id., the exclusion commercial activity) that did not the format, coding structure, and allowed ‘‘eggs not in cold storage or certain egg involve the same quantity or commodity products’’ not to be reported as a cash position. 26 electronic data transmission procedures as the quantity or commodity associated FR 2971, Apr. 7, 1961 (emphasis added). approved in writing by the Commission with positions in referenced contracts Additionally, the title to the revised exclusion or its designee.514 reads: ‘‘Excluding products or byproducts of the that are used to hedge would have been cash commodity hedged.’’ See 43 FR 45825, 45828, obligated to submit a description of the Oct. 4, 1978. So, in addition to a commodity itself 512 See 76 FR at 71692. that was not deliverable under any derivative conversion methodology each time they 513 See discussion below. contract, the Commission also recognized a separate 514 For example, the Commission is considering class of ‘‘products and byproducts’’ that resulted 510 Proposed § 19.00(b)(2) would add the term requiring that series ’04 reports should be sent to from the processing of a commodity that it did not commodity derivative contracts (as defined in the Commission via FTP, unless otherwise believe at the time was capable of being hedged by proposed § 150.1). The proposed definition of cross- specifically authorized by the Commission or its any derivative contract for purposes of a bona fide commodity hedge in proposed § 150.1 is discussed designee. Prior to submitting series ’04 reports, hedge. above. persons would contact the CFTC at (312) 596–0700 509 See 42 FR 42748, Aug. 24, 1977. Cross- 511 Vacated § 151.5(g) would have required the to obtain the CFTC trader identification code commodity hedging is discussed as an enumerated filing of a Form 404, 404A, or 404S by persons required by such reports. Further instructions on hedge, below. availing themselves of cross-commodity hedges. Continued

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(1) Bona Fide Hedgers and Cotton firms would measure their respective Commission would wait to impose Merchants and Dealers cash positions on one day a month, as similar reporting requirements for Current § 19.01(a) sets forth the data they currently do for Form 204, and persons claiming conditional spot that must be provided by bona fide submit a monthly report, as currently month limit exemptions in other hedgers (on Form 204) and by provided in § 19.01. Proposed § 19.02 commodity derivative contracts until merchants and dealers in cotton (on provides that Form 304, but not Form the Commission gains additional Form 304).515 The Commission 204, must be filed weekly to provide experience with the limits in proposed proposes to continue using Forms 204 data for the Commission’s weekly cotton § 150.2. In this regard, the Commission and 304, which will feature only minor ‘‘on call’’ report. The Commission will closely monitor the reporting changes to the types of data to be would continue to utilize its special call associated with conditional spot month reported.516 To accommodate open authority in addition to the regular limit exemptions in natural gas and may price pairs, proposed § 19.01(a)(3) reporting on ’04 forms to ensure that it require reporting on Form 504 for other would remove the modifier ‘‘fixed has sufficient information. commodity derivative contracts in the price’’ from ‘‘fixed price cash position’’ (2) Conditional Spot-Month Limit future in response to market and would add a specific request for Exemption developments and to facilitate data concerning open price contracts. surveillance.520 Proposed § 19.01(a)(1) would require The Commission would maintain persons availing themselves of the (3) Pass-Through Swap Exemption additional reporting requirements for conditional spot month limit exemption cotton but will incorporate the monthly Under the definition of bona fide (pursuant to proposed § 150.3(c)) to reporting, including the granularity of hedging position in proposed § 150.1, a report certain detailed information equity, certificated and non-certificated person who uses a swap to reduce risks concerning their cash market activities cotton stocks, on Form 204. Weekly attendant to a position that qualifies as for any commodity specially designated reporting for cotton will be retained as a bona fide hedging position may pass- by the Commission for reporting under a separate report made on Form 304 for through those bona fides to the § 19.03 of this part. While traders who the collection of data required by the counterparty, even if the person’s swap avail themselves of this exemption Commission to publish its weekly position is not in excess of a position could not directly influence particular 521 public cotton ‘‘on call’’ report on limit. As such, positions in settlement prices by trading in the www.cftc.gov. commodity derivative contracts that Proposed § 19.01(b) would maintain physical-delivery referenced contract, reduce the risk of pass-through swaps the requirement that reports on Form the Commission remains concerned would qualify as bona fide hedging 204 be submitted to the Commission on about such traders’ activities in the positions. a monthly basis, as of the close of underlying cash commodity. Proposed § 19.01(a)(2) would require business on the last Friday of the Accordingly, proposed § 19.01(b) would a person relying on the pass-through month.517 Accordingly, commercial require that persons claiming a swap exemption who holds either of conditional spot month limit exemption two position types to file a report with submitting ’04 reports may be found at http:// must report on new Form 504 daily, by the Commission on new Form 604. The www.cftc.gov/Forms/index.htm. If submission 9 a.m. Eastern Time on the next first type of position is a swap executed through FTP is impractical, the reporting trader business day, for each day that a person opposite a bona fide hedger that is not would contact the Commission at (312) 596–0700 is over the spot month limit in certain a referenced contract and for which the for further instruction. special commodity contracts specified CFTC Form 204 reports with respect to 518 risk is offset with referenced contracts. transactions in wheat, corn, oats, soybeans, soybean by the Commission. The scope of The second type of position is a cash- meal and soybean oil would no longer be sent to reporting—purchase and sales contracts settled swap executed opposite a bona the Commission’s office in Chicago, IL. through the delivery area for the core Similarly, CFTC Form 304 reports with respect to fide hedger that is offset with physical- referenced futures contract and delivery referenced contracts held into a transactions in cotton would no longer be sent to inventory in the delivery area—differs the Commission’s office in New York, NY. spot month, or, vice versa, a physical- 515 Vacated § 151.5 would have set forth the from the scope of reporting for bona fide delivery swap executed opposite a bona application procedure for bona fide hedgers and hedgers, since the person relying on the fide hedger that is offset with cash- counterparties to bona fide hedging swap conditional spot month limit exemption settled referenced contracts held into a transactions that seek an exemption from the may not be hedging any position. Commission-set Federal position limits for spot month. Initially, the Commission would Referenced Contracts. Under vacated § 151.5, had a These reports on Form 604 would require reporting on new Form 504 for bona fide hedger sought to claim an exemption from explain hedgers’ needs for large position limits because of cash market activities, conditional spot month limit referenced contract positions and would then the hedger would have submitted a Form 404 exemptions in the natural gas filing pursuant to vacated § 151.5(b). The Form 404 give the Commission the ability to verify commodity derivative contracts only. filing would have been submitted when the bona the positions were a bona fide hedge, Based on its experience in surveillance fide hedger exceeded the applicable position limit with heightened daily surveillance of and claimed an exemption or when its hedging of natural gas commodity derivative spot month offsets. Persons holding any needs increased. Similarly, parties to bona fide contracts, the Commission believes that hedging swap transactions would have been type of pass-through swap position enhanced reporting is warranted.519 The required to submit a Form 404S filing to qualify for other than the two described above a hedging exemption, which would also have been 522 submitted when the bona fide hedger exceeded the positions in the relevant commodity for each day would report on Form 204. applicable position limit and claimed an exemption that its derivatives position exceeds the applicable or when its hedging needs increased. position limit. reporting for the other 27 commodities against its 516 The list of data required for persons filing on 518 Additionally, data under this provision may experience with observing disruptive trading Forms 204 and 304 would be relocated from current be required by way of special call, in addition to practices. § 19.01(a) to proposed § 19.01(a)(3). special commodity reporting. 520 See proposed § 19.03. 517 Compare proposed § 19.01(b) with 17 CFR 519 The Commission has observed dramatic 521 See supra discussion of the proposed 19.01(b). Additionally, compare proposed § 19.01(b) instances of disruptive trading practices in the definition of bona fide hedging position. with vacated § 151.5(c) which would have required natural gas markets. See United States CFTC v. 522 Persons holding pass-through swap positions that any person holding a derivatives position in Amaranth Advisors, LLC, 2009 U.S. Dist. LEXIS that are offset with referenced contracts outside the excess of a position limit record and ultimately 101406 (S.D.N.Y. Aug. 12, 2009). The Commission spot month (whether such contracts are for physical report information about such person’s cash endeavors to balance the cost of similar enhanced delivery or are cash-settled) need not report on

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(A) Non-Referenced Contract Swap § 19.01(b), a person holding a spot what is speculation, may be exceedingly Offset month swap offset would need to file on difficult if anticipatory transactions are Proposed § 19.01(a)(2)(i) lists the Form 604 as of the close of business on not well defined. Therefore, for more types of data that a person who executes each day during a spot month, and not than fifty years, the position limit rules a pass-through swap that is not a later than 9 a.m. Eastern Time on the have set discrete reporting requirements referenced contract and for which the next business day following the date of in § 1.48 for persons wishing to avail risk is offset with referenced contracts the report. The Commission notes that themselves of certain anticipatory bona 529 must report on new Form 604. Such pass-through swap offsets would not be fide hedging position exemptions. data requirements include details permitted during the lesser of the last When first promulgated in 1956, § 1.48 concerning the non-referenced contract five days of trading or the time period set forth reporting requirements for in terms of commodity reference for the spot month. However, the persons hedging anticipated price,523 notional quantity, gross long or Commission remains concerned that a requirements for processing or 530 short position in terms of futures- trader could hold an extraordinarily manufacturing. In 1977, § 1.48 was equivalents in the core referenced large position early in the spot month in amended to include similar reporting futures contract, and gross long or short the physical-delivery contract along requirements for a second type of position in the referenced contract used with an offsetting short position in a anticipatory hedge transaction: unsold 531 to offset risk.524 Under proposed cash-settled contract, which may anticipated production. Thereafter, § 19.01(b), persons holding a non- disrupt the price discovery function of the Commission did not substantively referenced contract swap offset would the underlying physical delivery core amend § 1.48 until it adopted a new 532 submit reports to the Commission on a referenced futures contract. Hence, the position limits regime in 2011. monthly basis, as of the close of Commission proposes to introduce this In January 2011, the Commission business of the last Friday of the month. new daily reporting requirement within published a notice of proposed This data collection would permit staff the spot month to identify and monitor rulemaking to replace existing part 150, to identify offsets of non-referenced- such offsetting positions. in its entirety, with a new federal position limits rules regime in the form contract pass-through swaps on an 5. Section 150.7—Reporting 533 ongoing basis for further analysis. The of new part 151. Proposed § 151.5 Requirements for Anticipatory Hedging would have established exemptions Commission believes collection of this Positions data will be less burdensome on from position limits for bona fide For reasons discussed above, the reporting entities than complying with hedging transactions or positions in revised definition of bona fide hedging special calls. exempt and agricultural in proposed § 150.1 incorporates hedges commodities.534 The referenced (B) Spot Month Swap Offset of five specific types of anticipated contracts subject to the proposed Under proposed § 150.2(a), a trader in transactions: unfilled anticipated position limit framework would have the spot month may not net across requirements, unsold anticipated been subject to the bona fide hedge physical-delivery and cash-settled production, anticipated royalties, provisions of proposed § 151.5 and contracts for the purpose of complying anticipated services contract payments would have no longer been subject to with federal position limits.525 If a or receipts, and anticipatory cross- the definition of bona fide hedging person executes a cash-settled pass- hedges.527 The Commission proposes transactions in § 1.3(z), which would through swap that is offset with reporting requirements in new § 150.7 have been retained only for excluded physical-delivery contracts held into a for traders seeking an exemption from commodities.535 Proposed § 151.5(c) spot month (or vice versa), then, position limits for any of these five specified reporting and approval pursuant to proposed § 19.01(a)(2)(ii), enumerated anticipated hedging requirements for traders seeking an that person must report additional transactions. Proposed § 150.7 would anticipatory hedge exemption, information concerning the swap and build on, and replace, the special incorporating the current requirements offsetting referenced contract position reporting requirements for hedging of of § 1.48 (and thereby rendering § 1.48 on new Form 604. A person need not unsold anticipated production and file a Form 604 if he or she executes a unfilled anticipated requirements in 529 See Hedging Anticipated Requirements for current § 1.48.528 Processing or Manufacturing under Section 4a(3) of cash-settled pass-through swap that is the Commodity Exchange Act, 21 FR 6913, Sep. 12, offset with cash-settled referenced i. Current § 1.48 1956. contracts, or, vice versa, a physical 530 Id. The statutory definition also provided an delivery pass-through swap offset with Current § 1.48 provides a procedure anticipatory production hedge for twelve months for persons to file for bona fide hedging agricultural production. 7 U.S.C. 6a(3)(A) (1940) physical delivery referenced (1970). The statutory definition was deleted in 526 exemptions for anticipated production contracts. Pursuant to proposed 1974, as discussed above in the definition of bona or unfilled requirements when that fide hedging position. Form 604 because swap positions will be netted person has not covered the anticipatory 531 See Definition of Bona Fide Hedging with referenced contract positions outside the spot need with fixed-price commitments to Requirements and Related Reporting Requirements, month pursuant to proposed § 150.2(b). sell a commodity, or inventory or fixed- 42 FR 42748, Aug. 24, 1977. The Commission stated 523 at that time that this amended reporting As defined in 17 CFR 20.1, a commodity price commitments to purchase a reference price is the price series used by the requirement was intended to conform § 1.48 to the parties to a swap or swaption to determine commodity. The Commission has long updated definition of bona fide hedging in § 1.3(z), payments made, exchanged, or accrued under the been concerned that distinguishing and to limit the potential for market disruption. Id. terms of that swap or swaption.’’ between what is the reduction of risk at 42750. 524 532 See generally 76 FR 71626, November 18, In contrast to vacated § 151.5(f) and (g), arising from anticipatory needs, and proposed § 19.01(a)(2)(i) would not require the 2011. Prior to compliance dates, the rule was person to submit a description of the conversion vacated, as discussed below. methodology each time he or she cross-hedged. 527 See paragraphs (3)(iii), (4)(i), (iii), and (iv), and 533 Proposed Rule, 76 FR 4752, Jan. 26, 2011. The 525 See supra discussion of proposed § 150.2(a). (5), respectively, of the Commission’s amended final rulemaking for new Part 151 required DCMs 526 To provide clarity in filings, a person may definition of bona fide hedging transactions in to comply with Part 150 until such time that the report cash-settled referenced contracts used for proposed § 150.1 as discussed above. Commission replaces Part 150 with the new Part bona fide hedging in a separate filing from physical- 528 See 17 CFR 1.48. See also definition of bona 151. See 76 FR 71632. delivery referenced contracts used for bona fide fide hedging transactions in current 17 CFR 534 76 FR 71643. hedging. 1.3(z)(2)(i)(B) and (ii)(C), respectively. 535 76 FR 71644.

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duplicative).536 However, in an Order within the Commission’s position limits whenever the anticipatory hedging dated September 28, 2012, the United regime in part 150, and alongside the needs increase beyond that in its most States District Court for the District of Commission’s updated definition of recent filing. Columbia vacated part 151.537 The bona fide hedging positions in proposed c. Annual and Monthly Reporting § 150.1. Thus, the Commission is District Court decision had the effect of Requirements reinstating §§ 1.3(z) and 1.48.538 proposing to delete the reporting Therefore, §§ 1.3(z) and 1.48 continue to requirements for anticipatory hedges in Proposed § 150.7(f) would add a apply as if part 151 had not been finally current § 1.48 because that section is requirement for any person who files an adopted by the Commission. duplicative. initial statement on Form 704 to provide annual updates that detail the person’s ii. Proposed § 150.7 b. New Form 704 actual cash market activities related to a. Reporting Requirements for The Commission proposes to add a the anticipated exemption. With an eye Anticipatory Hedging Positions new series ’04 reporting form, Form 704, towards distinguishing bona fide to effectuate these additional and hedging of anticipatory risks from The Commission’s revised definition updated reporting requirements for speculation, annual reporting of actual of bona fide hedging in proposed § 150.1 anticipatory hedges. Persons wishing to cash market activities and estimates of would enumerate two new types of avail themselves of an exemption for remaining unused anticipated anticipatory bona hedging positions. any of the anticipatory hedging exemptions beyond the past year would Two existing types of anticipatory transactions enumerated in the updated enable the Commission to verify hedges would be carried forward from definition of bona fide hedging in whether the person’s anticipated cash the existing definition of bona fide proposed § 150.1 would be required to market transactions closely track that hedging in current § 1.3(z): hedges of file an initial statement on Form 704 person’s real cash market activities. unfilled anticipated requirements and with the Commission at least ten days Proposed § 150.7(g) would similarly hedges of unsold anticipated in advance of the date that such enable the Commission to review and production, as well as anticipatory positions would be in excess of limits compare the actual cash activities and cross-commodity hedges of such established in proposed § 150.2. the remaining unused anticipated hedge requirements or production.539 Advance notice of a trader’s intended transactions by requiring monthly Proposed § 150.1 would expand the list maximum position in commodity reporting on Form 204. Absent monthly of enumerated anticipatory bona fide derivative contracts to offset filing, the Commission would need to hedging positions to include hedges of anticipatory risks would allow the issue a special call to determine why a anticipated royalties and hedges of Commission to review a proposed person’s commodity derivative contract anticipated services contract payments position before a trader exceeds the position is, for example, larger than the or receipts, as well as anticipatory cross- position limits and, thereby, would pro rata balance of her annually commodity hedges of such contracts.540 allow the Commission to prevent reported anticipated production. As discussed above, § 1.48 has long excessive speculation in the event that As is the case under current § 1.48, required special reporting for hedges of a trader were to misconstrue the proposed § 150.7(h) requires that a unfilled anticipated requirements and purpose of these limited exemptions.541 trader’s maximum sales and purchases hedges of unsold anticipated production The trader’s initial statement on Form must not exceed the lesser of the because the Commission remains 704 would provide a detailed approved exemption amount or the concerned about distinguishing between description of the person’s anticipated trader’s current actual anticipated anticipatory reduction of risk and activity (i.e., unfilled anticipated transaction. speculation. Such concerns apply requirements, unsold anticipated d. Delegation equally to any position undertaken to production, etc.).542 Under proposed reduce the risk of anticipated § 150.7(b), the Commission may reject The Commission is proposing to transactions. Hence, the Commission all or a portion of the position as not delete current § 140.97, which delegates proposes to extend the special reporting meeting the requirements for bona fide to the Director of the Division of Market requirements in proposed § 150.7 for all hedging positions under proposed Oversight or his designee authority types of enumerated anticipatory hedges § 150.1. To support this determination, regarding requests for classification of that appear in the definition of bona fide proposed § 150.7(c) would allow the positions as bona fide hedging under hedging positions in proposed § 150.1. Commission to request additional current §§ 1.47 and 1.48. For purposes For purposes of simplicity, the specific information concerning the of simplicity, this delegation of proposed special reporting requirements anticipated transaction to be hedged. authority would be placed in proposed for anticipatory hedges would be placed Otherwise, Form 704 filings that § 150.7(j), within the Commission’s conform to the requirements set forth in position limits regime in part 150. 536 Id. This rulemaking would have removed and proposed § 150.7 would become 6. Miscellaneous Regulatory reserved § 1.48. effective ten days after submission. 537 See 887 F. Supp. 2d 259 (D.D.C. 2012). Amendments 538 Proposed § 150.7(e) would require an See Georgetown Univ. Hosp. v. Bowen, 821 anticipatory hedger to file a i. Proposed § 150.6—Ongoing F.2d 750, 757 (D.C. Cir. 1987) (‘‘This circuit has Application of the Act and Commission previously held that the effect of invalidating an supplemental report on Form 704 agency rule is to ‘reinstate the rules previously in Regulations force.’ ’’). 541 Further, advance filing may serve to reduce The Commission is proposing to 539 See current definition of bona fide hedging the burden on a person who exceeds position limits amend existing § 150.6 to conform the transactions at 17 CFR 1.3(z)(2)(i)(B) and (ii)(C), and who may then otherwise be issued a special respectively. Cross-commodity hedges are call to determine whether the underlying provision with the general applicability permitted under 17 CFR 1.3(z)(2)(iv). Compare with requirements for the exemption have been met. If of part 150 to SEFs that are trading paragraphs (3)(iii) and (4)(i), respectively, of the the Commission were to reject such an exemption, facilities, and concurrently making non- definition of bona fide hedging positions in such a person would have already violated position substantive changes to clarify the proposed § 150.1, discussed above. limits. provision. The provision, as amended 540 See sections (4)(iii) and (iv) and (5), 542 Proposed 150.7(d)(2) would require additional respectively, of the definition of bona fide hedging information for cross hedges, for reasons discussed and clarified, provides this part shall positions in proposed § 150.1, discussed above. above. only be construed as having an effect on

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position limits and that nothing in part new and updated series ’04 reporting periodically reviewed and updated its 150 shall affect any provision forms, as discussed above.545 policies and rules pertaining to each of promulgated under the Act or the three basic elements of the iv. Part 17—Reports by Reporting Commission regulations including but regulatory framework for speculative Markets, Futures Commission not limited to those relating to position limits, namely, the levels of the Merchants, Clearing Members, and manipulation, attempted manipulation, Foreign Brokers limits, the exemptions from them (in corners, squeezes, fraudulent or particular, for hedgers), and the policy deceptive conduct, or prohibited The Commission is proposing to on aggregating accounts.550 transactions.543 For example, by amend current § 17.00(b) to delete In 1999, the Commission relocated requiring DCMs and SEFs that are aggregation provisions, since those several of the rules and policies trading facilities to impose and enforce provisions are duplicative of aggregation 546 concerning exchange-set-position limits exchange-set speculative position limits, provisions in § 150.4. Proposed from § 1.61 to current § 150.5, thereby the Commission does not intend for the § 17.00(b) would provide that ‘‘[e]xcept incorporating within part 150 most fulfillment of such requirements alone as otherwise instructed by the Commission rules relating to Commission or its designee and as to satisfy any other legal obligations speculative position limits. The specifically provided in § 150.4 of this under the Act and Commission Commission codified as rules within chapter, if any person holds or has a regulations of DCMs and SEFs that are § 150.5 various staff policies and financial interest in or controls more trading facilities to detect and deter administrative practices that had than one account, all such accounts market manipulation and corners. In developed over time. These policies and shall be considered by the futures another example, a market participant’s practices related to the speculative commission merchant, clearing member compliance with position limits or an position limit levels that the staff had or foreign broker as a single account for exemption does not confer any type of routinely recommended for approval by the purpose of determining special safe harbor or good faith defense to a the Commission for newly designated claim that he had engaged in an account status and for reporting purposes.’’ In addition, proposed futures and option contracts, as well as attempted manipulation, a perfected the magnitude of increases to the limit manipulation or deceptive conduct. § 17.03(h) would delegate to the Director of the Division of Market Oversight or levels that it would approve for already- ii. Proposed § 150.8—Severability his designee the authority to instruct traded contracts. The Commission also persons pursuant to proposed codified within § 150.5 various The Commission is proposing to add § 17.03.547 exemptions from the general § 150.8 to address the severability of requirement that exchanges must set individual provisions of part 150. II. Revision of Rules, Guidance, and speculative position limits for all Should any provision(s) of part 150 be Acceptable Practices Applicable to contracts. The exemptions included declared invalid, including the Exchange-Set Speculative Position permitting exchanges to substitute application thereof to any person or Limits—§ 150.5 position accountability rules for circumstance, § 150.8 provides that all A. Background position limits for physical commodity remaining provisions of part 150 shall derivatives outside the spot month in Pursuant to 17 CFR part 150, the not be affected to the extent that such high volume and liquid markets.551 Commission administers speculative remaining provisions, or the application Less than two years after the position limits on futures contracts for thereof, can be given effect without the Commission promulgated § 150.5, the certain agricultural commodities.548 invalid provisions.544 The Commission Commodity Futures Modernization Act Prior to the CEA’s amendment in 1974, believes it is prudent to include a which expanded its jurisdiction to all severability clause to avoid any further ‘‘services, rights and interests’’ in which (removed and reserved May 5, 1999). Section 1.61 permitted exchanges to adopt and enforce their own delay, as practicable, in carrying out futures contracts are traded, only certain Congress’ mandate to impose position speculative position limits for those contracts that designated agricultural commodities were covered by Commission-set speculative limits in a timely manner. could be regulated. Both prior to and position limits, as long as the exchange limits were after the 1974 amendments to the Act, not higher than those set by the Commission. iii. Part 15—Reports—General Furthermore, CEA section 4a(e) provides that a Provisions futures markets that traded commodities violation of a speculative position limit established not so enumerated applied speculative by a Commission-approved exchange rule is also a The Commission is proposing to position limits by exchange rule, if at violation of the Act. Thus, the Commission can amend the definition of the term all. In 1981, the Commission enforce directly violations of exchange-set speculative position limits as well as those ‘‘reportable position’’ in current promulgated § 1.61, which required provided under Commission rules. § 15.00(p)(2) by clarifying that: (1) Such that, absent an exemption, exchanges 550 Initially, for example, the Commission positions include swaps; (2) issued and must adopt and enforce speculative redefined ‘‘hedging’’ (see 42 FR 42748, Aug. 24, stopped positions are not included in position limits for all contracts that are 1977), and raised speculative position limits in open interest against a position limit; not subject to the Commission-set wheat (see 41 FR 35060, Aug. 19, 1976). 549 Subsequently, for example, the Commission and (3) special calls may be made for limits. The Commission has solicited public comment on, and subsequently any day a person exceeds a limit. approved, exchange requests for exemptions for Additionally, the Commission is 545 See discussion of new and amended series ’04 futures and option contracts on certain financial proposing to amend § 15.01(d) by reports above. instruments from the requirement specified by 546 In a separate proposal approved on the same former § 1.61 that speculative position limits be adding language to reference swaps date as this proposal, the Commission is proposing specified for all contracts. See 56 FR 51687, Oct. 15, positions. Lastly, the Commission is amendments to § 150.4—aggregation of positions. 1991. proposing to amend the list of reporting See Aggregation NPRM (Nov. 5, 2013). 551 See 17 CFR 150.5. See also Revision of Federal forms in current § 15.02 to account for 547 In a separate final rulemaking (Oct. 30, 2013), Speculative Position Limits and Associated Rules, the Commission adopted amendments to § 17.03; Final Rules, 64 FR 24038, 24040–42, May 5, 1999. the current proposal would amend § 17.03 further As noted in the notice of proposed rulemaking for 543 The Commission notes that amended § 150.6 by adding proposed § 17.03(h). § 150.5, promulgating these policies within a single matches vacated § 151.11(h). 548 See 17 CFR Part 150. section of the Commission’s rules would increase 544 The Commission notes that proposed § 150.8 549 See Establishment of Speculative Position significantly their accessibility and clarify their matches vacated § 151.13. Limits, 46 FR 50938, Oct. 16, 1981, and 17 CFR 1.61 terms. See 63 FR 38537, Jul. 17, 1998.

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of 2000 (‘‘CFMA’’) 552 amended the CEA the position limitation of the board of promulgated what was then 17 CFR 1.61 to include a set of core principles that trade at a level not higher than the (re-codified in 1999 as 17 CFR 150.5), DCMs must comply with at the time of position limitation established by the which required that, absent an application, and on an ongoing basis Commission.’’ 558 Furthermore, the exemption, exchanges must adopt and after designation,553 including DCM Dodd-Frank Act added CEA section 5h enforce speculative position limits for core principle 5, which requires to provide a regulatory framework for all futures contracts that were not exchanges to adopt position limits or Commission oversight of SEFs.559 Under subject to Commission-set limits.564 position accountability levels where SEF core principle 6, which parallels The Commission’s 1981 rule requiring necessary and appropriate to reduce the DCM core principle 5, Congress that exchanges set position limits was a threat of market manipulation or required that SEFs adopt for each swap, watershed in its approach to position congestion.554 The CFMA further as is necessary and appropriate, position limits. The Commission first concluded amended the CEA to provide DCMs limits or position accountability.560 In that multiple provisions of the CEA with ‘‘reasonable discretion’’ in addition, Congress required that, for any vested it with authority to direct that determining how to comply with each contract that is subject to a Federal exchanges impose position limits.565 core principle, including core principle position limit under CEA Section 4a(a), The Commission explained that section 5 regarding exchange-set position the SEF shall set its position limits at a 4a ‘‘represents an express Congressional limits.555 Since 2000, the Commission level no higher than the position finding that excessive speculation is has continued to maintain § 150.5, but limitation established by the harmful to the market, and a finding only as guidance on, and acceptable Commission.561 that speculative limits are an effective practices for, compliance with DCM In view of these Dodd-Frank Act prophylactic measure.’’ 566 Relying on core principle 5. The Commission did amendments, the Commission proposes those Congressional findings, the not amend § 150.5 following passage of several amendments to update and Commission directed exchanges to the CFMA. streamline the part 150 regulations. impose speculative position limits on In 2010, the Dodd-Frank Act amended First, the Commission proposes new all futures contracts subject to their the CEA to explicitly provide that the and amended clarifying definitions in jurisdiction.567 Commission may mandate the manner § 150.1 that relate particularly to In adopting this prophylactic in which DCMs must comply with the position limits. Second, the Commission approach, the Commission explained core principles.556 Specifically, the proposes to amend § 150.5 to include that comments it had received during SEFs and swaps. Third, the Commission Dodd-Frank Act amended DCM core the rulemaking that questioned ‘‘the proposes to codify rules and acceptable principle 1 to include the condition that general desirability of [position] limits practices for compliance with DCM core ‘‘[u]nless otherwise determined by the [were] contrary to Congressional principle 5 and SEF core principle 6 Commission by rule or regulation,’’ findings in sections 3 and 4a of the Act within amended § 150.5(a) for boards of trade shall have reasonable and considerable years of Federal and commodity derivative contracts that are discretion in establishing the manner in contract market regulatory subject to the federal position limits set which they comply with the core experience.’’ 568 The Commission also 557 forth in § 150.2. Lastly, the Commission principles. explained that: Additionally, the Dodd-Frank Act proposes to codify rules and revise amended DCM core principle 5 to guidance and acceptable practices for the prevention of large and/or abrupt price require that, for any contract that is compliance with DCM core principle 5 movements which are attributable to extraordinarily large speculative positions is subject to a position limitation and SEF core principle 6 within amended § 150.5(b) for commodity a Congressionally endorsed regulatory established by the Commission pursuant objective of the Commission. Further . . . to CEA section 4a(a), the DCM ‘‘shall set derivative contracts that are not subject this objective is enhanced by speculative to the Federal position limits set forth position limits since it appears that the 552 Commodity Futures Modernization Act of in § 150.2. capacity of any contract market to absorb the 2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, B. The Current Regulatory Framework establishment and liquidation of large 2000). By enacting the CFMA, Congress intended speculative positions in an orderly manner is ‘‘[t]o reauthorize and amend the Commodity for Exchange-Set Position Limits related to the relative size of the positions, Exchange Act to promote legal certainty, enhance competition, and reduce systemic risk in markets 1. Section 150.5 for futures and over-the-counter derivatives . . . .’’ The Commission currently sets and Red Spring Wheat, Hard Winter Wheat, and Cotton Id. No. 2. See 17 CFR 150.2. 553 See CEA section 5(d); 7 U.S.C. 7(d). The CEA, enforces position limits pursuant to its 564 46 FR 50938, Oct. 16, 1981. The Commission as amended by the CFMA, required a DCM broad authority under CEA section stated the purpose of such limits was to prevent applicant to demonstrate its ability to comply with 4a 562 and does so only with respect to ‘‘excessive speculation . . . arising from those 18 core principles. certain enumerated agricultural extraordinarily large positions which may cause 554 CEA section 5(d)(5); 7 U.S.C. 7(d)(5). products.563 In 1981, the Commission sudden or unreasonable fluctuations or 555 DCM core principle 1 states, among other unwarranted changes in the price’’ of commodity things, that boards of trade ‘‘shall have reasonable futures. Id. at 50945. Former § 1.61(a)(2) specified 558 discretion in establishing the manner in which they See CEA section 5(d)(5)(B) (amended 2010); 7 that limits shall be based on ‘‘such factors that will comply with the core principles.’’ This ‘‘reasonable U.S.C. 7(d)(5)(B). accomplish the purposes of this section. As discretion’’ provision underpinned the 559 See CEA section 5h; 7 U.S.C. 7b–3. appropriate, these factors shall include position Commission’s use of core principle guidance and 560 CEA section 5h(f)(6); 7 U.S.C. 7b–3(f)(6). sizes customarily held by speculative traders in the acceptable practices. See former CEA section 561 Id. market . . . , which shall not be extraordinarily 5(d)(1)(amended in 2010); U.S.C. 7(d)(1). As 562 CEA section 4a, as amended by the Dodd- large relative to total open positions in the contract discussed above, the Dodd-Frank Act subsequently Frank Act, provides the Commission with broad market . . . [or] breadth and liquidity of the cash amended DCM core principle 1 to specifically authority to set position limits. 7 U.S.C. 6a. See market underlying each delivery month and the provide the Commission with discretion to supra discussion of CEA section 4a. opportunity for arbitrage between the futures market and cash market in the commodity determine, by rule or regulation, the manner in 563 The position limits on these agricultural underlying the futures contract.’’ 17 CFR 1.61 which boards of trade comply with the core contracts are referred to as ‘‘legacy’’ limits, and the (removed and reserved on May 5, 1999). principles. listed commodities are referred to as the 565 556 See CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). ‘‘enumerated’’ agricultural commodities. This list of 46 FR 50938, 50939–40, Oct. 16, 1981. 557 See id. Congress limited the exercise of agricultural contracts includes Corn (and Mini- 566 Id. at 50940. reasonable discretion by DCMs only where the Corn), Oats, Soybeans (and Mini-Soybeans), Wheat 567 Id. at 50945. Commission has acted by regulation. (and Mini-wheat), Soybean Oil, Soybean Meal, Hard 568 Id. at 50940.

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i.e., the capacity of the market is not accountability to be used for highly future delivery or, on a futures- unlimited.569 liquid energy and metals contracts.577 equivalent basis, options thereon.’’ 581 Citing the recent disruption in the In 1999, the Commission simplified The Commission noted that this silver market, the Commission insisted and reorganized its rules relating to provision does not apply to contracts for that position limits be imposed speculative position limits by removing which position limits are set forth in and reserving § 1.61 and relocating prophylactically for all futures and § 150.2 or to a futures or option contract several of its rules and policies 582 options contracts, irrespective of the on a major foreign currency. concerning exchange-set-position limits unique features of the cash market Furthermore, nothing in § 150.5(a) was to new § 150.5, thereby incorporating underlying a particular derivative.570 to be construed to prohibit an exchange within part 150 most Commission rules Thus, the Commission concluded that from setting different limits for different relating to speculative position ‘‘speculative limits are appropriate for futures contracts or delivery months, or limits.578 The Commission codified all contract markets,’’ 571 and directed from exempting positions normally within § 150.5 various staff policies and exchanges to impose them on an known in the trade as spreads, administrative practices that had 583 ‘‘omnibus basis,’’ 572 that is, on all straddles, or arbitrage. developed over time relating to: (1) The In § 150.5(b), the Commission futures contracts.573 speculative position limit levels that the presented explicit numeric formulas Congress ratified the Commission’s staff routinely had recommended for and descriptive standards for the construction of section 4a and its approval by the Commission for newly speculative position limit levels that it promulgation of § 1.61 in the Futures designated futures and option contracts; 574 found to be appropriate for new Trading Act of 1982 when it enacted (2) the magnitude of increases to the contracts.584 For physical delivery section 4a(e) of the Act, which provides limit levels that it would approve for contracts, the spot month limit level that limits set by exchanges and traded contracts; and (3) various must be no greater than one-quarter of approved by the Commission are subject exemptions from the general 575 the estimated spot month deliverable to Commission enforcement. requirement that exchanges set supply, calculated separately for each During the 1990s, the Commission speculative position limits for all month to be listed.585 For cash-settled allowed exchanges to replace position contracts, such as permitting exchanges contracts, the Commission presented a limits with position accountability to substitute position accountability descriptive standard: ‘‘the spot month levels with respect to certain derivatives rules for position limits for high volume limit level must be no greater than outside the spot month.576 Position and liquid markets.579 The Commission necessary to minimize the potential for accountability levels are not fixed explained that codifying the prior manipulation or distortion of the limits, but rather position sizes that administrative practices as part of new contract’s or the underlying trigger an exchange review of a trader’s § 150.5 would make the applicable commodity’s price.’’ 586 Individual non- position and at which an exchange may standard for exchange-set position spot-month or all-months-combined remediate perceived problems, such as limits more transparent and thereby levels for such newly-designated preventing a trader from increasing his make compliance easier for exchanges contracts must be no greater than 1,000 580 position or forcing a reduction in a to achieve. contracts for tangible commodities other position. In January 1992, the Under § 150.5(a), the Commission than energy products,587 and no greater Commission approved the CME’s required each exchange to ‘‘limit the than 5,000 contracts for energy products request for an exemption from the maximum number of contracts a person and non-tangible commodities, position limits requirements and may hold or control, separately or in including contracts on financial permitted the CME to establish position combination, net long or net short, for products.588 In § 150.5(c), the accountability for a variety of financial the purchase or sale of a commodity for Commission codified mandatory contracts. Initially, the Commission 577 numeric formulas and descriptive limited its approval of position See 57 FR 29064, Jun. 30, 1992. standards for subsequent adjustments to accountability to financial instruments 578 64 FR 24038, 24040, May 5, 1999. As noted in the notice of proposed rulemaking for § 150.5, spot, individual and all-months- (i.e., excluded commodities) that had a promulgating these policies within a single section combined position limit levels.589 high degree of liquidity. Six months of the Commission’s rules would increase The Commission explained that these later, the Commission determined it significantly their accessibility and clarify their explicit numeric formulas grew from would also allow position terms. See Revision of Federal Speculative Position Limits and Associated Rules, Proposed Rules, 63 FR administrative practices that had long 38537, Jul. 17, 1998. required a deliverable supply of at least 569 Id. 579 64 FR at 24040–42. As the Commission four times the spot month speculative 570 Id. at 50940–41. The Commission stated it explained, the open-interest criterion and numeric position limit.590 The Commission would consider the particular characteristics of the formula used by the Commission in its 1991 cash markets in setting limit levels, but required proposed amendment of Commission-set 581 that all futures contracts have position limits. Id. at speculative position limits provided the most 17 CFR 150.5(a). 50941. definitive guidance by the Commission on 582 Id. 571 Id. at 50941. acceptable levels for speculative position limits for 583 Id. tangible commodities and, along with several other 584 572 Id. at 50939. See 17 CFR 150.5(b). The Commission 573 commonly accepted measures, had been widely explained that the proposed limit levels for new See 17 CFR 1.61(a)(1) (1982). In addition, followed as a matter of administrative practice § 1.61 permitted exchanges to adopt and enforce contracts, which were based upon the formula and when reviewing proposed exchange speculative associated minimum levels used by the their own speculative position limits for those position limits under Commission rule 1.61. Id. at contracts that have federal speculative position Commission in its 1992 proposed rulemaking, had 24040. Additionally, in reviewing new contracts for long been used as a matter of informal limits, as long as the exchange limits were not tangible commodities, the staff had relied upon the higher than those set by the Commission. administrative practice. 64 FR 24040. Commission’s formulation providing for a 585 17 CFR 150.5(b)(1). 574 The Futures Trading Act of 1982, Public Law minimum level of 1,000 contracts for non-spot 586 Id. 97–444, 96 Stat. 2294 (1983). month speculative position limits. Id. Moreover, the 587 575 See id; see also 7 U.S.C. 6a(e). Commission had routinely approved a level of 17 CFR 150.5(b)(2). 576 See Speculative Position Limits—Exemptions 5,000 contracts in non-spot months for designation 588 17 CFR 150.5(b)(3). from Commission Rule 1.61, 56 FR 51687, Oct. 15, of financial futures and energy contracts, and that 589 17 CFR 150.5(c). 1991; and Speculative Position Limits—Exemptions level had become a rule of thumb as a matter of 590 64 FR at 24041 (citing 62 FR 60831, 60838, from Commission Rule 1.61, 57 FR 29064, Jun. 30, administrative practice. Id. Nov. 13, 1997). A spot month speculative position 1992. 580 Id. Continued

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further explained that the descriptive In § 150.5(e), the Commission codified 2. The Commodity Futures standards for exchange-set limits in its existing policies concerning the Modernization Act of 2000 Caused § 150.5 grew from staff experience that classes of contracts for which an Commission § 150.5 To Become had demonstrated that many exchange could replace the required Guidance on and Acceptable Practices commodities, particularly intangible speculative position limit with a for Compliance With DCM Core commodities, have sufficiently large position accountability rule.597 Under Principle 5 deliverable supplies to meet this § 150.5(e), at least twelve months after a Just over a year after the Commission standard without requiring a spot month contract’s initial listing for trading, an promulgated § 150.5, the Commodity level that is lower than the individual 603 591 exchange could apply to the Futures Modernization Act of 2000 month level. Commission to substitute for the In § 150.5(d), the Commission amended the CEA to establish DCMs as explicitly precluded exchanges from position limits required under part 150 a registration category and create a set applying exchange-set speculative an exchange rule requiring traders to be of 18 core principles with which DCMs 598 604 position limits rules to bona fide accountable for large positions. The must comply. DCM core principle 5 hedging positions as defined by an Commission explained that the type of requires exchanges to adopt position exchange in accordance with position accountability rule that applies limits or position accountability levels § 1.3(z)(1).592 However, that section also to a particular contract under § 150.5(e) ‘‘where necessary and appropriate to provided an exchange with the is determined by the liquidity of the reduce the threat of market 605 discretion to limit bona fide hedging futures market, the liquidity of the cash manipulation or congestion.’’ Under positions that it determines are ‘‘not in market and the Commission’s oversight the CFMA, DCM core principle 1 gave accord with sound commercial practices experience.599 The Commission further DCMs ‘‘reasonable discretion’’ in or [that] exceed an amount which may determining how to comply with the explained that it used § 150.5(e) to 606 be established and liquidated in an restate these criteria with greater clarity core principles. The CFMA, however, 593 did not change the treatment of the orderly fashion.’’ Under and precision, particularly in measuring enumerated agricultural commodities, § 150.5(d)(2), the Commission explicitly the necessary levels of liquidity of the required traders to apply to the 600 which remain subject to Federal futures and option markets. speculative position limits. Moreover, exchange for any exemption from its Furthermore, for purposes of § 150.5(e), speculative position limit rules.594 the CFMA did not alter the trading volume and open interest must Commission’s authority in CEA section Furthermore, under § 150.5(f), an be calculated by combining the month- exchange is compelled to grant 4a to establish position limits. The core end futures and its related option additional exemptions to positions principles regime set forth in the CFMA contract, on a delta-adjusted basis, for acquired in good faith prior to the had the effect of undercutting the effective date of any exchange position all months listed during the most recent prescriptive rules of § 150.5 because 601 limits rule.595 In addition to the express calendar year. DCMs were afforded ‘‘reasonable exemptions specified in § 150.5, Lastly, the Commission codified its discretion’’ in determining how to § 150.5(f) permitted an exchange to aggregation policy relating to exchange- comply with the position limits or propose other exemptions consistent set position limits in § 150.5(g).602 accountability requirements of core with the purposes of § 150.5.596 principle 5. Nevertheless, the 597 17 CFR 150.5(e). Position accountability rules Commission has retained current limit that exceeds this amount enhances the impose a level that triggers distinct reporting § 150.5 as guidance on, and acceptable susceptibility of the contract to market responsibilities by a trader at the request of the practices for, compliance with DCM manipulation, price distortion or congestion. Except applicable exchange. for cash-settled contracts, Commission staff had 598 Id. The Commission explained that a trading 603 CFMA, Public Law 106–554, 114 Stat. 2763. used this standard to review every new contract, or history of at least 12 months must first be proposals to increase existing exchange speculative By enacting the CFMA, Congress intended ‘‘[t]o established before a futures contract can meet the reauthorize and amend the Commodity Exchange position limits, since 1981, when § 1.61 was issued. proposed rule’s liquidity requirements. See Id. Act to promote legal certainty, enhance Proposed Rule, 63 FR 38525, 38529, Jul. 17, 1998. competition, and reduce systemic risk in markets 591 64 FR at 24041. For other commodities, 599 Revision of Federal Position Limits and however, especially commodities having strong for futures and over-the-counter derivatives, and for Associated Rules, Proposed Rule, 63 FR 38525, seasonal characteristics, spot month speculative other purposes.’’ Id. position limits are required to be set at a level lower 38530, Jul. 17, 1998. The Commission explained 604 See CEA section 5(d); 7 U.S.C. 7(d). DCMs than the individual month limit for all or some that a liquid market is one which has sufficient were first established under the CFMA as one of trading months. Id. Accordingly, codification of the trading activity to enable individual trades coming two forms of Commission-regulated markets for the standard only made explicit the standard which, to a market to be transacted without significantly trading of contracts for sale of a commodity for since 1981, had been applied to, and met by, every affecting the price. Id. A high degree of liquidity in future delivery or commodity options (the other physical delivery futures contract at the time of the futures and option markets better enables being registered DTEFs). In addition, the CFMA initial review and upon subsequent increases to the traders to arbitrage these markets with the provided for two markets exempt from regulation: spot month speculative position limit. Id. underlying cash markets. Id. Where the underlying Exempt boards of trade (‘‘EBOTs’’) and exempt 592 17 CFR 150.5(d)(1); 17 CFR 1.3(z). cash markets in turn are very liquid and have commercial markets (‘‘ECMs’’). See A New 593 17 CFR 150.5(d)(1). extremely large deliverable supplies, the threat of Regulatory Framework for Trading Facilities, market manipulation or distortions caused by large 594 17 CFR 150.5(d)(2). In considering whether to Intermediaries and Clearing Organizations, Notice speculative positions is lessened. Id. grant such an application for exemption, exchanges of Proposed Rulemaking, 66 FR 14262, Mar. 9, 600 must take into account whether the hedging See 17 CFR 150.5(e)(1)–(3); see also Proposed 2001; Final Rulemaking, 66 FR 42256, Aug. 10, position is not in accord with sound commercial Rule, 63 FR 38525, 38530, Jul. 17, 1998. 2001. practices or exceeds an amount which may be 601 17 CFR 150.5(e)(4). 605 CEA sections 5(d)(1), (5); 7 U.S.C. 7(d)(1), (5). established and liquidated in an orderly fashion. 602 To determine whether any person has 606 CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). The See id. exceeded the limits established under this section, Commission also undertakes due diligence reviews 595 17 CFR 150.5(f). This exemption also applies all positions in accounts for which such person by of each exchange’s compliance with the core to positions acquired in good faith prior to the power of attorney or otherwise directly or indirectly principles during rule and product certification effective date of any exchange position limits rule controls trading shall be included with the reviews and periodic examinations of DCMs’ by a person that is registered as a futures positions held by such person; such limits upon compliance with the core principles under Rule commission merchant or as a floor broker under positions shall apply to positions held by two or Enforcement Reviews. As discussed above, DCM authority of the Act except to the extent that more person acting pursuant to an express or core principle 1 was amended by the Dodd-Frank transactions made by such person are made for or implied agreement or understanding, the same as if Act to give the Commission authority to determine, on behalf of the account or benefit of such person. the positions were held by a single person. 17 CFR by rule or regulation, the manner in which boards 596 Id. 150.5(g). of trade must comply with the core principles.

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core principle 5.607 The Commission 3. The CFTC Reauthorization Act of with ECM core principles.618 The did not amend § 150.5 following passage 2008 guidance on and acceptable practices for of CFMA. In the CFTC Reauthorization Act of compliance with ECM core principle IV In August 2001, the Commission 2008, Congress, among other things, generally tracked those for DCM core adopted part 38 to govern trading on expanded the Commission’s authority to principle 5 as listed in § 150.5.619 DCMs post-CFMA. Under § 38.2, DCMs set position limits to include significant Furthermore, the Commission indicated operating under part 38 were ‘‘exempt price discovery contracts (‘‘SPDCs’’) on within this Notice of Final Rulemaking from all Commission rules not exempt commercial markets that § 150.5 was not binding on DCMs specifically reserved’’ 608 and § 38.2 did (‘‘ECMs’’).614 The Reauthorization Act’s once part 38 was finalized.620 The not reserve § 150.5.609 Accordingly, provisions regarding ECMs were based Commission rejected a commenter’s DCMs operating under part 38 in the largely on the Commission’s suggestion that a proposed ECM–SPDCs post-CFMA environment have not been recommendations for improving core principle for position limits and required to comply with § 150.5. In this oversight of ECMs whose contracts same rulemaking, the Commission accountability should adopt the existing perform or affect a significant price standards in CEA section 4a(b)(2) adopted appendix B to part 38 as discovery function. The legislation guidance on and acceptable practices for (barring trading or positions in excess of significantly expanded the federal limits) and, especially, compliance with the DCM core Commission’s regulatory authority over principles, including core principle incorporate a broader good faith ECMs by adding section 2(h)(7) 615 to 5.610 exemption in § 150.5(f).621 The Within appendix B to part 38, the the CEA, establishing criteria for the Commission advised DCMs to, among Commission responded that section Commission to consider in determining 4a(b)(2) applies to federal limits, not other things, adopt spot-month limits whether a particular ECM contract exchange-set limits.622 The Commission for markets based on commodities performs a significant price discovery further explained that § 150.5(f) ‘‘no having more limited deliverable function, and providing for greater longer has direct application to DCM-set supplies, or where otherwise necessary regulation of SPDCs traded on ECMs. to minimize the susceptibility of the The Reauthorization Act also required limits’’ because ‘‘the statutory authority market to manipulation or price governing [those] limits is found in CEA 611 ECMs to adopt position limit and distortions. The Commission also accountability level provisions for section 5(d)(5)—DCM core principle 623 advised DCMs on how they should set SPDCs, authorized the Commission to 5.’’ That core principle does not, the spot-moth limit levels and instructed require the reporting of large trader Commission explained, contain any of DCMs that they could elect not to adopt positions in SPDCs, and established the exemptive language found in CEA all-months-combined and non-spot section 4a or § 150.5(f).624 The 612 core principles governing ECMs with month limits. Appendix B to part 38 SPDCs. The core principles applicable Commission observed that the part 38 was subsequently amended in June 2012 to ECMs with SPDCs were largely rules specifically exempt DCMs and to delete the guidance and acceptable derived from selected DCM core DCM-traded contracts from all rules practices section relevant to compliance principles and designation criteria set other than those specifically reserved in with DCM core principle 5 in deference 613 forth in CEA section 5, and Congress § 38.2, and § 38.2 did not retain to parts 150 and 151. intended that they be construed in a like manner.616 618 607 Guidance provides DCMs and DCM applicants Significant Price Discovery Contracts on with contextual information regarding the core Much like DCM core principle 5, ECM Exempt Commercial Markets, Final Rulemaking, 74 principles, including important concerns which the core principle IV of CEA section FR 12178, Mar. 23, 2009; See also 17 CFR part 36 Commission believes should be taken into account 2(h)(7)(C) required electronic trading app. B (2009). 619 For example, ECMs were advised to adopt in complying with specific core principles. In facilities to adopt where necessary and contrast, the acceptable practices are more specific spot-month limits for SPDCs. If there was an than guidance and provide examples of how DCMs appropriate, position limits or position economically-equivalent SPDC, or a contract on a may satisfy particular requirements of the core accountability provisions, especially DCM, then the spot-month limit should be set at the principles; they do not, however, establish during trading in the delivery month, same level as that specified for such other contract. mandatory means of compliance. Acceptable and taking into account fungible If there was not an economically-equivalent SPDC practices are intended to assist DCMs by or contract traded on a DCM, then in the case of establishing non-exclusive safe harbors. The safe positions at a derivative clearing a physical delivery contact, the spot-month limit harbors apply only to compliance with specific organization.617 should be set based upon an analysis of deliverable aspects of the core principle, and do not protect the In a Notice of Final Rulemaking in supplies and the history of spot-month liquidations exchange with respect to charges of violations of March 2009, the Commission adopted and at no more than 25 percent of the estimated other sections of the CEA or other aspects of the deliverable supply or, in the case of a cash core principle. In applying § 150.5 as guidance and Appendix B to Part 36 as guidance on settlement provision, the spot month limit should acceptable practices, most exchanges, in exercising and acceptable practices for compliance be set at a level that minimizes the potential for their ‘‘reasonable discretion,’’ have continued to price manipulation or distortion in the significant impose strict position limits in the spot month and required DCMs to comply with part 150 (Limits on price discovery contract itself; in related futures to apply position accountability standards in non- Positions) until such time that the Commission and options contracts traded on a DCM or DTEF; spot months. replaces part 150 with the new part 151 (Limits on in other significant price discovery contracts; in 608 17 CFR 38.2 (amended June 19, 2012); see also Positions). Id. other fungible agreements, contracts and A New Regulatory Framework for Trading 614 CFTC Reauthorization Act of 2008, transactions; and in the underlying commodity. Facilities, Intermediaries and Clearing incorporated as Title XIII of the Food, Conservation ECMs were also advised to adopt position Organizations, Final Rules, 66 FR 42256, 42257, and Energy Act of 2008, Public Law 110–246, 122 accountability provisions for non-spot month and Aug. 10, 2001. Stat. 1651 (June 18, 2008). all-months combined or, in lieu of position 609 accountability, an ECM could establish non-spot See id. 615 CEA sections 2(h)(3)–(7) were deleted by the individual month position limits and all-months- 610 17 CFR part 38 app. B (2002); see also 66 FR Dodd-Frank Act on July 15, 2011, thus eliminating combined position limits for its SPDC. See 17 CFR 42256, Aug. 10, 2001. the ECM category. part 36 app. B (2009). 611 Id. 616 See Joint Explanatory Statement of the 620 612 Id. Committee of Conference, H.R. Rep. No. 110–627, See 74 FR 12178, 12183, Mar. 23, 2009. 621 613 See Core Principles and Other Requirements 110 Cong., 2d Sess. at 985 (2008). Section 723 of See id. for Designated Contract Markets, Final Rule, 77 FR the Dodd-Frank Act subsequently repealed the ECM 622 See id. 36611, 36639, Jun. 19, 2012. The Commission SPDC provisions. See Section 723 of the Dodd- 623 See id. published the final rules for Position Limits for Frank Act, Pub. L. 111–203, 124 Stat. 1376 (2010). 624 See id; see also CEA Section 4a and 17 CFR Futures and Swaps on November 18, 2011, which 617 CEA section 2(h)(7)(C) (amended 2010). 150.5(f).

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§ 150.5(f).625 Accordingly, the i. The Dodd-Frank Act Added iii. The Dodd-Frank Act Added the Commission explained, ‘‘the part 150 Provisions That Permit the Commission Regulation of Swaps, Added Core rules essentially constitute guidance for To Override the Discretion of DCMs in Principles for SEFs, Including SEF Core DCMs administering position limit Determining How To Comply With the Principle 6, and Amended DCM Core regimes, [and] Commission staff in Core Principles Principle 5 overseeing such regimes has not The Dodd-Frank Act added a core As discussed above, DCM core required that position limits include an principle concerning position principle 1, set out in CEA section exemption for positions acquired in limitations or accountability for SEFs, 5(d)(1), states that boards of trade ‘‘shall good faith.’’ 626 SEF core principle 6, which parallels have reasonable discretion in DCM core principle 5.635 SEF core 4. The Dodd-Frank Act Amendments to establishing the manner in which they 630 principle 6 requires SEFs that are CEA Section 5 comply with the core principles.’’ trading facilities to set, ‘‘as is necessary However, section 735 of the Dodd-Frank and appropriate, position limitations or On July 21, 2010, President Obama Act amended section 5(d)(1) of the CEA position accountability for signed The Dodd-Frank Wall Street to include the proviso that ‘‘[u]nless speculators’’ 636 for each contract Reform and Consumer Protection otherwise determined by the 627 executed pursuant to their rules. Act. The legislation was enacted to Commission by rule or Furthermore, for contracts subject to reduce risk, increase transparency, and regulation . . . ,’’ boards of trade shall Federal position limits imposed by the promote market integrity within the have reasonable discretion in Commission under CEA section 4a(a), financial system by, among other things, establishing the manner in which they CEA section 5h(f)(6)(B) 637 requires SEFs enhancing the Commission’s comply with the core principles.631 In that are trading facilities to set and rulemaking and enforcement authorities view of amended CEA section 5(d)(1), enforce speculative position limits at a with respect to all registered entities which gives the Commission authority level no higher than those established and intermediaries subject to the to determine, by rule or regulation, the by the Commission. Commission’s oversight.628 The Dodd- manner in which boards of trade must The Dodd-Frank Act similarly Frank Act repealed certain sections of comply with the core principles, the amended DCM core principle 5 by the CEA, amended others, and added Commission has proposed a number of adding that for any contract that is many new provisions and vastly new and revised rules, guidance, and subject to a position limit established by expanded the Commission’s acceptable practices to implement the the Commission pursuant to CEA jurisdiction. The Commission has new and revised Dodd-Frank Act core section 4a(a), the DCM shall set the finalized 65 rules, orders, and guidance principles. position limit of the board of trade at a to implement sweeping changes to the level not higher than the position ii. The Dodd-Frank Act Established a limitation established by the regulatory framework established by the Comprehensive New Statutory Commission.638 Dodd-Frank Act.629 This proposed Framework for Swaps rulemaking would make several 5. Dodd-Frank Rulemaking The Dodd-Frank Act tasked the conforming amendments to part 150 of To implement section 735 of the Commission with overseeing the U.S. the Commission’s regulations, most Dodd-Frank Act, the Commission has market for swaps (except for security- prominently to § 150.5, in order to proposed a number of new and revised based swaps). Title VII of the Dodd- integrate that section more fully within rules, guidance, and acceptable Frank Act amended the CEA to establish the statutory framework created by the practices to implement the new and a comprehensive new regulatory Dodd-Frank Act. revised DCM core principles. In doing framework for swaps, including so, the Commission has evaluated the requirements for SEFs.632 This new preexisting regulatory framework for regulatory framework includes: (1) 625 overseeing DCMs, which consisted See 74 FR 12178, 12183, Mar. 23, 2009; see Registration, operation, and compliance also 17 CFR Part 38. The Commission largely of guidance and acceptable requirements for SEFs; and (2) fifteen acknowledged that the acceptable practices in practices, in order to update those former appendix B to part 38 incorporate many core principles with which SEFs must provisions and to determine which core provisions of § 150.5, but not § 150.5(f). comply. As a condition of obtaining and principles would benefit from having 626 74 FR 12183. In a 2010 notice of proposed maintaining their registration as a SEF, new or revised derivative regulations. rulemaking, the Commission similarly noted that applicants and registered SEFs are Based on that review, and in view of the former appendix B to part 38 ‘‘specifically required to comply with the SEF core Dodd-Frank Act’s amendment to section reference[d] part 150’’ in order to provide principles and with any requirement ‘‘guidance’’ to DCMs on how to comply with the 5(d)(1) of the CEA, which grants the that the Commission may impose by Commission authority to determine, by core principle on position limits/accountability. 75 rule or regulation.633 The Dodd-Frank FR 4144, 4147, Jan. 26, 2010. rule or regulation, the manner in which Act also amended the CEA to provide 627 See generally the Dodd-Frank Wall Street boards of trade comply with the core Reform and Consumer Protection Act, Public Law that, under new section 5h, the principles, the Commission has 111–203, 124 Stat. 1376 (2010). Commission may determine, by rule or proposed revised guidance and 628 Furthermore, the Dodd-Frank Act amended regulation, the manner in which SEFs acceptable practices for some core the DCM core principles by: (1) Eliminating the comply with the core principles.634 eight criteria for designation as a contract market; 635 Compare CEA section 5h(f)(6); 7 U.S.C. 7b– (2) amending most of the core principles, including 630 CEA section 5(d)(1); 7 U.S.C. 7(d)(1). 3(f)(6) with CEA section 5(d)(5); 7 U.S.C. 7(d)(5). incorporating the substantive requirements of the 631 See CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). 636 CEA section 5h(f)(6)(A); 7 U.S.C. 7b–3(f)(6). designation criteria; and (3) adding five new core 632 The SEF definition is added in section 721 of 637 7 U.S.C. 7b–3(f)(6) as added by the Dodd- principles. Accordingly, all DCMs and DCM the Dodd-Frank Act, amending CEA section 1a. 7 Frank Act. applicants must comply with a total of 23 core U.S.C. 1a(50). 638 See CEA section 5(d)(1)(B); 7 U.S.C. 7(d)(1)(B). principles as a condition of obtaining and 633 See CEA section 5h, as enacted by section 733 DCM core principle 5 under CEA section 5(d)(5) maintaining designation as a contract market. of the Dodd-Frank Act; 7 U.S.C. 7b–3. requires that DCMs adopt for each contract, as is 629 77 FR 66288, Nov. 2, 2012. See also 634 See id.; see also SEF core principle 1 at CEA necessary and appropriate, position limitations or amendments to CEA section 4a, discussed above. section 5h(f)(1)(B); 7 U.S.C. 7b–3(f)(1)(B). position accountability.

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principles and, for other core principles, Therefore, part 150 continues to apply statutory language, the proposal would has proposed to codify rules in lieu of as if part 151 had not been finally provide that part 150 should be guidance and acceptable practices. adopted by the Commission, and § 150.5 considered as guidance. continues to apply as non-exclusive i. Amended Part 38 iii. Vacated Part 151 guidance and acceptable practices for In January 2011, the Commission compliance with DCM core principle 5. As discussed above, the United States published a notice of proposed In light of the foregoing, the District Court for the District of rulemaking to replace existing part 150, Commission could not, without notice, Columbia vacated part 151 of the in its entirety, with a new federal interpret § 150.5 as a pre-requisite for Commission’s regulations.649 Because position limits rules regime in the form compliance with core principle 5. the District Court’s decision did not of new part 151.639 Just one month prior Additionally, the Commission is affect the applicability of part 150, to this publication, the Commission proposing to amend § 38.301 by deleting current § 150.5 remains as guidance and published a notice of proposed the reference to vacated part 151. acceptable practices for compliance rulemaking to amend part 38 to Proposed § 38.301 would maintain the with DCM core principle 5 and SEF core establish regulatory obligations that requirement that DCMs meet the principle 6. The Commission continues each DCM must meet in order to comply requirements of part 150, as applicable. to rigorously enforce compliance with with section 5 of the CEA, as amended these core principles. by the Dodd-Frank Act. Accordingly, ii. Amended Part 37 Vacated § 151.11 would have required the Commission proposed § 38.301 to Similarly, in the Commission’s DCMs and SEFs to adopt position limits require that each DCM must comply proposal to adopt a regulatory scheme for Referenced Contracts, and would with the requirements of part 151 as a applicable to SEFs, under proposed have established acceptable practices for condition of its compliance with DCM § 37.601,646 the Commission proposed establishing position limits and position core principle 5.640 The Commission to require that SEFs establish position accountability for certain non- later adopted a revised version of limits in accordance with the referenced contracts and excluded § 38.301 with an additional clause that requirements set forth in part 151 of the commodities.650 Specifically, vacated requires DCMs to continue to meet the Commission’s regulations.647 In the SEF § 151.11(a) would have required DCMs requirements of part 150 of the final rulemaking, the Commission and SEFs to set spot month limits, with Commission’s regulations—the current revised § 37.601 to state that until such exceptions for securities futures and position limit regulations—until such time that compliance is required under some excluded commodities.651 Under time that compliance would be required part 151, a SEF may refer to the vacated § 151.11(a)(1), the Commission under part 151.641 The Commission guidance and/or acceptable practices in would have required DCMs and SEFs to explained that this clarification would appendix B of part 37 to demonstrate to establish spot-month limits for ensure that DCMs are in compliance the Commission compliance with the Referenced Contracts at levels no greater with the Commission’s regulations requirements of core principle 6. than the federal position limits under part 150 during the interim In light of the District Court vacatur (established pursuant to vacated period until the compliance date for the of part 151, the Commission proposes to § 151.4).652 For contracts other than new position limits regulations of part amend § 37.601 to delete the reference Referenced Contracts (including other 151 would take effect.642 The to vacated part 151. Instead, this physical commodity contracts), it would Commission further explained that new rulemaking proposes to require that be acceptable practice under vacated § 38.301 was based on the Dodd-Frank SEFs that are trading facilities meet the § 151.11(a)(2) for DCMs and SEFs to set amendments to the DCM core principles requirements of part 150, which are position limits at levels no greater than regime, which collectively provide that comparable to the DCM’s requirement, 25 percent of estimated deliverable 653 DCM discretion in setting position since, as proposed, § 150.5 would apply supply. Additionally, under vacated limits or position accountability levels to commodity derivative contracts, § 151.11(c), DCMs and SEFs would have is limited by Commission regulations whether listed on a DCM or on a SEF had discretion to establish position setting limits.643 that is a trading facility. In addition, the accountability levels in lieu of position However, in an Order dated Commission proposes to amend 649 September 28, 2012, the United States appendix B to part 37, which provides See 887 F. Supp. 2d 259 (D.D.C. 2012). 650 See 76 FR at 71659–61. District Court for the District of guidance on complying with core Columbia vacated part 151.644 The 651 76 FR at 71659. principles, both initially and on an 652 District Court’s decision did not affect 76 FR at 71659–60. For Referenced Contracts, 645 ongoing basis, to maintain SEF DCMs and SEFs would have been similarly required the applicability of part 150. registration.648 Since this rulemaking under vacated § 151.11(b) to set single non-spot- proposes to require that SEFs that are month and all-months limits for Referenced 639 Position Limits for Derivatives, Proposed Rule, Contracts at levels no higher than the federal 76 FR 4752, Jan. 26, 2011. The final rulemaking for trading facilities meet the requirements position limits (established pursuant to vacated vacated part 151 required DCMs to comply with of part 150, the proposed amendments § 151.4). Id. For non-referenced contracts, it would part 150 until such time that the Commission to the guidance regarding SEF core be acceptable practice under vacated § 151.11(b)(2) replaces part 150 with the new part 151. See 76 FR for DCMs and SEFs to impose limits based on ten principle 6 would reiterate that percent of the average combined futures, swaps and at 71632. requirement. For SEFs that are not 640 75 FR 80571, 80585, Dec. 22, 2010. delta-adjusted option month-end open interest for the most recent two calendar years up to 25,000 641 77 FR 36611, 36639, Jun. 19, 2012. The trading facilities, to whom core contracts, with a marginal increase of 2.5 percent Commission mandated in final § 38.301 that, in principle 6 is not applicable under the thereafter based on open interest in the contract and order to comply with DCM core principle 5, a DCM economically equivalent contracts traded on the must ‘‘meet the requirements of parts 150 and 151 646 Current § 37.601 provides requirements for same DCM or SEF. 76 FR 71661. of this chapter, as applicable.’’ See also 17 CFR SEFs that are trading facilities to comply with SEF 653 38.301. 76 FR at 71660. Furthermore, for non- core principle 6 (Position Limits or Accountability). referenced contracts, vacated § 151.11(b)(3) would 642 77 FR at 36639. 647 Core Principles and Other Requirements for have allowed as an acceptable practice the 643 Id. See also CEA sections 5(d)(1) and 5(d)(5) Swap Execution Facilities, 76 FR 1214 (proposed provision of speculative limits for an individual (amended 2010), and discussion supra of Dodd- Jan. 7, 2011). single-month or in all-months-combined at no Frank amendments to the DCM core principles. 648 Appendix B to Part 37—Guidance on, and greater than 1,000 contracts for non-energy physical 644 See 887 F. Supp. 2d 259 (D.D.C. 2012). Acceptable Practices in, Compliance with Core commodities and at no greater than 5,000 contracts 645 See id generally. Principles. for other commodities. Id.

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limits for excluded commodities under Commission continues to evaluate its pursuant to the factors enumerated in certain circumstances.654 pre-Dodd-Frank Act regulations and section 4a(a)(3) of the Act, has Vacated §§ 151.11(e) and 151.11(f) approach to oversight of DCMs, which endeavored to maximize the objectives would have required DCMs and SEFs to had consisted largely of published of preventing excessive speculation, follow the same account aggregation and guidance and acceptable practices, with deterring and preventing market bona fide exemption standards set forth the aim of updating them to conform to manipulation, ensuring that markets by vacated §§ 151.5 and 151.7 with the new Dodd-Frank Act regulatory remain sufficiently liquid so as to afford respect to exempt and agricultural framework. Based on that review, and end users and producers of commodities commodities.655 With respect to a pursuant to the authority given to the the ability to hedge commercial risks, DCM’s or SEF’s duty to administer Commission in amended sections and promoting efficient price discovery. hedge exemptions, the Commission 5(d)(1) and 5h(f)(1) of the CEA, which These proposed clarifying revisions to intended that DCMs and SEFs permit the Commission to determine, by § 150.5 should also provide exchanges administer their own position limits rule or regulation, the manner in which with sufficient flexibility to address the under § 151.11.656 Accordingly, the boards of trade and SEFs, respectively, divergent and changing conditions in Commission had required under this must comply with the core their respective markets. vacated rulemaking that DCMs and SEFs principles,658 the Commission is Within amended § 150.5(a), the create rules and procedures to allow proposing several updates to § 150.5 to Commission proposes to codify a set of traders to claim a bona fide hedge promote compliance with DCM core rules and revise acceptable practices for exemption, consistent with vacated principle 5 and SEF core principle 6. compliance with DCM core principle 5 § 151.5 for physical commodity First, the Commission proposes and SEF core principle 6 for contracts derivatives and § 1.3(z), as was amended amendments to the provisions of § 150.5 that are subject to the federal position in the vacated rulemaking, for excluded to include SEFs and swaps. Second, the limits set forth in § 150.2. Within commodities.657 Commission proposes to codify rules amended § 150.5(b), the Commission and revise acceptable practices for proposes to codify rules and revise C. Proposed Amendments to § 150.5 compliance with DCM core principle 5 guidance and acceptable practices for To implement section 735 of the and SEF core principle 6 within compliance with DCM core principle 5 Dodd-Frank Act regarding DCMs, the amended § 150.5(a) for contracts subject and SEF core principle 6 for contracts Commission continues to adopt new to the federal position limits set forth in that are not subject to the federal and revised rules, guidance, and § 150.2. Lastly, the Commission position limits set forth in § 150.2. acceptable practices to implement the proposes to codify rules and revise Unlike current § 150.5, which DCM core principles added and revised guidance and acceptable practices for contains only non-exclusive guidance by the Dodd-Frank Act. The compliance with DCM core principle 5 on and acceptable practices for and SEF core principle 6 within compliance with DCM core principle 5 654 Id. Position accountability levels could be amended § 150.5(b) for contracts not (despite the presence of language that used in lieu of position limits only if the contract connotes mandatory rules), proposed involves either a major currency or certain excluded subject to the federal position limits set commodities (such as measures of inflation, or forth in § 150.2. § 150.5 contains a mix of rules that other macroeconomic measures) or an excluded As noted above, the CFMA core would be mandatory for compliance commodity that: (1) Has an average daily open principles regime concerning position with DCM core principle 5 and SEF core interest of 50,000 or more contracts, (2) has an limitations or accountability for principle 6, coupled with guidance and average daily trading volume of 100,000 or more contracts, and (3) has a highly liquid cash market. exchanges had the effect of undercutting acceptable practices for compliance Id. Compare this vacated provision with current 17 the mandatory rules promulgated by the with those core principles. Accordingly, CFR 150.5(e). As for physical commodities, under Commission in § 150.5. Since the CFMA the Commission urges the reader to pay vacated § 151.11(c), the Commission would have amended the CEA in 2000, the special attention to the language in allowed a DCM or SEF to establish position accountability rules as an acceptable alternative to Commission has retained § 150.5, but proposed § 150.5 that distinguishes position limits outside of the spot month for only as guidance on, and acceptable mandatory rules (indicated by terms physical commodity contracts when a contract has practice for, compliance with DCM core such as ‘‘must’’ and ‘‘shall’’) from an average month-end open interest of 50,000 principle 5.659 However, the guidance and acceptable practices contracts and an average daily volume of 5,000 contracts and a liquid cash market. Id. Commission did not amend the text of (indicated by terms such as ‘‘should’’ or 655 Id. Furthermore, under vacated § 151, the § 150.5 following passage of CFMA, ‘‘may’’). Commission would have removed the procedure to leaving language in place that could Additionally, the Commission apply to the Commission for bona fide hedge suggest that the rules originally codified proposes to amend § 150.5 to implement exemptions for non-enumerated transactions or uniform requirements for DCMs and positions under § 1.3(z)(3). Id. DCMs and SEFs within § 150.5 remain mandatory for would have been able to recognize non-enumerated exchanges. To correct this potential SEFs relating to hedging exemptions hedge transactions subject to Commission review. misimpression, the Commission now across all types of contracts, including Id. Additionally, DCMs and SEFs could continue to proposes several amendments to § 150.5 those that are subject to federal limits. provide exemptions for ‘‘risk-reducing’’ and ‘‘risk- The Commission also proposes to management’’ transactions or positions consistent to clarify that certain provisions of with existing Commission guidelines. Id. (citing § 150.5 are non-exclusive guidance on, require DCMs and SEFs to have Clarification of Certain Aspects of Hedging and acceptable practice for, compliance aggregation policies that mirror the Definition, 52 FR 27195, Jul. 20, 1987; and Risk with DCM core principle 5. federal aggregation provisions.660 Management Exemptions from Speculative Position Additionally, the Commission is Hedging exemptions and position Limits Approved under Commission Regulation 1.61, 52 FR 34633, Sep. 14, 1987). Vacated proposing several conforming aggregation exemptions, if not uniform § 151.11(f)(2) would have required traders seeking amendments to § 150.5 in order to with the Commission’s requirements, a hedge exemption to comply with the procedures integrate that section more fully with of the DCM or SEF for granting exemptions from its the statutory framework created by the 660 Aggregation exemptions are, in effect, a way speculative position limit rules. 76 FR 71660–61. Dodd-Frank Act. The Commission, for a trader to acquire a larger speculative position. 656 76 FR at 71661. The Commission believes that it is important that 657 Id. Vacated § 151.11 contemplated that DCMs the aggregation rules set out, to the extent feasible, and SEFs would administer their own bona fide 658 See CEA sections 5(d)(1)(B) and 5h(f)(1)(B); 7 ‘‘bright line’’ standards that are capable of easy hedge exemption regime in parallel to the U.S.C. 7(d)(1)(B) and 7b–3(f)(1)(B). application by a wide variety of market participants Commission’s regime. 659 See id. while not being susceptible to circumvention.

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may serve to permit a person to obtain section 5h(f)(6)(B),665 requires SEFs that position limits for that contract at a a larger position on a particular DCM or are trading facilities to set and enforce level that is no higher than the federal SEF than would be permitted under the speculative position limits at a level no position limit.669 Exchanges with cash- federal limits. For example, if an higher than those established by the settled contracts price-linked to exchange were to grant an aggregation Commission.666 The Commission contracts subject to federal limits must position to a corporate person with recognizes that SEFs may need to also adopt those limit levels. aggregate positions above federal limits, contract with derivative clearing Proposed § 150.5(a)(2) prescribes the that exchange may permit such person organizations in order to comply with manner in which a DCM or SEF that to be treated as two or more persons. SEF core principle 6. The Commission lists a contract on a commodity that is The person would avoid violating invites comments on the practicability subject to federal position limits must exchange limits, but may be in violation and effectiveness of such arrangements. adopt hedge exemption rules. Proposed of the federal limits. The Commission In addition, the Commission invites § 150.5(a)(2)(i) cross-references the believes that a DCM or SEF, consistent comment as to whether the Commission definition of bona fide hedging, as with its responsibilities under should use its exemptive authority proposed in amended § 150.1, as the applicable core principles, may serve an under CEA section 4a(a)(7) to exempt regulation governing bona fide hedging important role in ensuring compliance SEFs from the requirements of CEA positions.670 Proposed § 150.5(a)(2)(ii) with federal positions limits and section 5h(f)(6)(B). If so, why and to clarifies the types of spread positions for thereby protect the price discovery what extent? which a DCM or SEF may grant function of its market and guard against The Commission carefully considered exemptions from the federal limits by excessive speculation or manipulation. both the novel nature of SEFs and its cross-referencing the definitions of In the absence of uniform hedging and experience in overseeing DCMs’ intermarket and intramarket spread 671 position aggregation exemptions, DCMs compliance with core principles when positions in proposed § 150.1. To be or SEFs may not serve that role. The determining which SEF core principles eligible for exemption under proposed Commission notes that hedging to address with rules that would § 150.5(a)(2)(ii), intermarket and exemptions and aggregation policies provide more certainty to the intramarket spread positions must be that vary from exchange to exchange marketplace, and which core principles outside of the spot month for physical would increase the administrative to address with guidance or acceptable delivery contracts, and intramarket burden on a trader active on multiple practices that might provide more spread positions must not exceed the exchanges, as well as increase the flexibility. The Commission has federal all-months limit when combined administrative burden on the determined that the policy purposes with any other net positions in the Commission in enforcing exchange-set effectuated by establishing uniform single month. Proposed § 150.5(a)(2)(iii) position limits. requirements for aggregation and bona would require traders to apply to the fide hedging exemptions for DCM DCM or SEF for any exemption from its The essential features of the proposed contracts are equally present in SEF speculative position limit rules.672 amendments to § 150.5 are summarized markets.667 Accordingly, the Proposed § 150.5(a)(2)(iii) also preserves below. Commission has determined to amend the exchange’s ability to limit bona fide 1. Proposed Amendments to § 150.5 To § 150.5 to present essentially identical hedging positions which it determines Add References to Swaps and Swap standards for establishing rules and are not in accord with sound Execution Facilities acceptable practices relating to position commercial practices, or which exceed limits (and accountability levels) for As discussed above, the Dodd-Frank DCMs and SEFs. 669 Proposed § 150.5(a)(1) is in keeping with the Act created a new type of regulated mandate in core principle 5 as amended by the 2. Proposed § 150.5(a)—Requirements Dodd-Frank Act. See CEA section 5(d)(1)(B); 7 marketplace, SEFs, for which it and Acceptable Practices for U.S.C. 7(d)(1)(B). SEF core principle 6 parallels established a comprehensive regulatory Commodity Derivative Contracts That DCM core principle 5. Compare CEA section framework. A SEF must comply with Are Subject to Federal Position Limits 5h(f)(5); 7 U.S.C. 7b–3(f)(5) with CEA section fifteen enumerated core principles and 5(d)(5); 7 U.S.C. 7(d)(5). 670 any requirement that the Commission Proposed § 150.5(a) adds several Compare 17 CFR 150.5(d) which explicitly precludes exchanges from applying exchange-set may impose by rule or regulation.661 requirements that a DCM or SEF must adhere to when setting position limits speculative position limits rules to bona fide The Dodd-Frank Act provides that the hedging positions as defined by the exchange in Commission may, in its discretion, for contracts that are subject to the accordance with § 1.3(z)(1). federal position limits listed in 671 The Commission has proposed to maintain the determine by rule or regulation the 668 manner in which SEFs comply with the § 150.2. Proposed § 150.5(a)(1) current practice in 17 CFR 150.2 of setting single- specifies that a DCM or SEF that lists a month limits at the same levels as all-months limits, core principles.662 rendering the ‘‘spread’’ exemption in 17 CFR 150.3 contract on a commodity that is subject unnecessary. However, since DCM core principle 5 For contracts that are subject to to federal position limits must adopt allows exchanges to set more restrictive limits than federal position limits imposed under the federal limits, a DCM or SEF may set the single CEA section 4a(a), new CEA section 665 As added by section 723 of the Dodd-Frank month limit at a level lower than that of the all- 5h(f)(6)(A) 663 requires that SEFs set ‘‘as Act. month limit, an exemption for intramarket spread is necessary and appropriate, position 666 This requirement for SEFs parallels that for position may be useful. See CEA section 5(d)(5); 7 DCMs as listed in the CEA section 5(d)(5)(B); 7 U.S.C. 7(d)(5). An exemption for intramarket spread limitations or position accountability for U.S.C. 7(d)(5)(B). positions would be unnecessary if the DCM or SEF speculators’’ for each contract executed 667 See core principle 6 for SEFs, CEA section sets the single month limit at the same level as the pursuant to their rules.664 New CEA 5h(f)(6)(A); 7 U.S.C. 7b–3(f)(6)(A). The Commission all-months limit. notes that section 4a(a)(2) of the CEA requires the Additionally, the duplicative term ‘‘arbitrage’’ Commission to establish speculative position limits would be removed because CEA section 4a(a)(1) 661 See supra discussion of SEF core principles. on physical commodity DCM contracts as explains that ‘‘the word ‘arbitrage’ in domestic 662 See CEA section 5h(f)(1)(B); 7 U.S.C. 7b– appropriate, but did not extend this requirement to markets shall be defined to mean the same as 3(f)(1)(B). SEF contracts. See discussion above. ‘spread’ or ‘straddle.’ ’’ 7 U.S.C. 6a(a)(1). 663 As added by section 723 of the Dodd-Frank 668 As discussed above, 17 CFR 150.2 provides 672 Hence, proposed § 150.5(a)(2)(C) would codify Act. limits for specified agricultural contracts in the spot as a requirement for DCMs and SEFs the acceptable 664 A similar duty is imposed on DCMs under month, individual non-spot months, and all- practice concerning application for exemption CEA section 5(d)(5)(A); 7 U.S.C. 7(d)(5)(A). months-combined. listed in 17 CFR 150.5(d)(2).

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an amount that may be established and prohibit transfer or offset of positions would set forth acceptable practices for liquidated in an orderly fashion.673 once long and short position holders DCMs and SEFs to grant exemptions Proposed § 150.5(a)(3)(i) requires a have been assigned delivery obligations. from position limits for positions, other DCM or SEF to exempt from speculative Proposed § 150.5(a)(6) would clarify than bona fide hedging positions, in position limits established under § 150.2 acceptable practices for a DCM or SEF contracts not subject to federal limits. a swap position acquired in good faith to enforce spot month limits against the Such exemptions generally track the prior to the effective date of such combination of, for example, long exemptions set forth in proposed limits.674 However, proposed positions that have not been stopped, § 150.3, and are suggested as acceptable § 150.5(a)(3)(i) would allow a person to stopped positions, and deliveries taken practices based on the same logic that net such a pre-existing swap with post- in the current spot month.679 underpins the proposed § 150.3 exemptions.681 It would be acceptable effective date commodity derivative 3. Proposed § 150.5(b)—Requirements practice for a DCM or SEF to grant contracts for the purpose of complying and Acceptable Practices for exemptions under certain circumstances with any non-spot-month speculative Commodity Derivative Contracts That for financial distress, intramarket and position limit. Furthermore, proposed Are Not Subject to Federal Position intermarket spreads, and qualifying § 150.5(a)(3)(ii) requires a DCM or SEF Limits to exempt from non-spot-month cash-settled contract positions in the speculative position limits established The Commission sets forth in spot month.682 Additionally, proposed under § 150.2 any commodity derivative proposed § 150.5(b) requirements and § 150.5(b)(5)(ii) would set forth an contract acquired in good faith prior to acceptable practices applicable to DCM- acceptable practice for a DCF or SEF to the effective date of such limit. and SEF-set speculative position limits grant a limited risk management However, such a pre-existing for any contract that is not subject to exemption for contracts on excluded commodity derivative contract position federal position limits, including commodities pursuant to rules 680 must be attributed to the person if the physical and excluded commodities. submitted to the Commission, and As discussed above, the Commission person’s position is increased after the consistent with the guidance in new proposes to revise § 150.5 to implement 683 effective date of such limit.675 appendix A to part 150. uniform requirements for DCMs and The Commission proposes to require Proposed § 150.5(b)(6) and (7) set SEFs relating to hedging exemptions DCMs and SEFs to have aggregation forth acceptable practices relating to across all types of commodity derivative polices that mirror the federal pre-enactment and transition period contracts, including those that are not aggregation provisions.676 Therefore, swap positions (as those terms are subject to federal position limits. The 684 proposed § 150.5(a)(4) requires DCMs defined in proposed § 150.1), and to Commission further proposes to require and SEFs to have aggregation rules that commodity derivative contract positions DCMs and SEFs to have uniform conform to the uniform standards listed acquired in good faith prior to the 677 aggregation polices that mirror the effective date of mandatory federal in § 150.4. federal aggregation provisions for all A DCM or SEF would continue to be speculative position limits. types of commodity derivative Additionally, for any contract that is free to enforce position limits that are contracts, including for contracts that not subject to federal position limits, more stringent that the federal limits. are not subject to federal position limits. proposed § 150.5(b)(8) requires the DCM The Commission clarifies that federal As explained above, hedging or SEF to conform to the uniform federal spot month position limits do not to exemptions and aggregation policies aggregation provisions.685 This apply to physical-delivery contracts that vary from exchange to exchange proposed requirement generally mirrors after delivery obligations are would increase the administrative the requirement in proposed established.678 Exchanges generally burden on a trader active on multiple § 150.5(a)(4) for contracts that are exchanges, as well as increase the subject to federal position limits by 673 Proposed § 150.5(a)(2)(C) presents guidance that largely mirrors the guidance provided in the administrative burden on the requiring the DCM or SEF to have second half of 17 CFR 150.5(d), with edits to specify Commission in monitoring and DCMs and SEFs. enforcing exchange-set position limits. 681 See supra discussion of the § 150.3 674 The Commission is exercising its authority Therefore, proposed § 150.5(b)(5)(i) exemptions. under CEA section 4a(a)(7) to exempt pre-Dodd- would require any hedge exemption 682 See id. Frank and transition period swaps from speculative rules adopted by a designated contract 683 New appendix A to part 150 is intended to position limits (unless the trader elects to include capture the essence of the Commission’s 1987 such a position to net with post-effective date market or a swap execution facility that interpretation of its definition of bona fide hedge commodity derivative contracts). Such a pre- is a trading facility to conform to the transactions to permit exchanges to grant hedge existing swap position will be exempt from initial definition of bona fide hedging position exemptions for various risk management spot month speculative position limits. in proposed § 150.1. In addition to this transactions. See Risk Management Exemptions 675 Notwithstanding any pre-existing exemption From Speculative Position Limits Approved Under adopted by a DCM or SEF that applies to affirmative rule, proposed § 150.5(b)(5) Commission Regulation 1.61, 52 FR 34633, Sep. 14, speculative position limits in non-spot months, a 1987. The Commission specified that such person holding pre-existing commodity derivative have been issued, stopped long positions, delivery exemptions be granted on a case-by-case basis, contracts (except for pre-existing swaps as obligations established by the clearing organization, subject to a demonstrated need for the exemption. described above) must comply with spot month or deliveries taken. It also required that applicants for these exemptions speculative position limits. However, nothing in 679 For example, an exchange may restrict a be typically engaged in the buying, selling, or proposed § 150.5(a)(3)(B) would override the speculative long position holder that otherwise holding of cash market instruments. See id. exclusion of pre-Dodd-Frank and transition period would obtain a large long position, take delivery, Additionally, the Commission required the swaps from speculative position limits. and seek to re-establish a large long position in an exchanges to monitor the exemptions they granted 676 See supra discussion concerning aggregation. attempt to corner a significant portion of the to ensure that any positions held under the 677 Proposed § 150.5(a)(4) references 17 CFR 150.4 deliverable supply or to squeeze shorts. Proposed exemption did not result in any large positions that as the regulation governing aggregation for contracts § 150.5(b)(9) would set forth the same acceptable could disrupt the market. See id. The term subject to federal position limits and would replace practices for contracts not subject to federal limits. ‘‘excluded commodity’’ is defined in CEA section 17 CFR 150.5(g). See supra the Commission’s 680 For position limits purposes, proposed 1(a)(19). explanation for implementing uniform aggregation § 150.1(k) would define ‘‘physical commodity’’ to 684 See supra discussion of pre-enactment and standards across DCMs and SEFs. mean any agricultural commodity, as defined in 17 transition period swap positions. 678 Therefore, federal spot month position limits CFR 1.3, or any exempt commodity, as defined in 685 Proposed § 150.5(b)(7) would replace 17 CFR do not apply to positions in physical-delivery section 1a(20) of the Act. Excluded commodity is 150.5(g) as it relates to contracts that are not subject contracts on which notices of intention to deliver defined in section 1a(19) of the Act. to federal position limits.

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aggregation rules that conform to appropriate to reduce the potential contracts.691 Proposed § 150.4. threat of market manipulation or price § 150.5(b)(1)(ii)(B) would codify as The Commission proposes in distortion of the contract’s or the guidance for exempt and excluded § 150.5(b) to generally update and underlying commodity’s price.688 commodity derivative contracts that the reorganize the set of acceptable Proposed § 150.5(b)(1)(ii)(A) preserves 5,000 contract limit should be practices listed in current § 150.5 as it the existing acceptable practice in applicable when the notional quantity relates to contracts that are not subject current § 150.5(b)(2) whereby individual per contract is no larger than a typical to the federal position limits. For non-spot or all-months-combined levels cash market transaction in the existing and newly established DCMs for agricultural commodity derivative underlying commodity, or should be and newly established SEFs, these contracts that are not subject to the reduced if the notional quantity per acceptable practices generally concern federal limits should be no greater than contract is larger than a typical cash how to: (1) Set spot-month position 1,000 contracts at initial listing. The market transaction. Additionally, limits; (2) set individual non-spot proposed rule would also codify as proposed § 150.5(b)(1)(B)(ii) would month and all-months-combined guidance that the 1,000 contract limit codify a new acceptable practice for a position limits; (3) set position limits for should be taken into account when the DCM or SEF to adopt the same limit as cash-settled contracts that use a notional quantity per contract is no applies to the pre-existing contract if the reference contract as a price source; (4) larger than a typical cash market new commodity contract is substantially adjust position limit levels after a transaction in the underlying the same as an existing contract. contract has been listed for trading; and commodity, or reduced if the notional Proposed § 150.5(b)(1)(iii) sets forth (5) adopt position accountability in lieu quantity per contract is larger than a that if a commodity derivative contract of speculative position limits. typical cash market transaction.689 is cash-settled by referencing a daily For a derivative contract that is based Additionally, proposed settlement price of an existing contract on a commodity with a measurable § 150.5(b)(1)(ii)(A) would codify that if listed on a DCM or SEF, then it would deliverable supply, proposed the commodity derivative contract is be an acceptable practice for a DCM or § 150.5(b)(1)(i)(A) updates the substantially the same as a pre-existing SEF to adopt the same position limits as acceptable practice in current DCM or SEF commodity derivative the original referenced contract, § 150.5(b)(1) whereby spot month contract, then it would be an acceptable assuming the contract sizes are the position limits should be set at a level practice for the DCM or SEF to adopt the same. Based on its enforcement no greater than one-quarter of the same limit as applies to that pre-existing experience, the Commission believes 690 estimated deliverable supply of the commodity derivative contract. that limiting a trader’s position in cash- underlying commodity.686 Proposed Proposed § 150.5(b)(1)(ii)(B) preserves settled contracts in this way diminishes § 150.5(b)(1)(i)(A) clarifies that this the existing acceptable practice, set the incentive to exert market power to forth in current § 150.5(b)(3), for DCMs acceptable practice for setting spot manipulate the cash-settlement price or to set individual non-spot or all-months- month position limits would apply to index to advantage a trader’s position in combined limits at levels no greater any commodity derivative contract, the cash-settled contract.692 than 5,000 contracts at initial listing, but whether physical-delivery or cash- Proposed § 150.5(b)(2)(i) updates the would apply this acceptable practice on settled, that has a measurable acceptable practices in current a wider scale to both exempt and deliverable supply.687 § 150.5(c) for adjusting limit levels for excluded commodity derivative For a derivative contract that is based the spot month. For a derivative on a commodity without a measurable contract that is based on a commodity deliverable supply, proposed 688 This descriptive standard is largely based on the language of DCM core principle 5 and SEF core with a measurable deliverable supply, § 150.5(b)(1)(i)(B) would codify as principle 6. The Commission does not suggest that proposed § 150.5(b)(2)(i) maintains the guidance that the spot month limit level an excluded commodity derivative contract that is acceptable practice in current § 150.5(c) should be no greater than necessary and based on a commodity without a measurable supply should adhere to a numeric formula in setting spot to adjust spot month position limits to month position limits. a level no greater than one-quarter of the 686 Proposed § 150.5(b)(1)(i)(A) is consistent with 689 The Commission explained what it considers estimated deliverable supply of the the Commission’s longstanding policy regarding the to be a ‘‘typical cash market transaction’’ in the underlying commodity, but would appropriate level of spot-month limits for physical preamble for final part 151 (subsequently vacated): delivery contracts. These position limits would be ‘‘[f]or example, if a DCM or SEF offers a new apply this acceptable practice to any set at a level no greater than 25 percent of estimated physical commodity contract and sets the notional commodity derivative contract, whether deliverable supply. The spot-month limits would be quantity per contract at 100,000 units while most physical-delivery or cash-settled, that reviewed at least every 24 months thereafter. The transactions in the cash market for that commodity has a measurable deliverable supply. proposed deliverable supply formula narrowly are for a quantity of between 1,000 and 10,000 units targets the trading that may be most susceptible to, and exactly zero percent of cash market transactions For a derivative contract that is based on or likely to facilitate, price disruptions. The formula are for 100,000 units or greater, then the notional a commodity without a measurable seeks to minimize the potential for corners and quantity of the derivatives contract offered by the deliverable supply, proposed squeezes by facilitating the orderly liquidation of DCM or SEF would be atypical. This clarification § 150.5(b)(1)(i)(B) would codify as positions as the market approaches the end of is intended to deter DCMs and SEFs from setting trading and by restricting swap positions that may non-spot-month position limits for new contracts at be used to influence the price of referenced levels where they would constitute non-binding 691 In contrast, 17 CFR 150.5(b)(3) lists this as an contracts that are executed centrally. constraints on speculation through the use of an acceptable practice for contracts for energy products 687 In general, the term ‘‘deliverable supply’’ excessively large notional quantity per contract. and non-tangible commodities. Excluded means the quantity of the commodity meeting a This clarification is not expected to result in commodity is defined in CEA section 1a(19), and derivative contract’s delivery specifications that can additional marginal cost because, among other exempt commodity is defined CEA section 1a(20). reasonably be expected to be readily available to things, it reflects current Commission custom in 692 With respect to cash-settled contracts where short traders and saleable to long traders at its reviewing new contracts and is an acceptable the underlying product is a physical commodity market value in normal cash marketing channels at practice for core principle compliance and not a with limited supplies, enabling a trader to exert the derivative contract’s delivery points during the requirement per se for DCMs or SEFs.’’ See 76 FR market power (including agricultural and exempt specified delivery period, barring abnormal 71660. commodities), the Commission has viewed the movement in interstate commerce. Proposed § 150.1 690 In this context, ‘‘substantially the same’’ specification of speculative position limits to be an would define commodity derivative contract to means a close economic substitute. For example, a essential term and condition of such contracts in mean any futures, option, or swap contract in a position in Eurodollar futures can be a close order to ensure that they are not readily susceptible commodity (other than a security futures product as economic substitute for a fixed-for-floating interest to manipulation, which is the DCM core principle defined in CEA section 1a(45)). rate swap. 3 requirement.

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guidance that the spot month limit level estimated spot month deliverable Proposed § 150.5(b)(4) maintains the should not be adjusted to levels greater supply.694 acceptable practice that for contracts not than necessary and appropriate to For an excluded commodity subject to federal position limits, DCMs reduce the potential threat of market derivative contract that has a highly and SEFs should calculate trading manipulation or price distortion of the liquid cash market and no legal volume and open interest as established 697 contract’s or the underlying impediment to delivery, proposed in current § 150.5(e)(4). Proposed commodity’s price. Proposed § 150.5(b)(3)(ii)(A) would maintain the § 150.5(b)(4) would build upon these § 150.5(b)(2)(i) would codify as a new acceptable practice for a DCM or SEF to standards by accounting for swaps in acceptable practice that spot month adopt position accountability rules in reference contracts on a futures- 698 limit levels be reviewed no less than the spot month in lieu of position limits. equivalent basis. once every two years. For an excluded commodity derivative III. Related Matters Proposed § 150.5(b)(2)(ii) maintains as contract without a measurable an acceptable practice the basic formula deliverable supply, proposed A. Considerations of Costs and Benefits set forth in current § 150.5(c)(2) for § 150.5(b)(3)(ii)(A) would codify an 1. Background adjusting non-spot-month limits at acceptable practice for a DCM or SEF to Generally, speculative position limits levels of no more than 10% of the adopt position accountability rules in cap the size of positions that a person average combined futures and delta- the spot month in lieu of position limits may hold or control in commodity adjusted option month-end open because there is not a deliverable supply derivative contracts for speculative interest for the most recent calendar that is subject to manipulation. purposes.699 First authorized in 1936,700 year up to 25,000 contracts, with a However, for an excluded commodity position limits are not a new regulatory marginal increase of 2.5% of the derivative contract that has a tool for containing speculative market remaining open interest thereafter. measurable deliverable supply, but that activity. The Commission and its Proposed § 150.5(b)(2)(ii) would also may not be highly liquid and/or is predecessors have directly set limits for maintain as an alternative acceptable subject to some legal impediment to futures and options contracts on certain practice the adjustment of non-spot- delivery, proposed § 150.5(b)(3)(ii)(A) agricultural commodities since 1938. month limits to levels based on position sets forth an acceptable practice for a Additionally, for approximately 20 sizes customarily held by speculative DCM or SEF to adopt a spot-month years from 1981 until the Commodity traders in the contract. Proposed position limit equal to no more than Futures Modernization Act § 150.5(b)(3) generally updates and one-quarter of the estimated deliverable (‘‘CFMA’’) 701 amended the CEA to reorganizes the existing acceptable supply for that commodity, because the substitute a core-principles-based, self- practices in current § 150.5(e) for a DCM estimated deliverable supply may be regulatory model for futures exchanges, or SEF to adopt position accountability susceptible to manipulation. Commission rules required exchanges to rules in lieu of position limits, under Furthermore, proposed § 150.5(b)(3)(ii) set position limits (or, in certain certain circumstances, for contracts that would remove the ‘‘minimum open are not subject to federal position limits. interest and volume’’ test for excluded This proposed section reiterates the 697 For SEFs, trading volume and open interest for commodity derivative contracts swaptions should be calculated on a delta-adjusted DCM’s authority, with conforming generally.695 Proposed basis. changes for SEFs, to require traders to § 150.5(b)(3)(ii)(B) would codify an 698 ‘‘Futures-equivalent’’ is a defined term in provide information regarding their acceptable practice for a DCM or SEF to proposed § 150.1 that accounts for swaps in position when requested by the adopt position accountability levels for referenced contracts. exchange.693 Proposed § 150.5(b)(3) 699 Derivative contracts—i.e., futures, options and an excluded commodity derivative swaps—may not transfer any ownership interest in would codify a new acceptable practice contract in lieu of position limits in the the underlying commodity, but their prices are for a DCM or SEF to require traders to individual non-spot month or all- substantially derived from the value of the consent to halt from increasing their months-combined. underlying commodity. Those who purchase or sell position in a contract if so ordered. derivatives do so either to hedge or speculate. Proposed § 150.5(b)(3) would also Proposed § 150.5(b)(3)(iii) adds a new Generally, hedging is the use of derivatives markets acceptable practice for an exchange to by commodity producers, merchants or end-users to codify a new acceptable practice for a manage their exposure to fluctuation in the price of DCM or SEF to require traders to reduce list a new contract with position a commodity that a producer or user intends to use their position in an orderly manner. accountability levels in lieu of position or produce; speculation, in contrast, is the use of derivative markets to profit from price appreciation Proposed § 150.5(b)(3)(i) would limits if that new contract is substantially the same as an existing or depreciation in the underlying commodity. maintain the acceptable practice for a Because the limits only restrict positions obtained DCM or SEF to adopt position contract that is currently listed for for speculative purposes, this discussion refers accountability rules outside the spot trading on an exchange that has already interchangeably to ‘‘position limits,’’ ‘‘speculative position limits,’’ or ‘‘speculative limits.’’ month, in lieu of position limits, for an adopted position accountability levels in lieu of position limits.696 700 Congress first granted the CEC, a Commodity agricultural or exempt commodity Futures Trading Commission predecessor, authority derivative contract that: (1) has an to set speculative position limits as part of the New average month-end open interest of 694 17 CFR 150.5(e)(3) applies this acceptable Deal reforms enacted in the Commodity Exchange practice to a ‘‘tangible commodity, including, but Act of 1936. Public Law 74–765, 49 Stat. 1491, 1492 50,000 contracts and an average daily not limited to metals, energy products, or (codified at 7 U.S.C. 6a(1) (1940)). Specifically, volume of 5,000 or more contracts international soft agricultural products.’’ Also, Congress authorized the CEC to ‘‘fix such limits on during the most recent calendar year; (2) compare the ‘‘minimum open interest and volume the amount of trading . . . which may be done by has a liquid cash market; and (3) is not test’’ in proposed § 150.5(b)(3)(i) with that in any person as the [CEC] finds is necessary to current § 150.5(e)(3). diminish, eliminate, or prevent such burden.’’ subject to federal limits in § 150.2— 695 The ‘‘minimum open interest and volume’’ Congress exempted positions attributable to bona provided, however, that such DCM or test, as presented in 17 CFR 150.5(e)(1)–(2), need fide hedging. Unless otherwise indicated, references SEF should adopt a spot month not be used to determine whether an excluded in this discussion to the ‘‘Commission’’ mean the speculative position limit with a level commodity derivative contract should be eligible Commodity Futures Trading Commission as well as no greater than one-quarter of the for position accountability rules in lieu of position its predecessor agencies, including the CEC. limits in the spot month. 701 Commodity Futures Modernization Act of 696 See supra discussion of what is meant by 2000, Public Law 106–554, 114 Stat. 2763 (Dec. 21, 693 Compare 17 CFR 150.5(e)(2)–(3). ‘‘substantially the same’’ in this context. 2000).

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specified cases, position accountability the behavior to artificial price effects which they are not.706 This distinction levels) for futures and options contracts and impaired commodity distribution is important because a chief purpose of not subject to Commission-imposed efficiency, and recommend mandatory position limits is to preserve the limits.702 Through amendments to the position limits as a tool to curb integrity of derivative markets for the CEA over more than 75 years and a speculative abuses and their ill-effects. benefit of producers that use them to number of legislative reauthorizations, The statute reflects and responds to the hedge risk and consumers that consume the Commission’s basic authority to centerpiece concern of these hearings the underlying commodities. establish speculative position limits, and reports. Indeed, CEA section Second is the distinction between now codified in CEA section 4a(a), has 4a(a)(1) states Congress’s express speculation generally and excessive remained constant.703 determination that excessive commodity speculation as addressed in CEA section The backdrop for this basic authority speculation causing sudden or 4a(a)(1). While, as noted above, is a public record replete with unreasonable price fluctuations or numerous government inquires have Congressional and other official unwarranted changes in commodity linked speculation at excessive levels to governmental investigations and prices is an undue and unnecessary abuses and burdens on commerce, reports—issued over more than 80 burden on interstate commerce, and below excessive levels, speculation years—critical of the harm attributed to mandates that the Commission set provides needed liquidity to derivative ‘‘excess speculation’’ in derivative position limits, including prophylactic markets.707 markets. From the 1920s through 2009, limits, to diminish, eliminate, or In 2010 the Dodd-Frank Act 708 a litany of official government prevent this burden.705 amended CEA section 4a(a). These investigations, hearings and reports The longstanding statutory approach amendments responded to the 2008 document disruptive speculative to position limit regulation reflects two financial crisis and came in the wake of behavior; 704 several of the earliest link important concepts with direct bearing three Congressional reports within a on the benefits and costs involved in three-year span finding increased and/or 702 See, e.g., 46 FR 50938, 50940, Oct. 16, 1981. this rulemaking. First is the distinction ‘‘excessive’’ derivative market As discussed above, following enactment of the between speculative trading, for which speculation linked to increased and CFMA, which among other things afforded DCMs distorted prices. These reports discretion to set appropriate position limits under limits are statutorily authorized, and, as DCM core principle 5, these rules, then contained to derivatives for physical commodities, recommended increased statutory in § 150.5, became ineffective as requirements; they mandated, and bona fide hedging, for authority to, in the parlance of two of were retained, however, as guidance and acceptable the reports, put the Commission ‘‘back practices for DCMs to use in meeting their core on the beat.’’ 709 Among other things, principle 5 compliance obligations. 74 FR 12178, small number of traders holding a large proportion 710 12183, Mar. 23, 2009. of long contracts ‘‘distorted egg future prices in the Dodd-Frank Act expanded the October 1949 and disrupted orderly marketing of 703 One of these amendments, the Commodity Commission’s speculative position limit the commodity causing financial losses;’’ notes that Futures Trading Act of 1974, created the CFTC and enforcement of speculative limits is a ‘‘strong authority under CEA section 4a to granted it expanded jurisdiction beyond the certain deterrent to excessive speculation by large enumerated agricultural products of its predecessor 706 to all ‘‘services, rights, and interests’’ in which traders’’); Commodity Futures Trading Commission, See CEA section 4a(c)(1); 7 U.S.C. 6a(c)(1). 707 futures contracts are traded. Public Law 93–463, 88 Report To The Congress In Response To Section 21 Hedgers do not always trade simultaneously in Stat. 1389 (1974). Of The Commodity Exchange Act, May 29, 1981, the same quantities in opposing directions. That is, Part Two, A Study of the Silver Market (addressing 704 See, e.g., Federal Trade Commission, ‘‘Report long and short hedgers may trade at different times silver market corner discussed above); ‘‘The Role of of the Federal Trade Commission on the Grain and with different quantities, often making Market Speculation in Rising Oil and Gas Prices: A Trade,’’ vol. VI, at 60–62 (1924)(documenting a transactions between only hedgers unfeasible. Need to Put the Cop Back on the Beat,’’ Staff Report, number of ‘‘violent fluctuations of price’’ over the Speculative traders thus provide a trading partner Permanent Subcommittee on Investigations of the preceding 30 years evidencing ‘‘the close for hedgers for whom there is no feasible hedger Senate Committee on Homeland Security and connection between extreme fluctuations in annual counterparty. In so doing, speculators provide average prices of cash grain and unusual Governmental Affairs, U.S. Senate, S. Rpt. No. 109– valuable liquidity to the market. 708 speculative activity in the futures market’’); id. vol. 65 at 1 (June 27, 2006) (addressing speculation and Public Law 111–203, 124 Stat. 1376 (2010). VII, at 293–294 (1926)(recommending limitation on price increases in oil and gas markets) [hereinafter 709 See, e.g., Wheat Report, at 15–16 (excessive individual open interest because the ‘‘very large ‘‘Oil & Gas Report’’]; ‘‘Excessive Speculation in the speculation in wheat futures contracts by trader . . . [w]hether he is more often right than Natural Gas Market, Staff Report,’’ Permanent commodity index traders contributed to wrong . . . and whether influenced by a desire to Subcommittee on Investigations of the Senate ‘‘unreasonable fluctuations or unwarranted manipulate or not . . . can cause disturbances in Committee on Homeland Security and changes’’ in wheat futures prices, resulting in an the market which impair its proper functioning and Governmental Affairs, U.S. Senate, at 1 (June 25, abnormally large and persistent gap between wheat are harmful to producers and consumers’’); Grain 2007) (addressing speculation, price increases and futures and cash prices (the basis);’’ commerce was Futures Administration, ‘‘Fluctuations in Wheat market distortion in natural gas markets discussed unduly burdened; stiffened position limit Futures,’’ S. Doc. No. 69–135, at 1,6 (1926) above) [hereinafter ‘‘Gas Report’’]; ‘‘Excessive regulation for index traders recommended); Gas (investigation of ‘‘wide and erratic [1925 wheat Speculation in the Wheat Market;’’ Staff Report, Report, at 3–7 (‘‘[t]he current regulatory system was futures] price fluctuations . . . were largely Permanent Subcommittee on Investigations of the unable to prevent [the hedge fund] Amaranth’s artificial[,] were caused primarily . . . by heavy Senate Committee on Homeland Security and excessive speculation in the 2006 natural gas trading on the part of a limited number of Governmental Affairs, U.S. Senate, at 2 (June 24, market;’’ the experience demonstrated ‘‘how professional speculators [that] completely disrupted 2009) (addressing excessive speculation in wheat excessive speculation can distort prices’’ and have the market and resulted in abnormal fluctuations futures contracts by commodity index traders) ‘‘serious consequences for other market . . . felt in every other large grain market in the [hereinafter ‘‘Wheat Report’’]; see also Jerry W. participants;’’ and the Commission should be put world;’’ concludes that limitations on the extent of Markham, ‘‘The History of Commodity Futures ‘‘back on the beat’’); Oil & Gas Report, at 6–7 (heavy daily trading by speculators are ‘‘inevitable . . . if Trading and its Regulation,’’ at 3–47 (1987) speculation in commodity energy markets there is to be eliminated from the market those (summarizes numerous incidents of large contributed to rising U.S. energy prices, distorting hazards which are so unmistakably reflected as speculative trader abuse in an array of commodities the historical relationship between price and existing whenever excessively large lines are held from the emergence of futures exchanges in the inventory; recommends putting the CFTC ‘‘back on by individuals’’); 1932 Annual Report of the Chief mid-1800s through the 1970s). the beat’’ to police these markets by eliminating the of the Grain Futures Admin., at 4, 8 (describing the 705 The roots of this statutory determination date ‘‘Enron’’ loophole that limited it from doing so). In 16 percent drop in May wheat prices during a 21- back to 1922, when Congress found ‘‘sudden or the interval between the two reports addressed to day period as illustrative of the price impact of unreasonable fluctuations in the prices’’ of certain energy market speculation and the Dodd-Frank Act ‘‘short selling by a few large traders;’’ again stresses commodity futures transactions ‘‘frequently occur amendments, Congress also expanded the the need for legislation authorizing limitations to as a result of [ ] speculation, manipulation or Commission’s authority to set position limits for eliminate ‘‘the economic evils incident to market control’’ and that ‘‘such fluctuations in prices are significant price discovery contracts on exempt domination by a few powerful operators trading for an obstruction to and a burden upon’’ interstate commercial markets. See Food, Conservation and speculative account’’); 1950 Annual Report of the commerce. Grain Futures Act of 1922, ch. 369 at Energy Act of 2008, Public Law 110–246, 122 Stat. Administrator of the Commodity Exchange section 3, 342 Stat. 998, 999 (1922), codified at 7 1624 (2008). Authority, at 14–15 (speculative operations by a U.S.C. 5 (1925–26). 710 Dodd-Frank Act section 737(a).

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mandate that the Commission: (i) regulations comprised of three primary The Commission considers the costs establish limits on the amount of components: (1) The level of the limits, and benefits resulting from its positions, as appropriate, that may be which set a threshold that restricts the discretionary determinations with held by any person in agricultural and number of speculative positions that a respect to the CEA section 15(a) factors. exempt commodity 711 futures and person may hold in the spot-month, in Accordingly, the discussion that options contracts traded on a DCM (CEA any individual month, and in all follows identifies, and considers against section 4a(a)(2));* * * 712 (ii) establish months combined; (2) the standards for the five CEA section 15(a) factors, at an appropriate level position limits what constitute bona fide hedging benefits and costs to market participants for swaps that are economically versus speculative transactions, as well and the public that the Commission equivalent to those futures and options as other exemptions; and (3) the expects to flow from these proposed that are subject to mandatory position accounts and positions a person must rules relative to the statutory limits pursuant to CEA section 4a(a)(2), aggregate for the purpose of determining requirements of the CEA and the and do so at the same time as the CEA compliance with the position limit Commission’s regulations now in effect. section 4a(a)(2) limits are established levels. These rules now reside in part The Commission has attempted to (CEA section 4a(a)(5)); and (iii) apply 150 of the Commission’s regulations.716 quantify the costs and benefits of these position limits on an aggregate basis to The rules proposed herein would regulations where feasible. Where contracts based on the same underlying amend part 150 and make certain quantification is not feasible the commodity across enumerated trading conforming amendments to related Commission identifies and considers venues 713 (CEA section 4a(a)(6)). reporting requirements in parts 15, 17 costs and benefits qualitatively. Additionally, the Dodd-Frank Act and 19. They would do so in a manner Beyond specific questions requires DCMs and SEFs to set position that represents an extension of the interspersed throughout its discussion, limits for any contract subject to a Commission’s historical approach the Commission generally requests Commission-imposed limit at a level not towards the first two components: limit comment on all aspects of its higher than the Commission’s limit.714 levels and exemptions. The third consideration of costs and benefits, Finally, the Dodd-Frank Act, through component, aggregation, is addressed in including: identification and assessment new CEA section 4a(c)(2), requires that 717 a separate Commission rulemaking. of any costs and benefits not discussed the Commission define bona fide therein; data and any other information hedging positions pursuant to an i. Statutory Mandate To Consider Costs to assist or otherwise inform the express framework for purposes of and Benefits exclusion from position limits. The CEA section 15(a) 718 requires the Commission’s ability to quantify or Commission’s approach, historically, to Commission to consider the costs and qualify the benefits and costs of the exercising its statutory position limits benefits of its actions before proposed rules; and, substantiating data, authority has been to set or order limits promulgating a regulation under the statistics, and any other information to prophylactically to deter all forms of CEA or issuing certain orders. CEA support positions posited by manipulation and to diminish, section 15(a) further specifies that the commenters with respect to the eliminate, or prevent excessive costs and benefits shall be evaluated in Commission’s consideration of costs speculation.715 It has done so through light of five broad areas of market and and benefits. public concern: (1) Protection of market The following consideration of 711 As defined in CEA section 1a(20), ‘‘exempt participants and the public; (2) benefits and costs is generally organized commodity’’ means a commodity that is neither an efficiency, competitiveness, and according to the following rules agricultural commodity nor an ‘‘excluded financial integrity of futures markets; (3) proposed in this release: definitions commodity.’’ Excluded commodities, in turn, are 720 defined in CEA section 1a(19) to encompass price discovery; (4) sound risk (§ 150.1), federal position limits specified groups of financial and occurrence-based management practices; and (5) other (§ 150.2), exemptions to limits (§ 150.3), commodities. Accordingly, exempt commodities public interest considerations.719 position limits set by DCMs and SEFs include energy products and metals. The Dodd- (§ 150.5), anticipatory hedging Frank mandate in CEA section 4a(a)(2) to impose limits applies to all agricultural and exempt Trading Act of 1982, Public Law 97–444, 96 Stat. requirements (§ 150.7), and reporting commodities (collectively, physical commodities). 2294, 2299–2300(1982), which, inter alia, amended requirements (§ 19.00). For each rule, This mandate does not apply to excluded the CEA to ‘‘clarify and strengthen the the Commission summarizes the commodities, which are primarily intangible Commission’s’’ position limits authority. S. Rep. 97–384, at 44 (1982). Congress enacted this proposed rule and considers the benefits commodities, like financial products. 721 712 The Commission’s statutory interpretation of strengthening amendment with awareness of the and costs expected to result from it. its mandate under CEA section 4a(a)(2) is discussed Commission’s prophylactic interpretation and The Commission then considers the in detail above. A separate provision added by the approach, and after rejecting amendments that benefits and costs of the proposed rules would have circumscribed the Commission’s Dodd-Frank Act directs the Commission with collectively in light of the five public respect to factors to consider in establishing the authority. See, e.g., Futures Trading Act of 1982: levels of speculative position limits that are Hearings on S. 2109 before the S. Subcomm. on mandated by CEA section 4a(a)(2). See CEA section Agricultural Research, 97th Cong. 28, 29, 44–45, quantitative economic analysis: ‘‘Where Congress 4a(a)(3); 7 U.S.C. 6a(a)(3). 337, 340–45 (1982) (oral and written statements of has required ‘‘‘rigorous, quantitative economic 713 Specifically, as enumerated these are: (1) Commission Chair Phillip McBride Johnson and analysis,’’’ it has made that requirement clear in the contracts listed by DCMs; (2) with respect to Commodity Exchange Executive Vice Chair Lee agency’s statute, but it imposed no such FBOTs, contracts that are price-linked to a contract Berendt concerning, inter alia, the Commission’s requirement here [in the CEA].’’ Id. (citation listed for trading on a registered entity and made omnibus approach to position limits); S. Rep. 97– omitted). available from within the United States via direct 384, at 44–45, 79 (discussing rejected amendments). 720 Many of the revised or new definitions do not access; and (3) SPDF Swaps. 716 As discussed above, the District Court for the substantively affect the Commission’s 714 See Dodd-Frank Act sections 735(b) District of Columbia vacated part 151 of the considerations of costs and benefits on their own (amending CEA section 5(d)(5)) and 733 (adding Commission’s regulations, which would have merit, but are considered in conjunction with the CEA section 5h, subsection (f)(6) of which specifies replaced part 150. As a result, part 150 remains in sections of the rule that implement them. SEF’s core principle obligation with respect to effect. 721 The proposed rules also include amendments position limitations or accountability). 717 See Aggregation NPRM. to 17 CFR parts 15 and 17, as discussed supra. The 715 See, e.g., 46 FR 50938, 50940, Oct. 16, 1981. 718 7 U.S.C. 19(a). Commission preliminarily believes these In this release adopting § 1.61, the Commission 719 In ICI v. CFTC, 2013 WL 3185090, at *8 (D.C. amendments are not substantive in nature and do articulated its interpretation that the CEA Cir. 2013), the United States Court of Appeals for not have cost or benefit implications. The authorized prophylactic speculative position limits. the D.C. Circuit held that CEA section 15(a) imposes Commission welcomes comment on any potential One year later, Congress enacted the Futures no duty on the Commission to conduct a costs or benefits of the changes to parts 15 and 17.

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interest considerations of CEA section position to be ‘‘economically Commission’s jurisdiction. Specifically, 15(a). appropriate to the reduction of risks in new CEA sections 4a(a)(5) and (6) the conduct of a commercial enterprise’’ require the Commission to impose 2. Section 150.1—Definitions where the risks arise from the potential limits on an aggregate basis across all Currently, § 150.1 defines terms for change in value of assets, liabilities, or economically equivalent contracts, operation within the various rules that services.725 Such bona fide hedges must excepting in both cases bona fide comprise part 150. As described above, have a purpose ‘‘to offset price risks hedging positions. CEA section the Commission proposes formatting, incidental to commercial cash or spot 4a(c)(2)(B) describes which swap offset organizational, and other non- operations’’ and must be ‘‘established positions may qualify as bona fide substantive amendments to these and liquidated in an orderly manner in hedges. Finally, new CEA section definitional provisions that, subject to accordance with sound commercial 4a(a)(7) provides the Commission with consideration of any relevant comments, practices.’’ authority to grant exemptive relief from it does not view as having benefit or This general definition thus provides position limits. The Commission cost implications.722 But, with respect general components of the type of proposes to amend its definition of bona to a number of definitions, the position that constitute a bona fide fide hedging under the authority and Commission proposes substantive hedge position. The criterion that such direction of amended CEA section 4a(c) amendments and additions. With the a position should ‘‘normally represent a and the other provisions added by the exception of the term ‘‘bona fide substitute for . . . positions to be taken Dodd-Frank Act. To the extent a change hedging position,’’ for which the at a later time in a physical marketing in the definition represents a statutory benefits and costs of the proposed channel’’ has been deemed the requirement, it is not discretionary and § 150.1 definition are considered in the ‘‘temporary substitute’’ criterion. The thus not subject to CEA section 15(a). requirement that such position be subsection directly below, any benefits ii. Rule Summary and costs attributable to substantive ‘‘economically appropriate to the definitional changes and additions reduction of risks in the conduct of a Like current § 1.3(z), the proposed proposed in § 150.1 are considered in commercial enterprise’’ is referred to as § 150.1 bona fide hedging definition the discussion of the rule in which such the ‘‘economically appropriate’’ test. employs a basic organizational model of new or amended terms would be The criterion that hedged risks arise stating general, broadly applicable operational. from the potential change in value of requirements for a hedge to qualify as assets, liabilities, or services is bona fide,728 and then specifying certain i. Bona Fide Hedging commonly known as the ‘‘change in particular (‘‘enumerated’’) hedges that Proposed § 150.1 would include a value’’ requirement or test. The phrase are deemed to meet the general definition of the term ‘‘bona fide ‘‘price risks incidental to commercial requirements.729 Generally, the hedging positions’’—which operates to cash or spot operations’’ has been proposed definition is built around the distinguish hedging positions from termed the ‘‘incidental test.’’ The same criteria as are currently found in those that are speculative and thus criterion that hedges must be § 1.3(z), including the temporary subject to position limits, both federal ‘‘established and liquidated in an substitute and economically appropriate and exchange-set, unless otherwise orderly manner’’ is known as the criteria. Thus, the proposed definition is exempted by the Commission. Hedgers ‘‘orderly trading requirement.’’ 726 substantially similar to the current present a lesser risk of burdening The current definition also describes definition, with limited changes to interstate commerce as described in a non-exclusive list of transactions that accommodate altered statutory CEA section 4a because their positions satisfy the definitional criteria and requirements regarding bona fide are offset in the physical market. CEA therefore qualify as bona fide hedges; hedging as well as accomplish section 4a(c) has long directed that no these ‘‘enumerated hedging discretionary improvements. The Commission rule, regulation or order transactions’’ are located in § 1.3(z)(2). proposed definition also reflects establishing position limits under CEA For those transactions that may fit the organizational changes to better section 4a(a) apply to bona fide hedging definition but are not listed in accommodate the extension of as defined by the Commission.723 The § 1.3(z)(2), current § 1.3(z)(3) provides a speculative position limits to all proposed definition would replace the means of requesting relief from the economically equivalent contracts definition now contained in § 1.3(z) to Commission. across all trading venues. To the extent implement that statutory directive.724 The Dodd-Frank Act amended the the proposed definition carries over Generally, the current definition of CEA in ways that require the requirements currently resident in the bona fide hedging in § 1.3(z) advises Commission to adjust its current bona § 1.3(z) definition, it does not represent that a position should ‘‘normally fide hedging definition. Specifically, the a change from current practice and represent a substitute for . . . positions Dodd-Frank Act added section 4a(c)(2) therefore should not pose incremental to be taken at a later time in a physical of the Act, which the Commission benefits or costs. marketing channel’’ and requires such interprets as directing the Commission The proposed definition has been to narrow the bona fide hedging relocated from § 1.3(z) to § 150.1 in order to facilitate reference between 722 See supra discussion of proposed amendments position definition for physical to § 150.1. commodities from the definition found sections of part 150. The proposed 723 CEA section 4a(c)(1); 7 U.S.C. 6a(c)(1). in current § 1.3(z)(1).727 724 Currently, 17 CFR 1.3(z), defines the term Dodd-Frank also provided direction 728 Compare 17 CFR 1.3(z)(1) (‘‘General ‘‘bona fide hedging transactions and positions.’’ regarding the bona fide hedging criteria Definition’’) with the proposed § 150.1 definition of Originally adopted by the newly formed for swaps contracts newly under the bona fide hedging opening sentence and paragraphs Commission in 1975, a revised version of § 1.3(z) (1) and (2) (respectively, ‘‘Hedges of an excluded took effect two years later. This 1977 revision commodity’’ and ‘‘Hedges of a physical largely forms the basis of the current definition of 725 17 CFR 1.3(z)(1). The Commission cautions commodity’’). bona fide hedging. A history of the definition of that the e-CFR 2012 version of this provision 729 Compare 17 CFR 1.3(z)(2)(‘‘Enumerated bona fide hedging is presented above. With the reflects changes made by the now-vacated Part 151 Hedging Transactions’’) with the proposed § 150.1 adoption of the proposed definition of ‘‘bona fide rule. definition of bona fide hedging paragraphs (3) and hedging positions’’ in § 150.1, § 1.3(z) would be 726 See supra for additional explanation of these (4) (respectively, ‘‘Enumerated hedging positions’’ deleted. terms. and ‘‘Other enumerated hedging positions’’).

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definition of bona fide hedging position likely would only need an exemption proposed paragraph (2) requires that the is also re-organized into six sections, for very large positions. The orderly position satisfy the temporary substitute starting with an opening paragraph trading requirement is intended to test, the economically appropriate test, describing the general requirements for prevent disorderly trading, practices, or and the change-in-value test. These tests all hedges followed by five numbered conduct from bona fide hedgers by have been incorporated into the revised paragraphs. Paragraph (1) of the encouraging market participants to statutory definition in CEA section proposed definition describes assess market conditions and consider 4a(c)(2) and essentially mirror the requirements for hedges of an excluded how the trading practices and conduct current definition in § 1.3(z).735 The commodity,730 including guidance on affect the orderly execution of proposed paragraph (2) also requires the risk management exemptions that may transactions when establishing or position either be enumerated in be adopted by an exchange. Paragraph liquidating a position greater than the proposed paragraphs (3), (4), or (5) or be (2) describes requirements for hedges of applicable position limit.733 a pass-through swap offset or pass- a physical commodity. Paragraphs (3) through swap position as defined in b. Paragraph (1) Hedges of an Excluded and (4) describe enumerated paragraph (2)(ii). Commodity exemptions. Paragraph (5) describes Proposed paragraph (2) of the cross-commodity hedges. The first paragraph in the proposed definition applies generally to The following discussion is meant to definition addresses hedging of an derivative positions that hedge a highlight the essential components of excluded commodity; it emanates from physical commodity and as such each section of the proposed definition. the Commission’s discretionary includes swaps. Thus, the paragraph A full discussion of the history and authority to impose limits on intangible responds to the statutory requirement in policy rationale of each section may be commodities. In general, in addition to CEA section 4a(a)(5) that the found supra.731 the requirements in the opening Commission establish limits on paragraph, proposed paragraph (1) economically equivalent contracts, a. Opening Paragraph requires the position meet the including swaps, excluding bona fide The opening paragraph of the economically appropriate test and is hedging positions. The definition of a proposed definition incorporates the either enumerated in paragraphs (3), (4), pass-through swap offset position incidental test and the orderly trading or (5) of the proposed definition or is incorporates the definition in new CEA requirement, both found in the current recognized by a DCM or SEF as a bona section 4a(c)(2)(B)(i), with the inclusion § 1.3(z)(1). The Commission intends the fide hedge pursuant to exchange rules. of the requirement that such position proposed incidental test to be a The temporary substitute and change in not be maintained during the lesser of requirement that the risks offset by a value criteria are not included in the the last five days of trading or the time commodity derivative contract hedging proposed paragraph (1), as these period for the spot month for the position must arise from commercial requirements are inappropriate in the physical-delivery contract. cash market activities. The Commission context of certain excluded believes this requirement is consistent commodities that lack a physical d. Paragraphs (3) and (4) Enumerated with the statutory guidance to define marketing channel.734 Hedging Positions bona fide hedging positions to permit Exclusively addressed to excluded Proposed paragraph (3) lists specific the hedging of ‘‘legitimate anticipated commodity hedging, paragraph (1) is positions that would fit under the business needs.’’ 732 The incidental test relevant only for the purposes of definition of a bona fide hedging allows the Commission to distinguish exchange-set limits under § 150.5 as position, including hedges of inventory, between hedging and speculate proposed for amendment. As the cash commodity purchase and sales activities by defining the former as Commission has determined to focus contracts, unfilled anticipated requiring a legitimate business need. the application of federal speculative requirements, and hedges by agents.736 The proposed orderly trading position limits on 28 physical Each of these positions was described in requirement is intended to impose on commodities and their related physical- § 1.3(z), with the exception of paragraph bona fide hedgers the duty to enter and delivery and cash-settled referenced (iii)(B), which was added in response to exit the market carefully in the ordinary contracts, this paragraph does not affect the petition submitted to the course of business. The requirement is the imposition of federal speculative Commission by the Working Group of also intended to avoid to the extent position limits and exemptions thereto. Commercial Energy Firms.737 possible the potential for significant c. Paragraph (2) Hedges of a Physical Proposed paragraph (4) provides other market impact in establishing or Commodity enumerated hedging exemptions, liquidating a position in excess of including hedges of unanticipated position limits. This requirement is Proposed paragraph (2) of the production, offsetting unfixed price particularly important because, as definition enumerates what constitutes cash commodity sales and purchases, discussed below, the Commission a hedge for physical commodities, anticipated royalties, and services, all of proposes to set the initial levels of including physical agricultural and which are subject to the ‘‘five-day rule.’’ position limits at the outer bound of the exempt commodities both subject and The ‘‘five-day rule’’ is a provision in range of levels of limits that may serve not subject to federal speculative many of the enumerated hedging to balance the statutory policy position limits. In addition to the positions that prohibits a trader from objectives in CEA section 4a(a)(3) for requirements in the opening paragraph, maintaining the positions in any limit levels. As such, bona fide hedgers physical-delivery commodity derivative 733 As discussed supra, the Commission believes that negligent trading, practices, or conduct should 730 An ‘‘excluded commodity’’ is defined in CEA be a sufficient basis for the Commission to deny or 735 With respect to the temporary substitute test, section 1a(19). The definition includes financial revoke a bona fide hedging exemption. the word ‘‘normally’’ has been removed in the products such as interest rates, exchange rates, 734 The Commission notes that DCMs currently proposed definition in order to conform with the currencies, securities, credit risks, and debt incorporate the temporary substitute and change in stricter statutory standard in new CEA section instruments as well as financial events or value criteria when the contract’s underlying 4a(c)(2). See discussion above. occurrences. market has physical delivery obligations. The 736 A detailed description of each enumerated 731 See discussion above. proposal would not limit their ability to continue position can be found supra. 732 7 U.S.C. 6a(c)(1). to do so when appropriate. 737 See discussion above.

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contract during the lesser of the last five proposed paragraph (1); (ii) adding the business need in each position. The safe days of trading or the time period for the five-day rule into the statutory harbor proposed in paragraph (5) is spot month in such physical-delivery definition of pass-through swap as expected to provide clarity and promote contract.738 Because each exemption described in paragraph (2)(ii)(A); (iii) regulatory certainty for entities that use shares this provision, the Commission is applying the definition in proposed cross-commodity hedging strategies. proposing to reorganize such paragraph (2) to positions in Further, the addition of the five-day rule exemptions into proposed paragraph (4) economically equivalent contracts in a to the hedging definition for pass- for administrative efficiency. physical commodity; 741 (iv) expanding through swaps helps the Commission to Of the enumerated hedges in paragraph (3)(III)(b) to incorporate ensure the integrity of the delivery proposed paragraphs (4)(i) and (ii) are hedges encouraged by a public utility process in the physical-delivery contract currently in § 1.3(z) and paragraph commission; (v) expanding paragraph and as a result to accomplish to the (4)(iv) codifies a hedge that has (4)(ii) to include offsetting unfixed-price maximum extent practicable the factors historically been recognized by the cash commodity sales and purchases in CEA section 4a(a)(3). Finally, the Commission. Paragraph (4)(iii) proposes that are basis different contracts in the Commission believes using the same a royalties exemption not now specified same commodity, regardless of whether bona fide hedging exemptions in in § 1.3(z). the contracts are in the same calendar economically equivalent contracts may e. Paragraph (5) cross-commodity month; (vi) adding paragraph (iii) to facilitate administrative efficiency by hedges proposed paragraph (4) to enumerate avoiding the need for market anticipated royalty hedges; and (vii) participants to manage and apply Proposed paragraph (5) describes enumerating cross-commodity hedges as different definitional criteria across positions that would qualify as cross- a standalone provision in paragraph (5). multiple products and trading commodity bona fide hedges. The venues.742 The Commission requests Commission has long recognized cross- a. Benefits comment on its consideration of the commodity hedging, stating in 1977 that The Commission proposes the benefits of the proposed definition of such positions would be covered under definition for excluded commodities in bona fide hedging. Has the Commission the general provisions of § 1.3(z)(2). paragraph (1) in order to provide a The definition in proposed paragraph misidentified any of the benefits of the consistent definition of bona fide proposed rule? Are there additional (5) would condition cross-commodity hedging—i.e., a definition that hedging on: (i) whether the fluctuations benefits the Commission ought to incorporates the economically consider regarding the proposed in value of the position in the appropriate test—for all commodities definition of bona fide hedging? Why or commodity derivative contract are under the Commission’s jurisdiction. why not? ‘‘substantially related’’ to the The addition of paragraph (1) would fluctuations in value of the actual or provide exchanges with a definition for b. Costs anticipated cash position or pass- bona fide hedging designed to provide The Commission anticipates that through swap; and (ii) the five-day rule a level of assurance that the there will be some small additional being applied to positions in any Commission’s policy objectives costs associated with the proposed physical-delivery commodity derivative regarding bona fide hedging are met at definition. contract. The second condition, i.e. the the exchange level as well as at the Entities may incur costs to the extent application of the five-day rule, would federal level, and for excluded the proposed definition of a bona fide help to protect the integrity of the commodities as well as agricultural and hedging position in an excluded delivery process in the physical- exempt commodities. commodity requires an exchange to delivery contract but would not apply to The Commission believes that the adjust its policies for bona fide hedging cash-settled contract positions.739 additions to the definition of bona fide exemptions or a market participant to iii. Benefits and Costs hedging proposed in this release adjust its trading strategies for what is provide additional necessary relief to and is not a bona fide hedge in an Elements of the proposed definition bona fide hedgers. This relief, in turn, that represent discretionary, substantive excluded commodity. The Commission will help to ensure that market expects such costs to be negligible, as modifications to the required manner in participants with positions hedging which bona fide hedging have been the definition is substantially the same legitimate business needs are properly as the current definition under § 1.3(z). defined under § 1.3(z) include the recognized as hedgers under the 740 Costs for exchanges are also considered following: (i) Proposing requirements Commission’s speculative position in the section of this release that for hedges in an excluded commodity in limits regime. Thus, the Commission discusses the proposed amendments to anticipates that the addition of the 738 § 150.5. As discussed above, the purpose of the five- enumerated position for anticipated day rule is to protect the integrity of the delivery In general, under other aspects of the and settlement processes in physical-delivery royalties and the expansion of the Commission’s proposed definition, contracts. Without this rule, high concentrations of enumerated unfilled anticipated market participants may incur costs to exempted positions can distort the markets, requirements position provide determine whether their positions fall impairing price discovery while potentially having additional means for obtaining a hedge an adverse impact on efforts to deter all forms of under one of the new or expanded market manipulation and diminish excessive exemption by recognizing the legitimate enumerated positions. In the event a speculation. position does not fit under any of the 739 741 See discussion above. As discussed supra, CEA section 4a(a)(5) enumerated positions, market 740 The Commission notes that the relocation of requires that the Commission set speculative limits the definition from § 1.3(z) to part 150 is also on the amount of positions, ‘‘other than bona fide discretionary. As noted above, the placement is hedging positions . . . held by any person with 742 Further, using the same exemptions in intended to facilitate compliance with the other respects to swaps that are economically equivalent’’ economically equivalent contracts is consistent sections of part 150; the Commission does not to futures and options. 7 U.S.C. 6a(a)(5). Subject to with the approach of the Dodd-Frank Act section believe, however, that this action has substantive CEA section 4a(a)(2), the Commission is exercising 737(a) amendment requiring that the Commission cost or benefit implications. Also, the proposed its discretion in defining bona fide hedging in establish limits for economically equivalent swap definition incorporates and references elements of economically equivalent contracts in the same positions and across trading venues, including non-binding guidance not encompassed by CEA manner as for futures and options in physical direct-access linked FBOT contracts. See 7 U.S.C. section 15(a). commodities. 7 U.S.C. 6a(a)(2). 6a(a)(5)–(6).

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participants may incur costs associated the scope of federal position limits representing an expansion of 19 with filing for exemptive relief as regulation in three chief ways: (1) contracts beyond the 9 legacy described in the section discussing the specify limits on 19 contracts in agricultural contracts identified costs of proposed § 150.3 or in altering addition to the nine existing legacy currently in § 150.2; 749 (2) a newly speculative trading strategies as contracts (i.e., a total of 28); (2) extend defined category of ‘‘referenced discussed above. As trading strategies the application of these limits beyond contracts’’ (as defined in proposed are proprietary, and the determinations futures and futures-equivalent options § 150.1); 750 and (3) across all trading made by individual entities present a to all commodity derivative interests, venues to all economically equivalent burden that is highly idiosyncratic, it is including swaps; and (3) extend the contracts that are based on the same not reasonably feasible for the application of these limits across trading underlying commodity. Commission to estimate the value of the venues to all economically equivalent a. § 150.2(a) Spot-Month Speculative burden imposed. contracts that are based on the same Position Limits underlying commodity. In addition, the c. Request for Comment proposed rule would provide a In order to implement the statutory The Commission requests comment methodology and procedures for directive in CEA section 4a(a)(3)(A), on its consideration of the costs of the implementing and applying the proposed § 150.2(a) would prohibit any proposed definition of bona fide expanded limits. person from holding or controlling hedging position. Are there additional The Commission proposes to amend positions in referenced contracts in the costs related to the Commission’s § 150.2 to impose speculative position spot month in excess of the level discretionary actions that the limits as mandated by Congress in specified by the Commission for Commission should consider? Has the accordance with the statutory bounds referenced contracts.751 Proposed Commission misidentified any costs? that define its discretion in doing so. § 150.2(a) would require, in the Commenters are encouraged to submit First, pursuant to CEA section 4a(a)(5) Commission’s discretion, that a trader’s any data that the Commission should the Commission must concurrently positions, net long or net short, in the consider in evaluating the costs of the impose position limits on swaps that are physical-delivery referenced contract proposed definition. economically equivalent to the and cash-settled referenced contract be d. Consideration of Alternatives agricultural and exempt commodity derivatives for which position limits are 749 Specifically, in addition to the existing 9 The Commission recognizes that mandated in section 4a(a)(2). Second, legacy agricultural contracts now within § 150.2— alternatives exist to discretionary i.e., Chicago Board of Trade corn, oats, soybeans, CEA section 4a(a)(3) requires that the soybean oil, soybean meal, and wheat; Minneapolis elements of the definition of bona fide Commission appropriately set limit Grain Exchange hard red spring wheat; ICE Futures hedging positions proposed herein. The levels mandated under section 4a(a)(2) U.S. cotton No. 2; and Kansas City Board of Trade Commission requests comments on that ‘‘to the maximum extent hard winterwheat—proposed § 150.2 would expand whether an alternative to what is the list of core referenced futures contracts to practicable, in its discretion,’’ capture the following additional agricultural, proposed would result in a superior accomplish four specific objectives.745 energy, and metal contracts: Chicago Board of Trade benefit-cost profile, with support for any Third, CEA section 4a(a)(2)(C) requires Rough Rice; ICE Futures U.S. Cocoa, Coffee C, such position provided. FCOJ–A, Sugar No. 11 and Sugar No. 16; Chicago that in setting limits mandated under Mercantile Exchange Feeder Cattle, Lean Hog, Live 3. Section 150.2—Limits section 4a(a)(2)(A), the ‘‘Commission Cattle and Class III Milk; Commodity Exchange, shall strive to ensure that trading on Inc., Gold, Silver and Copper; and New York i. Rule Summary foreign boards of trade in the same Mercantile Exchange Palladium, Platinum, Light As previously discussed, the Sweet Crude Oil, NY Harbor ULSD, RBOB Gasoline commodity will be subject to and Henry Hub Natural Gas. Commission interprets CEA section comparable limits and that any limits 750 This would result in the application of 4a(a)(2) to mandate that it establish . . . imposed . . . will not cause price prescribed position limits to a number of contract speculative position limits for all discovery in the commodity to shift to types with prices that are or should be closely agricultural and exempt physical trading on the foreign boards of trade.’’ correlated to the prices of the 28 core referenced 743 futures contracts—i.e., economically equivalent commodity derivative contracts. The Key elements of the proposed rule are contracts—including: (1) ‘‘look-alike’’ contracts Commission currently sets and enforces summarized below.746 (i.e., those that settle off of the core referenced speculative position limits for futures Generally, proposed § 150.2 would futures contract and contracts that are based on the and futures-equivalent options contracts limit the size of speculative same commodity for the same delivery location as the core referenced futures contract); (2) contracts 747 on nine agricultural products. positions, i.e., prohibit any person based on an index comprised of one or more prices Specifically, current § 150.2 provides from holding or controlling net long/ for the same delivery location and in the same or ‘‘[n]o person may hold or control short positions above certain specified substantially the same commodity underlying a core referenced futures contract; and (3) inter- positions, separately or in combination, spot month, single month, and all- commodity spreads with two components, one or net long or net short, for the purchase months-combined position limits. These both of which are referenced contracts. The or sale of a commodity for future position limits would reach: (1) 28 ‘‘core proposed ‘‘reference contract’’ definition would delivery or, on a futures-equivalent referenced futures contracts,’’ 748 exclude, however, a guarantee of a swap. basis, options thereon, in excess of’’ 751 As discussed supra, the Commission proposes to adopt a streamlined, amended definition of ‘‘spot 745 enumerated spot, single-month, and all- These objectives are to: (1) ‘‘diminish, month’’ in proposed § 150.1. The term would be month levels for nine specified eliminate, or prevent excessive speculation;’’ (2) defined as the trading period immediately 744 ‘‘deter and prevent market manipulation, squeezes, preceding the delivery period for a physical- contracts. These proposed and corners;’’ (3) ‘‘ensure sufficient market liquidity amendments to § 150.2 would expand delivery futures contract and cash-settled swaps for bona fide hedgers;’’ and (4) ‘‘ensure that the and futures contracts that are linked to the physical- price discovery function of the underlying market delivery contract. The definition proposes similar 743 See supra discussion of the Commission’s is not disrupted.’’ 7 U.S.C. 6a(a)(3). but slightly different language for cash-settled interpretation of this mandate. 746 For a more detailed description, see contracts, providing for the spot month to be the 744 These contracts are Chicago Board of Trade discussion above. earlier of the period in which the underlying cash- corn and mini-corn, oats, soybeans and mini- 747 Proposed § 150.1 would include a consistent settlement price is calculated or the close of trading soybeans, wheat and mini-wheat, soybean oil, and definition of the term ‘‘speculative position limits.’’ on the trading day preceding the third-to-last soybean meal; Minneapolis Grain Exchange hard 748 Proposed § 150.1 also would define the term trading day, until the contract cash-settlement price red spring wheat; ICE Futures U.S. cotton No. 2; ‘‘core referenced futures contract’’ by reference to is determined. For more details, see discussion and Kansas City Board of Trade hard winter wheat. ‘‘a futures contract that is listed in § 150.2(d).’’ above.

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calculated separately under the spot has selected these important food, relevant core referenced futures month position limits fixed by the energy, and metals contracts on the contract. This formula is consistent with Commission for each. As a result, a basis that such contracts (i) have high the acceptable practices in current trader could hold positions up to the levels of open interest and significant § 150.5, as well as the Commission’s applicable spot month limit in the notional value and/or (ii) serve as a longstanding practice of using this physical-delivery contracts, as well as reference price for a significant number measure of deliverable supply to positions up to the applicable spot of cash market transactions. Thus, the evaluate whether DCM-set spot-month month limit in cash-settled contracts Commission is proposing limits to limits are in compliance with DCM core (i.e., cash-settled futures and swaps), commence the expansion of its federal principles 3 and 5. The proposed rules but would not be able to net across position limit regime with those separately restrict the size of positions physical-delivery and cash-settled commodity derivative contracts that it in cash-settled referenced contracts that contracts in the spot month. believes are likely to have the greatest would potentially benefit from a trader’s impact on interstate commerce. Because potential distortion of the price of the b. § 150.2(b) Single-Month and All- the mandate applies to all physical underlying core referenced futures Months-Combined Speculative Position commodity contracts, the Commission contract. Limits intends through supplemental As proposed, each DCM would be Proposed § 150.2(b) would provide rulemaking to establish limits for all required to supply the Commission with that no person may hold or control other physical commodity contracts. an estimated spot-month deliverable positions, net long or net short, in Given limited Commission resources, it supply figure that the Commission referenced contracts in a single-month cannot do so in this initial rulemaking. would use to recalibrate spot-month or in all-months-combined in excess of As discussed above,755 the position limits unless it decides to rely the levels specified by the Commission. Commission calculated the notional on its own estimate of deliverable Proposed § 150.2(b) would require value of open interest (delta-adjusted) supply instead.757 netting all positions in referenced and open interest (delta-adjusted) for all In contrast to spot-month limits, contracts (regardless of whether such futures, futures options, and significant which would be set as a function of referenced contracts are physical- price discovery contracts as of deliverable supply, the proposed delivery or cash-settled) when December 31, 2012 in all agricultural formula for the non-spot-month position calculating a trader’s positions for and exempt commodities in order to limits is based on total open interest for purposes of the proposed single-month select the list of 28 core referenced all referenced contracts that are or all-months-combined position limits futures contracts in proposed § 150.2(d). aggregated with a particular core (collectively ‘‘non-spot-month’’ The Commission selected commodities referenced contract. Proposed limits).752 in which the derivative contracts had § 150.2(e)(4) explains that the Commission would calculate non-spot- c. § 150.2(d) Core Referenced Futures largest notional value of open interest month position limit levels based on the Contracts and open interest for three categories: agricultural, energy, and metals. The following formula: 10 percent of the To be clear, the statutory mandate in Commission then designated the largest annual average open interest for Dodd-Frank section 4a(a)(2) applies on benchmark futures contracts for each the first 25,000 contracts and 2.5 its face to all physical commodity commodity as the core referenced percent of the open interest contracts. The Commission is futures contracts for which position thereafter.758 As is the case with spot nevertheless proposing, initially, to limits would be established. Proposed month limits, the Commission proposes apply speculative position limits to § 150.2(d) lists 19 core referenced to adjust single month and all-months- referenced contracts that are based on futures contracts for agricultural combined limits no less frequently than 28 core referenced futures contract commodities, four core referenced every two calendar years. listed in proposed § 150.2(d). As defined futures contracts for energy The Commission’s proposed average in proposed § 150.1, referenced commodities, and five core referenced open interest calculation would be contracts are futures, options, or swaps futures contracts for metals computed for each of the past two contracts that are directly or indirectly commodities. calendar years, using either month-end linked to a core referenced futures open contracts or open contracts for d. § 150.2(e) Levels of Speculative contract or the commodity underlying a each business day in the time period, as 753 Position Limits core referenced futures contract. practical and in the Commission’s Proposed § 150.2(d) lists the 28 core The Commission proposes setting discretion. Initially, the Commission referenced futures contracts on which initial spot month position limit levels proposes to set the levels of initial non- the Commission is initially proposing to for referenced contracts at the existing spot-month limits using open interest establish federal speculative position DCM-set levels for the core referenced limits. The list represents a significant futures contracts. Thereafter, proposed that the contract is not susceptible to price expansion of federal speculative § 150.2(e)(3) would task the Commission manipulation or distortion. In general, the term position limits from the current list of with recalibrating spot month position ‘deliverable supply’ means the quantity of the nine agricultural contracts under limit levels no less frequently than commodity meeting the contract’s delivery 754 specifications that reasonably can be expected to be current part 150. The Commission every two calendar years. The readily available to short traders and salable by long Commission’s proposed recalibration traders at its market value in normal cash marketing 752 The Commission proposes to use the same would result in limits no greater than channels . . .’’ See 77 FR 36612, 36722, Jun. 19, level for single-month and all-months-combined one-quarter (25 percent) of the estimated 2012. limits, and refers to those limits as the ‘‘non-spot- 757 756 Proposed § 150.2(e)(3)(ii) would require DCMs month limits.’’ The spot month and any single spot-month deliverable supply in the to submit estimates of deliverable supply. DCM month refer to those periods of the core referenced estimates of deliverable supplies (and the futures contract. 755 See discussion above. supporting data and analysis) would continue to be 753 As discussed above, the definition of 756 The guidance for meeting DCM core principle subject to Commission review. referenced contract excludes any guarantee of a 3 (as listed in 17 CFR part 38 app. C) specifies that, 758 Since 1999, the same 10 percent/2.5 percent swap, basis contracts, and commodity index ‘‘[t]he specified terms and conditions [of a futures methodology, now incorporated in current contracts. contract], considered as a whole, should result in § 150.5(c)(2), has been used to determine futures all- 754 17 CFR 150.2. a ‘deliverable supply’ that is sufficient to ensure months position limits for referenced contracts.

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for calendar years 2011 and 2012 in Finally, proposed § 150.2(g) would ability of speculators to engage in futures contracts, options thereon, and apply position limits to positions on corners and squeezes and other forms of in swaps that are significant price foreign boards of trade (‘‘FBOT’’s) manipulation. They also prevent the discovery contracts and are traded on provided that positions are held in potential adverse impacts of unduly exempt commercial markets. Using the referenced contracts that settle to a large positions even in the absence of 2011/2012 combined levels of open referenced contract and that the FBOT manipulation, thereby promoting a more interest for futures contracts and for allows direct access to its trading system orderly liquidation process for each swaps that are significant price for participants located in the United contract. discovery contracts and are traded on States. The Commission has used its exempt commercial markets will result ii. Benefits discretion in the manner in which it in non-spot month position limit levels implements the statutorily-required that are not overly restrictive at the The criteria set out in CEA section spot-month position limits so as to outset; this is intended to facilitate the 4a(a)(3)(B)—namely, that position limit achieve Congress’s objectives in CEA transition to the new position limits levels (1) ‘‘diminish, eliminate, or section 4a(a)(3)(B)(ii) to prevent or deter regime without disrupting liquidity. For prevent excessive speculation;’’ (2) market manipulation, including corners example, the Commission is proposing ‘‘deter and prevent market and squeezes. For example, the a non-spot-month limit for CBOT Wheat manipulation, squeezes, and corners;’’ Commission has used its discretion that represents the harvest from around (3) ‘‘ensure sufficient market liquidity under CEA section 4a(a)(1) to set 2 million acres (3,125 square miles) of for bona fide hedgers;’’ and (4) ‘‘ensure separate but equal limits in the spot- that the price discovery function of the wheat, or 81 million bushels. The month for physical-delivery and cash- underlying market is not disrupted’’— proposed non-spot-month limit for settled referenced contracts. By setting clearly articulate objectives that NYMEX WTI Light Sweet Crude Oil separate limits for physical-delivery and Congress intended the Commission to represents 109.2 million barrels of oil. cash-settled referenced contracts, the accomplish, to the maximum extent The Commission believes these levels to proposed rule restricts the size of the practicable, in setting limit levels in be sufficiently high as to restrict position a trader may hold or control in accordance with the mandate to impose excessive speculation without cash-settled reference contracts, thus limits. The Commission is proposing to restricting the benefits of speculative reducing the incentive of a trader to expand its speculative position limits activity, including liquidity provision manipulate the settlement of the regime to include all commodity for bona fide hedgers. physical-delivery contract in order to After the initial non-spot-month derivative interests, including swaps; to benefit positions in the cash-settled limits are set, the Commission proposes impose federal limits on 19 additional reference contract. Thus, the separate subsequently to use the data reported by contract markets; and to apply limits limits further enhance the prevention of DCMs and SEFs pursuant to parts 16, across trading venues to all market manipulation provided by spot- 20, and/or 45 to estimate average open economically equivalent contracts that month position limits by reducing the interest in referenced contracts.759 are based on the same underlying potential for adverse incentives to commodity. e. § 150.2(f)–(g) Pre-Existing Positions manifest in manipulative action. In so doing, the proposed rules and Positions on Foreign Boards of generally would expand the b. § 150.2(b) Single-Month and All- Trade prophylactic protections of federal Months-Combined Speculative Position The Commission proposes in new position limits to additional contract Limits § 150.2(f)(2) to exempt from federal non- markets. Proposed § 150.2(f) and (g) CEA section 4a(a)(3)(A) further directs spot-month speculative position limits implement statutory directives in CEA the Commission to set limits on any referenced contract position section 4a(b)(2) and CEA section speculative positions for months other acquired by a person in good faith prior 4a(a)(6)(B), respectively, and are not acts than the spot-month.763 to the effective date of such limit, of the Commission’s discretion. Thus, While market provided that the pre-existing position the Commission is not required to disruptions arising from the is attributed to the person if such consider costs and benefits of these concentration of positions remain a person’s position is increased after the provisions under CEA section 15(a). possibility outside the spot month, the effective date of such limit.760 Specific discussion of the benefits of the above-mentioned concerns about other components of proposed § 150.2 is corners and squeezes and other forms of 759 Options listed on DCMs would be adjusted below. manipulation are reduced because the using an option delta reported to the Commission potential for the same is reduced pursuant to 17 CFR part 16; swaps would be a. § 150.2(a) Spot-Month Speculative counted on a futures equivalent basis, equal to the outside the spot-month. Accordingly, economically equivalent amount of core referenced Position Limits the Commission has proposed to use its futures contracts reported pursuant to 17 CFR part As discussed above, CEA section discretion to require netting of physical- 20 or as calculated by the Commission using swap delivery and cash-settled referenced data collected pursuant to 17 CFR part 45. 4a(a)(3)(A) now directs the Commission 760 See also the definition of the term ‘‘Pre- to set limits on speculative positions contracts for purposes of determining existing position’’ incorporated in proposed § 150.1 during the spot-month.761 It is during compliance with non-spot-month limits. herein. Such pre-existing positions that are in the spot-month period that concerns The Commission deems it is appropriate excess of the proposed position limits would not to provide traders with additional cause the trader to be in violation based solely on regarding certain manipulative those positions. To the extent a trader’s pre-existing behaviors, such as corners and squeezes, flexibility in complying with the non- positions would cause the trader to exceed the non- become most urgent.762 Spot-month spot-months limits given their spot-month limit, the trader could not increase the position limits cap speculative traders’ decreased risk of corners and squeezes. directional position that caused the positions to Because this additional flexibility exceed the limit until the trader reduces the positions, and therefore restrict their positions to below the position limit. As such, ability to amass market power. In so means market participants are able to persons who established a net position below the doing, spot-month limits restrict the retain offsetting positions outside of the speculative limit prior to the enactment of a spot-month, liquidity should not be regulation would be permitted to acquire new positions, but the total size of the pre-existing and 761 7 U.S.C. 6a(a)(3)(A). new positions may not exceed the applicable limit. 762 See discussion above. 763 7 U.S.C. 6a(a)(3)(A).

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impaired and price discovery should level of the spot-month limits and some are proprietary, but to the extent an not be disrupted. months saw a much larger number of expanded position limits regime alters traders with positions in excess of the the ways a trader conducts speculative c. § 150.2(e) Levels of Speculative proposed level of the spot-month limits. trading activity, such costs may be Position Limits Smaller numbers were revealed when incurred. The proposed methodology for observing traders’ positions in relation Broadly speaking, imposing position determining the levels at which the to proposed levels for non-spot-month limits raises the concerns that liquidity limits are set is consistent with the position limits—an average of fewer and price discovery may be diminished, Commission’s longstanding acceptable than 10 traders exceeded 60 percent of because certain market segments, i.e., practices for DCM-set speculative the proposed all-months-combined speculative traders, are restricted. The position limits. Further, the limit. The analysis reviewed by the Commission has endeavored to mitigate Commission’s proposal to set initial Commission does not account for concerns about liquidity and price spot-month limits at the current federal hedging and other exemptions, which discovery, as well as costs to market or DCM-set levels for each core leads the Commission to believe that the participants, by expanding limits to referenced futures contract means that number of speculative traders in excess additional markets incrementally in any trading activity that is compliant of the proposed limit is even smaller. order to facilitate the transition to the with the current position limits regime The relatively low number of traders expanded position limits regime. For generally will continue to be compliant that may exceed proposed limits in non- example, the Commission has proposed under the first two years of the proposed spot-months is indicative of the to adopt current spot-month limit levels 764 rule. flexibility of the limit formula to as the initial levels in order to ensure The proposed rule is designed to account for changes in market traders know well in advance of the result in speculative position limit participation. effective date of the rule what limits levels that prevent excessive will be on that date. The Commission speculation and deter market d. Request for Comment also expects a large number of swaps manipulation without diminishing The Commission welcomes comment traders to avail themselves of the pre- market liquidity. Specifically, levels on its considerations of the benefits of existing position exemption as defined that are too low may be binding and proposed § 150.2. What other benefits of in proposed § 150.3. As preexisting overly restrictive, but levels that are too the provisions in § 150.2 should the positions are replaced with new high may not adequately protect against Commission consider? Has the positions, traders will be able to manipulation and excessive Commission accurately identified the incorporate an understanding of the speculation. The Commission believes potential benefits of the proposed rules? new regime into existing and new that both standards—i.e., spot month limits of not greater than 25 percent of iii. Costs trading strategies, which allows the deliverable supply and the 10 and 2.5 The expansion of § 150.2 will burden of altering strategies to happen percent formula for non-spot-month necessarily create some additional incrementally over time. The limits—produce levels for speculative compliance costs for market preexisting position exemption applies position limits that help to ensure that participants. The Commission has to non-spot-month positions entered both policy objectives—to deter market attempted, where feasible, to reduce into in good faith prior to (i) the manipulation and excessively large such burdens without compromising its enactment of the Dodd-Frank Act or (ii) speculative positions and to maintain policy objectives. the effective date of this proposed rule. adequate market liquidity—are achieved Implementing the statutory a. § 150.2(a)–(b) Spot-Month, Single- to the maximum extent practicable. requirement of CEA section 4a(a)(6), the The Commission’s review of the Months, and All-Months-Combined aggregate limits proposed in § 150.2 number of potentially affected traders Speculative Position Limits; Other would impact, as described above, indicates that the proposed rule will not Considerations market participants who are active significantly affect market liquidity. Notwithstanding the above analysis of across trading venues in economically Over the last two full years (2011–2012), potentially affected traders, the equivalent contracts. Under current an average of fewer than 40 traders in Commission anticipates that some practice, speculative traders may hold any one of the 28 proposed markets market participants still may find it positions up to the limit in each exceeded just 60 percent of the level of necessary to reassess and modify derivative product for which a limit the proposed spot-month position limit. existing trading strategies in order to exists. In contrast, aggregate limits cap An average of fewer than 10 of those comply with spot- and non-spot-month all of a speculative market participant’s traders exceeded 100 percent of the position limits for the 28 commodities positions in derivatives contracts for a proposed level of the spot-month with applicable federal limits, though particular commodity. In some limit.765 In several months over the the Commission believes much of these circumstances, the aggregate limit will period, no trader exceeded the proposed costs to be the direct result of the prevent traders from entering into statutory mandate to impose limits. The positions that would have otherwise 764 The Commission notes that the CME Group Commission anticipates any such costs been permitted without aggregate submitted an estimate of deliverable supply that, if would be largely incurred by swaps- limits.766 The proposed rule used by the Commission as a base for setting initial incorporates features that provide levels of spot month limits, would result in higher only entities, as futures and options spot month limits than those currently proposed in market participants have experience appendix D. See discussion above for more with position limits, particularly in the 766 For example, a market participant has a information. spot-month, such that the costs of any position close to the spot-month limit in the 765 To put this figure in context, over the same NYMEX cash-settled crude oil contract is currently period the number of unique owners over at least strategic or trading changes that needed able to take the same size position in the ICE cash- one of the proposed limit levels in the 28 proposed to be made may have already been settled crude oil contract. The proposed rule would, markets was 384, while 932 unique owners were incurred. These costs are not reasonably in accordance with the statutory requirement of over 60 percent of at least one of the proposed limit quantifiable by the Commission, due to CEA section 4a(a)(6), require that the positions on levels. In contrast, under the large trader reporting NYMEX and ICE be aggregated for the purposes of provisions of part 17, there are thousands of traders their highly variable and entity-specific complying with the limit—effectively halving the with reportable positions as defined in § 15.00(p). nature, and because trading strategies limit.

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counterbalancing opportunities for believes the burden will be minimal exposure; and (ii) limiting and speculative trading. because futures and options market monitoring the risk exposure to such First, the limits apply separately to participants are currently monitoring swap positions. Such existing systems physical-delivery and cash-settled trading to track, among other things, would likely make compliance with contracts in the spot-month. Physical- their positions vis-a`-vis current limit position limits significantly less delivery core referenced futures levels. For those participating in the burdensome, as they may be able to contracts have one limit; cash-settled futures and options markets, the leverage current monitoring procedures reference contracts traded on the same Commission estimates two to three labor to comply with this rule. The exchange, a different exchange, or over- weeks to adjust monitoring systems to Commission anticipates that a firm the-counter have a separate, but equal, track position limits for referenced could select from a wide range of limit. Therefore, a speculative trader contracts, including swaps and other compliance systems to implement a may hold positions up to the spot economically equivalent contracts monitoring regime. This flexibility month limit in both the physical- traded on other trading venues. allows the firm to tailor the system to delivery core referenced futures Assuming an hourly wage of $120,767 suit its specific needs in a cost-effective contract, and a cash-settled contract multiplied by 120 hours, this manner. (i.e., cash-settled future and/or swap). implementation cost would amount to In the release adopting now-vacated The second feature is the proposed approximately $14,000 per entity. part 151, the Commission recognized conditional spot-month limit The incremental costs of compliance the potentially firm-specific and highly exemption. As discussed in a with the proposed rule would be higher variable nature of implementing subsequent section of this release, the for speculative traders who have until monitoring systems. In particular, the conditional spot-month limit exemption now traded only or primarily in swap Commission presented estimates of, on allows a speculative trader to hold a contracts.768 Specifically, swaps-only average, labor costs per entity ranging position in a cash-settled contract that is traders may potentially incur larger from 40 to 1,000 hours, $5,000 to up to five times the spot-month limit of start-up costs to develop a compliance $100,000 in five-year annualized the core referenced futures contract, system to monitor their positions in capital/start-up costs, and $1,000 to provided that trader does not hold any referenced contracts and to comply with $20,000 in annual operating and position in the physical-delivery core an applicable position limit. Though maintenance costs.770 The Commission referenced futures contract. swaps-only market participants have not explained that costs would likely be Finally, federal non-spot-month limits historically been subject to position lower for firms with positions far below are calculated as a fixed ratio of total limits, swap dealers and major swap the speculative limits, but higher for open interest in a particular commodity participants (as defined by the firms with large or complex positions as across all markets for referenced Commission pursuant to the Dodd- those firms may need comprehensive, contracts. Because of this feature of the Frank Act) are required in § 23.601 to real-time analysis.771 The Commission Commission’s formula for calculating implement systems to monitor position further explained that due to the non-spot-month limit levels and of the limits.769 In addition, many of these variation in both number of positions proposed rule’s application of non-spot- entities have already developed systems held and degree of sophistication in month limits on an aggregate basis or business processes to monitor or existing risk management systems, it across all markets, the imposition of the control the size of swap positions for a was not feasible for the Commission to required aggregate limits should not variety of business reasons, including (i) provide a greater degree of specificity as unduly impact positions outside of the managing counterparty credit risk to the particularized costs for swaps spot-month, as evidenced by the firms.772 relatively few number of traders that 767 The Commission’s estimates concerning the At this time, the Commission remains would have been impacted historically, wage rates are based on 2011 salary information for in the early stages of implementing the noted in table 11, supra. the securities industry compiled by the Securities suite of Dodd-Frank Act regulations Industry and Financial Markets Association addressing swap markets now under its b. § 150.2(e) Levels of Speculative (‘‘SIFMA’’). The Commission is using $120 per jurisdiction. The Commission is Position Limits hour, which is derived from a weighted average of salaries across different professions from the SIFMA registering swap dealers and major Market participants would incur costs Report on Management & Professional Earnings in swaps participants for the first time. to monitor positions to prevent a the Securities Industry 2011, modified to account Much of the infrastructure, including for an 1800-hour work-year, adjusted to account for violation of the limit level. The the average rate of inflation in 2012, and multiplied execution facilities, of the new markets Commission expects that large traders in by 1.33 to account for benefits and 1.5 to account has only recently become operational, the futures and options markets for the for overhead and administrative expenses. The and the collection of comprehensive 28 core referenced futures contracts Commission anticipates that compliance with the regulatory data on physical commodity provisions would require the work of an have already developed some system to information technology professional; a compliance swaps is in its infancy. Because of this, control the size of their positions on an manager; an accounting professional; and an the Commission is unable to estimate intraday basis, in compliance with the associate general counsel. Thus, the wage rate is a with precision the likely number of longstanding position limits regimes weighted national average of salary for impacted swaps-only traders who professionals with the following titles (and their utilized by both the Commission on a relative weight); ‘‘programmer (senior)’’ and would be subject to position limits for federal level and DCMs on an exchange ‘‘programmer (non-senior)’’ (15% weight), ‘‘senior the first time. However, the Commission level and in light of industry practices accountant’’ (15%) ‘‘compliance manager’’ (30%), to measure, monitor, and control the and ‘‘assistant/associate general counsel’’ (40%). 770 See 76 FR at 71667. The presentation of costs risk of positions. For these traders, the All monetary estimates have been rounded to the on a five-year annualized basis is consistent with nearest hundred dollars. requirements under the Paperwork Reduction Act Commission anticipates a small 768 The Commission notes that costs associated (‘‘PRA’’). See OMB Form 83–I requiring the incremental burden to accommodate with the inclusion of swaps contracts in the federal Commission’s Paperwork Reduction Act analysis be any physical commodity swap positions position limits regime are the direct result of submitted with ‘‘annualized’’ costs in all categories. that such traders may hold that would changes made by the Dodd-Frank Act to section 4a Instructions for the form do not provide of the Act. The Commission presents a discussion instructions for annualizing costs; the Commission become subject to the position limits of these costs in order to be transparent regarding chose to annualize over a five year period. regime. The Commission, subject to the effects of the proposed rules. 771 Id. (n. 401). evidence establishing the contrary, 769 See 17 CFR 23.601. 772 Id.

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preliminarily believes that a relatively position limits under the proposed rule? in a separate account by an independent small number of swaps-only traders will Would the proposed rule engender account controller (‘‘IAC’’) 775 when be affected. The Commission anticipates material costs for monitoring positions specific conditions are met. The that most of the traders in swaps addition to those the Commission has Commission proposes to make markets that accumulate physical identified? Are the assumptions organizational and conforming changes commodity swap positions of a reflected in the Commission’s to § 150.3 as well as several substantive sufficiently high volume to engender consideration of the proposed rule’s changes. By exempting positions that concern for crossing position limit costs to monitor limits valid? If not, why pose less risk of unduly burdening thresholds either: Are required to and to what degree? interstate commerce from position limit register as swap dealers or major swaps Is the Commission’s view that regulation, these substantive revisions participants and as such already have aggregate limits as proposed will not would further the Commission’s systems in place to monitor limits in create overly restrictive limit levels mission specified in CEA section accordance with § 23.601; or, are also valid? Would the aggregated, cross- 4a(a)(3). active in futures markets and as such exchange nature of the limits as The proposed organizational/ have the ability to leverage existing proposed in § 150.2 engender material conforming changes consist of updating strategies for monitoring limits. costs that the Commission has not cross references; 776 relocating the IAC Accordingly, for purposes of identified? exemption to consolidate it with the proposing these amendments to § 150.2, Are there other cost factors related to Commission’s separate proposal to the Commission again estimates that operational changes that the amend the aggregation requirements of swaps entities will incur, on average, Commission should consider? What § 150.4; 777 and deleting the calendar labor costs per entity ranging from 40 to other factors should the Commission month spread provision that, due to 1,000 hours; between $25,000 and consider? changes proposed under § 150.2, would $500,000 in total (non-annualized) The Commission requests that be rendered unnecessary.778 These capital/start-up costs and $1,000 to commenters submit data or other amendments will facilitate reader ease- $20,000 in annual operating and information to assist it in quantifying of-use and clarity. However, the maintenance costs. These estimates anticipated costs of proposed § 150.2 Commission foresees little additional provide a preliminary range of costs for and to support their own assertions impact from these non-substantive monitoring positions that reflects, on concerning costs associated with proposed amendments. average, costs that market participants proposed § 150.2. The proposed substantive changes to may incur based on their specific, § 150.3 would revise an existing individualized needs. iv. Consideration of Alternatives exemption, add three additional Finally, proposed § 150.2(e)(3)(ii) The Commission recognizes there exemptions, and revise recordkeeping requires DCMs that list a core referenced exist alternatives to its discretionary requirements. As summarized in the futures contract to supply to the proposals herein. These include the section below, proposed § 150.3 would: Commission estimates of deliverable alternative of setting initial levels for (i) Codify in Commission regulation the supply. The Commission proposes to spot month speculative position limit statutory requirement of CEA section require staggered submission of the based on estimates of deliverable 4a(c)(1) that federal position limits not deliverable supply estimates in order to supply, as provided by the CME Group, apply to bona fide hedging as defined by spread out the administrative burden of rather than at the levels proposed in the Commission; (ii) add exemptions for the proposed rules. Further, for appendix D. The Commission requests financial distress situations, certain contracts with DCM-set limits, an comment on whether an alternative to spot-month positions in cash-settled exchange would have already estimated what is proposed, including setting reference contracts, and pre-Dodd-Frank deliverable supply in order to set spot- initial limits based on a current estimate and transition period swaps; (iii) month position limit or demonstrate of deliverable supply, would result in a provide guidance for non-enumerated continued compliance with core superior benefit-cost profile, with exemptions, including the deletion of principles 3 and 5. Thus, the support for any such position provided. § 1.47; and (iv) revise recordkeeping Commission does not anticipate a large burden to result from the proposed 4. Section 150.3—Exemptions such as a bank, trust company, savings association, § 150.2(e)(3)(ii). The Commission or insurance company. CEA section 4a(a)(7), added by the 775 IACs are defined currently in 17 CFR 150.1(e). preliminarily believes that, as estimated Dodd-Frank Act, authorizes the Amendments to that definition are being proposed in accordance with the Paperwork Commission to exempt, conditionally or in a separate release. See Aggregation NPRM. Reduction Act (‘‘PRA’’), the submission unconditionally, any person, swap, 776 Specifically, as described above: a) proposed would require a labor burden of § 150.3(a)(1)(i) would update the cross-references to futures contract, or option—as well as the bona fide hedging definition to reflect its approximately 20 hours per estimate. any class of the same—from the position proposed replacement in amended § 150.1 from its Thus, a DCM that submits one estimate limit requirements that the Commission current location in § 1.3(z); b) proposed § 150.3(a)(3) may incur a burden of 20 hours for a establishes. Current § 150.3 specifies would add a new cross-reference to the reporting requirements proposed to be amended in part 19; cost, using the estimated hourly wage of three types of positions for exemption 773 and c) proposed § 150.3(i) would add a cross- $120, of approximately $2,400. DCMs from calculation against the federal reference to the updated aggregation rules in that submit more than one estimate may limits prescribed by the Commission proposed § 150.4. multiply this per-estimate burden by the under § 150.2: (1) Bona fide hedges, (2) 777 See Aggregation NPRM. The exemption for number of estimates submitted to obtain accounts carried by an IAC is set out in proposed spreads or arbitrage between single § 150.4(b)(5); adoption of that proposal would an approximate total burden for all months of a futures contract (and/or, on render current § 150.3(a)(4) duplicative. submissions, subject to any efficiencies a futures-equivalent basis, options), and 778 More specifically, as discussed supra, the and economies of scale that may result (3) those of an ‘‘eligible entity’’ as that Commission proposes to amend § 150.2 to increase from submitting multiple estimates. 774 the level of single month position limits to the same term is defined in § 150.1(d) carried level as all months limits. As a result, the spread c. Request for Comment exemption set forth in current § 150.3(a)(3) that 774 For example, an operator of a commodity pool permits a spread trader to exceed single month Do the estimates presented accurately or certain other trading vehicle, a commodity limits only to the extent of the all months limit reflect the expected costs of monitoring trading advisor, or another specified financial entity would no longer provide useful relief.

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requirements for traders claiming any level five times the level of the spot The exemption, would, however, exemption from the federal speculative month limit in the physical-delivery provide the opportunity for speculative position limits. futures contract. Since spot-month limit trading to increase in the cash-settled levels for referenced contracts will be contract. The Commission preliminarily i. Rule Summary set at no greater than 25 percent of the believes that while this proposed a. Section 150.3(a) Bona Fide Hedging estimated deliverable supply in the exemption would remove certain Exemption relevant core referenced futures constraints from speculative trading in As does current § 150.3(a)(1), contract, the proposed exemption would cash-settled contracts, it would not proposed § 150.3(a)(1)(i) will codify the allow a speculative trader to hold or damage liquidity in the aggregate, i.e., statutory requirement that bona fide control positions in cash-settled across physical-delivery and cash- hedging positions be exempt from referenced contracts equal to no greater settled contracts in the same federal position limits. To the extent than 125 percent of the spot month commodity. On this basis, the that benefits and costs would derive limit. Commission preliminarily believes a from the Commission’s proposed Historically, the Commission has been conditional limit in additional amendment in § 150.1 to the definition particularly concerned about protecting commodities is consistent with the of ‘‘bona fide hedging position’’ that is the spot month in physical-delivery statutory direction to deter discussed above. This proposed futures contracts because they are most manipulation while ensuring sufficient amendment would also require that the at risk for corners and squeezes. This liquidity for bona fide hedgers without anticipatory hedging requirements acute risk is the reason that speculative disrupting the price discovery process. The Commission’s current proposal proposed in § 150.7, the recordkeeping limits in physical-delivery markets are would not restrict a trader’s cash requirements proposed in § 150.3(g), generally set more restrictively during commodity position. Instead, the and the reporting requirements in the spot month. The conditional Commission proposes to require proposed part 19 are met in order to exemption, as proposed, would claim the exemption. Any benefits and enhanced reporting of cash market constrain the potential for manipulative positions of traders availing themselves costs attributable to these features of the or disruptive activity in the physical- rule are considered below in the of the conditional spot-month limit. As delivery contracts during the spot discussed in the proposed changes to respective discussions of proposed month by capping speculative trading in § 150.7, § 150.3(g) and Part 19. part 19, the Commission proposes to such contracts; however, in parallel initially require this enhanced reporting b. Section 150.3(b) Financial Distress cash-settled contracts, where the only for the natural gas contract until it Exemption potential for manipulative or disruptive gains more experience administering the activity is much lower, the conditional Proposed § 150.3(b) provides the conditional spot month limit in the exemption would broaden speculative means for market participants to request other referenced contracts. The trading opportunity, potentially relief from applicable speculative Commission preliminarily believes that providing additional liquidity for bona position limits during times of market the proposed reporting regime in natural fide hedgers in cash-settled contracts. stress. The proposed rule allows for gas will provide useful information that exemption under certain financial In proposing the conditional limit, the can be deployed by surveillance staff to distress circumstances, including the Commission has examined market data detect and potentially deter default of a customer, affiliate, or on the effectiveness of conditional spot- manipulative schemes involving the acquisition target of the requesting month limits in natural gas markets, cash market. including the data submitted as part of entity, that may require an entity to d. Section 150.3(d) Pre-Enactment and the rulemaking for now-vacated part assume in short order the positions of Transition Period Swaps Exemption another entity. 151.780 The Commission has also examined market data in other To implement the statutory c. Section 150.3(c) Conditional Spot- contracts, and has observed that open requirement of CEA section 4a(b)(2),783 Month Limit Exemption interest levels naturally decline in the proposed § 150.3(d) would provide an Proposed § 150.3(c) would provide a physical-delivery contract leading up to exemption from federal position limits conditional spot-month limit exemption and during the spot month, as the for swaps entered into prior to July 21, that permits traders to acquire positions contract approaches expiration.781 Both 2010 (the date of the enactment of the up to five times the spot month limit if hedgers and speculators exit the Dodd-Frank Act), the terms of which such positions are exclusively in cash- physical-delivery contract in order to, have not expired as of that date, and for settled contracts. The conditional for example, roll their positions to the swaps entered into during the period exemption would not be available to next contract month or avoid delivery commencing July 22, 2010, the terms of traders who hold or control positions in obligations. Market participants in cash- which have not expired as of that date, the spot-month physical-delivery settled contracts, however, tend to hold and ending 60 days after the publication referenced contract in order to reduce their positions through to expiration. of final rule § 150.3 in the Federal the risk that traders with large positions This market behavior suggests that the Register, i.e., its effective date. The in cash-settled contracts would attempt conditional spot-month limit exemption Commission would allow both pre- to distort the physical-delivery price to should not affect liquidity in the spot enactment and transition swaps to be benefit such positions. month of the physical-delivery contract, netted with commodity derivative The proposed conditional exemption as open interest is rapidly declining.782 contracts acquired more than 60 days is consistent with current exchange-set after publication of final rule § 150.3 in position limits on certain cash-settled 780 See 76 FR at 71635 (n. 100–01). the Federal Register for the purpose of natural gas futures and swaps.779 Both 781 See discussion above. NYMEX and ICE have established 782 Traders participating in the physical-delivery will change due solely to the introduction of a conditional spot month limits in their contract in the spot month are understood to have higher cash-settled contract limit. a commercial reason or need to stay in the spot 783 CEA section 4a(b)(2) states in part that ‘‘any cash-settled natural gas contracts at a month; the Commission preliminarily believes at position limit fixed by the Commission . . . good this time that it is unlikely that the factors keeping faith prior to the effective date of such rule, 779 See discussion above. traders in the spot month physical-delivery contract regulation or order.’’ 7 U.S.C. 6a(b)(2).

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complying with any non-spot-month § 150.3(g)(1) is largely duplicative of confidence that the Commission has the position limit.784 This exemption other recordkeeping obligations appropriate tools to facilitate the facilitates the transition to full position imposed on market participants, transfer of positions expeditiously in limits compliance for previously including provisions in § 1.35 and times of market uncertainty. unregulated swaps markets. Allowing § 18.05 as amended by the Commission b. Section 150.3(c) Conditional Spot- netting with pre-enactment and to conform with the Dodd-Frank Act.787 month Limit Exemption transition swaps provides flexibility Proposed § 150.3(g)(2) require persons where possible in order to lessen the seeking to rely upon the pass-through The conditional spot-month limit impact of the regime on entities that swap offset exemption to obtain a exemption provides speculators with an trade swaps. representation from its counterparty that opportunity to maintain relatively large the swap qualifies as a bona fide positions in cash-settled contracts up to e. Section 150.3(e) and (f) Other hedging position and to retain this but no greater than 125 percent of the Exemptions and Previously Granted representation on file. Similarly, spot-month limit. By prohibiting Exemptions proposed § 150.3(g)(3) requires a person speculators using the exemption in the Proposed § 150.3(e) and (f) provide who makes such a representation to cash-settled contract from trading in the information on other exemptive relief maintain records supporting the spot-month of the physical-delivery not specified by other sections of representation. Under proposed contract, the proposed rules should § 150.3. The Commission previously § 150.3(h), all persons would need to further protect the delivery and permitted a person to file an application make such books and records available settlement process. In addition, the seeking approval for a non-enumerated to the Commission upon request, which condition of the exemption—i.e., a position to be recognized as a bona fide would preserve the ‘‘call for trader availing himself of the exemption hedging position under § 1.47. Though information’’ rule set forth in current may not have any position in the the Commission is proposing to delete § 150.3(b). physical-delivery contract—reduces the § 1.47, the Commission believes it is ability for a trader with a large cash- appropriate to provide persons the ii. Benefits settled contract position to attempt to opportunity to seek exemptive relief. In articulating exemptions from manipulate the physical-delivery Proposed § 150.3(e) provides guidance position limit requirements, § 150.3 contract price in order to benefit his to persons seeking exemptive relief. A works in concert with § 150.2 as it position. As such, the conditional spot- person engaged in risk-reducing pertains to Commission-specified month limit exemption would further practices that are not enumerated in the federal limits and with certain three of the goals under CEA section revised definition of bona fide hedging requirements of § 150.5 pertaining to 4a(a)(3)—deterring market in proposed § 150.1 may use two exchange-set position limits. manipulation, and ensuring sufficient different avenues to apply to the Functioning as an integrated component market liquidity for bona fide hedgers, Commission for relief from federal within the broader position-limits without disrupting the price discovery position limits. The person may request regulatory regime, the Commission process. an interpretative letter from believes the proposed changes to § 150.3 The proposed rules are specifically Commission staff pursuant to accomplish, to the maximum extent intended to provide an alternate § 140.99 785 concerning the applicability practicable, the four objectives outlined structure to the one that is currently in of the bona fide hedging position in CEA section 4a(a)(3). As such, the place that also meets the objectives to exemption, or may seek exemptive relief Commission perceives these proposed deter and prevent manipulation and to from the Commission under section amendments to offer significant ensure sufficient market liquidity. In 4a(a)(7) of the Act.786 benefits. These are explained more this way, the conditional limit specifically below. exemption provides flexibility for f. Section 150.3(g) and (h) market participants and the Commission Recordkeeping a. Section 150.3(b) Financial Distress to meet the objectives outlined in CEA Exemption Proposed § 150.3(g)(1) specifies section 4a(a)(3). The Commission recordkeeping requirements for persons In codifying the Commission’s expects that market participants will who claim any exemption set forth in historical practice of temporarily lifting respond to the flexibility afforded by the proposed § 150.3. Persons claiming position limit restrictions, the proposed proposed exemption in order to fulfill exemptions under § 150.3 would need rule further strengthens the benefits of their needs in a manner that is to maintain complete books and records accommodating transfers of positions consistent with their business interests, concerning all details of their related from financially distressed firms to although it cannot reasonably predict cash, forward, futures, options and swap financially secure firms or facilitating how markets, DCMs and market positions and transactions. Proposed other necessary remediation measures participants will adapt. Accordingly, the during times of market stress. More Commission requests comment on this 784 Because of concerns regarding manipulation specifically, due to the improved facility exemption, its potential impacts on during the delivery period of a referenced contract, and transparency with respect to the the proposed rule would not allow pre- and post- trading strategies, competition, and any enactment and transition swaps to be netted for the availability of this exemption, it other direct or indirect costs to markets purpose of complying with any spot-month position becomes less likely that positions will or market participants and exchanges limit. be prematurely or unnecessarily that could arise as a result of the 785 17 CFR 140.99 defines three types of staff liquidated. The disorderly liquidation of conditional spot-month limit letters—exemptive letters, no-action letters, and a position poses the threat of price interpretative letters—that differ in terms of scope exemption. impacts that may harm the efficiency as and effect. An interpretative letter is written advice c. Section 150.3(d) Pre-Enactment and or guidance by the staff of a division of the well as the price discovery function of Commission or its Office of the General Counsel. It markets. In addition, the availability of Transition Period Swaps Exemption binds only the staff of the division that issued it (or a financial distress exemption provides The pre-existing swaps exemption in the Office of the General Counsel, as the case may be), and third-parties may rely upon it as the market participants with a degree of proposed § 150.3(d) is consistent with interpretation of that staff. CEA section 4a(b)(2). This exemption 786 See supra discussion of CEA section 4a(a)(7). 787 77 FR 66288, Nov. 2, 2012. facilitates the transition to full position

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limits compliance for previously addition to those that the Commission result in an administrative burden that unregulated swaps markets. Allowing has identified? If so, what, and why and is less onerous than the current regime. netting with post-enactment swaps how will they result? Has the In addition, the Commission believes outside of the spot-month provides Commission misidentified or that in the case that one firm is flexibility where possible in order to overestimated any benefits likely to assuming the positions of a financially lessen the impact of the regime on result from the proposed exemptions? If distressed firm, the costs of claiming the entities that trade swaps. so, which and/or to what extent? exemption would be incidental to the costs of assuming the position. d. Section 150.3(e)–(f) Other iii. Costs Exemptions and Previously Granted In general, the exemptions proposed b. Section 150.3(c) Conditional Spot- Exemptions in § 150.3 do not increase the costs of month Limit Exemption The proposed amendments to complying with position limits, and in A market participant that elects to § 150.3(e) and the replacement of fact may decrease these costs by exercise this exemption, one that is not existing § 1.47 with new proposed providing for relief from speculative available under current rules, will incur § 150.3(f) are essentially clarifying and limits in certain situations. The certain direct costs to do so. A person organizational in nature. As such they exemptions are elective, so no entity is seeking to utilize this exemption for the will confer limited substantive benefits required to assert an exemption if it natural gas market must file Form 504 beyond providing market participants determines the costs of doing so do not in accordance with requirements listed with clarity regarding the process for justify the potential benefit resulting in proposed § 19.01.789 If that person obtaining non-enumerated exemptive from the exemption. Thus, the currently has any position in the relief and promoting regulatory Commission does not anticipate the physical-delivery contract, such person certainty for those granted exemptions costs of obtaining any of the exemptions may incur costs associated with pursuant to § 1.47. to be overly burdensome. Nor does the liquidating that position in order to meet the conditions of the conditional e. Section 150.3(g) Recordkeeping Commission anticipate the costs would be so great as to discourage entities from spot-month limit exemption. As By requiring that market participants utilizing available exemptions, as previously discussed, the conditional who avail themselves of the exemptions applicable. spot month limit is designed to deter offered under § 150.3 maintain certain Potential costs attendant to the market manipulation without disrupting records to document their exemption proposed amendments to § 150.3 are the price discovery process. The eligibility and make such records discussed specifically below. Commission does not have reason to available to the Commission on request, believe that liquidity, in the aggregate the rule reinforces proposed § 150.2 and a. Section 150.3(b) Financial Distress (across the core referenced and § 150.3 and helps to accomplish, to the Exemption referenced contracts), will be adversely maximum extent practicable, the goals The Commission anticipates the costs impacted. However, the proposed rules set out in CEA section 4a(a)(3)(B). associated with the codification of the are specifically intended to provide an Supporting books and records are financial distress exemption to be alternative to the position limit regime critical to the Commission’s ability to minimal. Market participants who that is currently in place for the purpose effectively monitor compliance with voluntarily employ these exemptions of deterring and preventing exemption eligibility standards each will incur costs stemming from the manipulation and ensuring sufficient and every time an exemption is requisite filing and recordkeeping market liquidity; the Commission employed. Absent this ability, obligations that attend the expects that market participants will exemptions are more susceptible to exemptions.788 Along with performing respond to the flexibility afforded by the abuse. This susceptibility increases the its due diligence to acquire a distressed proposed exemption in order to fulfill potential that position limits function in firm, or positions held or controlled by their needs in a manner that is a diminished capacity than intended to a distressed firm, an entity would have consistent with their business interests, prevent excessive speculation and/or to update and submit to the Commission although it cannot reasonably predict market manipulation. a request for the financial distress how markets, DCMs and market participants will adapt. Accordingly, the f. Request for Comment exemption. The Commission is unable at this time to accurately estimate how Commission requests comment on this The Commission requests comments often this exemption may be invoked, as exemption, its potential impacts on on its considerations of the benefits emergency or distressed market trading strategies, competition, and any associated with the proposed situations by nature are unpredictable other direct or indirect costs to markets amendments to § 150.3, including data and dependent on a variety of firm- and or market participants and exchanges or other information to assist the market-specific idiosyncratic factors as that could arise as a result of the Commission in identifying the number well as general macroeconomic conditional spot-month limit and type of market participants that will indicators. Given the unusual and exemption. realize, respectively, the benefits unpredictable nature of emergency or identified and/or to monetize such c. Section 150.3(d) Pre-Enactment and distressed market situations, the benefits. Has the Commission correctly Transition Period Swaps Exemption Commission anticipates that this identified market behavior and The exemption offered in proposed exemption would be invoked incentives that affect or would likely be § 150.3(d) is self-executing and would infrequently, but is unable to provide a affected by the conditional spot-month not require a market participant to file more precise estimate. The Commission limit exemption? What other potential for relief. However, a firm may incur also assumes that codifying the benefits could the conditional spot- costs to identify positions eligible for proposed rule and thus lending a level month limit exemption have for markets of transparency to the process will and/or market participants? Will the 789 Specific costs associated with filing Form 504 are considered above in the sections that implement exemptions proposed likely result in 788 See supra considerations of costs and benefits that form, namely the discussion of the costs and any benefits, direct or indirect, for of the proposed amendments to part 19 and the benefits of proposed amendments to part 19 and the markets and/or market participants in Paperwork Reduction Act. Paperwork Reduction Act .

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the exemption and to determine if that sections is likely already being 5. Section 150.5—Exchange-Set position is to be netted with post- maintained as part of prudent Speculative Position Limits enactment swaps for purposes of accounting and risk management complying with a non-spot-month policies and procedures. The Current § 150.5 addresses the position limit. Such costs would be Commission preliminarily believes that, requirements and acceptable practices assumed voluntarily by a market as estimated in accordance with the for exchanges in setting speculative participant in order to avail itself of the PRA, a total of 400 entities will incur an position limits or position exemption, and the Commission does annual labor burden of approximately accountability levels for futures and not anticipate these costs to be overly 50 hours each, or 20,000 total hours for options contracts traded on each burdensome. all affected entities, to comply with the exchange. As further described 792 d. Section 150.3(e)–(f) Other additional recordkeeping obligations. above, the CFMA’s amendments to Exemptions and Previously Granted Using an estimated hourly wage of $120 the CEA in 2000 gave DCMs discretion Exemptions per hour,791 the Commission anticipates to set those limits or levels within the statutory requirements of core principle Under the proposed § 150.3(e), market an annual burden of approximately 5.793 With this grant of statutory participants electing to seek an $6,000 per entity and a total of discretion, § 150.5 became non-binding exemption other than those specifically $2,400,000 for all affected entities. enumerated, will incur certain direct guidance and accepted practice to assist f. Request for Comment costs to do so. First, they will incur the exchanges in meeting their statutory costs related to petitioning the responsibilities under the core The Commission requests comment principles.794 Subsequently, the Dodd- Commission under § 140.99 of the on its considerations of the costs Commission’s regulations or under CEA Frank Act scaled back the discretion associated with the proposed changes to afforded DCMs for establishing position section 4a(a)(7). To the extent these § 150.3. Are there other costs associated costs may be marginally greater than a limits under the earlier CFMA with new exemptions that the market participant would experience to amendments. Specifically, among other Commission should consider? With seek an exemption under the process things, the 2010 law: (1) amended core afforded under current § 1.47— respect to the proposed conditional principle 1 to expressly subordinate something the Commission cannot rule spot-month limit exemption, DCMs’ discretion in complying with out at this time—the cost difference specifically, the Commission welcomes statutory core principles to Commission between the two is attributable to this comments regarding the potential cost rules and regulations; and (2) amended rulemaking.790 Further, market impact on trading strategies, any other core principle 5 to additionally require participants who had previously relied direct or indirect costs to markets or that, with respect to contracts subject to upon the exemptions granted under market participants that could arise as a a position limit set by the Commission § 1.47 would be able to continue to rely result of it, and the estimated number of under CEA section 4a, a DCM must set on such exemptions for existing impacted entities. limits no higher than those prescribed positions. Going forward, market 795 iv. Consideration of Alternatives by the Commission. The Dodd-Frank participants would need to enter into a Act also added parallel core principle new position that fits within applicable The Commission recognizes that obligations on newly-authorized SEFs, limits or are eligible for an alternate alternatives may exist to discretionary including SEF core principle 6 exemption, in which case the elements of § 150.3 proposed herein. regarding the establishment of position participants may incur costs associated The Commission requests comment on limits.796 with applying for such exemptions. The whether an alternative to what is Commission is unable to ascertain at 792 this time the number of participants proposed would result in a superior See discussion above. 793 CEA section 5(d)(5) (specifying DCM core affected by these proposed regulations. benefit-cost profile, with support for any such position provided. principle 5 titled ‘‘Position Limits or The Commission notes, however, that a Accountability’’). decision to incur the costs inherent in 794 Specifically, in 2001, the Commission adopted seeking relief is voluntary. 791 The Commission’s estimates concerning the in part 38 app. B (Guidance on, and acceptable e. Section 150.3(g) Recordkeeping wage rates are based on 2011 salary information for Practices in, Compliance with Core Principles), 66 Finally, any person that elects to the securities industry compiled by the Securities FR 42256, 42280, Aug. 10, 2001, an acceptable Industry and Financial Markets Association practice for compliance with DCM core principle 5 exercise an exemption provided in (‘‘SIFMA’’). The Commission is using $120 per that stated ‘‘[p]rovisions concerning speculative proposed § 150.3 would incur costs hour, which is derived from a weighted average of position limits are set forth in part 150.’’ Current attributable to additional recordkeeping salaries across different professions from the SIFMA § 150.5 states that each DCM shall ‘‘limit the obligations under proposed § 150.3(e)– Report on Management & Professional Earnings in maximum number of contracts a person may hold the Securities Industry 2011, modified to account or control, separately or in combination, net long (g). The Commission preliminarily or net sort, for the purchase or sale of a commodity for an 1800-hour work-year, adjusted to account for believes that these costs will be for future delivery or, on a futures-equivalent basis, the average rate of inflation in 2012, and multiplied options thereon,’’ with certain exemptions. minimal, as participants already by 1.33 to account for benefits and 1.5 to account maintain books and records under a Exemptions from federal limits include major for overhead and administrative expenses. The foreign currencies and ‘‘spread, straddles or variety of other Commission regulations Commission anticipates that compliance with the arbitrage’’ exemptions. Current § 150.5 expressly and as the information required in these provisions would require the work of an excludes bona fide hedging positions from limits, information technology professional; a compliance but acknowledges that exchanges may limit manager; an accounting professional; and an 790 Alternatively, to the extent petitioning the positions ‘‘not in accord with sound commercial associate general counsel. Thus, the wage rate is a Commission under § 140.99 or under CEA section practices or exceed an amount which may be 4a(a)(7) results in lower costs relative to those weighted national average of salary for established and liquidated in an orderly fashion.’’ necessary to utilize the current § 1.47 process, the professionals with the following titles (and their 795 Dodd-Frank Act section 735(b). CEA section cost difference is a benefit attributable to this relative weight); ‘‘programmer (senior)’’ and 4a(e), effective prior to, and not amended by, the rulemaking. The Commission requests comment ‘‘programmer (non-senior)’’ (15% weight), ‘‘senior Dodd-Frank Act, likewise provides that position concerning whether, and to what degree, requiring accountant’’ (15%) ‘‘compliance manager’’ (30%), limits fixed by a board of trade not exceed federal petitions for exemption under § 140.99 or under and ‘‘assistant/associate general counsel’’ (40%). limits. 7 U.S.C. 6a(e). CEA section 4a(a)(7) in place of current § 1.47 is All monetary estimates have been rounded to the 796 Dodd-Frank Act section 733 (adding CEA likely to result in any material cost difference. nearest hundred dollars. section 5h; 7 U.S.C. 7b–3).

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i. Rule Summary commodity derivative contracts for the regulatory arbitrage that may impede the In light of these Dodd-Frank Act purpose of complying with any non- benefits of the federal speculative statutory amendments, the Commission spot-month position limit. position limits regime. The harmonized Two of these proposed proposes to amend § 150.5 to specify approach to aggregation policies for requirements—i.e., that for contracts certain binding requirements with limits on all levels eliminates the subject to limits specified in § 150.2, potential for exchanges to use which DCMs and SEFs must comply in DCMs and SEFs set limits no higher permissiveness in aggregation policies establishing exchange-set limits. 797 than those specified in § 150.2, and that as a competitive advantage and Specifically, proposed § 150.5(a)(1) pre-existing positions must be exempted therefore prevents a ‘‘race to the would require that DCMs and SEFs set from exchange-set limits on contracts bottom,’’ which would impair the limits for contracts listed in § 150.2(d) at subject to § 150.2—exclusively codify effectiveness of the Commission’s a level not higher than the levels statutory requirements, and therefore aggregation policy. In addition, DCMs specified in § 150.2. Proposed reflect no exercise of Commission and SEFs are required to set position § 150.5(a)(5) and (b)(8) would require discretion subject to CEA section 15(a). limits at a level not higher than that set that exchanges adopt aggregation rules The other-listed requirements, however, by the Commission. Differing that conform to proposed § 150.4 for all do involve Commission discretion, the aggregation standards may have the contracts, including those contracts costs and benefits of which are practical effect of lowering a DCM- or subject to federal speculative limits. considered below. SEF-set limit to a level that is lower Proposed § 150.5(a)(2)(i) and (b)(5)(i) than that set by the Commission. ii. Benefits would require that exchanges conform Accordingly, harmonizing aggregation their bona fide hedging exemption rules Functioning as an integrated standards reinforces the efficacy and to the proposed § 150.1 definition of component within the broader position- intended purpose of §§ 150.5(a)(2)(iii) bona fide hedging for all contracts, limits regulatory regime, the and (b)(5)(iii) by foreclosing an avenue including those contracts subject to Commission expects the proposed to circumvent applicable limits. federal speculative limits. Proposed changes to § 150.5 would further the Moreover, by extending this § 150.5(a)(2)(iii) and (b)(5)(iii) would four objectives outlined in CEA section harmonized approach to contracts not require that exchanges condition any 4a(a)(3).799 As explained more fully included in proposed § 150.2, the exemptive relief from federal or below, the Commission believes these Commission is proposing a common exchange-set position limits on an proposed amendments offer significant standard for all federal and exchange-set application from the trader.798 To the benefits. limits. The proposed rule provides extent an exchange offers exemptive uniformity, consistency, and certainty a. Section 150.5(a)(5) and (b)(8) relief for intra- and inter-market spread for traders who are active on multiple Aggregation positions for contracts subject to federal trading venues, and thus should reduce limits under proposed § 150.2, proposed CEA section 4a(a)(1) states that the the administrative burden on traders as § 150.5(a)(2)(i) and (ii) would require Commission, ‘‘[in] determining whether well as the burden on the Commission that the exchange provide such relief any person has exceeded such limits,’’ in monitoring the markets under its only outside of the spot month for must include ‘‘the positions held and jurisdiction. physical-delivery contracts and, with trading done by any persons directly or respect to intra-market spread positions, indirectly controlled’’ by such person. b. Section 150.5(a)(2)(i) and (b)(5)(i) on the condition that such positions do Pursuant to this statutory direction, the Hedge Exemptions not exceed the all-months limit. Finally, Commission has proposed in a separate The proposed rules also promote a proposed § 150.5(a)(4) would further release amendments to its aggregation common standard for bona fide hedging implement the statutory provision in policy, located in § 150.4.800 The exemptions by requiring such CEA section 4a(b)(2) that exempts pre- regulations proposed in this release exemptions granted by an exchange to existing positions, while § 150.5(a)(3) require that exchange-set limits employ conform with the proposed definition of would require exchanges to mirror the aggregation policies that conform to the bona fide hedging in § 150.1. For Commission’s exemption in proposed Commission’s aggregation policy both contracts subject to federal limits under § 150.3 for pre-enactment and transition for contracts that are subject to federal proposed § 150.2, the proposed rules period swaps from exchange-set limits limits under § 150.2 and those that are under § 150.5(a)(2)(i) prescribe a on contracts subject to limits under not, thus harmonizing aggregation rules harmonized approach intended to proposed § 150.2. Proposed § 150.5(a)(3) for all federal and exchange-set prevent the confusion that may arise would also require exchanges to allow speculative position limits. should the same contract have differing the netting of pre-enactment and For contracts subject to federal standards of bona fide hedging between transition swaps with post-effective date speculative position limits under the Commission’s federal standard and proposed § 150.2, the Commission the standard on any given exchange. As 797 As discussed above, proposed § 150.5 also anticipates that a harmonized approach discussed above, the definition of bona would continue to incorporate non-exclusive to aggregation will prevent confusion fide hedging proposed by the guidance and acceptable practices for DCMs and Commission in this release allows only SEFs with respect to setting limits with and without that otherwise might result from a measurable deliverable supply, adopting position allowing divergent standards between positions that represent legitimate accountability in lieu of a position limits scheme, federal and exchange-set limits on the commercial risk to be exempt from and adjusting limit levels, among other things. As same contracts. Further, the proposed position limits. Deviation from this non-binding guidance and acceptable practices, definition could impede the these components of the rulemaking are not binding approach would prevent the kind of Commission regulations or orders subject to the effectiveness of the Commission’s requirement of CEA section 15(a). 799 CEA section 4a(a)(3)(B) applies for purposes of position limit regime by potentially 798 The Commission notes that for contracts setting federal limit levels. 7 U.S.C. 6a(a)(3)(B). The allowing positions to be improperly subject to federal limits, exchange-granted Commission considers the four factors set out in the exempted from speculative limits. exemptions would need to conform with the section relevant for purposes of considering the standards in proposed § 150.5(a)(2)(i) for hedge benefits and costs of these proposed amendments Proposed § 150.5(b)(5)(i) would exemptions and proposed § 150.5(a)(2)(ii) for other addressed to exchange-set position limits as well. extend this common standard of bona exemptions. 800 See Aggregation NPRM. fide hedging to contracts not subject to

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federal speculative limits, thereby proposing § 150.5(a)(2)(ii) to clarify the impact for SEFs as newly-instituted creating a single standard across all types of spread positions for which a entities may be somewhat greater. trading venues that would reduce the DCM or SEF may grant exemptions by The Commission notes that recently administrative burden on market cross-referencing the definitions adopted § 37.204 of the Commission’s participants trading on multiple trading proposed in § 150.1 802 and to require regulations allows SEFs the flexibility to venues and the burden on the that any such exemption be outside of contract with a third-party regulatory Commission of monitoring the markets the spot month for physical-delivery service provider 803 to fulfill certain under its jurisdiction. contracts. regulatory obligations.804 The This exemption would provide administration of position limits is c. Section 150.5(a)(2)(iii) and (b)(5)(iii) within the range of obligations eligible Application for Exemption exchanges with certainty regarding the application of spread exemptions for for outsourcing to a third-party Proposed § 150.5 requires traders to contracts subject to federal limits under regulatory service provider. Presumably, apply to the exchange for any proposed § 150.2. Should an exchange a SEF will avail itself of this flexibility exemption from position limits. decide to provide exemptive relief for if doing so results in lower costs for the Requiring traders to apply to the spread positions, the exemption entity. In order to better inform itself exchange affirms the position of the described in § 150.5(a)(2)(ii) promotes with respect to the cost implications of DCM or SEF as the front-line regulator the intended goals of federal speculative this proposed rule for SEFs, the for position limits while providing the limits, including protection of the spot Commission requests comment on the exchanges with information that can be period in the physical-delivery contract likelihood of SEFs utilizing a third-party used to ensure the legitimacy of a and exemption of positions as regulatory service provider to comply trader’s position with regards to its appropriate. with its position limits obligations and eligibility for exemptive relief. By the expected dollar costs of doing so. gathering information from traders’ e. Section 150.5(a)(3) Pre-Enactment and The Commission also requests comment applications for exemption, exchanges Transition Period Swaps Positions on the expected dollar costs of meeting will have a complete record of all Proposed § 150.5(a)(3) requires DCMs the proposed rule’s requirement if a SEF exemptions requested, granted, and and SEFs to exempt pre-enactment and undertakes to perform the proposed denied, as well as information about the transition period swaps as defined in rule’s obligations in-house rather than commercial operations of traders who proposed § 150.1 from exchange-set outsourcing them. The following discusses potential apply for exemptions. Because the limits on contracts subject to federal costs with respect to the specific Commission has not specified a format limits under proposed § 150.2. This discretionary aspects of the rule to for such exemption applications, provision mirrors the exemption which they are attributable. exchanges have flexibility to determine proposed in § 150.3 and requires that which information will best inform the exchanges provide the same relief as the a. Section 150.5(a)(5) and (b)(8) exchange’s self-regulatory operations Commission for pre-existing swaps Aggregation and § 150.5(a)(2)(i) and and obligations. positions. (b)(5)(i) Hedge Exemptions The Commission understands that Further, requiring that DCMs and many DCMs are already requiring DCMs may incur costs to amend their SEFs allow netting of pre-and-post applications for exemptive relief from current aggregation and bona fide enactment swaps outside of the spot speculative position limits,801 and that hedging policies to conform with month provides additional flexibility on SEFs are likely to adopt this practice as proposed § 150.4 and proposed § 150.1 an exchange level for market a ‘‘best practice’’ for complying with respectively. Such costs may include participants in transitioning to a core principles. As such, the proposed burdens associated with reviewing and position limits regime that includes rules codify an industry ‘‘best practice’’ evaluating current standards to assess swaps. regarding position limits and promote differences that must be addressed, the continuation of the benefits of that f. Request for Comment employing legal counsel to aid in best practice across all trading venues ensuring conformity, and transitioning The Commission requests comment and all commodity derivative contracts. from an old standard to the new one. on its consideration of the benefits of Because the burden associated with this d. Section 150.5(a)(2)(ii) Other proposed § 150.5. Are there additional rule is proportional to the divergence of Exemptions benefits that the Commission should a DCM’s current standard from the As discussed above, the Commission consider? Has the Commission Commission’s proposed standard, costs is proposing to set single-month limits misidentified any benefits? are specific and proprietary to each at the same levels as all-months limits, iii. Costs affected entity; as such, the Commission rendering the ‘‘spread’’ exemption in is unable to estimate costs at this time current § 150.3 unnecessary. However, DCMs presently have considerable within a range of reasonable accuracy. It since DCM core principle 5 allows experience in setting and administering requests comment to assist it in doing exchanges to set more restrictive levels speculative position limits and hedge so. than those set by the Commission, a exemption programs in line with SEFs, as newly-instituted entities, DCM or SEF may set the single month existing Commission guidance and will be required to incur costs to limit at a lower level than that of the all- acceptable practices that run parallel in develop aggregation and bona fide month limit. Further, because federal most respects to the requirements that hedging policies that conform to the limits apply across trading venues, are incorporated in the proposed rule. appropriate provisions as required exchanges may grant spread exemptions Accordingly, as a general matter, the for inter-market spreads across Commission anticipates minimal cost 803 Under § 37.204, possible third-party regulatory impact on DCMs from these proposed service providers include registered futures exchanges. As such, the Commission is associations (such as the National Futures requirements; relative to DCMs, the cost Association (NFA)), registered entities (such as 801 See, e.g., CME Rule 559; NYMEX Rule 559; DCMs or SEFs), and the Financial Industry CBOT Rule 559; KCBT Rule 559; ICE Futures Rules 802 The terms ‘‘inter-market spread’’ and ‘‘intra- Regulatory Authority (FINRA). 6.26, 6.27, and 6.29; and MGEX Rule 1504.00. market spread’’ are defined in proposed § 150.1. 804 See 78 FR 33476, 33516, Jun. 4, 2013.

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under proposed § 150.5. Such costs are determined to set a more restrictive anticipated requirements in current likely to include legal counsel, as well limit will have done so having taken § 1.48.806 as drafting and implementation of the into account any burden imposed by the Current § 1.48 provides a procedure new policy. Because these entities are proposed rule. Further, some trading for persons to file for bona fide hedging new and have not previously been venues already grant inter-market exemptions for anticipated production subject to the Commission’s oversight in spread exemptions on certain or unfilled requirements when that this capacity, the Commission requests commodities; such entities may be able person has not covered the anticipatory comment regarding the costs associated to leverage current practices to extend need with fixed-price commitments to with implementing the appropriate such spread exemptions to other sell a commodity, or inventory or fixed- policies. commodities as appropriate. price commitments to purchase a commodity. It reflects a long-standing b. Section 150.5(a)(2)(iii) and (b)(5)(iii) The Commission expects small costs Commission concern for the difficulty of Application for Exemption to be associated with communicating distinguishing between reduction of risk The Commission anticipates that and monitoring the appropriate arising from anticipatory needs and that DCMs will incur minimal costs to conditions for exemption as described arising from speculation if anticipatory administer the application process for in proposed § 150.5(a)(2)(ii), namely transactions are not well defined.807 exemption relief in accordance with that such position must be solely These same concerns apply to any standards set forth in the proposed rule. outside of the spot-month of the position undertaken to reduce the risk As described above, the Commission physical-delivery contract. of anticipated transactions. To address understands that requiring traders to d. Request for Comment them, the Commission proposes to apply for exemptive relief comports extend the special reporting with existing DCM practice. The Commission requests comment requirements in proposed § 150.7 for all Accordingly, by incorporating an on its considerations of the costs of types of enumerated anticipatory hedges application requirement that the proposed § 150.5. Are there additional that appear in the definition of bona fide Commission has reason to understand costs that the Commission should hedging positions in proposed most if not all active DCMs already consider? Has the Commission § 150.1.808 follow, the rule should have little cost misidentified any costs? What other The Commission proposes to add a impact for DCMs. relevant cost information or data, new series ’04 reporting form, Form 704, For SEFs, the rules necessitate a including alternative cost estimates, to effectuate these additional and compliant application regime, which should the Commission consider and updated reporting requirements for will require an initial investment why? anticipatory hedges. Persons wishing to similar to that which DCMs have likely avail themselves of an exemption for already made and need not duplicate. iv. Consideration of Alternatives any of the anticipatory hedging As noted above, the Commission transactions enumerated in the updated considers it highly likely that, in The Commission recognizes that definition of bona fide hedging in accordance with industry best practices alternatives may exist to discretionary proposed § 150.1 would be required to to comply with core principles and due elements of § 150.5 proposed herein. file an initial statement on Form 704 to the utility of application information The Commission requests comment on with the Commission at least ten days in demonstrating compliance with core whether an alternative to what is in advance of the date that such principles, SEFs may incur such costs proposed would result in a superior positions would be in excess of limits with or without the proposed rules. benefit-cost profile, with support for any established in proposed § 150.2. Again, due to the new existence of these such position provided. Proposed § 150.7(f) would add a entities, the Commission is unable to 6. Section 150.7—Reporting requirement for any person who files an estimate what costs may be associated Requirements for Anticipatory Hedging initial statement on Form 704 to provide with the requirement to impose an Positions annual updates that detail the person’s application regime for exemptive relief actual cash market activities related to on the exchange level. The Commission The revised definition of bona fide the anticipated exemption. Proposed requests comment regarding the burden hedging in proposed § 150.1 § 150.7(g) would similarly enable the on a SEF to impose a compliant incorporates hedges of five specific Commission to review and compare the application regime. types of anticipated transactions: unfilled anticipated requirements, 806 See 17 CFR 1.48. See also definition of bona c. Section 150.5(a)(2)(ii) Other fide hedging transactions in current 17 CFR Exemptions unsold anticipated production, 1.3(z)(2)(i)(B) and (ii)(C), respectively. anticipated royalties, anticipated 807 Proposed § 150.5(a)(2)(ii) provides See Hedging Anticipated Requirements for services contract payments or receipts, Processing or Manufacturing under Section 4a(3) of clarity on the imposition of exemptions and anticipatory cross-hedges.805 The the Commodity Exchange Act, 21 FR 6913, Sep. 12, for spread positions on contracts subject Commission proposes reporting 1956. to federal limits under proposed § 150.2 808 For purposes of simplicity, the proposed requirements in new § 150.7 for traders in accordance with new definitions special reporting requirements for anticipatory seeking an exemption from position proposed in § 150.1. The Commission hedges would be placed within the Commission’s limits for any of these five enumerated position limits regime in part 150, and alongside notes again that the rules would apply anticipated hedging transactions. the Commission’s updated definition of bona fide if the single-month limit is at a lower hedging positions in proposed § 150.1; rendered Proposed § 150.7 would build on, and level than the all-month limit, which duplicative by these changes, current § 1.48 would replace, the special reporting would occur if a DCM or SEF be deleted. In another non-substantive change, requirements for hedging of unsold proposed § 150.7(i) would replace current § 140.97 determines to set more restrictive levels anticipated production and unfilled which delegates to the Director of the Division of for a single-month limit that what has Market Oversight or his designee authority been set by the Commission, or if the regarding requests for classification of positions as 805 See, paragraphs (3)(iii), (4)(i), (iii), and (iv), bona fide hedging under current §§ 1.47 and 1.48. exchange grants inter-market spread and (5), respectively, of the Commission’s amended For purposes of simplicity, this delegation of exemptions. Thus, the Commission definition of bona fide hedging transactions in authority would be placed within the Commission’s anticipates that a DCM or SEF that has proposed § 150.1. position limits regime in part 150.

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actual cash activities and the remaining additional costs or benefits the person claiming any exemption from unused anticipated hedge transactions Commission should consider? What federal position limits pursuant to by requiring monthly reporting on Form costs may be incurred beyond those proposed § 150.3. The Commission 204. incurred to gather information and file proposes to add three new series ’04 As is the case under current § 1.48, Form 704? Should the Commission reporting forms to effectuate these proposed § 150.7(h) requires that a consider alternatives to its annual additional reporting requirements. trader’s maximum sales and purchases updating requirement? The Commission Third, the Commission proposes to must not exceed the lesser of the also recognizes that alternatives may update the manner of part 19 reporting. approved exemption amount or the exist to discretionary elements of Lastly, the Commission proposes to trader’s current actual anticipated § 150.7 proposed herein. The update both the type of data that would transaction. Commission requests comments on be required in series ’04 reports, as well i. Benefits and Costs whether an alternative to what is as the time allotted for filing such proposed would result in a superior reports. As noted above, the Commission benefit-cost profile, with support for any i. Rule Summary remains concerned that distinguishing such position provided. whether an over-the-limit position is a. Extension of Reporting Requirements entered into in order to reduce risk 7. Part 19—Reports arising from anticipatory needs, or CEA Section 4i authorizes the Proposed part 19 will be expanded to whether it is speculative, may be Commission to require the filing of include reporting requirements for exceedingly difficult if anticipatory reports, as described in CEA section 4g, positions in swaps, in addition to transactions are not well defined. The when positions equal or exceed position futures and options positions, for any Commission proposes to add, in its limits. Current part 19 of the instance in which a person relies on an discretion, proposed § 150.7 to collect Commission’s regulations sets forth exemption. Therefore, positions in vital information to aid in this these reporting requirements for persons ‘‘commodity derivative contracts,’’ as distinction. Advance notice of a trader’s holding or controlling reportable futures defined in proposed § 150.1, would intended maximum position in and option positions that constitute replace ‘‘futures and option positions’’ commodity derivative contracts to offset bona fide hedge positions as defined in throughout amended part 19 as anticipatory risks would identify—in § 1.3(z) and in markets with federal shorthand for any futures, option, or advance—a position as a bona fide speculative position limits—namely swap contract in a commodity (other hedging position, avoiding unnecessary those for grains, the soy complex, and than a security futures product as 810 contact during the trading day with cotton. Since having a bona fide hedge defined in CEA section 1a(45)). surveillance staff to verify whether a exemption affords a commercial market The Commission also proposes to hedge exemption application is in participant the opportunity to hold extend the reach of part 19 by requiring process, the appropriate level for the positions that exceed a position limit all persons who avail themselves of any exemption and whether the exemption level, it is important for the Commission exemption from federal position limits is being used in a manner that is to be able to verify that when an under proposed § 150.3 to file consistent with the requirements. 811 exemption is invoked that it is done so applicable series ’04 reports. The list Market participants can anticipate for legitimate purposes. As such, of positions set forth in proposed hedging needs well in advance of commercial entities that hold positions § 150.3 that are eligible for exemption assuming positions in derivatives in excess of those limits must file from the federal position includes, but markets and in many cases need to information on a monthly basis is not limited to, bona fide hedging supply the same information after the pertaining to owned stocks and positions (including pass-through swaps fact; in such cases, providing the purchase and sales commitments for and anticipatory bona fide hedge information in advance allows the entities that claim a bona fide hedging positions), qualifying spot month Commission to better direct its efforts exemption. positions in cash-settled referenced towards deterring and detecting In order to help ensure that the contracts, and qualifying non- manipulation. The annual updates in additional exemptions described in enumerated risk-reducing transactions. proposed § 150.7(f) similarly allow the proposed § 150.3 are used in accordance The Commission currently requires Commission to verify on an ongoing with the requirements of the exemption two monthly reports, CFTC Forms 204 basis that the person’s anticipated cash employed, as well as obtain information and 304, which are listed in current market transactions closely track that necessary to verify that any futures, § 15.02.812 The reports, collectively person’s real cash market activities. options and swaps positions established referred to as the Commission’s ‘‘series Absent monthly filing pursuant to in referenced contracts are justified, the ’04 reports,’’ show a trader’s positions in proposed § 150.7(g), the Commission Commission proposes to make the cash market and are used by the would need to issue a special call to conforming and substantive Commission to determine whether a determine why a person’s commodity amendments to part 19. First, the trader has sufficient cash positions that derivative contract position is, for Commission proposes to amend part 19 justify futures and option positions example, larger than the pro rata by adding new and modified cross- above the speculative limits. CFTC balance of her annually reported references to proposed part 150, Form 204 is the Statement of Cash anticipated production. The Commission understands that including the new definition of bona Positions in Grains, which includes the there will be costs associated with fide hedging position in proposed soy complex, and CFTC Form 304 809 proposed § 150.7(f) in the filing of Form § 150.1. Second, the Commission Report is the Statement of Cash 704. Costs of filing that form are proposes to amend § 19.00(a) by discussed in the context of the proposed extending reporting requirements to any 810 See supra discussion of proposed amendments part 19 requirements. to part 19. 809 These amendments are non-substantive 811 Furthermore, anyone exceeding the federal The Commission requests comments conforming amendments and should not have limits who has received a special call must file a on its consideration of the costs and implications for the Commission’s consideration of series ’04 form. benefits of proposed § 150.7. Are there costs and benefits. 812 17 CFR 15.02.

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Positions in Cotton.813 The Commission commodity that is different from the business on the last Friday of the proposes to add three new series ’04 commodity underlying the futures month. reporting forms to effectuate the contract used for hedging.816 Since d. Conditional Spot-Month Limit expanded reporting requirements of part proposed § 19.00(b)(3) would maintain Exemption 19. Proposed CFTC Form 504, Statement the requirement that cross-hedged of Cash Positions for Conditional Spot positions be shown both in terms of the Proposed § 19.01(a)(1) would require Month Exemptions, would be added for equivalent amount of the commodity persons availing themselves of the use by persons claiming the conditional underlying the commodity derivative conditional spot month limit exemption spot month limit exemption pursuant to contract used for hedging and in terms for natural gas (pursuant to proposed proposed § 150.3(c). Proposed CFTC of the actual cash commodity (as § 150.3(c)) to report certain detailed Form 604, Statement of Counterparty provided for on the appropriate series information concerning their cash Data for Pass-Through Swap ’04 form), the Commission will be able market activities. While traders could Exemptions, would be added for use by to determine the hedge ratio used not directly influence the settlement persons claiming a bona fide hedge merely by comparing the reported price in the physical-delivery referenced exemption for either of two specific positions. Thus, the Commission will be contract due to the prohibition of pass-through swap position types, as positioned to review whether a hedge holding physical-delivery contract discussed further below. Proposed ratio appears reasonable in comparison positions when invoking the conditional CFTC Form 704, Statement of to, for example, other similarly situated spot month exemption, there is no Anticipatory Bona Fide Hedge traders. similar restriction on holding the Exemptions, would be added for use by Proposed § 19.00(b)(3) maintains the underlying cash commodity. While the persons claiming a bona fide hedge requirement that standards and Commission is concerned about traders’ exemption for certain anticipatory bona conversion factors used in computing activities in the underlying cash market fide hedging positions. cash positions for reporting purposes of any derivative contract, it is must be made available to the particularly concerned with respect to b. Manner of Reporting Commission upon request. Proposed natural gas where there is an existing For purposes of reporting cash market § 19.00(b)(3) would clarify that such conditional spot-month limit positions under current part 19, the information would include hedge ratios exemption. Accordingly, proposed Commission historically has allowed a used to convert the actual cash § 19.01(b) would require that persons reporting trader to ‘‘exclude certain commodity to the equivalent amount of claiming a conditional spot month limit products or byproducts in determining the commodity underlying the exemption must report on new Form his cash positions for bona fide commodity derivative contract used for 504 daily, by 9 a.m. Eastern Time on the hedging’’ if it is ‘‘the regular business hedging, and an explanation of the next business day, for each day that a practice of the reporting trader’’ to do methodology used for determining the person is over the spot month limit in so.814 Nevertheless, the Commission hedge ratio. certain commodity contracts specified believes that an entity, when calculating by the Commission. The scope of the value that is subject to risks from a c. Bona Fide Hedgers and Cotton reporting—purchase and sales contracts source commodity in order to establish Merchants and Dealers through the delivery area for the core a long derivatives position as a hedge Current § 19.01(a) sets forth the data referenced futures contract and for unfilled anticipated requirements, that must be provided by bona fide inventory in the delivery area—differs need take into account large quantities hedgers (on Form 204) and by from the scope of reporting for bona fide of a source commodity that it may hold merchants and dealers in cotton (on hedgers, since the person relying on the in inventory. Under proposed Form 304). The Commission proposes to conditional spot month limit exemption § 19.00(b)(1), a source commodity itself continue using Forms 204 and 304, with need not be hedging a position. can only be excluded from a calculation minor changes to the types of data to be Initially, the Commission would of a cash position if the amount is de reported.817 Form 204 will be expanded require reporting on new Form 504 for to incorporate, in addition to all other exemptions in the natural gas minimis, impractical to account for, 818 and/or on the opposite side of the positions reportable under proposed commodity derivative contracts only. market from the market participant’s § 19.00(a)(1)(iii), monthly reporting for The Commission requests comment as to whether the costs and benefits of the hedging position.815 cotton, including the granularity of Persons who wish to avail themselves equity, certificated and non-certificated enhanced reporting regime support of cross-commodity hedges are required cotton stocks of cotton. Weekly imposing this requirement on additional to file an appropriate series ’04 form. reporting for cotton will be retained as commodity markets before gaining Proposed § 19.00(b)(2) sets forth a separate report made on Form 304 for 818 The Commission believes that enhanced instructions, which are consistent with the collection of data required by the reporting for natural gas contracts is warranted the provisions in the current section, for Commission to publish its weekly based on its experience in surveillance of natural reporting a cash position in a public cotton ‘‘on call’’ report on gas commodity derivative contracts. Absent www.cftc.gov. experiential evidence of current need beyond the 813 natural gas realm, the Commission proposes to See supra discussion of series ’04 forms. Proposed § 19.01(b) would maintain initially not impose reporting requirements for 814 See 17 CFR 19.00(b)(1) (providing that ‘‘[i]f the the requirement that reports on Form persons claiming conditional spot month limit regular business practice of the reporting trader is 204 be submitted to the Commission on exemptions in other commodity derivative to exclude certain products or byproducts in a monthly basis, as of the close of contracts until the Commission gains additional determining his cash position for bona fide hedging experience with the limits in proposed § 150.2. ..., the same shall be excluded in the report’’). However, the Commission retains its authority to 815 Proposed § 19.00(b)(1) adds a caveat to the 816 Proposed § 19.00(b)(2) would add the term issue ‘‘special calls’’ under § 18.05. The alternative manner of reporting: when reporting for commodity derivative contracts (as defined in Commission will closely monitor the reporting the cash commodity of soybeans, soybean oil, or proposed § 150.1). The proposed definition of cross- associated with conditional spot-month limit soybean meal, the reporting person shall show the commodity hedge in proposed § 150.1 is discussed exemptions in natural gas, as well as other cash positions of soybeans, soybean oil and soybean above. information available to the Commission for other meal. This proposed provision for the soybean 817 The list of data required for persons filing on commodities, and may require reporting on Form complex is included in the current instructions for Forms 204 and 304 would be relocated from current 504 for other commodity derivative contracts in the preparing Form 204. § 19.01(a) to proposed § 19.01(a)(3). future.

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additional experience with this would permit staff to identify offsets of The Commission requests comment exemption in other commodities. non-referenced-contract pass-through on its considerations of the benefits of swaps on an ongoing basis for further reporting under part 19. Has the e. Pass-Through Swap Exemption analysis. Commission accurately identified the Under the definition of bona fide Under proposed § 150.2(a), a trader in benefits of collecting the reported hedging position in proposed § 150.1, a the spot month may not net across information? Are there additional person who uses a swap to reduce risks physical-delivery and cash-settled benefits the Commission should attendant to a position that qualifies for contracts for the purpose of complying consider? a bona fide hedging transaction may 821 with federal position limits. If a iii. Costs pass-through those bona fides to the person executes a cash-settled pass- counterparty, even if the person’s swap through swap that is offset with The Commission recognizes there will position is not in excess of a position physical-delivery contracts held into a be costs associated with the proposed limit.819 As such, positions in spot month (or vice versa), then, changes and additions to the report commodity derivative contracts that pursuant to proposed § 19.01(a)(2)(ii), filing requirements under part 19. reduce the risk of pass-through swaps that person must report additional Though the Commission anticipates that would qualify as bona fide hedging information concerning the swap and market participants should have ready transactions. offsetting referenced contract position access to much of the required Proposed § 19.01(a)(2) would require on new Form 604. Pursuant to proposed information, the Commission expects a person relying on the pass-through § 19.01(b), a person holding a spot that, at least initially, market swap exemption who holds either of month swap offset would need to file on participants will require additional time two position types to file a report with form 604 as of the close of business on and effort to become familiar with new the Commission on new form 604. The each day during a spot month, and not and amended series ’04 forms, to gather first type of position is a swap executed later than 9 a.m. Eastern Time on the the necessary information in the opposite a bona fide hedger that is not next business day following the date of required format, and to file reports in a referenced contract and for which the the report. The Commission notes that the proposed timeframes. The risk is offset with referenced contracts. pass-through swap offsets would not be Commission has attempted to mitigate The second type of position is a cash- permitted during the lesser of the last the cost impacts of these reports. settled swap executed opposite a bona five days of trading or the time period Actual costs incurred by market fide hedger that is offset with physical- for the spot month. However, the participants will vary depending on the delivery referenced contracts held into a Commission remains concerned that a diversity of their cash market positions, spot month, or, vice versa, a physical- trader could hold an extraordinarily the experience that the participants delivery swap executed opposite a bona large position early in the spot month in currently have regarding filing Form 204 fide hedger that is offset with cash- the physical-delivery contract along and Form 304 as well as a variety of settled referenced contracts held into a with an offsetting short position in a other organizational factors. However, spot month. cash-settled contract. Hence, the the Commission has estimated average The information reported on Form Commission proposes to introduce this incremental burdens associated with the 604 would explain hedgers’ needs for proposed rules in order to fulfill its new daily reporting requirement within 822 large referenced contract positions and the spot month to identify and monitor obligations under the PRA. For Form 204, the Commission would give the Commission the ability such offsetting positions. to verify that the positions were a bona estimates that approximately 400 market fide hedge, with heightened daily ii. Benefits participants will file an average of 12 reports annually at an estimated labor surveillance of spot month offsets. The reporting requirements allow the burden of 2 hours per response for a Persons holding any type of pass- Commission to obtain the information total per-entity hour burden of through swap position other than the necessary to verify whether the relevant approximately 24 hours, which two described above would report on exemption requirements are fulfilled in 820 computes to a total annual burden of form 204. a timely manner. This is needed for the 9,600 hours for all affected entities. Commission to help ensure that any f. Swap Off-Sets Using an estimated hourly wage of $120 person who claims any exemption from per hour,823 the Commission estimates Proposed § 19.01(a)(2)(i) lists the federal speculative position limits can types of data that a person who executes demonstrate a legitimate purpose for a pass-through swap that is not a 822 See PRA section below for full details on the doing so. In the absence of the reporting Commission’s estimates. referenced contract and for which the requirements detailed in proposed part 823 The Commission’s estimates concerning the risk is offset with referenced contracts 19, the Commission would lack critical wage rates are based on 2011 salary information for must report on new Form 604. Under tools to identify abuses related to the the securities industry compiled by the Securities proposed § 19.01(b), persons holding Industry and Financial Markets Association exemptions afforded in proposed (‘‘SIFMA’’). The Commission is using $120 per non-referenced contract swap offset § 150.3 in a timely manner and refer hour, which is derived from a weighted average of would submit reports to the them to enforcement. As such, the salaries across different professions from the SIFMA Commission on a monthly basis, as of reporting requirements are necessary for Report on Management & Professional Earnings in the close of business of the last Friday the Securities Industry 2011, modified to account the Commission to be able to perform its for an 1800-hour work-year, adjusted to account for of the month. This data collection essential surveillance functions. These the average rate of inflation in 2012, and multiplied reporting requirements therefore by 1.33 to account for benefits and 1.5 to account 819 See supra discussion of definition of bona fide promote the Commission’s ability to for overhead and administrative expenses. The hedging position in proposed § 150.1. Commission anticipates that compliance with the 820 Persons holding pass-through swap positions achieve, to the maximum extent provisions would require the work of an that are offset with referenced contracts outside the practicable, the statutory factors information technology professional; a compliance spot month (whether such contracts are for physical outlined by Congress in CEA section manager; an accounting professional; and an delivery or are cash-settled) need not report on 4a(a)(3). associate general counsel. Thus, the wage rate is a Form 604 because swap positions will be netted weighted national average of salary for with referenced contract positions outside the spot professionals with the following titles (and their month pursuant to proposed § 150.2(b). 821 See supra discussion of proposed § 150.2. Continued

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an annual per-entity cost of hourly wage of $120 per hour,827 the manipulation and to diminish, approximately $2,900 and a total annual Commission estimates an annual per- eliminate, or prevent excessive cost of $1,152,000 for all affected entity cost of approximately $24,000 speculation in significant price entities. and a total annual cost of $4,800,000 for discovery contracts. The proposed For Form 304, the Commission all affected entities. limits in § 150.2, the methodology used estimates that approximately 400 market The Commission requests comment for determining limits at the spot, single participants will file an average of 52 regarding its consideration of costs and all-months combined levels and the reports annually at an estimated labor pertaining to the amendments to part determination of distinct levels in burden of 1 hours per response for a 19. Has the Commission accurately physically-delivered and cash-settled total per-entity hour burden of described the ways that market contracts all support the Commission’s approximately 52 hours, which participants may incur costs? Are there mission to prevent undue or computes to a total annual burden of other costs, direct or indirect, that the unnecessary burdens on interstate 20,800 hours for all affected entities. Commission should consider regarding commerce resulting from excess Using an estimated hourly wage of $120 the proposed part 19? How does the speculation such as the sudden or per hour,824 the Commission estimates introduction of the new series ’04 unreasonable fluctuations or an annual per-entity cost of reports affect the likelihood that a trader unwarranted changes in commodity approximately $6,300 and a total annual may seek an exemption? What other prices. Further, by requiring that market cost of $2,500,000 for all affected burdens may arise from the filing of participants who avail themselves of the entities. these reports? Are the Commission’s exemptions offered under § 150.3 For the new Form 504, the burden estimates under the PRA document their exemption eligibility Commission anticipates that reasonable? Why or why not? and make such records available on approximately 40 market participants Commenters are encouraged to submit request and through regular reporting to will file an average of 12 reports their own estimates of costs, including the Commission, the Commission is annually at an estimated labor burden of labor burdens and wage estimates, for protecting market participants—hedgers 15 hours per response for a total per- the Commission’s consideration. and speculators alike—from another party abusing the exemptions reserved entity hour burden of approximately iv. Consideration of Alternatives for eligible entities. 180 hours, which computes to a total The Commission also recognizes that The Commission anticipates that annual burden of 7,200 hours for all alternatives may exist to discretionary market participants engaged in affected entities. Using an estimated 825 elements of the part 19 reporting speculative trading will incur costs to hourly wage of $120 per hour, the amendments proposed herein. The monitor their positions vis-a-vis limit Commission estimates an annual per- Commission requests comments on levels. The Commission expects that entity cost of approximately $10,800 whether an alternative to what is market participants will need to invest and a total annual cost of $864,000 for proposed would result in a superior additional time and effort to become all affected entities. benefit-cost profile, with support for any familiar with new and amended series For the new Form 604, the such position provided. ’04 forms, to gather the necessary Commission anticipates that information in the required format, and approximately 200 market participants 8. CEA Section 15(a) to file reports in the proposed will file an average of 10 reports As described above, the Commission timeframes. annually at an estimated labor burden of interprets the revised CEA section 4a as 30 hours per response for a total per- requiring the imposition of speculative ii. Efficiency, Competitiveness, and entity hour burden of approximately position limits during the spot-month, Financial Integrity of Markets 300 hours, which computes to a total any single month, and all-months- Position limits help to prevent market annual burden of 60,000 hours for all combined on all commodity derivative manipulation or excessive speculation affected entities. Using an estimated contracts, including swaps, that that may unduly influence prices at the hourly wage of $120 per hour,826 the reference the same underlying physical expense of the efficiency and integrity Commission estimates an annual per- commodity on an aggregated basis of markets. The expansion of the federal entity cost of approximately $36,000 across trading venues. Section 15(a) of position limits regime to 28 core and a total annual cost of $7,200,000 for the Act requires the Commission to referenced futures contracts enhances all affected entities. evaluate the costs and benefits of its the buffer against excessive speculation Finally, for the new Form 704, the discretionary actions in light of five historically afforded to the nine legacy Commission anticipates that enumerated factors that represent broad contracts exclusively, improving the approximately 200 market participants areas of market and public concern. The financial integrity of those markets. will file an average of 10 reports Commission welcomes comment on its Moreover, the proposed limits in § 150.2 annually at an estimated labor burden of evaluation under CEA section 15(a). promote market competitiveness by 20 hours per response for a total per- preventing a trader from gaining too i. Protection of Market Participants and entity hour burden of approximately much market power. the Public 200 hours, which computes to a total The stringently defined exemptions in annual burden of 40,000 hours for all Broadly speaking, the Commission’s § 150.3 and the reporting requirements affected entities. Using an estimated expansion of the federal speculative assigned to those availing themselves of position limits regime to include an the exemptions provided are the relative weight); ‘‘programmer (senior)’’ and additional 19 core-referenced futures Commission’s first line of defense in ‘‘programmer (non-senior)’’ (15% weight), ‘‘senior contracts (and the associated referenced ensuring that participants transacting in accountant’’ (15%) ‘‘compliance manager’’ (30%), contracts) will extend protections the Commission’s jurisdictional markets and ‘‘assistant/associate general counsel’’ (40%). afforded to the existing legacy contracts. are doing so in a competitive and All monetary estimates have been rounded to the nearest hundred dollars. Namely, the limits are intended as a efficient environment. 824 Id. measure to prophylactically deter In codifying the Commission’s 825 Id. historical practice of temporarily lifting 826 Id. 827 Id. position limit restrictions, the proposed

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§ 150.3(b) financial distress exemption federal and exchange-set speculative 504),831 a pass-through swap exemption strengthens the benefits of position limits. (proposed Form 604),832 or an accommodating transfers of positions anticipatory exemption (proposed Form B. Paperwork Reduction Act from financially distressed firms to 704).833 The proposed amendments to financially secure firms or facilitating 1. Overview part 19 also update and change other necessary remediation measures The PRA 828 imposes certain reporting obligations and required during times of market stress. In information for Form 204 and Form requirements on Federal agencies in 834 addition, it provides market participants connection with their conducting or 304. Proposed part 150 prescribes with a degree of confidence which reporting requirements for DCMs listing sponsoring any collection of 835 contributes to the overall efficiency and information as defined by the PRA. a core referenced futures contract financial integrity of markets. Certain provisions of the regulations and traders who wish to apply for an exemption from DCM- or SEF- iii. Price Discovery proposed herein will result in established positions limits in non- amendments to approved collection of 836 Market manipulation or excessive information requirements within the referenced contracts, as well as speculation may result in artificial meaning of the PRA. An agency may not recordkeeping requirements for persons prices. So, in this sense, position limits conduct or sponsor, and a person is not who claim exemptions from position might also help to prevent the price limits or are counterparties to a person required to respond to, a collection of 837 discovery function of the underlying information unless it displays a claiming a pass-through swap offset. commodity markets from being currently valid control number issued 2. Methodology and Assumptions disrupted. On the other hand, imposing by the Office of Management and It is not possible at this time to position limits raises the concerns that Budget (‘‘OMB’’). Therefore, the precisely determine the number of liquidity and price discovery may be Commission is submitting this proposal respondents affected by the proposed diminished, because certain market to OMB for review in accordance with rules. Many of the regulations that segments, i.e., speculative traders, are 44 U.S.C. 3507(d) and 5 CFR 1320.11. impose PRA burdens are exemptions restricted. However, the Commission The information collection requirements that a market participant may elect to has mitigated some of these concerns by proposed in this proposal would amend take advantage of, meaning that without proposing various exemptions to previously-approved collections intimate knowledge of the day-to-day positions limits. In addition, applying associated with OMB control numbers business decisions of all its market current DCM-set limits as federal limits 3038–0009 and 3038–0013. participants, the Commission could not means that even though additional If adopted, responses to these know which participants, or how many, contract markets will be brought into collections of information would be may elect to obtain such an exemption. the federal position limits regime, the mandatory. Several of the reporting Further, the Commission is unsure of activity of speculative traders, at least requirements are mandatory in order to how many participants not currently in initially, will be no less restricted than obtain exemptive relief, and are thus the market may be required to or may under the current regime. mandatory under the PRA to the extent elect to incur the estimated burdens in a market participant elects to seek such iv. Sound Risk Management the future. Finally, many of the relief. The Commission will protect regulations proposed herein are Proposed exemptions for bona fide proprietary information according to the applying to participants in swaps hedgers help to ensure that market Freedom of Information Act and 17 CFR markets for the first time, and, as participants with positions that are part 145, headed ‘‘Commission Records explained supra, the Commission’s lack hedging legitimate commercial needs and Information.’’ In addition, the of experience with such markets and are properly recognized as hedgers Commission emphasizes that section with many of the participants therein under the Commission’s speculative 8(a)(1) of the Act strictly prohibits the hinders its ability to determine with position limits regime. This promotes Commission, unless specifically precision the number of affected sound risk management practices. In authorized by the Act, from making entities. addition, the Commission has crafted public ‘‘data and information that These limitations notwithstanding, the proposed rules to ensure sufficient would separately disclose the business the Commission has made best-effort market liquidity for bona fide hedgers to transactions or market positions of any estimations regarding the likely number the maximum extent practicable, e.g., person and trade secrets or names of of affected entities for the purposes of through the conditional spot month customers.’’ 829 The Commission also is calculating burdens under the PRA. The limit exemption. required to protect certain information Commission used its proprietary data, To the extent that monitoring for contained in a government system of collected from market participants, to position limits requires market records pursuant to the Privacy Act of estimate the number of respondents for participants to create internal risk limits 1974.830 each of the proposed obligations subject and evaluate position size in relation to Under the proposed regulations, to the PRA. As discussed supra,838 the the market, position limits may also market participants with positions in a provide an incentive for market ‘‘referenced contract,’’ as defined in participants to engage in sound risk 831 See proposed §§ 19.00(a)(1)(i) and 19.01(a)(1). proposed § 150.1, would be subject to 832 management practices. See proposed §§ 19.00(a)(1)(ii) and 19.01(a)(2). the position limit framework established 833 The requirement of filing a Form 704 in order v. Other Public Interest Considerations under the proposed revisions to parts 19 to claim an anticipatory exemption is stipulated in and 150. Proposed part 19 prescribes proposed § 150.7(a) in addition to its inclusion in The regulations proposed under new forms and reporting requirements proposed amendments to part 19. See proposed § 150.5 require that exchange-set limits §§ 19.00(a)(1)(iv), 19.01(a)(4) and 150.7(a). for persons claiming a conditional spot 834 employ policies that conform to the See proposed § 19.01(a)(3). month limit exemption (proposed Form 835 See proposed § 150.2(e)(3)(ii). Commission’s general policy both for 836 See proposed § 150.5(b)(5)(C). contracts that are subject to federal 828 44 U.S.C. 3501 et seq. 837 See proposed § 150.3(g). limits under § 150.2 and those that are 829 7 U.S.C. 12(a)(1). 838 See supra discussion of number of traders over not, thus harmonizing rules for all 830 5 U.S.C. 552a. the limits.

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Commission analyzed data covering the Commission anticipates that compliance keep and maintain books and records two year period 2011–2012 to determine with the provisions would require the concerning all details of their related how many participants would be over work of an information technology cash, forward, futures, options and swap 60, 80, or 100 percent of the proposed professional; a compliance manager; an positions and transactions to serve as a limit levels in each of the 28 core accounting professional; and an reasonable basis to demonstrate referenced futures contracts, were such associate general counsel. Thus, the reduction of risk on each day that the limit levels to be adopted as proposed. wage rate is a weighted national average exemption was claimed. These records For purposes of the PRA, Commission of salary for professionals with the must be comprehensive, in that they staff determined the number of unique following titles (and their relative must cover anticipated requirements, traders over the proposed spot-month weight); ‘‘programmer (average of senior production and royalties, contracts for position limit level for all of the 28 core and non-senior)’’ (15% weight), ‘‘senior services, cash commodity products and referenced futures contracts combined. accountant’’ (15%) ‘‘compliance by-products, and cross-commodity The Commission also determined the manager’’ (30%), and ‘‘assistant/ hedges. Proposed § 150.3(g)(2) requires number of traders over the non-spot- associate general counsel’’ (40%). All any person claiming a pass-through month position limit level for all of the monetary estimates have been rounded swap offset hedging exemption to obtain 28 core referenced futures contracts to the nearest hundred dollars. The a representation that the swap qualifies combined. Staff then added those two Commission welcomes public comment as a pass-through swap for purposes of figures and rounded it up to the nearest on its assumptions regarding its a bona fide hedging position. hundred to arrive at an approximation estimated hourly wage. Additionally, proposed § 150.3(g)(3) of 400 persons.839 This base figure was requires any person representing to 3. Information Provided by Reporting then scaled to estimate, based on the another person that a swap qualifies as Entities/Persons and Recordkeeping Commission’s expertise and experience a pass-through swap for purposes of a Duties in the administration of position limits, bona fide hedging position, to keep and how many participants may be affected For purposes of assisting the make available to the Commission upon by each specific provision. The analysis Commission in setting spot-month request all relevant books and records reviewed by the Commission does not limits no less frequently than every two supporting such a representation for at account for hedging and other years, proposed § 150.2(e)(3)(ii) adds an least two years following the expiration exemptions from position limits, which additional burden cost to information of the swap. leads the Commission to believe that the collection 3038–0013 by requiring The Commission estimates that approximate number of traders in excess DCMs to supply the Commission with approximately 400 traders will claim an of the limits is a very conservative an estimated spot-month deliverable average of 50 exemptions each per year estimate. The Commission welcomes supply for each core referenced futures that fall within the scope of the comment on its estimates, the contract listed. The estimate must recordkeeping requirements of proposed methodology described above, and its include documentation as to the § 150.3(g). At approximately one hour conclusion regarding the methodology used in deriving the per exemption claimed to keep and conservativeness of its estimates. estimate, including a description and maintain the required books and The Commission’s estimates any statistical data employed. The records, the Commission estimates that concerning wage rates are based on 2011 Commission estimates that the industry will incur a total of 20,000 salary information for the securities submission would require a labor annual labor hours amounting to industry compiled by the Securities burden of approximately 20 hours per $2,400,000 in additional labor costs. Industry and Financial Markets estimate. Thus, a DCM that submits one The Commission requests public Association (‘‘SIFMA’’). The estimate may incur a burden of 20 hours comment regarding the burden Commission is using a figure of $120 for a cost, using the estimated hourly associated with the recordkeeping per hour, which is derived from a wage of $120, of approximately $2,400. requirements of proposed § 150.3(g) and weighted average of salaries across DCMs that submit more than one its estimates thereto. Proposed § 150.5(b)(5)(iii) adds an different professions from the SIFMA estimate may multiply this per-estimate additional burden cost to information Report on Management & Professional burden by the number of estimates collection 3038–0013 by requiring Earnings in the Securities Industry submitted to obtain an approximate traders who wish to avail themselves of 2011, modified to account for an 1800- total burden for all submissions, subject any exemption from a DCM or SEF’s hour work-year, adjusted to account for to any efficiencies and economies of speculative position limit rules that is the average rate of inflation in 2012. scale that may result from submitting allowed for under § 150.5(b)(5)(A)–(B) to This figure was then multiplied by 1.33 multiple estimates. The Commission 840 submit an application to the DCM or to account for benefits and further by welcomes comment regarding the SEF explaining how the exemption 1.5 to account for overhead and estimated burden on DCMs that will 841 would be in accord with sound administrative expenses. The result from proposed § 150.2(e). commercial practices and would allow Proposed § 150.3(g)(1) adds an 839 for a position that could be liquidated Staff believes that such rounding preserves the additional burden cost to information in an orderly fashion. As noted supra, reasonability of the estimate without creating a false collection 3038–0013 by requiring any impression of precision. the Commission understands that person claiming an exemption from 840 The Bureau of Labor Statistics reports that an requiring traders to apply for exemptive average of 32.8% of all compensation in the federal position limits under part 150 to relief comports with existing DCM financial services industry is related to benefits. practice; thus, the Commission This figure may be obtained on the Bureau of Labor corporation-industry-financials/finance-insurance- Statistics Web site, at http://www.bls.gov/ 52/securities-commodity-contracts-other-financial- anticipates that the codification of this news.release/ecec.t06.htm. The Commission investments-523/commodity-contracts-dealing-and- requirement will have the practical rounded this number to 33% to use in its brokerage-523135/show and Damodaran Online at effect of incrementally increasing, rather calculations. http://pages.stern.nyu.edu/∼adamodar/pc/datasets/ than creating, the burden of applying for 841 Other estimates of this figure have varied uValuedata.xls) The Commission has chosen to use dramatically depending on the categorization of the a figure of 50% for overhead and administrative such exemptive relief. The Commission expense and the type of industry classification used expenses to attempt to conservatively estimate the estimates that approximately 400 traders (see, e.g., BizStats at http://www.bizstats.com/ average for the industry. will claim exemptions from DCM or

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SEF-established speculative position natural gas and would thus be required submission for call cotton 52 times per limits each year, with each trader on to file Form 504. year each. At one hour to complete each average making 100 related submissions Proposed § 19.01(a)(2) adds an submission (representing a net increase to the DCM or SEF each year. Each additional burden cost to information of a half hour from the previous submission is estimated to take 2 hours collection 3038–0009 by requiring estimate) for a total annual burden to to complete and file, meaning that these persons claiming a pass-through swap industry of 20,800 labor hours, the Form traders would incur a total burden of exemption pursuant to § 150.3(a)(1)(i) to 304 reporting requirement will impose 80,000 labor hours per year for an file Form 604 showing various data upon industry $2,500,000 in labor costs. industry-wide additional labor cost of depending on whether the offset is for Previously, the Commission estimated $9,600,000. The Commission welcomes non-referenced contract swaps or spot- the combined annual labor hours for all comment regarding the estimated month swaps including, at a minimum, both forms to be 1,350 hours, which burden on market participants wishing the underlying commodity or amounted to a total labor cost to 843 to avail themselves of a DCM or SEF commodity reference price, the industry of $68,850 per annum. applicable clearing identifiers, the exemption. Therefore, the Commission is increasing notional quantity, the gross long or short its net estimate of labor hours and costs Proposed § 19.01(a)(1) adds an position in terms of futures-equivalents associated with existing Form 204 and additional burden cost to information in the core referenced futures contracts, Form 304 for collection 3038–0009 by collection 3038–0009 for persons and the gross long or short positions in 30,400 hours and $3,700,000.844 The claiming a conditional spot month limit the referenced contract for the offsetting Commission requests comment with exemption pursuant to § 150.3(c), by risk position. The Commission estimates respect to its estimates regarding the requiring the filing of Form 504 for that approximately 200 traders will increased number of entities and special commodities so designated by claim a pass-through swap exemption additional information required to file the Commission under § 19.03. A Form an average of ten times per year each. Forms 204 and 304. 504 filing shows the composition of the At approximately 30 labor hours to Proposed § 19.01(a)(4) adds an cash position of each commodity complete each corresponding additional burden cost to information underlying a referenced contract that is submission for a total burden to traders collection 3038–0009 by requiring held or controlled for which the of 60,000 annual labor hours, traders claiming anticipatory exemption is claimed,842 including the compliance with the Form 604 filing exemptions to file Form 704 for the ‘‘as of’’ date, the quantity of stocks requirements industry-wide will impose initial statement pursuant to § 150.7(d), owned of such commodity, the quantity an additional $7,200,000 in labor costs. the supplemental statement pursuant to of fixed-price purchase commitments The Commission requests comment on § 150.7(e), and the annual update open providing for receipt of such cash its estimates regarding new Form 604. In pursuant to § 150.7(f), as well as Form commodity, the quantity of fixed-price particular, the Commission welcomes 204 monthly reporting the remaining sale commitments open providing for comment regarding the number of unsold, unfilled and other anticipated delivery of such cash commodity, the entities who may utilize the pass- activity for the Specified Period in Form quantity of unfixed-price purchase through swap exemption and the 704, Section A. The Commission commitments open providing for receipt burden incurred to file Form 604. estimates that approximately 200 traders Proposed § 19.01(a)(3) increases of such cash commodity, and the will claim anticipatory exemptions existing burden costs previously quantity of unfixed-price sale every year an average of 10 times each. approved under information collection At an estimated 20 labor hours to commitments open providing for 3038–0009 by expanding the number of delivery of such cash commodity. The complete and file Form 704 for a total cash commodities that existing Form annual burden to traders of 40,000 labor Commission estimates that 204 covers. Additionally, proposed approximately 40 traders will claim a hours, the anticipatory exemption filing § 19.01(a)(3) requires additional data to requirement will cost industry an conditional spot month limit 12 times be reported on Form 204 and proposed per year, and each corresponding additional $4,800,000 in labor costs. § 19.02 requires additional data to be The Commission requests comment on submission will take 15 labor hours to reported on existing Form 304 (call complete and file. Therefore, the its estimates regarding new Form 704. In cotton). Both forms are required to be particular, the Commission welcomes Commission estimates that the Form filed when a trader accumulates a net comment regarding the number of 504 reporting requirement will result in long or short commodity derivative entities who may utilize the anticipatory approximately 7,200 total annual labor position in a core referenced futures hedge exemption and the burden hours for an additional industry-wide contract that exceeds a federal limit, and incurred to file Form 704. labor cost of $864,000. The Commission inform the Commission of the trader’s requests comment on its estimates cash positions underlying those 4. Comments on Information Collection regarding new Form 504. In particular, commodity derivative contracts for The Commission invites the public the Commission welcomes comment purposes of claiming bona fide hedging and other federal agencies to submit regarding the number of entities who exemptions. comments on any aspect of the reporting may partake of the conditional limit in The Commission estimates that and recordkeeping burdens discussed approximately 400 traders will be above. Pursuant to 44 U.S.C. 842 The Commission proposes that initially only required to file Form 204 12 times per 3506(c)(2)(B), the Commission solicits the natural gas commodity derivative contracts year each. At an estimated two labor comments in order to: (1) Evaluate would be designated under § 19.03 for Form 504 hours to complete and file each Form reporting. As such, the Commission’s estimates reflect only the burden for traders in that 204 report for a total annual burden to 843 This estimate was based upon an average wage commodity. The Commission is not able to estimate industry of 9,600 labor hours, the Form rate of $51 per hour. Adjusted to the hourly wage the expanded cost of any future Commission 204 reporting requirement will cost rate used for purposes of this PRA estimate, the determination to designate another commodity industry $1,200,000 in labor costs. The previous total labor cost would have been $202,500. under § 19.03 as a special commodity for which 844 The Commission notes that the burdens Form 504 filings would be required. See supra Commission also estimates that associated with Forms 204 and 304 in collection discussion regarding the proposed conditional spot approximately 400 traders will be 3038–0009 represent a fraction of the total burden month limit. required to make a Form 304 under that collection.

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whether the proposed collections of members, foreign brokers and large Macrofinancial Implications and Policy,’’ information are necessary for the proper traders are not small entities for October 1, 2008, Annex 1.2, Financial performance of the functions of the purposes of the RFA.847 While the Investment in Commodities Markets, Commission, including whether the requirements under the proposed International Monetary Fund. 5. Aurelich, Nicole M.; Irwin, Scott H.; and information will have practical utility; rulemaking may impact non-financial Garcia, Philip, Bubbles, ‘‘Food Prices, and (2) evaluate the accuracy of the end users, the Commission notes that Speculation: Evidence from the CFTC’s Daily Commission’s estimate of the burden of position limits levels and filing Large Trader Data Files,’’ August 15, 2012, the proposed collections of information; requirements associated with bona fide NBER Conference on Economics of Food (3) determine whether there are ways to hedging apply only to large traders, Price Volatility. enhance the quality, utility, and clarity while requirements to keep records 6. Avriel, Mordecai and Reisman, Haim, of the information to be collected; and supporting a transaction’s qualification ‘‘Optimal Option Portfolios in Markets with (4) minimize the burden of the for pass-through swap treatment incurs Position Limits and Margin Requirements,’’ collections of information on those who a marginal burden that is mitigated June 6, 2000, Journal of Risk. 7. Babula, Ronald A. and Rothenberg, John are to respond, including through the through overlapping recordkeeping Paul, ‘‘A Dynamic Monthly Model of U.S. use of automated collection techniques requirements for reportable futures Pork Product Markets: Testing for and or other forms of information traders (current § 18.05) and reportable Discerning the Role of Hedging on Pork- technology. Comments may be swap traders (current § 20.6(b)); Related Food Costs,’’ January 1, 2013, Journal submitted directly to the Office of furthermore, these records are ones that of International Agricultural Trade and Information and Regulatory Affairs, by such entities maintain, as they would Development. fax at (202) 395–6566 or by email at other documents evidencing material 8. Baffes, John and Haniotos, Tasos, [email protected]. Please financial relationships, in the ordinary ‘‘Placing the 2006/08 Commodity Boom into provide the Commission with a copy of course of their businesses. Perspective,’’ July 1, 2010, The World Bank Accordingly, the Chairman, on behalf Policy Research Working Paper 5371. comments submitted so that all 9. Basu, Devraj and Miffre, Joelle, comments can be summarized and of the Commission, hereby certifies, ‘‘Capturing the Risk Premium of Commodity addressed in the final rule preamble. pursuant to 5 U.S.C. 605(b), that the Futures: The Role of Hedging Pressure,’’ July Refer to the Addresses section of this actions proposed to be taken herein 1, 2013, Journal of Banking and Risk. notice for comment submission would not have a significant economic 10. Bos, Jaap and van der Molen, Maarten, instructions to the Commission. A copy impact on a substantial number of small ‘‘A Bitter Brew? How Index Fund of the supporting statements for the entities.’’ Speculation Can Drive Up Commodity Prices,’’ June 6, 2010, Journal of Agricultural collection of information discussed IV. Appendices above may be obtained by visiting and Applied Economics. RegInfo.gov. OMB is required to make a Appendix A—Studies relating to 11. Boyd, Naomi; Buyuksahin, Bahattin; position limits reviewed and evaluated Haigh, Michael; and Harris, Jeffrey, ‘‘The decision concerning the collection of Prevalence, Sources, and Effects of Herding,’’ information between 30 and 60 days by the Commission February 1, 2013, SSRN Abstract #1359251. after publication of this release. 1. Acharya, Viral V.; Ramadorai, Tarun; 12. Breitenfellner, Andreas; Crespo Consequently, a comment to OMB is and Lochstoer, Lars, ‘‘Limits to Arbitrage and Cuaresma, Jesus; and Keppel, Catherine, most assured of being fully considered Hedging: Evidence from Commodity ‘‘Determinants of Crude Oil Prices: Supply, if received by OMB (and the Markets,’’ January 8, 2013, Journal of Demand, Cartel, or Speculation?,’’ October 1, Commission) within 30 days after the Financial Economics. 2009, Monetary Policy and the Economy. publication of this notice of proposed 2. Allen, Franklin; Litov, Lubomir; and 13. Brennan, Michael J. and Schwartz, rulemaking. Mei, Jianping, ‘‘Large Investors, Price Eduardo S., ‘‘Arbitrage in Stock Index Manipulation, and Limits to Arbitrage: An Futures,’’ January 1, 1990, The Journal of C. Regulatory Flexibility Act Anatomy of Market Corners,’’ June 30, 2006, Business. Review of Finance. The Regulatory Flexibility Act 14. Brunetti, Celso and Buyuksahin, 3. Anderson, David; Outlaw, Joe L.; Bryant, Bahattin, ‘‘Is Speculation Destabilizing?,’’ (‘‘RFA’’) requires that Federal agencies Henry L.; Richardson, James W.; Ernstes, April 22, 2009, SSRN Abstract # 1393524. consider whether the rules they propose David P.; Raulston, J. Marc; Welch, J. Mark; 15. Buyuksahin, Bahattin and Robe, will have a significant economic impact Knapek, George M.; Herbst, Brian K.; and Michel, ‘‘Does it Matter Who Trades Energy on a substantial number of small entities Allison, Marc S., ‘‘The Effects of Ethanol on Derivatives?,’’ March 1, 2012, Review of and, if so, provide a regulatory Texas Food and Feed,’’ January 1, 2008, The Environment, Energy, and Economics. flexibility analysis respecting the Agricultural and Food Policy Center 16. Buyuksahin, Bahattin and Robe, Research Report 08–1, Texas A&M impact.’’ 845 A regulatory flexibility Michel, ‘‘Speculators, Commodities, and University. Cross-Market Linkages,’’ November 8, 2012, analysis or certification typically is 4. Antoshin, Sergei; Canetti, Elie; and required for ‘‘any rule for which the Working Paper, U.S. Commodity Futures Miyajima, Ken, Global Financial Stability Trading Commission. agency publishes a general notice of Report, ‘‘Financial Stress and Deleveraging, 17. Buyuksahin, Bahattin and Robe, proposed rulemaking pursuant to’’ the Michel, ‘‘Does ‘Paper Oil’ Matter?,’’ July 28, notice-and-comment provisions of the 847 See Policy Statement and Establishment of 2011, SSRN Abstract # 1855264. Administrative Procedure Act, 5 U.S.C. Definitions of ‘‘Small Entities’’ for Purposes of the 18. Buyuksahin, Bahattin; Harris, Jeffrey; 846 Regulatory Flexibility Act, 47 FR 18618, 18619, Haigh, Michael; Overdahl, James; and Robe, 553(b). The requirements related to Apr. 30, 1982 (DCMs, FCMs, and large traders) the proposed amendments fall mainly (‘‘RFA Small Entities Definitions’’); Opting Out of Michel, ‘‘Fundamentals, Trader Activity, and on registered entities, exchanges, futures Segregation, 66 FR 20740, 20743, Apr. 25, 2001 Derivatives Pricing,’’ December 4, 2008, commission merchants, swap dealers, (ECPs); Position Limits for Futures and Swaps; Working Paper, U.S. Commodity Futures clearing members, foreign brokers, and Final Rule and Interim Final Rule, 76 FR 71626, Trading Commission. 71680, Nov. 18, 2011 (clearing members); Core 19. Byun, Sungje, ‘‘Speculation in large traders. Principles and Other Requirements for Swap Commodity Futures Market, Inventories and The Commission has previously Execution Facilities, 78 FR 33476, 33548, June 4, the Price of Crude Oil,’’ January 17, 2013, determined that registered DCMs, FCMs, 2013 (SEFs); A New Regulatory Framework for Working Paper, University of California at SDs, MSPs, ECPs, SEFs, clearing Clearing Organizations, 66 FR 45604, 45609, Aug. 29, 2001 (DCOs); Registration of Swap Dealers and San Diego. Major Swap Participants, 77 FR 2613, Jan. 19, 2012, 20. Cagan, Phillip, ‘‘Financial Futures 845 5 U.S.C. 601 et seq. (SDs and MSPs); and Special Calls, 72 FR 50209, Markets: Is More Regulation Needed?,’’ 846 5 U.S.C. 601(2), 603–05. Aug. 31, 2007 (foreign brokers). August 7, 2006, Journal of Futures Markets.

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21. Chan, Kalok and Fong, Wai Ming, Market: From Entry to Equilibrium in the 56. Harris, Jeffrey and Buyuksahin, ‘‘Trade Size, Order Imbalance, and Volatility- Trading of Nasdaq Stocks,’’ October 1, 2002, Bahattin, ‘‘The Role of Speculators in the Volume Relation,’’ August 1, 2000, Journal of Journal of Finance. Crude Oil Futures Market,’’ June 16, 2009, Financial Economics. 40. European Commission, ‘‘Review of the SSRN Abstract # 1435042. 22. Chincarini, Ludwig, ‘‘The Amaranth Markets in Financial Instruments Directive,’’ 57. Harris, Lawrence E., ‘‘Circuit Breakers Debacle: Failure of Risk Measures or Failure December 1, 2010, European Commission. and Program Trading Limits: What Have We of Risk Management?,’’ April 1, 2007, SSRN 41. Fattouh, Bassam; Kilian, Lutz; and Learned?,’’ December 9, 1997, Brookings Abstract #952607. Mahadeva, Lavan, ‘‘The Role of Speculation Institutions Press. 23. Chincarini, Ludwig, ‘‘Natural Gas in Oil Markets: What Have We Learned So 58. Harrison, J. Michael and Kreps, David Futures and Spread Position Risk: Lessons Far?,’’ July 30, 2012, SSRN Abstract M., ‘‘Speculative Investor Behavior in a Stock from the Collapse of Amaranth Advisors #2034134. Market With Heterogeneous Expectations,’’ L.L.C.,’’ January 19, 2008, Journal of Applied 42. Frenk, David and Turbeville, Wallace, May 1, 1978, The Quarterly Journal of Finance. ‘‘Commodity Index Traders and the Boom/ Economics. 24. Chordia, Tarun; Subrahmanyam, Bust Cycle in Commodities Prices,’’ October 59. Her Majesty’s Treasury, ‘‘Global Avanidhar; and Roll, Richard, ‘‘Order 14, 2011, Better Markets. Commodities: A Long Term Vision for Stable, Imbalance, Liquidity, and Market Returns,’’ 43. Froot, Kenneth; Scharfstein, David; and Secure, and Sustainable Global Markets,’’ July 1, 2002, Journal of Financial Economics. Stein, Jeremy, ‘‘Herd on the Street: June 1, 2008, Her Majesty’s Treasury. 25. Cifarelli, Giulio and Paladino, Informational Inefficiencies in a Market with 60. Hirshliefer, David, ‘‘Residual Risk, Giovanna, ‘‘Oil Price Dynamics and Short Term Speculation,’’ February 1, 1990, Trading Costs, and Commodity Futures Risk Speculation: a Multivariate Financial NBER Working Paper. Premia,’’ June 6, 1988, Review of Financial Approach,’’ March 1, 2010, Energy 44. Gilbert, Christopher, ‘‘Speculative Studies. Economics. Influences on Commodity Futures Prices, 61. Hoff, Christian, ‘‘Herding Behavior in 26. Cifarelli, Giulio and Paladino, 2006–2008,’’ March 1, 2010, United Nations Asset Markets,’’ January 1, 2009, Journal of Giovanna, ‘‘Commodity Futures Returns: A Conference on Trade and Development. Financial Stability. non-linear Markov Regime Switching Model 45. Gilbert, Christopher, ‘‘Commodity 62. Interagency Task Force on Commodity of Hedging and Speculative Pressures,’’ Speculation and Commodity Investment,’’ Markets, ‘‘Interim Report on Crude Oil,’’ July November 19, 2010, Working Paper. March 1, 2010, University of Trento. 1, 2008, Interagency Task Force on 27. CME Group, Inc., ‘‘Excessive 46. Gilbert, Christopher, ‘‘How to Commodity Markets. Speculation and Position Limits in Energy Understand High Food Prices,’’ October 17, 63. International Monetary Fund, ‘‘Is Derivatives Markets,’’ CME Group White 2008, Journal of Agricultural Economics. Inflation Back? Commodity Prices and Paper. 47. Gorton, Gary; Hayashi, Fumio; and Inflation,’’ October 1, 2008, World Economic Outlook, International Monetary Fund. 28. Dahl, R.P., ‘‘Futures Markets: The Rouwenhorst, K. Geert, ‘‘The Fundamentals Interaction of Economic Analyses and 64. Irwin, Scott H.; Sanders, Dwight R.; and of Commodity Futures Returns,’’ July 1, 2013, Regulation: Discussion,’’ December 1, 1980, Merrin, Robert P., ‘‘Devil or Angel: The Role Review of Finance. American Journal of Agricultural Economics. of Speculation in the Recent Commodity 48. Government Accountability Office, 29. Dai, Min; Jin, Hanqing; and Liu, Hong, Price Boom,’’ August 1, 2009, Journal of ‘‘Issues Involving the Use of the Futures ‘‘Illiquidity, Position Limits, and Optimal Agricultural and Applied Economics. Markets to Invest in Commodity Indexes,’’ Investment,’’ March 15, 2009, SSRN Abstract 65. Irwin, Scott H. and Sanders, Dwight R., January 1, 2009, Government Accountability #1360423. ‘‘The Impact of Index and Swap Funds on 30. de Schutter, Olivier, ‘‘Food Office. Commodity Futures Markets: Preliminary Commodities Speculation and Food Price 49. Greenberger, Michael, ‘‘The Results,’’ August 1, 2010, OECD Food, Crises,’’ September 1, 2010, United Nations Relationship of Unregulated Excessive Agriculture and Fisheries Working Papers, Special Report on the Right to Food. Speculation to Oil Market Price Volatility,’’ No. 27. 31. Dutt, Hans R. and Harris, Lawrence E., January 1, 2010, Personal Web page. 66. Irwin, Scott H. and Sanders, Dwight R., ‘‘Position Limits For Cash-Settled Derivative 50. Grosche, Stephanie, ‘‘Limitations Of ‘‘Index funds, Financialization, and Contracts,’’ August 18, 2005, Journal of Granger Causality Analysis To Assess The Commodity Futures Markets,’’ December 1, Futures Markets. Price Effects From The Financialization Of 2010, Applied Economics Perspectives and 32. Easterbrook, Frank, ‘‘Monopoly, Agricultural Commodity Markets Under Policy. Manipulation, and the Regulation of Futures Bounded Rationality,’’ January 31, 2012, 67. Irwin, Scott H.; Garcia, Philip; and Markets,’’ April 1, 1986, The Journal of Agricultural and Resource Economics, Good, Darrel L., ‘‘The Performance of CBOT Business. Discussion Paper. Corn, Soybean, and Wheat Futures Contracts 33. Ebrahim, Muhammed and Rhys ap 51. Gupta, Bhaswar and Kazemi, Hossein, after Recent Changes in Speculative Limits,’’ Gwilym, ‘‘Can Position Limits Restrain Rogue ‘‘Factor Exposures and Hedge Fund July 29, 2007, American Agricultural Traders?,’’ March 1, 2013, Journal of Banking Operational Risk: The Case of Amaranth,’’ Economics Association Selected Paper. & Finance. November 19, 2009, SSRN Abstract # 68. Jacks, David, ‘‘Populists vs. Theorists: 34. Eckaus, R.S., ‘‘The Oil Price Really is 1509769. Futures Markets and the Volatility of Prices,’’ a Speculative Bubble,’’ June 1, 2008, MIT 52. Haigh, Michael S.; Hranaiova, Jana; and June 1, 2006, Explorations in Economic Center for Energy and Environmental Policy Overdahl, James A., ‘‘Hedge Funds, History. Research. Volatility, and Liquidity Provision in Energy 69. Juvenal, Luciana and Petrella, Ivan, 35. Ederington, Louis and Lee, Jae Ha, Futures Markets,’’ April 1, 2007, The Journal ‘‘Speculation in the Oil Market,’’ June 1, ‘‘Who Trades Futures and How: Evidence of Alternative Investments. 2012, Federal Reserve Bank of St. Louis from the Heating Oil Market,’’ April 1, 2002, 53. Haigh, Michael S.; Hranaiova, Jana; and Working Paper Series. Journal of Business. Overdahl, James A., ‘‘Price Dynamics, Price 70. Khan, Mohsin S., ‘‘The 2008 Oil Price 36. Ederington, Louis; Dewally, Michael; Discovery, and Large Futures Trader ‘‘Bubble’’,’’ August 1, 2009, Peter G. Peterson and Fernando, Chitru, ‘‘Determinants of Interactions in the Energy Complex,’’ April 1, Institute of International Economics. Trader Profits in Futures Markets,’’ January 2005, Staff Research Report, U.S. Commodity 71. Kilian, Lutz, ‘‘Not All Oil Price Shocks 24, 2013, SSRN Abstract #1781975. Futures Trading Commission. Are Alike: Disentangling Demand and 37. Edirsinghe, Chanaka; Naik, Vasanttilak; 54. Haigh, Michael; Harris, Jeffery; Supply Shocks in the Crude Oil Market,’’ and Uppal, Raman, ‘‘Optimal Replication of Overdahl, James A.; and Robe, Michel, February 23, 2007, American Economic Options with Transaction Costs and Trading ‘‘Market Growth, Trader Participation and Review. Restrictions,’’ March 1, 1993, Journal of Pricing in Energy Futures Markets,’’ February 72. Kilian, Lutz and Lee, Thomas, Financial and Quantitative Analysis. 1, 2007, Working Paper, U.S. Commodity ‘‘Quantifying the Speculative Component in 38. Einloth, James, ‘‘Speculation and Futures Trading Commission. the Real Price of Oil: The Role of Global Oil Recent Volatility in the Price of Oil,’’ August 55. Hamilton, James D., ‘‘Causes and Inventories,’’ January 13, 2013, Working 1, 2009, SSRN Abstract #1488792. Consequences of the Oil Shock of 2007–08,’’ Paper, University of Michigan. 39. Ellis, Katrina; Michaely, Roni; and April 1, 2009, Brookings Papers on Economic 73. Kilian, Lutz and Murphy, Daniel, ‘‘The O’Hara, Maureen, ‘‘The Making of a Dealer Activity. Role of Inventories and Speculative Trading

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in the Global Market for Crude Oil,’’ March 90. Morris, Stephen, ‘‘Speculative Investor Speculation in Agricultural Futures Markets: 1, 2010, Journal of Applied Econometrics. Behavior And Learning,’’ November 1, 1996, Too Much of a Good Thing?,’’ June 6, 2010, 74. Knittel, Christopher R. and Pindyck, The Quarterly Journal of Economics. Applied Economic Perspectives and Policy. Robert S., ‘‘The Simple Economics of 91. Mou, Yiqun, ‘‘Limits to Arbitrage and 108. Sanders, Dwight R.; Irwin, Scott H.; Commodity Price Speculation,’’ April 1, Commodity Index Investment: Front-Running and Merrin, Robert P., ‘‘Smart Money? The 2013, National Bureau of Economic Research the Goldman Roll,’’ July 15, 2011, Columbia Forecasting Ability of CFTC Large Traders,’’ Working Paper. University Working Paper. January 1, 2009, Journal of Ag and Resource 75. Korniotis, George, ‘‘Does Speculation 92. Nissanke, Machinko, ‘‘Commodity Economics. Affect Spot Price Levels? The Case of Metals Markets And Excess Volatility: An 109. Sanders, Dwight R.; Irwin, Scott H.; With and Without Futures Markets,’’ January Evaluation Of Price Dynamics Under and Merrin, Robert P., ‘‘A Speculative Bubble 1, 2009, Finance and Economics Discussion Financialisation,’’ February 1, 2011, in Commodity Futures? Cross-Sectional Series, Federal Reserve Board of Governors. University of London School of Oriental and Evidence,’’ January 1, 2010, Agricultural 76. Koski, Jennifer L. and Pontiff, Jeffrey, African Studies. Economics. 93. Parsons, John E., ‘‘Black Gold & Fool’s ‘‘How Are Derivatives Used? Evidence from 110. Shleifer, Andrei and Vishney, Robert Gold: Speculation in the Oil Futures the Mutual Fund Industry,’’ January 1, 1996, W., ‘‘The Limits of Arbitrage,’’ March 1, Market,’’ September 1, 2009, Economia. The Journal of Finance. 1997, The Journal of Finance. 94. Phillips, Peter C.B. and Yu, Jun, 111. Singleton, Kenneth J., ‘‘The 2008 77. Kumar, Praveen and Seppi, Duane, ‘‘Dating the Timeline of Financial Bubbles ‘‘Futures Manipulation with ‘‘Cash Boom/Bust in Oil Prices,’’ May 17, 2010, During the Subprime Crisis,’’ November 1, Stanford University. Settlement’’,’’ September 1, 1992, Journal of 2011, Quantitative Economics. 112. Singleton, Kenneth J., ‘‘Investor Flows Finance. 95. Pierru, Axel and Babusiaux, Denis, and the 2008 Boom/Bust in Oil Prices,’’ 78. Kyle, Albert and Viswanathan, S., ‘‘Speculation without Oil Stockpiling as a March 23, 2011, Stanford University. ‘‘How to Define Illegal Price Manipulation,’’ Signature: A Dynamic Perspective,’’ April 1, 113. Smith, James, ‘‘World Oil: Market or May 1, 2008, American Economic Review. 2010, MIT Center for Energy and Mayhem?,’’ January 1, 2009, Journal of 79. Kyle, Albert S. and Wang, F. Albert, Environmental Policy Research. Economic Perspectives. ‘‘Speculation Duopoly with Agreement to 96. Pirrong, Craig, ‘‘Squeezes, Corpses, and 114. Sornette, Didier; Woodard, Ryan; and Disagree: Can Overconfidence Survive the the Anti-Manipulation Provisions of the Zhou, Wei-Xing, ‘‘The 2006–2008 Oil Bubble Market Test?,’’ December 1, 1997, The Commodity Exchange Act,’’ October 1, 1994, and Beyond: Evidence of Speculation, and Journal of Finance. Regulation. Prediction,’’ January 18, 2009, Physica A. 80. Lagi, Marco; Bar-Yam, Yavni; Bertrand, 97. Pirrong, Craig, ‘‘Manipulation of the 115. Stevans, Lonnie and Sessions, David, Karla Z.; and Bar-Yam, Yaneer, ‘‘The Food Commodity Futures Market Delivery ‘‘Speculation, Futures Prices, and the U.S. Crises: A Quantitative Model Of Food Prices Process,’’ July 1, 1993, The Journal of Real Price of Crude Oil,’’ September 1, 2010, Business. Including Speculators And Ethanol American Journal of Social and Management 98. Pirrong, Craig, ‘‘The Self-Regulation of Conversion,’’ March 27, 2012, New England Science. Commodity Exchanges: The Case of Market Complex Systems Institute. 116. Stoll, Hans and Whaley, Robert, Manipulation,’’ April 1, 1995, Journal of Law 81. Lee, Bernard; Cheng, Shih-Fen; and ‘‘Commodity Index Investing and Commodity and Economics. Koh, Annie, ‘‘Would Position Limits Have Futures Prices,’’ September 1, 2009, Working 99. Plante, Michael and Yu¨ cel, Mine, ‘‘Did Made any Difference to the ’Flash Crash’ on Paper, Vanderbilt University. Speculation Drive Oil Prices? Market May 6, 2010,’’ November 1, 2010, The 117. Tang, Ke and Xiong, Wei, ‘‘Index Review of Futures Markets. Fundamentals Suggest Otherwise,’’ October 1, 2011, Economic Letter, Federal Reserve Investment and Financialization of 82. Lee, Bernard; Cheng, Shih-Fen; and Commodities,’’ November 1, 2012, Financial Koh, Annie, ‘‘An Analysis of Extreme Price Bank of Dallas. 100. Plante, Michael and Yu¨ cel, Mine, Analysts Journal. Shocks and Illiquidity Among Systematic 118. Technical Committee of the Trend Followers,’’ June 15, 2010, Singapore ‘‘Did Speculation Drive Oil Prices? Futures Market Points to Fundamentals,’’ October 1, International Organization of Securities Management University. Commissions, ‘‘Task Force on Commodity 83. Leitner, Yaron, ‘‘Inducing Agents to 2011, Economic Letter, Federal Reserve Bank of Dallas. Futures Markets Final Report,’’ March 1, Report Hidden Trades: A Theory of an 2009, International Organization of Securities Intermediary,’’ January 1, 2012, Review of 101. Plato, Gerald and Hoffman, Linwood, ‘‘Measuring the Influence of Commodity Commissions. Finance. Fund Trading on Soybean Price Discovery,’’ 119. Trostle, Ronald, ‘‘Global Agricultural 84. Manera, Matteo, Nicolini, Marcella, and January 1, 2007, NCCC–134 Conference on Supply and Demand: Factors Contributing to Vignati, Ilaria, ‘‘Futures Price Volatility in Applied Commodity Price Analysis, the Recent Increase in Food Commodity Commodities Markets: The Role of Short- Forecasting, and Market Risk Management. Prices,’’ May 1, 2008, Economic Research Term vs Long-Term Speculation,’’ April 1, 102. Pliska, Stanley and Shalen, Catherine, Service, United States Department of 2013, Universita di Pavia Working Paper. ‘‘The Effects of Regulation on Trading Agriculture. 85. Markham, Jerry, ‘‘Manipulation of Activity and Return Volatility in Futures 120. U.S Commodity Futures Trading Commodity Futures Prices: The Markets,’’ August 28, 2006, Journal of Commission, ‘‘Part Two, A Study of the Unprosecutable Crime,’’ June 6, 1991, Yale Futures Markets. Silver Market,’’ May 29, 1981, Report To The Journal on Regulation. 103. Robles, Miguel; Torero, Maximo; and Congress In Response To Section 21 Of The 86. Masters, Michael and White, Adam, von Braun, Joachim, ‘‘When Speculation Commodity Exchange Act. ‘‘The Accidental Hunt Brothers: How Matters,’’ February 1, 2009, IFPRI. 121. U.S. Commodity Futures Trading Institutional Investors are Driving up Food 104. Rossi, Clifford V., ‘‘Analysis of CFTC Commission, ‘‘Staff Report on Commodity and Energy Prices,’’ July 31, 2008, Self- Proposed Position Limits on Commodity Swap Dealers and Index Traders with Published. Index Fund Trading,’’ March 25, 2011, CME Commission Recommendations,’’ September 87. Medlock, Kenneth and Myers Jaffe, Group. 1, 2008, U.S. Commodity Futures Trading Amy, ‘‘Who is In the Oil Futures Market and 105. Routledge, Bryan R.; Seppi, Duane J.; Commission. How Has It Changed?,’’ August 26, 2009, and Spatt, Chester S., ‘‘Equilibrium Forward 122. U.S. Senate Permanent Subcommittee Baker Institute for Public Policy. Curves for Commodities,’’ June 1, 2000, The on Investigations, ‘‘The Role of Market 88. Mei, Jianping; Acheinkman, Jose; and Journal of Finance. Speculation in Rising Oil and Gas Prices: A Xiong, Wei, ‘‘Speculative Trading and Stock 106. Sanders, Dwight R.; Boris, Keith; and Need to Put the Cop Back on the Beat,’’ June Prices: An Analysis of Chinese A–B Share Manfredo, ‘‘Hedgers, Funds, and Small 27, 2006. Premia,’’ January 1, 2009, Annals of Speculators in The Energy Futures Markets: 123. U.S. Senate Permanent Subcommittee Economics and Finance. An Analysis Of The CFTC’s Commitments Of on Investigations, ‘‘Excessive Speculation in 89. Mobert, Jochen, ‘‘Do Speculators Drive Traders Reports,’’ May 19, 2004, Energy the Natural Gas Market,’’ June 25, 2007. Crude Oil Prices?,’’ December 15, 2009, Economics. 124. U.S. Senate Permanent Subcommittee Deutsche Bank Research Working Paper 107. Sanders, Dwight R.; Irwin, Scott H.; on Investigations, ‘‘Excessive Speculation in Series. and Merrin, Robert P., ‘‘The Adequacy of the Wheat Market,’’ June 1, 2009.

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125. United Nations Conference on Trade 17 CFR Part 37 § 15.00 Definitions of terms used in parts and Development, ‘‘The Global Economic 15 to 19, and 21 of this chapter. Registered entities, Registration Crisis: Systemic Failures and Multilateral application, Reporting and * * * * * Remedies, March 1, 2009,’’ Report by the (p) Reportable position means: UNCTAD Secretariat Task Force on Systemic recordkeeping requirements, Swaps, Swap execution facilities. (1) For reports specified in parts 17 Issues and Economic Cooperation. and 18, and § 19.00(a)(2) and (3), of this 126. United Nations Conference on Trade 17 CFR Part 38 and Development, ‘‘The Financialization of chapter any open contract position that Commodity Markets,’’ July 1, 2009, Trade Block transaction, Commodity at the close of the market on any and Development Report. futures, Designated contract markets, business day equals or exceeds the 127. Weiner, Robert, ‘‘Do Birds of A Reporting and recordkeeping quantity specified in § 15.03 in either: Feather Flock Together? Speculation in the requirements, Transactions off the (i) Any one futures of any commodity Oil Market,’’ June 1, 2006, Resources for the centralized market. on any one reporting market, excluding Future Discussion Paper. futures contracts against which notices 128. Weiner, Robert J., ‘‘Speculation In 17 CFR Part 140 of delivery have been stopped by a International Crises: Report From The Gulf,’’ Authority delegations (Government trader or issued by the clearing September 1, 2005, Journal of International agencies), Conflict of interests, organization of a reporting market; or Business Studies. Organizations and functions (ii) Long or short put or call options 129. Westcott, Paul C. and Hoffman, (Government agencies). that exercise into the same future of any Linwood A., ‘‘Price Determination for Corn commodity, or long or short put or call and Wheat: The Role of Market Factors and 17 CFR Part 150 options for options on physicals that Government Programs,’’ July 1, 1999, Bona fide hedging, Commodity Economic Research Service. have identical expirations and exercise futures, Cotton, Grains, Position limits, into the same physical, on any one 130. Westerhoff, Frank, ‘‘Speculative Referenced Contracts, Swaps. Markets and the Effectiveness of Price reporting market. Limits,’’ December 1, 2003, Journal of For the reasons stated in the (2) For the purposes of reports Economic Dynamics and Control. preamble, the Commodity Futures specified in § 19.00(a)(1) of this chapter, 131. Wray, Randall, ‘‘The Commodities Trading Commission proposes to amend any position in commodity derivative Market Bubble: Money Manager Capitalism 17 CFR chapter I as follows: contracts, as defined in § 150.1 of this and the Financialization of Commodities,’’ chapter, that exceeds a position limit in October 1, 2008, Public Policy Brief. PART 1—GENERAL REGULATIONS § 150.2 of this chapter for the particular 132. Wright, Brian, ‘‘International Grain UNDER THE COMMODITY EXCHANGE commodity. Reserves and Other Instruments to Address ACT Volatility in Grain Markets,’’ January 1, 2012, * * * * * The World Bank Research Observer. ■ 1. The authority citation for part 1 ■ 6. Amend § 15 .01 by revising continues to read as follows: paragraph (d) to read as follows: List of Subjects Authority: 7 U.S.C. 1a, 2, 2a, 5, 6, 6a, 6b, § 15.01 Persons required to report. 17 CFR Part 1 6c, 6d, 6e, 6f, 6g, 6h, 6i, 6k, 6l, 6m, 6n, 6o, 6p, 6r, 6s, 7, 7a–1, 7a–2, 7b, 7b–3, 8, 9, 10a, * * * * * Agricultural commodity, Agriculture, 12, 12a, 12c, 13a, 13a–1, 16, 16a, 19, 21, 23, (d) Persons, as specified in part 19 of Brokers, Committees, Commodity and 24, as amended by Title VII of the Dodd- this chapter, either: futures, Conflicts of interest, Consumer Frank Wall Street Reform and Consumer (1) Who hold or control commodity protection, Definitions, Designated Protection Act, Pub. L. 111–203, 124 Stat. derivative contracts (as defined in contract markets, Directors, Major swap 1376 (2010). § 150.1 of this chapter) that exceed a participants, Minimum financial § 1.3 [Amended] position limit in § 150.2 of this chapter requirements for intermediaries, for the commodities enumerated in that ■ 2. Amend § 1.3 by removing and Reporting and recordkeeping section; or reserving paragraph (z). requirements, Swap dealers, Swaps. (2) Who are merchants or dealers of §§ 1.47 and 1.48 [Removed and Reserved] cotton holding or controlling positions 17 CFR Parts 15 and 17 ■ 3. Remove and reserve §§ 1.47 and for future delivery in cotton that equal Brokers, Commodity futures, 1.48. or exceed the amount set forth in Reporting and recordkeeping § 15.03. requirements, Swaps. PART 15—REPORTS—GENERAL ■ 7. Revise § 15.02 to read as follows: PROVISIONS 17 CFR Part 19 § 15.02 Reporting forms. ■ 4. The authority citation for part 15 Forms on which to report may be Commodity futures, Cottons, Grains, continues to read as follows: obtained from any office of the Reporting and recordkeeping Authority: 7 U.S.C. 2, 5, 6a, 6c, 6f, 6g, 6i, Commission or via the Internet (http:// requirements, Swaps. 6k, 6m, 6n, 7, 7a, 9, 12a, 19, and 21, as www.cftc.gov). Forms to be used for the 17 CFR Part 32 amended by Title VII of the Dodd-Frank Wall filing of reports follow, and persons Street Reform and Consumer Protection Act, required to file these forms may be Commodity futures, Consumer Pub. L. 111–203, 124 Stat. 1376 (2010). determined by referring to the rule protection, Fraud, Reporting and ■ 5. Amend § 15.00 by revising listed in the column opposite the form recordkeeping requirements. paragraph (p) to read as follows: number.

Form No. Title Rule

40 ...... Statement of Reporting Trader ...... 18.04 71 ...... Identification of Omnibus Accounts and Sub-accounts ...... 17.01 101 ...... Positions of Special Accounts ...... 17.00 102 ...... Identification of Special Accounts, Volume Threshold Accounts, and Consolidated Accounts 17.01 204 ...... Cash Positions of Hedgers (excluding Cotton) ...... 19.00

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Form No. Title Rule

304 ...... Cash Positions of Cotton Traders ...... 19.00 504 ...... Cash Positions for Conditional Spot Month Exemptions ...... 19.00 604 ...... Counterparty Data for Pass-Through Swap Exemptions ...... 19.00 704 ...... Statement of Anticipatory Bona Fide Hedge Exemptions ...... 19.00

(Approved by the Office of Management ■ 11. Revise part 19 to read as follows: risk is offset with a referenced contract; and Budget under control numbers and 3038–0007, 3038–0009, and 3038–0103) PART 19—REPORTS BY PERSONS (B) Spot-month swap offset. A cash- HOLDING POSITIONS EXEMPT FROM settled swap, regardless of whether it is PART 17—REPORTS BY REPORTING POSITION LIMITS AND BY a referenced contract, executed opposite MARKETS, FUTURES COMMISSION MERCHANTS AND DEALERS IN a counterparty for which the swap MERCHANTS, CLEARING MEMBERS, COTTON would qualify as a bona fide hedging AND FOREIGN BROKERS position and for which the risk is offset Sec. with a physical-delivery referenced ■ 8. The authority citation for part 17, 19.00 General provisions. contract in its spot month; as amended November 18, 2013, at 78 19.01 Reports on stocks and fixed price purchases and sales. (iii) Other exemption. Any other FR 69230, effective February 18, 2014, exemption from speculative position continues to read as follows: 19.02 Reports pertaining to cotton on call purchases and sales. limits under § 150.3 of this chapter, Authority: 7 U.S.C. 2, 6a, 6c, 6d, 6f, 6g, 6i, 19.03 Reports pertaining to special including for a bona fide hedging 6t, 7, 7a, and 12a, as amended by Title VII commodities. position as defined in § 150.1 of this of the Dodd-Frank Wall Street Reform and 19.04 Delegation of authority to the Director chapter or any exemption granted under Consumer Protection Act, Pub. L. 111–203, of the Division of Market Oversight. § 150.3(b) or (d) of this chapter; or 124 Stat. 1376 (2010). 19.05–19.10 [Reserved] (iv) Anticipatory exemption. An ■ 9. Amend § 17.00 by revising Appendix Appendix A to Part 19—Forms anticipatory exemption under § 150.7 of paragraph (b) to read as follows: 204, 304, 504, 604, and 704 this chapter. § 17.00 Information to be furnished by Authority: 7 U.S.C. 6g(a), 6a, 6c(b), 6i, and (2) Persons filing cotton on call futures commission merchants, clearing 12a(5), as amended by Title VII of the Dodd- reports. Merchants and dealers of cotton members and foreign brokers. Frank Wall Street Reform and Consumer holding or controlling positions for Protection Act, Pub. L. 111–203, 124 Stat. futures delivery in cotton that are * * * * * 1376 (2010). (b) Interest in or control of several reportable pursuant to § 15.00(p)(1)(i) of accounts. Except as otherwise § 19.00 General provisions. this chapter; or (3) Persons responding to a special instructed by the Commission or its (a) Who must file series ’04 reports. call. All persons exceeding speculative designee and as specifically provided in The following persons are required to position limits under § 150.2 of this § 150.4 of this chapter, if any person file series ’04 reports: chapter or all persons holding or holds or has a financial interest in or (1) Persons filing for exemption to controls more than one account, all such controlling positions for future delivery speculative position limits. All persons that are reportable pursuant to accounts shall be considered by the holding or controlling positions in futures commission merchant, clearing § 15.00(p)(1) of this chapter who have commodity derivative contracts, as received a special call for series ’04 member or foreign broker as a single defined in § 150.1 of this chapter, in account for the purpose of determining reports from the Commission or its excess of any speculative position limit designee. Persons subject to a special special account status and for reporting provided under § 150.2 of this chapter purposes. call shall file CFTC Form 204, 304, 504, and for any part of which a person relies 604 or 704 as instructed in the special * * * * * on an exemption to speculative position call. Filings in response to a special call ■ 10. Amend § 17.03, as amended limits under § 150.3 of this chapter as November 18, 2013, at 78 FR 69232, shall be made within one business day follows: of receipt of the special call unless effective February 18, 2014, by adding (i) Conditional spot month limit paragraph (h) to read as follows: otherwise specified in the call. For the exemption. A conditional spot month purposes of this paragraph, the § 17.03 Delegation of authority to the limit exemption under § 150.3(c) of this Commission hereby delegates to the Director of the Office of Data and chapter for any commodity specially Director of the Division of Market Technology or the Director of the Division designated by the Commission under Oversight, or to such other person of Market Oversight. § 19.03 for reporting; designated by the Director, authority to * * * * * (ii) Pass-through swap exemption. A issue calls for series ’04 reports. (h) Pursuant to § 17.00(b), and as pass-through swap exemption under (b) Manner of reporting. The manner specifically provided in § 150.4 of this § 150.3(a)(1)(i) of this chapter and as of reporting the information required in chapter, the authority shall be defined in paragraph (2)(ii) of the § 19.01 is subject to the following: designated to the Director of the definition of ‘‘bona fide hedging (1) Excluding certain source Division of Market Oversight to instruct position’’ in § 150.1 of this chapter, commodities, products or byproducts of an futures commission merchant, reporting separately for: the cash commodity hedged. If the clearing member or foreign broker to (A) Non-referenced-contract swap regular business practice of the consider as a single account for the offset. A swap that is not a referenced reporting person is to exclude certain purpose of determining special account contract, as that term is defined in source commodities, products or status and for reporting purposes all § 150.1 of this chapter, and which is byproducts in determining his cash accounts one person holds or controls, executed opposite a counterparty for positions for bona fide hedging or in which the person has a financial which the swap would qualify as a bona positions (as defined in § 150.1 of this interest. fide hedging position and for which the chapter), the same shall be excluded in

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the report, provided that the amount of (B) Underlies the cash-settled core with a physical-delivery referenced the source commodity being excluded is referenced futures contract; contract held into a spot month, de minimis, impractical to account for, (iii) The quantity of fixed-price showing for such cash-settled swap that and/or on the opposite side of the purchase commitments open providing is not a referenced contract the market from the market participant’s for receipt of such cash commodity in: information required under paragraph hedging position. Such persons shall (A) The delivery period for the (a)(2)(i) of this section and for such furnish to the Commission or its physical-delivery core referenced cash-settled swap that is a referenced designee upon request detailed futures contract; or contract: information concerning the kind and (B) The time period for cash- (A) The gross long or short position quantity of source commodity, product settlement price determination for the for such cash-settled swap in terms of or byproduct so excluded. Provided cash-settled core referenced futures futures-equivalents in the core however, when reporting for the cash contract; referenced futures contract; and commodity of soybeans, soybean oil, or (iv) The quantity of unfixed-price sale (B) The gross long or short positions soybean meal, the reporting person shall commitments open providing for in the physical-delivery referenced show the cash positions of soybeans, delivery of such cash commodity in: contract for the offsetting risk position. soybean oil and soybean meal. (A) The delivery period for the (3) Other exemptions. Persons (2) Cross hedges. Cash positions that physical-delivery core referenced required to file ’04 reports under represent a commodity, or products or futures contract; or § 19.00(a)(1)(iii) shall file CFTC Form byproducts of a commodity, that is (B) The time period for cash- 204 reports showing the composition of different from the commodity settlement price determination for the the cash position of each commodity underlying a commodity derivative cash-settled core referenced futures hedged or underlying a reportable contract that is used for hedging, shall contract; position including: be shown both in terms of the (v) The quantity of unfixed-price (i) The as of date, an indication of any equivalent amount of the commodity purchase commitments open providing enumerated bona fide hedging position underlying the commodity derivative for receipt of such cash commodity in: exemption(s) claimed, the commodity contract used for hedging and in terms (A) The delivery period for the derivative contract held or controlled, of the actual cash commodity as physical-delivery core referenced and the equivalent core reference provided for on the appropriate series futures contract; or futures contract; ’04 form. (B) The time period for cash- (ii) The quantity of stocks owned of settlement price determination for the (3) Standards and conversion factors. such commodities and their products cash-settled core referenced futures In computing their cash position, every and byproducts; contract; and (iii) The quantity of fixed-price person shall use such standards and (vi) The quantity of fixed-price sale purchase commitments open in such conversion factors that are usual in the commitments open providing for cash commodities and their products particular trade or that otherwise reflect delivery of such cash commodity in: and byproducts; the value-fluctuation-equivalents of the (A) The delivery period for the (iv) The quantity of fixed-price sale cash position in terms of the commodity physical-delivery core referenced commitments open in such cash underlying the commodity derivative futures contract; or commodities and their products and contract used for hedging. Such person (B) The time period for cash- byproducts; shall furnish to the Commission upon settlement price determination for the (v) The quantity of unfixed-price request detailed information concerning cash-settled core referenced futures purchase and sale commitments open in the basis for and derivation of such contract. such cash commodities and their conversion factors, including: (2) Pass-through swap exemption. products and byproducts, in the case of (i) The hedge ratio used to convert the Persons required to file ’04 reports offsetting unfixed-price cash commodity actual cash commodity to the equivalent under § 19.00(a)(1)(ii) shall file CFTC sales and purchases; and amount of the commodity underlying Form 604: (vi) For cotton, additional information the commodity derivative contract used (i) Non-referenced-contract swap that includes: for hedging; and offset. For each swap that is not a (A) The quantity of equity in cotton (ii) An explanation of the referenced contract and which is held by the Commodity Credit methodology used for determining the executed opposite a counterparty for Corporation under the provisions of the hedge ratio. which the transaction would qualify as Upland Cotton Program of the § 19.01 Reports on stocks and fixed price a bona fide hedging position and for Agricultural Stabilization and purchases and sales. which the risk is offset with a Conservation Service of the U.S. referenced contract, showing: Department of Agriculture; (a) Information required.—(1) (A) The underlying commodity or (B) The quantity of certificated cotton Conditional spot month limit commodity reference price; owned; and exemption. Persons required to file ’04 (B) The applicable clearing identifiers; (C) The quantity of non-certificated reports under § 19.00(a)(1)(i) shall file (C) The notional quantity; stocks owned. CFTC Form 504 showing the (D) The gross long or short position in (4) Anticipatory exemptions. Persons composition of the cash position of each terms of futures-equivalents in the core required to file ’04 reports under commodity underlying a referenced referenced futures contract; and § 19.00(a)(1)(iv) shall file: contract that is held or controlled (E) The gross long or short positions (i) CFTC Form 704 for the initial including: in the referenced contract for the statement pursuant to § 150.7(d) of this (i) The as of date; offsetting risk position; and chapter, the supplemental statement (ii) The quantity of stocks owned of (ii) Spot-month swap offset. For each pursuant to § 150.7(e) of this chapter, such commodity that either: cash-settled swap executed opposite a and the annual update pursuant to (A) Is in a position to be delivered on counterparty for which the transaction § 150.7(f) of this chapter; and the physical-delivery core referenced would qualify as a bona fide hedging (ii) CFTC Form 204 monthly on the futures contract; or position and for which the risk is offset remaining unsold, unfilled and other

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anticipated activity for the Specified § 19.02 Reports pertaining to cotton on for conditional spot month limit Period that was reported on such call purchases and sales. exemptions. person’s most recently filed Form 704, (a) Information required. Persons Section A pursuant to § 150.7(g) of this § 19.04 Delegation of authority to the required to file ’04 reports under Director of the Division of Market Oversight. chapter. § 19.00(a)(2) shall file CFTC Form 304 (b) Time and place of filing reports.— reports showing the quantity of call (a) The Commission hereby delegates, (1) General. Except for reports filed in cotton bought or sold on which the until it orders otherwise, to the Director response to special calls made under price has not been fixed, together with of the Division of Market Oversight or § 19.00(a)(3) or reports required under the respective futures on which the such other employee or employees as § 19.00(a)(1)(i), (a)(1)(ii)(B), or purchase or sale is based. As used the Director may designate from time to § 19.01(a)(4)(i), each report shall be herein, call cotton refers to spot cotton time, the authority in § 19.01 to provide made monthly: bought or sold, or contracted for instructions or to determine the format, (i) As of the close of business on the purchase or sale at a price to be fixed coding structure, and electronic data last Friday of the month, and later based upon a specified future. transmission procedures for submitting (ii) As specified in paragraph (b)(3) of (b) Time and place of filing reports. data records and any other information this section, and not later than 9 a.m. Each report shall be made weekly as of required under this part. Eastern Time on the third business day the close of business on Friday and filed (b) The Director of the Division of following the date of the report. using the procedure under § 19.01(b)(3), Market Oversight may submit to the (2) Conditional spot month limit. not later than 9 a.m. Eastern Time on Commission for its consideration any Persons required to file ’04 reports the third business day following the matter which has been delegated in this under § 19.00(a)(1)(i) shall file each date of the report. section. report for special commodities as (c) Nothing in this section prohibits specified by the Commission under § 19.03 Reports pertaining to special commodities. the Commission, at its election, from § 19.03: exercising the authority delegated in (i) As of the close of business for each From time to time to facilitate this section. day the person exceeds the limit during surveillance in certain commodity a spot period up to and through the day derivative contracts, the Commission §§ 19.05–19.10 [Reserved] the person’s position first falls below may designate a commodity derivative Appendix A to Part 19—Forms 204, the position limit; and contract for reporting under 304, 504, 604, and 704 (ii) As specified in paragraph (b)(3) of § 19.00(a)(1)(i) and will publish such this section, and not later than 9 a.m. determination in the Federal Register Note: This Appendix includes Eastern Time on the next business day and on its Web site. Persons holding or representations of the proposed reporting following the date of the report. controlling positions in such special forms, which would be submitted in an (3) Electronic filing. CFTC ’04 reports commodity derivative contracts must, electronic format published pursuant to the must be transmitted using the format, beginning 30 days after notice is proposed rules, either via the Commission’s coding structure, and electronic data published in the Federal Register, web portal or via XML-based, secure FTP transmission procedures approved in comply with the reporting requirements transmission. writing by the Commission. under § 19.00(a)(1)(i) and file Form 504 BILLING CODE 6351–01–P

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PART 32—REGULATION OF Authority: 7 U.S.C. 1a, 2, 6, 6a, 6c, 6d, 6e, (1) Hedges of an excluded commodity. COMMODITY OPTION TRANSACTIONS 6f, 6g, 6i, 6j, 6k, 6l, 6m, 6n, 7, 7a–2, 7b, 7b– For a position in commodity derivative 1, 7b–3, 8, 9, 15, and 21, as amended by the contracts in an excluded commodity, as ■ 12. The authority citation for part 32 Dodd-Frank Wall Street Reform and that term is defined in section 1a(19) of continues to read as follows: Consumer Protection Act, Pub. L. 111–203, 124 Stat. 1376. the Act: Authority: 7 U.S.C. 1a, 2, 6c, and 12a, (i) Such position is economically ■ unless otherwise noted. 18. Revise § 38.301 to read as follows: appropriate to the reduction of risks in ■ 13. Amend § 32.3 by revising § 38.301 Position limitations and the conduct and management of a paragraph (c)(2) to read as follows: accountability. commercial enterprise; and A designated contract market must (ii)(A) Is enumerated in paragraph (3), § 32.3 Trade options. meet the requirements of part 150 of this (4) or (5) of this definition; or * * * * * chapter, as applicable. (B) Such position is recognized as a (c) * * * bona fide hedging position by the (2) Part 150 (Position Limits) of this PART 140—ORGANIZATION, designated contract market or swap chapter; FUNCTIONS, AND PROCEDURES OF execution facility that is a trading THE COMMISSION facility, pursuant to such market’s rules * * * * * submitted to the Commission, which ■ 19. The authority citation for part 140 rules may include risk management PART 37—SWAP EXECUTION continues to read as follows: FACILITIES exemptions consistent with Appendix A Authority: 7 U.S.C. 2(a)(12), 13(c), 13(d), of this part; and ■ 14. The authority citation for part 37 13(e), and 16(b). (2) Hedges of a physical commodity. continues to read as follows: § 140.97 [Removed and Reserved] For a position in commodity derivative contracts in a physical commodity: Authority: 7 U.S.C. 1a, 2, 5, 6, 6c, 7, 7a– ■ 20. Remove and reserve § 140.97. 2, 7b–3, and 12a, as amended by Titles VII (i) Such position: and VIII of the Dodd-Frank Wall Street PART 150—LIMITS ON POSITIONS (A) Represents a substitute for Reform and Consumer Protection Act, Pub. L. transactions made or to be made, or 111–203, 124 Stat. 1376 ■ 21. The authority citation for part 150 positions taken or to be taken, at a later is revised to read as follows: ■ 15. Revise § 37.601 to read as follows: time in a physical marketing channel; Authority: 7 U.S.C. 1a, 2, 5, 6, 6a, 6c, 6f, (B) Is economically appropriate to the § 37.601 Additional sources for 6g, 6t, 12a, 19, as amended by Title VII of the reduction of risks in the conduct and compliance. Dodd-Frank Wall Street Reform and management of a commercial enterprise; A swap execution facility that is a Consumer Protection Act, Pub. L. 111–203, (C) Arises from the potential change trading facility must meet the 124 Stat. 1376 (2010). in the value of— requirements of part 150 of this chapter, ■ 22. Revise § 150.1 to read as follows: (1) Assets which a person owns, as applicable. produces, manufactures, processes, or § 150.1 Definitions. ■ 16. In Appendix B to part 37, under merchandises or anticipates owning, the heading Core Principle 6 of Section As used in this part— producing, manufacturing, processing, Basis contract means a commodity 5H of the Act, revise the introductory or merchandising; derivative contract that is cash-settled text of paragraph (B) and paragraph (2) Liabilities which a person owes or based on the difference in: anticipates incurring; or (B)(2)(a) to read as follows: (1) The price, directly or indirectly, (3) Services that a person provides, Appendix B to Part 37—Guidance on, of: (i) A particular core referenced futures purchases, or anticipates providing or and Acceptable Practices in, purchasing; and Compliance with Core Principles contract; or (ii) A commodity deliverable on a (D) Is enumerated in paragraph (3), (4) * * * * * particular core referenced futures or (5) of this definition; or CORE PRINCIPLE 6 OF SECTION 5H OF contract, whether at par, a fixed (ii)(A) Pass-through swap offsets. THE ACT—POSITION LIMITS OR discount to par, or a premium to par; Such position reduces risks attendant to ACCOUNTABILITY and a position resulting from a swap in the * * * * * (2) The price, at a different delivery same physical commodity that was (B) Position limits. For any contract that is location or pricing point than that of the executed opposite a counterparty for subject to a position limitation established by same particular core referenced futures which the position at the time of the the Commission pursuant to section 4a(a) of contract, directly or indirectly, of: transaction would qualify as a bona fide the Act, the swap execution facility that is a (i) A commodity deliverable on the hedging position pursuant to paragraph trading facility shall: same particular core referenced futures (2)(i) of this definition (a pass-through * * * * * contract, whether at par, a fixed swap counterparty), provided that no (2) * * * discount to par, or a premium to par; or such risk-reducing position is (a) Guidance. A swap execution facility (ii) A commodity that is listed in maintained in any physical-delivery that is a trading facility must meet the Appendix B of this part as substantially commodity derivative contract during requirements of part 150 of this chapter, as the same as a commodity underlying the the lesser of the last five days of trading applicable. A swap execution facility that is or the time period for the spot month in not a trading facility should consider part same core referenced futures contract. 150 of this chapter as guidance. Bona fide hedging position means any such physical-delivery commodity position whose purpose is to offset price derivative contract; and * * * * * risks incidental to commercial cash, (B) Pass-through swaps. Such swap PART 38—DESIGNATED CONTRACT spot, or forward operations, and such position was executed opposite a pass- MARKETS position is established and liquidated in through swap counterparty and to the an orderly manner in accordance with extent such swap position has been ■ 17. The authority citation for part 38 sound commercial practices, provided offset pursuant to paragraph (2)(ii)(A) of continues to read as follows: that: this definition.

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(3) Enumerated hedging positions. A month in such physical-delivery trading or the time period for the spot bona fide hedging position includes any contract: month in such physical-delivery of the following specific positions: (i) Hedges of unsold anticipated contract. (i) Hedges of inventory and cash production. Short positions in Commodity derivative contract commodity purchase contracts. Short commodity derivative contracts that do means, for this part, any futures, option, positions in commodity derivative not exceed in quantity unsold or swap contract in a commodity (other contracts that do not exceed in quantity anticipated production of the same than a security futures product as ownership or fixed-price purchase commodity, and that do not exceed defined in section 1a(45) of the Act). contracts in the contract’s underlying twelve months of production for an Core referenced futures contract cash commodity by the same person. agricultural commodity, by the same means a futures contract that is listed in (ii) Hedges of cash commodity sales person. § 150.2(d). contracts. Long positions in commodity (ii) Hedges of offsetting unfixed-price Eligible affiliate. An eligible affiliate derivative contracts that do not exceed cash commodity sales and purchases. means an entity with respect to which in quantity the fixed-price sales Short and long positions in commodity another person: contracts in the contract’s underlying derivative contracts that do not exceed (1) Directly or indirectly holds either: cash commodity by the same person and in quantity that amount of the same (i) A majority of the equity securities the quantity equivalent of fixed-price cash commodity that has been bought of such entity, or sales contracts of the cash products and and sold by the same person at unfixed (ii) The right to receive upon by-products of such commodity by the prices: dissolution of, or the contribution of, a (A) Basis different delivery months in same person. majority of the capital of such entity; (iii) Hedges of unfilled anticipated the same commodity derivative (2) Reports its financial statements on requirements. Provided that such contract; or positions in a physical-delivery (B) Basis different commodity a consolidated basis under Generally commodity derivative contract, during derivative contracts in the same Accepted Accounting Principles or the lesser of the last five days of trading commodity, regardless of whether the International Financial Reporting or the time period for the spot month in commodity derivative contracts are in Standards, and such consolidated such physical-delivery contract, do not the same calendar month. financial statements include the exceed the person’s unfilled anticipated (iii) Hedges of anticipated royalties. financial results of such entity; and requirements of the same cash Short positions in commodity derivative (3) Is required to aggregate the commodity for that month and for the contracts offset by the anticipated positions of such entity under § 150.4 next succeeding month: change in value of mineral royalty rights and does not claim an exemption from (A) Long positions in commodity that are owned by the same person, aggregation for such entity. derivative contracts that do not exceed provided that the royalty rights arise out Eligible entity means a commodity in quantity unfilled anticipated of the production of the commodity pool operator; the operator of a trading requirements of the same cash underlying the commodity derivative vehicle which is excluded or which commodity, and that do not exceed contract. itself has qualified for exclusion from twelve months for an agricultural (iv) Hedges of services. Short or long the definition of the term ‘‘pool’’ or commodity, for processing, positions in commodity derivative ‘‘commodity pool operator,’’ manufacturing, or use by the same contracts offset by the anticipated respectively, under § 4.5 of this chapter; person; and change in value of receipts or payments the limited partner, limited member or (B) Long positions in commodity due or expected to be due under an shareholder in a commodity pool the derivative contracts that do not exceed executed contract for services held by operator of which is exempt from in quantity unfilled anticipated the same person, provided that the registration under § 4.13 of this chapter; requirements of the same cash contract for services arises out of the a commodity trading advisor; a bank or commodity for resale by a utility that is production, manufacturing, processing, trust company; a savings association; an required or encouraged to hedge by its use, or transportation of the commodity insurance company; or the separately public utility commission on behalf of underlying the commodity derivative organized affiliates of any of the above its customers’ anticipated use. contract, and which may not exceed one entities: (iv) Hedges by agents. Long or short year for agricultural commodities. (1) Which authorizes an independent positions in commodity derivative (5) Cross-commodity hedges. account controller independently to contracts by an agent who does not own Positions in commodity derivative control all trading decisions with or has not contracted to sell or purchase contracts described in paragraph (2)(ii), respect to the eligible entity’s client the offsetting cash commodity at a fixed paragraphs (3)(i) through (iv) and positions and accounts that the price, provided that the agent is paragraphs (4)(i) through (iv) of this independent account controller holds responsible for merchandising the cash definition may also be used to offset the directly or indirectly, or on the eligible positions that are being offset in risks arising from a commodity other entity’s behalf, but without the eligible commodity derivative contracts and the than the same cash commodity entity’s day-to-day direction; and agent has a contractual arrangement underlying a commodity derivative (2) Which maintains: with the person who owns the contract, provided that the fluctuations (i) Only such minimum control over commodity or holds the cash market in value of the position in the the independent account controller as is commitment being offset. commodity derivative contract, or the consistent with its fiduciary (4) Other enumerated hedging commodity underlying the commodity responsibilities to the managed positions. A bona fide hedging position derivative contract, are substantially positions and accounts, and necessary also includes the following specific related to the fluctuations in value of to fulfill its duty to supervise diligently positions, provided that no such the actual or anticipated cash position the trading done on its behalf; or position is maintained in any physical- or pass-through swap and no such (ii) If a limited partner, limited delivery commodity derivative contract position is maintained in any physical- member or shareholder of a commodity during the lesser of the last five days of delivery commodity derivative contract pool the operator of which is exempt trading or the time period for the spot during the lesser of the last five days of from registration under § 4.13 of this

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chapter, only such limited control as is designated contract market or swap that is not a basis or any type of spread consistent with its status. execution facility. contract, based on an index comprised Entity means a ‘‘person’’ as defined in Intramarket spread position means a of prices of commodities that are not the section 1a of the Act. long position in a commodity derivative same or substantially the same; Excluded commodity means an contract in a particular commodity and (iii) Spread contract means either a ‘‘excluded commodity’’ as defined in a short position in another commodity calendar spread contract or an section 1a of the Act. derivative contract in the same intercommodity spread contract; and Futures-equivalent means commodity on the same designated (iv) Intercommodity spread contract (1) An option contract, whether an contract market or swap execution means a cash-settled agreement, option on a future or an option that is facility. contract or transaction that represents a swap, which has been adjusted by an Long position means a long call the difference between the settlement economically reasonable and option, a short put option or a long price of a referenced contract and the analytically supported risk factor, or underlying futures contract, or a long settlement price of another contract, delta coefficient, for that option futures-equivalent swap. agreement, or transaction that is based computed as of the previous day’s close Physical commodity means any on a different commodity. or the current day’s close or agricultural commodity as that term is Short position means a short call contemporaneously during the trading defined in § 1.3 of this chapter or any option, a long put option or a short day, and; exempt commodity as that term is underlying futures contract, or a short (2) A swap which has been converted defined in section 1a(20) of the Act. futures-equivalent swap. to an economically equivalent amount Pre-enactment swap means any swap Speculative position limit means the of an open position in a core referenced entered into prior to enactment of the maximum position, either net long or futures contract. Dodd-Frank Act of 2010 (July 21, 2010), net short, in a commodity derivatives Independent account controller the terms of which have not expired as contract that may be held or controlled means a person— of the date of enactment of that Act. by one person, absent an exemption, (1) Who specifically is authorized by Pre-existing position means any such as an exemption for a bona fide an eligible entity, as defined in this position in a commodity derivative hedging position. This limit may apply section, independently to control contract acquired in good faith prior to to a person’s combined position in all trading decisions on behalf of, but the effective date of any bylaw, rule, commodity derivative contracts in a without the day-to-day direction of, the regulation or resolution that specifies an particular commodity (all-months- eligible entity; initial speculative position limit level or combined), a person’s position in a (2) Over whose trading the eligible a subsequent change to that level. single month of commodity derivative entity maintains only such minimum Referenced contract means, on a contracts in a particular commodity, or control as is consistent with its futures equivalent basis with respect to a person’s position in the spot month of fiduciary responsibilities for managed a particular core referenced futures commodity derivative contacts in a positions and accounts to fulfill its duty contract, a core referenced futures particular commodity. Such a limit may to supervise diligently the trading done contract listed in § 150.2(d), or a futures be established under federal regulations on its behalf or as is consistent with contract, options contract, or swap, and or rules of a designated contract market such other legal rights or obligations excluding any guarantee of a swap, a or swap execution facility. An exchange which may be incumbent upon the basis contract, or a commodity index may also apply other limits, such as a eligible entity to fulfill; contract: limit on gross long or gross short (3) Who trades independently of the (1) That is: positions, or a limit on holding or eligible entity and of any other (i) Directly or indirectly linked, controlling delivery instruments. independent account controller trading including being partially or fully settled Spot month means— for the eligible entity; on, or priced at a fixed differential to, (1) For physical-delivery commodity (4) Who has no knowledge of trading the price of that particular core derivative contracts, the period of time decisions by any other independent referenced futures contract; or beginning at the earlier of the close of account controller; and (ii) Directly or indirectly linked, trading on the trading day preceding the (5) Who is including being partially or fully settled first day on which delivery notices can (i) Registered as a futures commission on, or priced at a fixed differential to, be issued to the clearing organization of merchant, an introducing broker, a the price of the same commodity a contract market, or the close of trading commodity trading advisor, or an underlying that particular core on the trading day preceding the third- associated person of any such registrant, referenced futures contract for delivery to-last trading day, until the contract is or at the same location or locations as no longer listed for trading (or available (ii) A general partner, managing specified in that particular core for transfer, such as through exchange member or manager of a commodity referenced futures contract; and for physical transactions). pool the operator of which is excluded (2) Where: (2) For cash-settled contracts, spot from registration under § 4.5(a)(4) of this (i) Calendar spread contract means a month means the period of time chapter or § 4.13 of this chapter, cash-settled agreement, contract, or beginning at the earlier of the close of provided that such general partner, transaction that represents the trading on the trading day preceding the managing member or manager complies difference between the settlement price period in which the underlying cash- with the requirements of § 150.4(c). in one or a series of contract months of settlement price is calculated, or the Intermarket spread position means a an agreement, contract or transaction close of trading on the trading day long position in a commodity derivative and the settlement price of another preceding the third-to-last trading day, contract in a particular commodity at a contract month or another series of until the contract cash-settlement price particular designated contract market or contract months’ settlement prices for is determined and published; provided swap execution facility and a short the same agreement, contract or however, if the cash-settlement price is position in another commodity transaction; determined based on prices of a core derivative contract in that same (ii) Commodity index contract means referenced futures contract during the commodity away from that particular an agreement, contract, or transaction spot month period for that core

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referenced futures contract, then the amendments to part 150 of this chapter positions, net long or net short, in spot month for that cash-settled contract implementing section 737 of the Dodd- referenced contracts in a single month is the same as the spot month for that Frank Act of 2010. or in all months combined (including core referenced futures contract. ■ 23. Revise § 150.2 to read as follows: the spot month) in excess of the levels specified by the Commission. Swap means ‘‘swap’’ as that term is § 150.2 Speculative position limits. defined in section 1a of the Act and as (c) For purposes of this part: (a) Spot-month speculative position further defined in § 1.3 of this chapter. limits. No person may hold or control (1) The spot month and any single Swap dealer means ‘‘swap dealer’’ as positions in referenced contracts in the month shall be those of the core that term is defined in section 1a of the spot month, net long or net short, in referenced futures contract; and Act and as further defined in § 1.3 of excess of the level specified by the (2) An eligible affiliate is not required this chapter. Commission for: to comply separately with speculative Transition period swap means a swap (1) Physical-delivery referenced position limits. entered into during the period contracts; and, separately, (d) Core referenced futures contracts. commencing after the enactment of the (2) Cash-settled referenced contracts; Speculative position limits apply to Dodd-Frank Act of 2010 (July 21, 2010), (b) Single-month and all-months- referenced contracts based on the core and ending 60 days after the publication combined speculative position limits. referenced futures contracts listed in the in the Federal Register of final No person may hold or control following table:

CORE REFERENCED FUTURES CONTRACTS

Commodity type Designated contract market Core referenced futures contract 1

(1) Legacy Agricultural. Chicago Board of Trade. Corn (C). Oats (O). Soybeans (S). Soybean Meal (SM). Soybean Oil (SO). Wheat (W). Kansas City Board of Trade. Hard Winter Wheat (KW). ICE Futures U.S. Cotton No. 2 (CT). Minneapolis Grain Exchange. Hard Red Spring Wheat (MWE). (2) Other Agricultural. Chicago Board of Trade. Rough Rice (RR). Chicago Mercantile Exchange. Class III Milk (DA). Feeder Cattle (FC). Lean Hog (LH). Live Cattle (LC). ICE Futures U.S. Cocoa (CC). Coffee C (KC). FCOJ–A (OJ). U.S. Sugar No. 11 (SB). U.S. Sugar No. 16 (SF). (3) Energy. New York Mercantile Exchange. Light Sweet Crude Oil (CL). NY Harbor ULSD (HO). RBOB Gasoline (RB). Henry Hub Natural Gas (NG). (4) Metals. Commodity Exchange, Inc. Gold (GC). Silver (SI). Copper (HG). New York Mercantile Exchange. Palladium (PA). Platinum (PL). 1 The core referenced futures contract includes any successor contracts.

(e) Levels of speculative position in Appendix D of this part and shall be (2) Subsequent levels. (i) The limits. (1) Initial levels. The initial levels effective 60 days after publication in the Commission shall fix subsequent levels of speculative position limits are fixed Federal Register. of speculative position limits in by the Commission at the levels listed accordance with the procedures in this

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section and publish such levels on the shall be based on 10 percent of the position shall be attributed to the person Commission’s Web site at http:// estimated average open interest in if the person’s position is increased after www.cftc.gov. referenced contracts, up to 25,000 the effective date of such limit. (ii) Such subsequent speculative contracts, with a marginal increase of (g) Positions on Foreign Boards of position limit levels shall each apply 2.5 percent thereafter. Trade. The aggregate speculative beginning on the close of business of the (i) Time periods for average open position limits established under this last business day of the second complete interest. The Commission shall estimate section shall apply to a person with calendar month after publication of average open interest in referenced positions in referenced contracts such levels; provided however, if such contracts based on the largest annual executed on, or pursuant to the rules of close of business is in a spot month of average open interest computed for each a foreign board of trade, provided that: a core referenced futures contract, the of the past two calendar years. The (1) Such referenced contracts settle subsequent spot-month level shall apply Commission may estimate average open against any price (including the daily or beginning with the next spot month for interest in referenced contracts using final settlement price) of one or more that contract. either month-end open contracts or contracts listed for trading on a (iii) All subsequent levels of open contracts for each business day in designated contract market or swap speculative position limits shall be the time period, as practical. execution facility that is a trading rounded up to the nearest hundred (ii) Data sources for average open facility; and contracts. interest. The Commission shall estimate (2) The foreign board of trade makes (3) Procedure for computing levels of average open interest in referenced available such referenced contracts to its spot-month limits. (i) No less frequently contracts using data reported to the members or other participants located in than every two calendar years, the Commission pursuant to part 16 of this the United States through direct access Commission shall fix the level of the chapter, and open swaps reported to the to its electronic trading and order spot-month limit no greater than one- Commission pursuant to part 20 of this matching system. quarter of the estimated spot-month chapter or data obtained by the (h) Anti-evasion provision. For the deliverable supply in the relevant core Commission from swap data purposes of applying the speculative referenced futures contract. Unless the repositories collecting data pursuant to position limits in this section, a Commission determines to rely on its part 45 of this chapter. Options listed on commodity index contract used to own estimate of deliverable supply, the designated contract markets shall be circumvent speculative position limits Commission shall utilize the estimated adjusted using an option delta reported shall be considered to be a referenced spot-month deliverable supply provided to the Commission pursuant to part 16 contract. by a designated contract market. of this chapter. Swaps shall be counted (1) Delegation of authority to the (ii) Each designated contract market on a futures equivalent basis, equal to Director of the Division of Market in a core referenced futures contract the economically equivalent amount of Oversight. (i) The Commission hereby shall supply to the Commission an core referenced futures contracts delegates, until it orders otherwise, to estimated spot-month deliverable reported pursuant to part 20 of this the Director of the Division of Market supply. A designated contract market chapter or as calculated by the Oversight or such other employee or may use the guidance regarding Commission using swap data collected employees as the Director may designate deliverable supply in Appendix C of pursuant to part 45 of this chapter. from time to time, the authority in part 38 of this chapter. Each estimate (iii) Publication of average open paragraph (e) of this section to fix and must be accompanied by a description interest. The Commission shall publish publish subsequent levels of speculative of the methodology used to derive the estimates of average open interest in position limits. estimate and any statistical data referenced contracts on a monthly basis, (ii) The Director of the Division of supporting the estimate, and must be as practical, after such data is submitted Market Oversight may submit to the submitted no later than the following: to the Commission. Commission for its consideration any (A) For energy commodities, January (iv) Minimum levels. Provided matter which has been delegated in this 31 of the second calendar year following however, notwithstanding the above, the section. the most recent Commission action minimum levels shall be the greater of (iii) Nothing in this section prohibits establishing such limit levels; the level of the spot month limit the Commission, at its election, from (B) For metals commodities, March 31 determined under paragraph (e)(3) of exercising the authority delegated in of the second calendar year following this section and 1,000 for referenced this section. the most recent Commission action contracts in an agricultural commodity (iv) The Commission will periodically establishing such limit levels; or 5,000 for referenced contracts in an update these initial levels for (C) For legacy agricultural exempt commodity. speculative position limits and publish commodities, May 31 of the second (f) Pre-existing Positions—(1) Pre- such subsequent levels on its Web site calendar year following the most recent existing positions in a spot-month. at: http://www.cftc.gov. Commission action establishing such Other than pre-enactment and transition (2) Reserved. limit levels; and period swaps exempted under ■ 24. Revise § 150.3 to read as follows: (D) For other agricultural § 150.3(d), a person shall comply with commodities, August 31 of the second spot month speculative position limits. § 150.3 Exemptions. calendar year following the most recent (2) Pre-existing positions in a non- (a) Positions which may exceed limits. Commission action establishing such spot-month. A single-month or all- The position limits set forth in § 150.2 limit levels. months-combined speculative position may be exceeded to the extent that: (4) Procedure for computing levels of limit established under this section (1) Such positions are: single-month and all-months-combined shall not apply to any commodity (i) Bona fide hedging positions as limits. No less frequently than every two derivative contract acquired in good defined in § 150.1, provided that for calendar years, the Commission shall fix faith prior to the effective date of such anticipatory bona fide hedge positions the level, for each referenced contract, limit, provided, however, that if such under paragraphs (3)(iii), (4)(i), (4)(iii), of the single-month limit and the all- position is not a pre-enactment or and (4)(iv) of the bona fide hedging months-combined limit. Each such limit transition period swap then that position definition in § 150.1 the person

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complies with the filing procedure (3) Appendix C of this part provides positions owned or controlled by that found in § 150.7; a non-exhaustive list of examples of person; trading done pursuant to the (ii) Financial distress positions bona fide hedging positions as defined claimed exemption; the commodity exempted under paragraph (b) of this under § 150.1. derivative contracts or cash market section; (f) Previously granted exemptions. positions which support the claim of (iii) Conditional spot-month limit Exemptions granted by the Commission exemption; and the relevant business positions exempted under paragraph (c) under § 1.47 of this chapter for swap relationships supporting a claim of of this section; or risk management shall not apply to exemption. (iv) Other positions exempted under swap positions entered into after the (i) Aggregation of accounts. Entities paragraph (e) of this section; and that effective date of initial position limits required to aggregate accounts or (2) The recordkeeping requirements of implementing section 737 of the Dodd- positions under § 150.4 shall be paragraph (g) of this section are met; Frank Act of 2010. considered the same person for the and further that (g) Recordkeeping. (1) Persons who purpose of determining whether they (3) The reporting requirements of part avail themselves of exemptions under are eligible for a bona fide hedging 19 of this chapter are met. this section, including exemptions position exemption under paragraph (b) Financial distress exemptions. granted under section 4a(a)(7) of the (a)(1)(i) of this section with respect to Upon specific request made to the Act, shall keep and maintain complete such aggregated account or position. Commission, the Commission may books and records concerning all details (j) Delegation of authority to the exempt a person or related persons of their related cash, forward, futures, Director of the Division of Market futures options and swap positions and under financial distress circumstances Oversight. (1) The Commission hereby transactions, including anticipated for a time certain from any of the delegates, until it orders otherwise, to requirements, production and royalties, requirements of this part. Financial the Director of the Division of Market contracts for services, cash commodity distress circumstances include Oversight or such other employee or products and by-products, and cross- situations involving the potential employees as the Director may designate commodity hedges, and shall make such default or bankruptcy of a customer of from time to time, the authority in books and records, including a list of the requesting person or persons, an paragraph (b) of this section to provide pass-through swap counterparties, affiliate of the requesting person or exemptions in circumstances of available to the Commission upon persons, or a potential acquisition target financial distress. request under paragraph (h) of this of the requesting person or persons. (2) The Director of the Division of section. Market Oversight may submit to the (c) Conditional spot-month limit (2) Further, a party seeking to rely exemption. The position limits set forth Commission for its consideration any upon the pass-through swap offset in matter which has been delegated in this in § 150.2 may be exceeded for cash- paragraph (2)(ii) of the definition of settled referenced contracts provided section. ‘‘bona fide hedging position’’ in § 150.1, (3) Nothing in this section prohibits that such positions do not exceed five in order to exceed the position limits of times the level of the spot-month limit the Commission, at its election, from § 150.2 with respect to such a swap, exercising the authority delegated in specified by the Commission and the may only do so if its counterparty person holding or controlling such this section. provides a written representation (e.g., ■ 25. Revise § 150.5 to read as follows: positions does not hold or control in the form of a field or other positions in spot-month physical- representation contained in a mutually § 150.5 Exchange-set speculative position delivery referenced contracts. executed trade confirmation) that, as to limits. (d) Pre-enactment and transition such counterparty, the swap qualifies in (a) Requirements and acceptable period swaps exemption. The good faith as a ‘‘bona fide hedging practices for commodity derivative speculative position limits set forth in position,’’ as defined in § 150.1, at the contracts subject to federal position § 150.2 shall not apply to positions time the swap was executed. That limits. (1) For any commodity derivative acquired in good faith in any pre- written representation shall be retained contract that is subject to a speculative enactment swap, or in any transition by the parties to the swap for a period position limit under § 150.2, the period swap, in either case as defined of at least two years following the designated contract market or swap by § 150.1, provided, however, that a expiration of the swap and furnished to execution facility that is a trading person may net such positions with the Commission upon request. facility shall set a speculative position post-effective date commodity (3) Any person that represents to limit no higher than the level specified derivative contracts for the purpose of another person that a swap qualifies as in § 150.2. complying with any non-spot-month a pass-through swap under paragraph (2) Exemptions. (i) Hedge exemption. speculative position limit. (2)(ii) of the definition of ‘‘bona fide Any hedge exemption rules adopted by (e) Other exemptions. Any person hedging position’’ in § 150.1 shall keep a designated contract markets or a swap engaging in risk-reducing practices and make available to the Commission execution facility that is a trading commonly used in the market, which upon request all relevant books and facility must conform to the definition they believe may not be specifically records supporting such a of bona fide hedging position in § 150.1. enumerated in the definition of bona representation for a period of at least (ii) Other exemptions. In addition to fide hedging position in § 150.1, may two years following the expiration of the the express exemptions specified in request: swap. § 150.3, a designated contract market or (1) An interpretative letter from (h) Call for information. Upon call by swap execution facility that is a trading Commission staff, under § 140.99 of this the Commission, the Director of the facility may grant other exemptions for: chapter, concerning the applicability of Division of Market Oversight or the (A) Intramarket spread positions as the bona fide hedging position Director’s delegate, any person claiming defined in § 150.1, provided that such exemption; or an exemption from speculative position positions must be outside of the spot (2) Exemptive relief from the limits under this section must provide month for physical-delivery contracts Commission under section 4a(a)(7) of to the Commission such information as and must not exceed the all-months the Act. specified in the call relating to the limit set forth in § 150.2 when combined

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with any other net positions in the delivery, then re-establishes a long months combined limit level should be single month; position; scaled down accordingly. If the (B) Intermarket spread positions as (ii) Establish limits on the amount of commodity derivative contract is defined in § 150.1, provided that such delivery instruments that a person may substantially the same as a pre-existing positions must be outside of the spot hold in a physical-delivery contract; and designated contract market or swap month for physical-delivery contracts. (iii) Impose such other restrictions as execution facility commodity derivative (iii) Application for exemption. it deems necessary to reduce the contract, then the designated contract or Traders must apply to the designated potential threat of market manipulation swap execution facility may adopt the contract market or swap execution or congestion, to maintain orderly same limit as applies to that pre-existing facility that is a trading facility for any execution of transactions, or for such commodity derivative contract; exemption from its speculative position other purposes consistent with its (B) Exempt or excluded commodity limit rules. The designated contract responsibilities. derivative contracts. For exempt market or swap execution facility that is (b) Requirements and acceptable commodity derivative contracts not a trading facility may limit bona fide practices for commodity derivative subject to the limits set forth in § 150.2 hedging positions, or any other contracts that are not subject to the or excluded commodity derivative positions that have been exempted limits set forth in § 150.2, including contracts, the individual non-spot or all- pursuant to § 150.3, which it determines derivative contracts in a physical months-combined levels should be no are not in accord with sound commodity as defined in § 150.1 and in greater than 5,000 contracts, when the an excluded commodity as defined in commercial practices, or which exceed notional quantity per contract is no section 1a(19) of the Act—(1) Levels at an amount that may be established and larger than a typical cash market initial listing. At the time of each liquidated in an orderly fashion. transaction in the underlying commodity derivative contract’s initial (3) Pre-enactment and transition commodity. If the notional quantity per listing, a designated contract market or period swap positions. Speculative contract is larger than the typical cash swap execution facility that is a trading position limits set forth in § 150.2 shall market transaction, then the individual facility should base speculative position non-spot month limit or all-months not apply to positions acquired in good limits on the following: faith in any pre-enactment swap, or in combined limit level should be scaled (i) Spot month position limits. (A) down accordingly. If the commodity any transition period swap, in either Commodities with a measurable case as defined by § 150.1. Provided, derivative contract is substantially the deliverable supply. For all commodity same as a pre-existing commodity however, that a designated contract derivative contracts not subject to the derivative contract, then the designated market or swap execution facility that is limits set forth in § 150.2 that are based contract market or swap execution a trading facility shall allow a person to on a commodity with a measurable facility may adopt the same limit as net such position with post-effective deliverable supply, the spot month limit applies to that pre-existing commodity date commodity derivative contracts for level should be established at a level derivative contract. the purpose of complying with any non- that is no greater than one-quarter of the (iii) Commodity derivative contracts spot-month speculative position limit. estimated spot month deliverable that are cash-settled by referencing a (4) Pre-existing positions. (i) Pre- supply, calculated separately for each daily settlement price of an existing existing positions in a spot-month. A month to be listed (Designated Contract contract. For commodity derivative designated contract market or swap Markets and Swap Execution Facilities contracts that are cash-settled by execution facility that is a trading may refer to the guidance in paragraph referencing a daily settlement price of facility must require compliance with (b)(1)(i) of Appendix C of part 38 for an existing contract listed on a spot month speculative position limits guidance on estimating spot-month designated contract market or swap for pre-existing positions in commodity deliverable supply); execution facility that is a trading derivative contracts other than pre- (B) Commodities without a facility, the cash-settled contract should enactment and transition period swaps. measurable deliverable supply. For adopt the same spot-month, individual (ii) Pre-existing positions in a non- commodity derivative contracts that are non-spot-month, and all-months- spot-month. A single-month or all- based on a commodity with no combined position limits as the original months-combined speculative position measurable deliverable supply, the spot price referenced contract. limit established under § 150.2 shall not month limit level should be set at a (2) Adjustments to levels. Designated apply to any commodity derivative level that is necessary and appropriate contract markets and swap execution contract acquired in good faith prior to to reduce the potential threat of market facilities that are trading facilities the effective date of such limit, manipulation or price distortion of the should adjust their speculative limit provided, however, that such position contract’s or the underlying levels as follows: shall be attributed to the person if the commodity’s price or index. (i) Spot month position limits. The person’s position is increased after the (ii) Individual non-spot or all-months- spot month position limit level should effective date of such limit. combined position limits. (A) be reviewed no less than once every (5) Aggregation. Designated contract Agricultural commodity derivative twenty-four months from the date of markets and swap execution facilities contracts. For agricultural commodity initial listing and should be maintained that are trading facilities must have derivative contracts not subject to the at a level that is: aggregation rules that conform to limits set forth in § 150.2, the individual (A) No greater than one-quarter of the § 150.4. non-spot or all-months-combined levels estimated spot month deliverable (6) Additional acceptable practices. A should be no greater than 1,000 supply, calculated separately for each designated contract market or swap contracts, when the notional quantity month to be listed; or execution facility that is a trading per contract is no larger than a typical (B) In the case of a commodity facility may: cash market transaction in the derivative contract based on a (i) Impose additional restrictions on a underlying commodity. If the notional commodity without a measurable person with a long position in the spot quantity per contract is larger than the deliverable supply, necessary and month of a physical-delivery contract typical cash market transaction, then the appropriate to reduce the potential who stands for delivery, takes that individual non-spot month limit or all- threat of market manipulation or price

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distortion of the contract’s or the adopt position accountability in lieu of execution facility that is a trading underlying commodity’s price or index. position limits in the spot month. For facility must conform to the definition (ii) Individual non-spot or all-months- all other excluded commodity of bona fide hedging position in § 150.1. combined position limits. Individual derivative contracts, a designated (ii) Other exemptions. In addition to non-spot or all-months-combined levels contract market or swap execution the exemptions for bona fide hedging should be no greater than 10% of the facility that is a trading facility should positions that conform to paragraph average combined futures and delta- adopt a spot-month position limit with (b)(5)(i) of this section, a designated adjusted option month-end open a level no greater than one-quarter of the contract market or swap execution interest for the most recent calendar estimated deliverable supply; facility that is a trading facility may year up to 25,000 contracts, with a (B) Individual non-spot or all-months- grant other exemptions for: marginal increase of 2.5% thereafter, or combined position limits. On an (A) Financial distress. Upon specific be based on position sizes customarily excluded commodity derivative request made to the designated contract held by speculative traders on the contract, a designated contract market or market or swap execution facility that is contract market. In any case, such levels swap execution facility that is a trading a trading facility, the designated should be reviewed no less than once facility may adopt position contract market or swap execution every twenty-four months from the date accountability levels in lieu of position facility that is a trading facility may of initial listing. limits in the individual non-spot month exempt a person or related persons (3) Position accountability in lieu of or all-months-combined. under financial distress circumstances speculative position limits. A designated (iii) New commodity derivative for a time certain from any of the contract market or swap execution contracts that are substantially the same requirements of this part. Financial facility that is a trading facility may as an existing contract. On a new distress circumstances include adopt a bylaw, rule, regulation, or commodity derivative contract that is situations involving the potential resolution, substituting for the exchange substantially the same as an existing default or bankruptcy of a customer of set speculative position limits specified commodity derivative contract listed for the requesting person or persons, an under this paragraph (b), an exchange trading on a designated contract market affiliate of the requesting person or rule requiring traders to consent to or swap execution facility that is a persons, or a potential acquisition target provide information about their position trading facility, which has adopted of the requesting person or persons; upon request by the exchange and to position accountability in lieu of (B) Conditional spot-month limit consent to halt increasing further a position limits, the designated contract exemption. Exchange-set speculative trader’s position or to reduce their market or swap execution facility may position limits may be exceeded for positions in an orderly manner, in each adopt for the new contract when it is cash-settled contracts provided that case upon request by the exchange as initially listed for trading the position such positions should not exceed five follows: accountability levels of the existing times the level of the spot-month limit (i) Physical commodity derivative contract. specified by the designated contract contracts. On a physical commodity (4) Calculation of trading volume and market or swap execution facility that is derivative contract that is not subject to open interest. For purposes of this a trading facility and the person holding the limits set forth in § 150.2, having an paragraph, trading volume and open or controlling such positions should not average month-end open interest of interest should be calculated by: hold or control positions in referenced 50,000 contracts and an average daily (i) Open interest. (A) Averaging the spot-month physical-delivery contracts; volume of 5,000 or more contracts month-end open positions in a futures (C) Intramarket spread positions as during the most recent calendar year contract and its related option contract, defined in § 150.1, provided that such and a liquid cash market, a designated on a delta-adjusted basis, for all months positions should be outside of the spot contract market or swap execution listed during the most recent calendar month for physical-delivery contracts facility that is a trading facility may year; and and should not exceed the all-months adopt individual non-spot month or all- (B) Averaging the month-end futures- limit when combined with any other net months-combined position equivalent amount of open positions in positions in the single month; accountability levels, provided, swaps in a particular commodity (such (D) Intermarket spread positions as however, that such designated contract as, for swaps that are not referenced defined in § 150.1, provided that such market or swap execution facility that is contracts, by combining the notional positions should be outside of the spot a trading facility should adopt a spot month-end open positions in swaps in month for physical-delivery contracts; month speculative position limit with a a particular commodity, including and/or level no greater than one-quarter of the options in that same commodity that are (E) For excluded commodities, a estimated spot month deliverable swaps on a delta-adjusted basis, and designated contract market or swap supply; dividing by a notional quantity per execution facility that is a trading (ii) Excluded commodity derivative contract that is no larger than a typical facility may grant a limited risk contracts—(A) Spot month. On an cash market transaction in the management exemption pursuant to excluded commodity derivative contract underlying commodity). rules submitted to the Commission, for which there is a highly liquid cash (ii) Trading volume. (A) Counting the consistent with the guidance in market and no legal impediment to number of contracts in a futures contract Appendix A of this part. delivery, a designated contract market and its related option contract, on a (iii) Application for exemption. or swap execution facility that is a delta-adjusted basis, transacted during Traders must apply to the designated trading facility may adopt position the most recent calendar year; and contract market or swap execution accountability in lieu of position limits (B) Counting the futures-equivalent facility that is a trading facility for any in the spot month. For an excluded number of swaps in a particular exemption from its speculative position commodity derivative contract based on commodity transacted during the most limit rules. In considering whether to a commodity without a measurable recent calendar year. grant such an application for exemption, deliverable supply, a designated (5) Exemptions—(i) Hedge exemption. a designated contract market or swap contract market or swap execution Any hedge exemption rules adopted by execution facility that is a trading facility that is a trading facility may a designated contract market or a swap facility should take into account

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whether the requested exemption is in provisions are specified in § 41.25(a)(3) definition of bona fide hedging position accord with sound commercial practices of this chapter. in § 150.1 shall be filed with the and results in a position that does not ■ 26. Revise § 150.6 to read as follows: Commission at least ten days in advance exceed an amount that may be of the date that such positions would be established and liquidated in an orderly § 150.6 Ongoing application of the Act and in excess of limits then in effect Commission regulations. fashion. pursuant to section 4a of the Act. Such (6) Pre-enactment and transition This part shall only be construed as statements shall set forth in detail for a period swap positions. Speculative having an effect on position limits set by specified operating period, not in excess position limits should not apply to the Commission or a designated contract of one year for an agricultural positions acquired in good faith in any market or swap execution facility. commodity, the person’s anticipated pre-enactment swap, or in any transition Nothing in this part shall be construed activity, i.e., unfilled anticipated period swap, in either case as defined to affect any other provisions of the Act requirements, unsold anticipated by § 150.1. Provided, however, that a or Commission regulations including production, anticipated royalties, or designated contract market or swap but not limited to those relating to anticipated services contract payments execution facility that is a trading manipulation, attempted manipulation, or receipts, and explain the method of facility may allow a person to net such corners, squeezes, fraudulent or determination thereof, including, but position with post-effective date deceptive conduct or prohibited not limited to, the following commodity derivative contracts for the transactions. information: purpose of complying with any non- ■ 27. Add § 150.7 to read as follows: (1) Anticipated activity. For each spot-month speculative position limit. § 150.7 Requirements for anticipatory anticipated activity: (7) Pre-existing positions—(i) Pre- bona fide hedging position exemptions. (i) The type of cash commodity existing positions in a spot-month. A (a) Statement. Any person who underlying the anticipated activity; designated contract market or swap (ii) The name of the actual cash wishes to avail himself of exemptions execution facility that is a trading commodity underlying the anticipated for unfilled anticipated requirements, facility should require compliance with activity and the units in which the cash unsold anticipated production, spot month speculative position limits commodity is measured; anticipated royalties, anticipated for pre-existing positions in commodity (iii) An indication of whether the cash services contract payments or receipts, derivative contracts other than pre- commodity is the same commodity or anticipatory cross-commodity hedges enactment and transition period swaps. (grade and quality) that underlies a core (ii) Pre-existing positions in a non- under the provisions of paragraphs referenced futures contract or whether a spot-month. A single-month or all- (3)(iii), (4)(i), (4)(iii), (4)(iv), or (5), cross-hedge will be used and, if so, months-combined speculative position respectively, of the definition of bona additional information for cross hedges limit should not apply to any fide hedging position in § 150.1 shall specified in paragraph (d)(2) of this commodity derivative contract acquired file Form 704 with the Commission in section; in good faith prior to the effective date advance of the date the person expects (iv) Annual production, requirements, of such limit, provided, however, that to exceed the position limits established royalty receipts or service contract such position should be attributed to the under this part. Filings in conformity payments or receipts, in terms of futures person if the person’s position is with the requirements of this section equivalents, of such commodity for the increased after the effective date of such shall be effective ten days after three complete fiscal years preceding limit. submission, unless otherwise notified the current fiscal year; (8) Aggregation. Designated contract by the Commission. (v) The specified time period for markets and swap execution facilities (b) Commission notification. At any which the anticipatory hedge exemption that are trading facilities must have time, the Commission may, by notice to is claimed; aggregation rules that conform to any person filing a Form 704, specify its (vi) Anticipated production, § 150.4. determination as to what portion, if any, requirements, royalty receipts or service (9) Additional acceptable practices. of the amounts described in such filing contract payments or receipts, in terms Particularly in the spot month, a does not meet the requirements for bona of futures equivalents, of such designated contract market or swap fide hedging positions. In no case shall commodity for such specified time execution facility that is a trading such person’s anticipatory bona fide period, not in excess of one year for an facility may: hedging positions exceed the levels agricultural commodity; (i) Impose additional restrictions on a specified in paragraph (f) of this section. (vii) Fixed-price forward sales, person with a long position in the spot (c) Call for additional information. At inventory, and fixed-price forward month of a physical-delivery contract any time, the Commission may request purchases of such commodity, who stands for delivery, takes that a person who has on file a Form 704 including any quantity in process of delivery, then re-establishes a long under paragraph (a) of this section to manufacture and finished goods and position; file specific additional or updated byproducts of manufacture or (ii) Establish limits on the amount of information with the Commission to processing (in terms of such delivery instruments that a person may support a determination that the Form commodity); hold in a physical-delivery contract; and 704 on file accurately reflects unsold (viii) Unsold anticipated production, (iii) Impose such other restrictions as anticipated production, unfilled unfilled anticipated requirements, it deems necessary to reduce the anticipated requirements, anticipated unsold anticipated royalty receipts,, and potential threat of market manipulation royalties, or anticipated services anticipated service contract payments or or congestion, to maintain orderly contract payments or receipts. receipts the risks of which have not execution of transactions, or for such (d) Initial statement. Initial Form 704 been offset with cash positions, of such other purposes consist with its concerning the classification of commodity for the specified time responsibilities. positions as bona fide hedging pursuant period, not in excess of one year for an (c) Securities futures products. For to paragraphs (3)(iii), or (4)(i), (4)(iii), agricultural commodity; and security futures products, position (4)(iv) or anticipatory cross-commodity (ix) The maximum number of long limitations and position accountability hedges under paragraph (5) of the positions and short positions in

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referenced contracts expected to be used (1) Information to be included:. For paragraphs (3)(iii)(A) or (4)(i) of the to offset the risks of such anticipated each anticipated activity: bona fide hedging position definition in activity. (i) The type of cash commodity § 150.1 shall at no time exceed the lesser (2) Additional information for cross underlying the anticipated activity; of: hedges. Cash positions that represent a (ii) The name of the actual cash (1) A person’s anticipated activity commodity, or products or byproducts commodity underlying the anticipated (including production, requirements, of a commodity, that is different from activity and the units in which the cash royalties and services) as described by the commodity underlying a commodity commodity is measured; the information most recently filed derivative contract that is expected to be (iii) An indication of whether the cash pursuant to this section that has not used for hedging, shall be shown both commodity is the same commodity been offset with cash positions; or (grade and quality) that underlies a core in terms of the equivalent amount of the (2) Such lesser amount as determined commodity underlying the commodity referenced futures contract or whether a cross-hedge will be used and, if so, by the Commission pursuant to derivative contract used for hedging and paragraph (b) of this section. in terms of the actual cash commodity additional information for cross hedges as provided for on Form 704. In specified in paragraph (d)(2) of this (i) Delegation of authority to the computing their cash position, every section; Director of the Division of Market person shall use such standards and (iv) Actual production, requirements, Oversight. (1) The Commission hereby conversion factors that are usual in the royalty receipts or service contract delegates, until it orders otherwise, to particular trade or that otherwise reflect payments or receipts, in terms of futures the Director of the Division of Market the value-fluctuation-equivalents of the equivalents, of such commodity for the Oversight or such other employee or cash position in terms of the commodity reporting month; employees as the Director may designate underlying the commodity derivative (v) Cumulative actual production, from time to time, the authority: contract used for hedging. Such person requirements, royalty receipts or service (i) In paragraph (b) of this section to shall furnish to the Commission upon contract payments or receipts, in terms provide notice to a person that some or request detailed information concerning of futures equivalents, of such all of the amounts described in a Form the basis for and derivation of such commodity since the initial or 704 filing does not meet the conversion factors, including: supplemental statement; requirements for bona fide hedging (vi) Estimated anticipated production, (i) The hedge ratio used to convert the positions; requirements, royalty receipts or service actual cash commodity to the equivalent (ii) In paragraph (c) of this section to contract payments or receipts, in terms amount of the commodity underlying request a person who has filed a Form of futures equivalents, of such the commodity derivative contract used 704 under paragraph (a) of this section commodity for the remainder of such for hedging; and to file specific additional or updated specified time period, not in excess of (ii) An explanation of the information with the Commission to one year for an agricultural commodity; methodology used for determining the (vii) Fixed-price forward sales, support a determination that the Form hedge ratio. inventory, and fixed-price forward 704 filed accurately reflects unsold (e) Supplemental reports. Whenever purchases of such commodity, anticipated production, unfilled the amount which a person wishes to including any quantity in process of anticipated requirements, anticipated consider as a bona fide hedging position manufacture and finished goods and royalties, or anticipated services shall exceed the amount in the most byproducts of manufacture or contract payments or receipts; and recent filing pursuant to this section or processing (in terms of such (iii) In paragraph (d)(2) of this section such lesser amount as determined by commodity) for the reporting month; to request detailed information the Commission pursuant to paragraph (viii) Remaining unsold anticipated concerning the basis for and derivation (b) of this section, such person shall file production, unfilled anticipated of conversion factors used in computing with the Commission a Form 704 which requirements, unsold anticipated the cash position provided in Form 704. updates the information provided in the royalty receipts, and anticipated service (2) The Director of the Division of person’s most recent filing and supplies contract payments or receipts the risks Market Oversight may submit to the the reason for this change at least ten of which have not been offset with cash Commission for its consideration any days in advance of the date that person positions, of such commodity for the matter which has been delegated in this wishes to exceed such amount. specified time period, not in excess of section. (f) Annual update. Each person that one year for an agricultural commodity; (3) Nothing in this section prohibits has filed an initial statement on Form and the Commission, at its election, from 704 for an anticipatory bona fide hedge (ix) The maximum number of long exercising the authority delegated in exemption shall provide annual updates positions and short positions in this section. on the utilization of the anticipatory referenced contracts expected to be used ■ exemption. Each person shall report to offset the risks of such anticipated 28. Add § 150.8 to read as follows: actual cash activity utilizing the activity for the remainder of the § 150.8 Severability. anticipatory exemption for the specified time period. preceding year, as well as the (2) Reserved. If any provision of this part, or the cumulative utilization since the filing of (g) Monthly reporting. Monthly application thereof to any person or the initial or most recent supplemental reporting of remaining anticipated circumstances, is held invalid, such statement. Each person shall also hedge exemption shall be reported on invalidity shall not affect other provide a good faith estimate of the Form 204, along with reporting other provisions or application of such remaining anticipatory exemption. Such exemptions pursuant to provision to other persons or reports shall set forth in detail the § 19.01(a)(3)(vii). circumstances which can be given effect person’s activity related to the (h) Maximum sales and purchases. without the invalid provision or anticipated exemption and shall Sales or purchases of commodity application. include, but not be limited to the derivative contracts considered to be ■ 29. Add appendix A to part 150 to following information: bona fide hedging positions under read as follows:

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Appendix A to Part 150—Guidance on denominated in a foreign currency. For a long position may qualify as a risk Risk Management Exemptions for example, a bank may make loans in a foreign management exemption under trading Commodity Derivative Contracts in currency and take deposits in that same facility rules provided such long position Excluded Commodities foreign currency. Such a bank is exposed to does not exceed the cash set aside. The long net foreign currency translation risk when position in Treasury futures contracts need (1) This appendix provides non-exclusive the amount of loans is not equal to the not be converted to a position in bonds. interpretative guidance on risk management amount of deposits. A bank with a net long (c) Temporary asset allocations. A exemptions for commodity derivative exposure to a foreign currency may hedge by commercial enterprise may have risks arising contracts in excluded commodities permitted establishing an offsetting short position in a from potential transactional costs in under the definition of bona fide hedging foreign currency commodity derivative temporary asset allocations (altering portfolio position in § 150.1. The rules of a designated contract. exposure to certain asset classes such as contract market or swap execution facility (ii) Interest rate risk. Another form of equity securities and debt securities). Such that is a trading facility may recognize balance sheet hedging involves offsetting net an enterprise may hedge existing assets positions consistent with this guidance as exposure to changes in values of assets and owned by establishing a short position in an bona fide hedging positions. The liabilities of differing durations. Examples appropriate commodity derivative contract Commission recognizes that risk reducing include: and synthetically gain exposure to an positions in commodity derivative contracts (A) A pension fund may invest in short alternative asset class using a risk in excluded commodities may not conform to term securities and have longer term management strategy of establishing a long the general definition of bona fide hedging liabilities. Such a pension fund has a position in another commodity derivative positions applicable to commodity derivative duration mismatch. Such a pension fund may contract that does not exceed: the value of contracts in physical commodities, as hedge by establishing a long position in the existing asset at the time the temporary provided under section 4a(c)(2) of the Act, Treasury security futures contracts to asset allocation is established or, in the and may not conform to enumerated bona lengthen the duration of its assets to match alternative, the hedged value of the existing fide hedging positions applicable to the duration of its liabilities. This is asset plus any accrued profits on such risk commodity derivative contracts in physical economically equivalent to using a long management positions. For example: commodities under the definition of bona position in Treasury security futures (i) A collective investment fund that fide hedging position in § 150.1. contracts to shorten the duration of its invests funds in bonds and stocks pursuant This interpretative guidance for core liabilities to match the duration of its assets. to an asset allocation strategy may believe principle 5 for designated contract markets, (B) A bank may make a certain amount of that market considerations favor a temporary section 5(d)(5) of the Act, and core principle fixed-rate loans of one maturity and fund increase in the fund’s equity exposure 6 for swap execution facilities that are such assets through taking fixed-rate deposits relative to its bond holdings. The fund trading facilities, section 5h(f)(6) of the Act, of a shorter maturity. Such a bank is exposed manager may choose to accomplish the is illustrative only of the types of positions to interest rate risk, in that an increase in reallocation using commodity derivative for which a trading facility may elect to interest rates may result in a greater decline contracts, such as a short position in provide a risk management exemption and is in value of the assets than the decline in Treasury security futures contracts and a long not intended to be used as a mandatory value of the deposit liabilities. A bank may position in stock index futures contracts. The checklist. Other positions might also be hedge by establishing a short position in short position in Treasury security futures included appropriately within a risk short-term interest rate futures contracts to contracts may qualify as a hedge of interest management exemption. lengthen the duration of its liabilities to rate risk arising from the bond holdings. A (2)(a) No temporary substitute criterion. match the duration of its assets. This is trading facility may adopt rules to recognize Risk management positions in commodity economically equivalent to using a short as a risk management exemption such a long derivative contracts in excluded commodities position in short-term interest rate futures position in stock index futures. need not be expected to represent a substitute contracts, for example, to shorten the (ii) Reserved. for a subsequent transaction or position in a duration of its assets to match the duration (4) Clarification of bona fides of short physical marketing channel. There need not of its liabilities. positions. be any requirement to replace a commodity (b) Unleveraged synthetic positions. An (a) Calls sold. A seller of a call option derivative contract with a cash market investment fund may have risks arising from establishes a short call option. A short call position in order to qualify for a risk a delayed investment in an asset allocation option is a short position in a commodity management exemption. promised to investors. Such a fund may derivative contract with respect to the (b) Cross-commodity hedging is permitted. synthetically gain exposure to an asset class underlying commodity. A bona fide hedging Risks that are offset in commodity derivative using a risk management strategy of position includes such a written call option contracts in excluded commodities need not establishing a long position in commodity that does not exceed in quantity the arise from the same commodities underlying derivative contracts that does not exceed ownership or fixed-price purchase contracts the commodity derivative contracts. For cash set aside in an identifiable manner, in the contract’s underlying cash commodity example, a trading facility may recognize a including short-term investments, any funds by the same person. risk management exemption based on the net deposited as margin and accrued profits on (b) Puts purchased and portfolio insurance. interest rate risk arising from a bank’s such commodity derivative contract A buyer of a put option establishes a long put balance sheet of loans and deposits that is positions. For example: option. However, a long put option is a short offset using Treasury security futures (i) A collective investment fund that position in a commodity derivative contract contracts or short-term interest rate futures invests funds in stocks pursuant to an asset with respect to the underlying commodity. A contracts. allocation strategy may obtain immediate bona fide hedging position includes such an (3) Examples of risk management stock market exposure upon receipt of new owned put that does not exceed in quantity positions. This section contains examples of monies by establishing a long position in the ownership or fixed-price purchase risk management positions that may be stock index futures contracts (‘‘equitizing contracts in the contract’s underlying cash economically appropriate to the reduction of cash’’). Such a long position may qualify as commodity by the same person. risk in the operation of a commercial a risk management exemption under trading The Commission also recognizes as bona enterprise. facility rules provided such long position fide hedging positions strategies that provide (a) Balance sheet hedging. A commercial does not exceed the cash set aside. The long protection against a price decline equivalent enterprise may have risks arising from its net position in stock index futures contracts need to an owned position in a put option for an position in assets and liabilities. not be converted to a position in stock. existing portfolio of securities owned. A (i) Foreign currency translation. Once form (ii) Upon receipt of new funds from dynamically managed short position in a of balance sheet hedging involves offsetting investors, an insurance company that invests futures contract may replicate the net exposure to changes in currency in bond holdings for a separate account characteristics of a long position in a put exchange rates for the purpose of stabilizing wishes to lengthen synthetically the duration option. Hedgers are reminded of their the domestic dollar accounting value of net of the portfolio by establishing a long obligation to enter and exit the market in an assets and/or liabilities which are position in Treasury futures contracts. Such orderly manner.

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(c) Synthetic short futures contracts. A position that does not exceed in quantity the Appendix B to Part 150—Commodities person may establish a synthetic short ownership or fixed-price purchase contracts Listed as Substantially the Same for futures position by purchasing a put option in the contract’s underlying cash commodity Purposes of the Definition of Basis and selling a call option, when each option by the same person. Contract has the same notional amount, strike price, expiration date and underlying commodity. ■ 30. Add appendix B to part 150 to The following table lists core referenced Such a synthetic short futures position is a read as follows: futures contracts and commodities that are short position in a commodity derivative treated as substantially the same as a contract with respect to the underlying commodity underlying a core referenced commodity. A bona fide hedging position futures contract for purposes of the definition includes such a synthetic short futures of basis contract in § 150.1.

BASIS CONTRACT LIST OF SUBSTANTIALLY THE SAME COMMODITIES

Core referenced futures con- Commodities considered substantially the same tract (regardless of location) Source(s) for specification of quality

NYMEX Light Sweet Crude Oil futures contract (CL). 1. Light Louisiana Sweet (LLS) Crude Oil ...... NYMEX Argus LLS vs. WTI (Argus) Trade Month fu- tures contract (E5). NYMEX LLS (Argus) vs. WTI Financial futures contract (WJ). ICE Futures Europe Crude Diff—Argus LLS vs WTI 1st Line Swap futures contract (ARK). ICE Futures Europe Crude Diff—Argus LLS vs WTI Trade Month Swap futures contract (ARL). NYMEX New York Harbor ULSD Heating Oil futures contract (HO). 1. Chicago ULSD ...... NYMEX Chicago ULSD (Platts) vs. NY Harbor ULSD Heating Oil futures contract (5C). 2. Gulf Coast ULSD ...... NYMEX Group Three ULSD (Platts) vs. NY Harbor ULSD Heating Oil futures contract (A6). NYMEX Gulf Coast ULSD (Argus) Up-Down futures contract (US). NYMEX Gulf Coast ULSD (Argus) Up-Down BALMO futures contract (GUD). NYMEX Gulf Coast ULSD (Platts) Up-Down BALMO fu- tures contract (1L). NYMEX Gulf Coast ULSD (Platts) Up-Down Spread fu- tures contract (LT). ICE Futures Europe Diesel Diff- Gulf Coast vs Heating Oil 1st Line Swap futures contract (GOH). CME Clearing Europe Gulf Coast ULSD( Platts) vs. New York Heating Oil (NYMEX) Spread Calendar swap (ELT). CME Clearing Europe New York Heating Oil (NYMEX) vs. European Gasoil (IC) Spread Calendar swap (EHA). 3. California Air Resources Board Spec ULSD (CARB NYMEX Los Angeles CARB Diesel (OPIS) vs. NY Har- no. 2 oil). bor ULSD Heating Oil futures contract (KL). 4. Gas Oil Deliverable in Antwerp, Rotterdam, or Am- ICE Futures Europe Gasoil futures contract (G). sterdam Area. ICE Futures Europe Heating Oil Arb—Heating Oil 1st Line vs. Gasoil 1st Line Swap futures contract (HOT). ICE Futures Europe Heating Oil Arb—Heating Oil 1st Line vs. Low Sulphur Gasoil 1st Line Swap futures contract (ULL). NYMEX NY Harbor ULSD Heating Oil vs. Gasoil fu- tures contract (HA). NYMEX RBOB Gasoline fu- tures contract (RB). 1. Chicago Unleaded 87 gasoline ...... NYMEX Chicago Unleaded Gasoline (Platts) vs. RBOB Gasoline futures contract (3C). NYMEX Group Three Unleaded Gasoline (Platts) vs. RBOB Gasoline futures contract (A8). 2. Gulf Coast Conventional Blendstock for Oxygenated Blending (CBOB) 87. NYMEX Gulf Coast CBOB Gasoline A1 (Platts) vs. RBOB Gasoline futures contract (CBA). NYMEX Gulf Coast Unl 87 (Argus) Up-Down futures contract (UZ). 3. Gulf Coast CBOB 87 (Summer Assessment) ......

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BASIS CONTRACT LIST OF SUBSTANTIALLY THE SAME COMMODITIES—Continued

Core referenced futures con- Commodities considered substantially the same tract (regardless of location) Source(s) for specification of quality

NYMEX Gulf Coast CBOB Gasoline A2 (Platts) vs. RBOB Gasoline futures contract (CRB). 4. Gulf Coast Unleaded 87 (Summer Assessment) ...... NYMEX Gulf Coast 87 Gasoline M2 (Platts) vs. RBOB Gasoline futures contract (RVG). NYMEX Gulf Coast 87 Gasoline M2 (Platts) vs. RBOB Gasoline BALMO futures contract (GBB). NYMEX Gulf Coast 87 Gasoline M2 (Argus) vs. RBOB Gasoline BALMO futures contract (RBG). 5. Gulf Coast Unleaded 87 ...... NYMEX Gulf Coast Unl 87 (Platts) Up-Down BALMO futures contract (1K). NYMEX Gulf Coast Unl 87 Gasoline M1 (Platts) vs. RBOB Gasoline futures contract (RV). CME Clearing Europe Gulf Coast Unleaded 87 Gaso- line M1 (Platts) vs. New York RBOB Gasoline (NYMEX) Spread Calendar swap (ERV). 6. Los Angeles California Reformulated Blendstock for Oxygenate Blending (CARBOB) Regular. NYMEX Los Angeles CARBOB Gasoline (OPIS) vs. RBOB Gasoline futures contract (JL). 7. Los Angeles California Reformulated Blendstock for Oxygenate Blending (CARBOB) Premium. NYMEX Los Angeles CARBOB Gasoline (OPIS) vs. RBOB Gasoline futures contract (JL). 8. Euro-BOB OXY NWE Barges ...... NYMEX RBOB Gasoline vs. Euro-bob Oxy NWE Barges (Argus) (1000mt) futures contract (EXR). CME Clearing Europe New York RBOB Gasoline (NYMEX) vs. European Gasoline Euro-bob Oxy Barges NWE (Argus) (1000mt) Spread Calendar swap (EEXR). 9. Euro-BOB OXY FOB Rotterdam ...... ICE Futures Europe Gasoline Diff—RBOB Gasoline 1st Line vs. Argus Euro-BOB OXY FOB Rotterdam Barge Swap futures contract (ROE).

■ 31. Add appendix C to part 150 to is equal to long two million bushels of corn. price risk because the short position in a read as follows: To reduce price risk associated with referenced contract does not exceed the potentially lower corn prices, Participant A quantity equivalent risk exposure (on a net Appendix C to Part 150—Examples of chooses to establish a short position of 400 basis) in the cash commodity in the current Bona Fide Hedging Positions for contracts in the CBOT Corn futures contract, crop year. Last, the hedge arises from a Physical Commodities equivalent to two million bushels of corn, in potential change in the value of corn owned the same crop year as the inventory. by Participant A. A non-exhaustive list of examples meeting Analysis: The short position in a contract the definition of bona fide hedging position month in the current crop year for the CBOT 2. Lending a Commodity and Hedge of Price under § 150.1 is presented below. With Corn futures contract, equivalent to the Risk Under Paragraph (3)(i) of the Bona Fide respect to a position that does not fall within amount of inventory held, satisfies the Hedging Position Definition an example in this appendix, a person general requirements for a bona fide hedging Fact Pattern: Bank B owns 1,000 ounces of seeking to rely on a bona fide hedging position under paragraphs (2)(i)(A)–(C) and gold that it lends to Jewelry Fabricator J at position exemption under § 150.3 may seek the provisions associated with owning a LIBOR plus a differential. Under the terms of guidance from the Division of Market commodity under paragraph (3)(i).1 Because Oversight. References to paragraphs in the the loan, Jewelry Fabricator J may later the firm’s net cash position is two million examples below are to the definition of bona purchase the gold from Bank B at a bushels of unsold corn, the firm is exposed fide hedging position in § 150.1. differential to the prevailing price of the to price risk. Participant A’s hedge of the two Commodity Exchange, Inc. (COMEX) Gold 1. Portfolio Hedge Under Paragraph (3)(i) of million bushels represents a substitute for a futures contract (i.e., an open-price purchase the Bona Fide Hedging Position Definition fixed-price forward sale at a later time in the agreement is embedded in the terms of the Fact Pattern: It is currently January and physical marketing channel. The position is loan). Jewelry Fabricator J intends to use the Participant A owns seven million bushels of economically appropriate to the reduction of gold to make jewelry and reimburse Bank B corn located in its warehouses. Participant A for the loan using the proceeds from jewelry has entered into fixed-price forward sale 1 Participant A could also choose to hedge on a sales and either purchase gold from Bank B contracts with several processors for a total gross basis. In that event, Participant A could by paying the market price for gold or return of five million bushels of corn that will be establish a short position in the March Chicago the equivalent amount of gold to Bank B by delivered by May of this year. Participant A Board of Trade Corn futures contract equivalent to purchasing gold at the market price. Because seven million bushels of corn to offset the price risk Bank B has retained the price risk on gold, has no fixed-price corn purchase contracts. of its inventory and establish a long position in the Participant A’s gross long cash position is May Chicago Board of Trade Corn futures contract the bank is concerned about its potential loss equal to seven million bushels of corn. equivalent to five million bushels of corn to offset if the price of gold drops. The bank reduces Because Participant A has sold forward five the price risk of its fixed-price forward sale the risk of a potential loss in the value of the million bushels of corn, its net cash position contracts. gold by establishing a ten contract short

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position in the COMEX Gold futures contract, 4. Utility Hedge of Anticipated Customer million metric tons of soybeans. Because it which has a unit of trading of 100 ounces of Requirements Under Paragraph (3)(iii)(B) of has consistently operated its plants at full gold. The ten contract short position is the Bona Fide Hedging Position Definition capacity over the last three years, it equivalent to 1,000 ounces of gold. Fact Pattern: Natural Gas Utility A is anticipates purchasing another 160 million Analysis: This position meets the general encouraged to hedge its purchases of natural bushels of soybeans to be delivered to its requirements for bona fide hedging positions gas by the State Public Utility Commission in storage facility over the next year. It has not under paragraphs (2)(i)(A)–(C) and the order to reduce natural gas price risk to sold the 160 million bushels of anticipated requirements associated with owning a cash residential customers. State Public Utility production of crushed products forward. commodity under paragraph (3)(i). The Commission considers the hedging practice Processor A faces the risk that the difference physical commodity that is being hedged is to be prudent and allows gains and losses in price relationships between soybeans and the crushed products (i.e., the crush spread) the underlying cash commodity for the from hedging to be passed on to Natural Gas could change adversely, resulting in reduced COMEX Gold futures contract. Bank B’s short Utility A’s regulated natural gas customers. Natural Gas Utility A has about one million anticipated processing margins. To hedge its hedge of the gold represents a substitute for processing margins and lock in the crush a transaction to be made in the physical residential customers who have average historical usage of about 71.5 mmBTUs of spread, Processor A establishes a long marketing channel (e.g., completion of the position of 32,000 contracts in the CBOT open-price sale to Jewelry Fabricator J). natural gas per year per residence. The utility decides to hedge about 70 percent of its Soybean futures contract (equivalent to 160 Because the notional quantity of the short million bushels of soybeans) and position in the gold futures contract is equal residential customers’ anticipated requirements for the following year, corresponding short positions in CBOT to the amount of gold that Bank B owns, the equivalent to a 5,000 contract long position Soybean Meal and Soybean Oil futures hedge is economically appropriate to the in the NYMEX Henry Hub Natural Gas contracts, such that the total notional reduction of risk. Finally, the short position futures contract. To reduce the risk of higher quantity of soybean meal and soybean meal in the commodity derivative contract offsets prices to residential customers, Natural Gas futures contracts are equivalent to the the potential change in the value of the gold Utility A establishes a 5,000 contract long expected production from crushing 160 owned by Bank B. position in the NYMEX Henry Hub Natural million bushels of soybeans into soybean meal and soybean oil. 3. Repurchase Agreements and Hedge of Gas futures contract. Since the utility is only hedging 70 percent of historical usage, Analysis: These positions meet the general Inventory Under Paragraph (3)(i) of the Bona requirements for bona fide hedging positions Fide Hedging Position Definition Natural Gas Utility A is highly certain that realized demand will exceed its hedged under paragraphs (2)(i)(A)–(C) and the Fact Pattern: Elevator A purchased 500,000 anticipated residential customer provisions for hedges of unfilled anticipated bushels of wheat in April and reduced its requirements. requirements under paragraph (3)(iii)(A) and price risk by establishing a short position of Analysis: Natural Gas Utility A’s position unsold anticipated production under 100 contracts in the CBOT Wheat futures meets the general requirements for a bona paragraph (4)(i). The physical commodities contract, equivalent to 500,000 bushels of fide hedging position under paragraphs being hedged are commodities underlying wheat. Because the price of wheat rose (2)(i)(A)–(C) and the provisions for hedges of the CBOT Soybean, Soybean Meal, and steadily since April, Elevator A had to make unfilled anticipated requirements by a utility Soybean Oil futures contracts. Long positions substantial maintenance margin payments. under paragraph (3)(iii)(B). The physical in the soybean futures contract and To alleviate its cash flow concern about commodity that is being hedged involves a corresponding short positions in soybean meeting further margin calls, Elevator A commodity underlying the NYMEX Henry meal and soybean oil futures contracts decides to enter into a repurchase agreement Hub Natural Gas futures contract. The long qualify as bona fide hedging positions with Bank B and offset its short position in position in the commodity derivative provided they do not exceed the unfilled the wheat futures contract. The repurchase contract represents a substitute for anticipated requirements of the cash agreement involves two separate contracts: A transactions to be taken at a later time in the commodity for twelve months (in this case 4 fixed-price sale from Elevator A to Bank B at physical marketing channel. The position is million tons) as required in paragraph today’s spot price; and an open-price economically appropriate to the reduction of (3)(iii)(A) and the quantity equivalent of purchase agreement that will allow Elevator price risk because the price of natural gas twelve months unsold anticipated A to repurchase the wheat from Bank B at the may increase. The commodity derivative production of cash products and by-products prevailing spot price three months from now. contract position offsets the price risk of as required in paragraph (4)(i). Such positions are a substitute for purchases and Because Bank B obtains title to the wheat natural gas that the utility anticipates sales to be made at a later time in the under the fixed-price purchase agreement, it purchasing on behalf of its residential physical marketing channel and are is exposed to price risk should the price of customers. As provided under paragraph economically appropriate to the reduction of wheat drop. Bank B establishes a short (3)(iii), the risk-reducing position qualifies as risk. The positions in referenced contracts position of 100 contracts in the CBOT Wheat a bona fide hedging position in the natural offset the potential change in the value of futures contract, equivalent to 500,000 gas physical-delivery referenced contract during the spot month provided that the soybeans that the processor anticipates bushels of wheat. position does not exceed the unfilled purchasing and the potential change in the Analysis: Bank B’s position meets the anticipated requirements for that month and value of products and by-products the general requirements for a bona fide hedging for the next succeeding month. processor anticipates producing and selling. position under paragraphs (2)(i)(A)–(C) and The size of the permissible long hedge the provisions for owning the cash 5. Processor Margins Hedge Using Unfilled position in the soybean futures contract must commodity under paragraph (3)(i). The short Anticipated Requirements Under Paragraph be reduced by any inventories and fixed- position in referenced contracts by Bank B is (3)(iii)(A) of the Bona Fide Hedging Position price purchases because they would reduce a substitute for a fixed-price sales transaction Definition and Anticipated Production the processor’s unfilled requirements. to be taken at a later time in the physical Under Paragraph (4)(i) of the Definition Similarly, the size of the permissible short marketing channel either to Elevator A or to Fact Pattern: Soybean Processor A has a hedge positions in soybean meal and soybean another commercial party. The position is total throughput capacity of 200 million oil futures contracts must be reduced by any economically appropriate to the reduction of bushels of soybeans per year (equivalent to fixed-price sales because they would reduce risk in the conduct and management of the 40,000 CBOT soybean futures contracts). the processor’s unsold anticipated commercial enterprise (Bank B) because the Soybean Processor A crushes soybeans into production. As provided under paragraph notional quantity of the short position in products (soybean oil and soybean meal). It (3)(iii)(A), the risk reducing long position in referenced contracts held by Bank B is not currently has 40 million bushels of soybeans the soybean futures contract that is not in larger than the quantity of cash wheat in storage and has offset that risk through excess of the anticipated requirements for purchased by Bank B. Finally, the short fixed-price forward sales of the amount of soybeans for that month and the next position in the CBOT Wheat futures contract products expected to be produced from succeeding month qualifies as a bona fide reduces the price risk associated with owning crushing 40 million bushels of soybeans, thus hedging position during the last five days of cash wheat. locking in its processor margin on one trading in the physical-delivery referenced

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contract. As provided under paragraph (4)(i), 7. Sovereign Hedge of Unsold Anticipated forward contracts to purchase 600,000 of the risk reducing short position in the Production Under Paragraph (4)(i) of the crude oil at a floating price that references soybean meal and oil futures contract do not Bona Fide Hedging Position Definition and the January contract month (in the next qualify as a bona fide hedging position in a Position Aggregation Under § 150.4 calendar year) for the ICE Futures Brent physical-delivery referenced contract during Fact Pattern: A Sovereign induces a farmer Crude futures contract and to sell 600,000 barrels of crude oil at a price that references the last five days of trading in the event the to sell his anticipated production of 100,000 the February contract month (in the next Soybean Processor A does not have unsold bushels of corn forward to User A at a fixed price for delivery during the expected calendar year) for the NYMEX Light Sweet products in inventory. Crude Oil futures contract. Oil Merchandiser The combination of the long and short harvest. In return for the farmer entering into the fixed-price forward sale, the Sovereign A is concerned about an adverse change in positions in soybean, soybean meal, and agrees to pay the farmer the difference the price spread between the January ICE soybean oil futures contracts are between the market price at the time of Futures Brent Crude futures contract and the economically appropriate to the reduction of harvest and the price of the fixed-price February NYMEX Light Sweet Crude Oil risk. However, unlike in this example, an forward, in the event that the market price at futures contract. To reduce that risk, Oil unpaired position (e.g., only a long position the time of harvest is above the price of the Merchandiser A establishes a long position of in a commodity derivative contract) that is forward. The fixed-price forward sale of 600 contracts in the January ICE Futures not offset by either a cash market position 100,000 bushels of corn reduces the farmer’s Brent Crude futures contract, price risk (e.g., a fixed-price sales contract) or downside price risk associated with his equivalent to buying 600,000 barrels of oil, derivative position (e.g., a short position in anticipated agricultural production. The and a short position of 600 contracts in the February NYMEX Light Sweet Crude Oil a commodity derivative contract) would not Sovereign faces commodity price risk as it stands ready to pay the farmer the difference futures contract, price risk equivalent to represent an economically appropriate selling 600,000 barrels of oil. reduction of risk. This is because the between the market price and the price of the fixed-price contract. To reduce that risk, the Analysis: Oil Merchandiser A’s positions commercial enterprise’s crush spread risk is Sovereign establishes a long position of 20 meet the general requirements for bona fide relatively low in comparison to the price risk call options on the Chicago Board of Trade hedging positions under paragraphs (2)(i)(A)– from taking an outright long position in the (CBOT) Corn futures contract, equivalent to (C) and the provisions for offsetting sales and futures contract in the underlying commodity 100,000 bushels of corn. purchases in referenced contracts under or an outright short position in the futures Analysis: Because the Sovereign and the paragraph (4)(ii). The physical commodity contracts in the products and by-products of farmer are acting together pursuant to an that is being hedged involves a commodity processing. The price fluctuations of the express agreement, the aggregation underlying the NYMEX Light Sweet Crude crush spread, that is, the risk faced by the provisions of § 150.4 apply and they are Oil futures contract. The long and short commercial enterprise, would not be treated as a single person for purposes of positions in commodity derivative contracts expected to be substantially related to the position limits. Taking the positions of the represent substitutes for transactions to be taken at a later time in the physical price fluctuations of either an outright long Sovereign and farmer jointly, the risk profile of the combination of the forward sale and marketing channel. The positions are or outright short futures position. the long call is approximately equivalent to economically appropriate to the reduction of 6. Agent Hedge Under Paragraph (3)(iv) of the risk profile of a synthetic long put.2 A risk because the price spread between the ICE the Bona Fide Hedging Position Definition synthetic long put offsets the downside price Futures Brent Crude futures contract and the risk of anticipated production. Thus, the NYMEX Light Sweet Crude Oil futures Fact Pattern: Agent A is in the business of position of that person satisfies the general contract could move adversely to Oil merchandising (selling) the cash grain owned requirements for a bona fide hedging position Merchandiser A’s interests in the two cash by multiple warehouse operators and under paragraphs (2)(i)(A)–(C) and meets the forward contracts, that is, the price of the ICE forwarding the merchandising revenues back requirements for anticipated agricultural Futures Brent Crude futures contract could to the warehouse operators less the agent’s production under paragraph (4)(i). The increase relative to the price of the NYMEX fees. Agent A does not own any cash agreement between the Sovereign and the Light Sweet Crude Oil futures contract. The commodity, but is responsible for farmer involves the production of a positions in commodity derivative contracts merchandising of the cash grain positions of commodity underlying the CBOT Corn offset the price risk in the cash forward the warehouse operators pursuant to futures contract. The synthetic long put is a contracts. As provided under paragraph (4), contractual arrangements. The contractual substitute for transactions that the farmer has the risk-reducing position does not qualify as arrangements also authorize Agent A to made in the physical marketing channel. The a bona fide hedging position in the crude oil hedge the price risks of the grain owned by synthetic long put reduces the price risk physical-delivery referenced contract during the warehouse operators. For the volumes of associated with anticipated agricultural the spot month. production. The size of the Sovereign’s grain it is authorized to hedge, the agent 9. Anticipated Royalties Hedge Under position is equivalent to the size of the enters into short positions in grain Paragraph (4)(iii) of the Bona Fide Hedging farmer’s anticipated production. As provided commodity derivative contracts that offset Position Definition and Pass-Through Swaps under paragraph (4), the Sovereign’s risk- Hedge Under Paragraph (2)(ii) of the the price risks of the cash commodities. reducing position would not qualify as a Definition Analysis: The positions meet the bona fide hedging position in a physical- requirements of paragraphs (2)(1)(A)–(C) for delivery futures contract during the last five a. Fact Pattern: In order to develop an oil hedges of a physical commodity and days of trading; however, since the CBOT field, Company A approaches Bank B for paragraph (3)(iv) for hedges by an agent. The Corn option will exercise into a physical- financing. To facilitate the loan, Bank B first positions represent a substitute for delivery CBOT Corn futures contract prior to establishes an independent legal entity transactions to be made in the physical the last five days of trading in that physical- commonly known as a special purpose marketing channel, are economically delivery futures contract, the Sovereign may vehicle (SPV). Bank B then provides a loan appropriate to the reduction of risks arising continue to hold its option position as a bona to the SPV. The SPV is obligated to repay from grain owned by the agent’s contractual fide hedging position through option expiry. principal and interest to the Bank based on a fixed price for crude oil. The SPV in turn counterparties, and arise from the potential 8. Hedge of Offsetting Unfixed Price Sales makes a production loan to Company A. The change in the value of such grain. The agent and Purchases Under Paragraph (4)(ii) of the terms of the production loan require does not own and has not contacted to Bona Fide Hedging Position Definition Company A to provide the SPV with purchase such grain at a fixed price, but is Fact Pattern: Currently it is October and volumetric production payments (VPPs) responsible for merchandising the cash Oil Merchandiser A has entered into cash based on a specified share of the production positions that are being offset in commodity to be sold at the prevailing price of crude oil derivative contracts. The agent has a 2 Put-call parity describes the mathematical (i.e., the index price) as oil is produced. contractual arrangement with the persons relationship between price of a put and call with Because the price of crude oil may fall, the who own the grain being offset. identical strike prices and expiry. SPV reduces that risk by entering into a

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crude oil swap with Swap Dealer C. The prevailing (floating) market price for the contract for services involves the production swap requires the SPV to pay Swap Dealer commodities produced and sold at major of a commodity underlying the NYMEX Light C the floating price of crude oil (i.e., the trading hubs, less transportation and Sweet Crude Oil futures contract. A short index price) and for Swap Dealer C to pay a gathering charges. The large portfolio and position in the NYMEX Light Sweet Crude fixed price to the SPV. The notional quantity well-established production history for most Oil futures contract is a substitute for for the swap is equal to the expected of the oil wells provide a highly certain transactions to be taken at a later time in the production underlying the VPPs to the SPV. production stream for the next 24 months. physical marketing channel, with the value The SPV will receive a floating price at index The ECP also determined that changes in the of the revenue receipts to Company A on the VPP and will pay a floating price at cash market prices of 50 percent of the oil dependent on the price of the oil sales in the index on the swap, which will offset. The production underlying the portfolio of physical marketing channel. The short SPV will receive a fixed price payment on royalty interests historically have been position in the futures contract held by the swap and repay the loan’s principal and closely correlated with changes in the Company A is economically appropriate to interest to Bank B. The SPV is highly certain calendar month average of daily settlement the reduction of risk, because the total that the VPP production volume will occur, prices of the nearby NYMEX Light Sweet notional quantity underlying the short since the SPV’s engineer has reviewed the Crude Oil futures contract. The ECP decided position in the futures contract held by forecasted production from Company A and to hedge some of the royalty price risk by Company A is equivalent to its share of the required the VPP volume to be set with a entering into a cash-settled swap with a term expected quantity of future production under cushion (i.e., a hair-cut) below the forecasted of 24 months. Under terms of the swap, the the risk service agreement. Because the price production. ECP will receive a fixed payment and make of oil may fall, the short position in the Analysis: For the SPV, the swap between monthly payments based on the calendar futures contract reduces price risk from a Swap Dealer C and the SPV meets the general month average of daily settlement prices of potential reduction in the payments to requirements for a bona fide hedging position the nearby NYMEX Light Sweet Crude Oil Company A under the service contract with under paragraphs (2)(i)(A)–(C) and the futures contract and notional amounts equal Company B. Under paragraph (4)(iv), the requirements for anticipated royalties under to 50 percent of the expected production risk-reducing position will not qualify as a paragraph (4)(iii). The SPV will receive volume of oil underlying the royalties. bona fide hedging position during the spot payments under the VPP royalty contract Analysis: This position meets the month of the physical-delivery oil futures based on the unfixed price sale of anticipated requirements of paragraphs (2)(i)(A)–(C) for contract. production of the physical commodity hedges of a physical commodity, paragraph b. Fact Pattern: A City contracts with Firm underlying the royalty contract, i.e., crude (4)(iii) for hedges of anticipated royalties, and A to provide waste management services. oil. The swap represents a substitute for the paragraph (5) for cross-commodity hedges. The contract requires that the trucks used to price of sales transactions to be made in the The long position in the commodity transport the solid waste use natural gas as physical marketing channel. The SPV’s swap derivative contract represents a substitute for a power source. According to the contract, position qualifies as a hedge because it is transactions to be taken at a later time in the the City will pay for the cost of the natural economically appropriate to the reduction of physical marketing channel. The position is gas used to transport the solid waste by Firm price risk. The swap reduces the price risk economically appropriate to the reduction of A. In the event that natural gas prices rise, associated with a change in value of a royalty price risk because the price of oil may the City’s waste transport expenses will asset. The fluctuations in value of the SPV’s decrease. The commodity derivative contract increase. To mitigate this risk, the City anticipated royalties are substantially related position offsets the price risk of royalty establishes a long position in the NYMEX to the fluctuations in value of the crude oil payments, based on oil production, that the Henry Hub Natural Gas futures contract in an swap with Swap Dealer C. ECP anticipates receiving. The ECP is amount equivalent to the expected volume of b. Continuation of Fact Pattern: Swap exposed to price risk arising from the natural gas to be used over the life of the Dealer C offsets the price risk associated with anticipated production volume of oil service contract. the swap to the SPV by establishing a short attributable to her royalty interests. The Analysis: This position meets the general position in cash-settled crude oil futures physical commodity underlying the royalty requirements for bona fide hedging positions contracts. The notional quantity of the short portfolio that is being hedged involves a under paragraphs (2)(i)(A)–(C) and the position in futures contracts held by Swap commodity with fluctuations in value that provisions for services under paragraph Dealer C exactly matches the notional are substantially related to the fluctuations in (4)(iv). The contract for services involves the quantity of the swap with the SPV. value of the swap. use of a commodity underlying the NYMEX Analysis: For the swap dealer, because the Henry Hub Natural Gas futures contract. 11. Hedges of Services Under Paragraph SPV enters the cash-settled swap as a bona Because the City is responsible for paying the (4)(iv) of the Bona Fide Hedging Position fide hedger under paragraph (4)(iii) (i.e., a cash price for the natural gas used under the Definition pass-through swap counterparty), the offset services contract, the long hedge is a of the risk of the swap in a futures contract a. Fact Pattern: Company A enters into a substitute for transactions to be taken at a by Swap Dealer C qualifies as a bona fide risk service agreement to drill an oil well later time in the physical marketing channel. hedging position (i.e., a pass-through swap with Company B. The risk service agreement The position is economically appropriate to offset) under paragraph (2)(ii)(A). Since the provides that a portion of the revenue the reduction of price risk because the total swap was executed opposite a pass-through receipts to Company A depends on the value notional quantity of the long position in a swap counterparty and was offset, the swap of the light sweet crude oil produced. commodity derivative contract equals the itself also qualifies as a bona fide hedging Company A is exposed to the risk that the expected volume of natural gas to be used position (i.e., a pass-through swap) under price of oil may fall, resulting in lower over the life of the contract. The position in paragraph (2)(ii)(B). If the cash-settled swap anticipated revenues from the risk service the commodity derivative contract reduces is not a referenced contract, then the pass- agreement. To reduce that risk, Company A the price risk associated with an increase in through swap offset may qualify as a cross- establishes a short position in the New York anticipated costs that the City may incur commodity hedge under paragraph (5), Mercantile Exchange (NYMEX) Light Sweet under the services contract in the event that provided the fluctuations in value of the Crude Oil futures contract, in a notional the price of natural gas increases. As pass-through swap offset are substantially amount equivalent to the firm’s anticipated provided under paragraph (4), the risk related to the fluctuations in value of the share of the expected quantity of oil to be reducing position will not qualify as a bona pass-through swap. produced. Company A is highly certain of its fide hedge during the spot month of the anticipated share of the expected quantity of physical-delivery futures contract. 10. Anticipated Royalties Hedge Under oil to be produced. Paragraph (4)(iii) of the Bona Fide Hedging Analysis: Company A’s hedge of a portion 12. Cross-Commodity Hedge Under Position Definition and Cross-Commodity of its revenue stream from the risk service Paragraph (5) of the Bona Fide Hedging Hedge Under Paragraph (5) of the Definition agreement meets the general requirements for Position Definition and Inventory Hedge Fact Pattern: An eligible contract bona fide hedging positions under Under Paragraph (3)(i) of the Definition participant (ECP) owns royalty interests in a paragraphs (2)(i)(A)–(C) and the provisions Fact Pattern: Copper Wire Fabricator A is portfolio of oil wells. Royalties are paid at the for services under paragraph (4)(iv). The concerned about possible reductions in the

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price of copper. Currently it is November and its anticipated jet fuel requirements in ultra- 14. Position Aggregation Under § 150.4 and it owns inventory of 100 million pounds of low sulfur diesel (ULSD) commodity Inventory Hedge Under Paragraph (3)(i) of copper and five million pounds of finished derivative contracts. Airline A determined the Bona Fide Hedging Position Definition copper wire. Currently, deferred futures that price fluctuations in its average cost for Fact Pattern: Company A owns 100 percent prices are lower than the nearby futures jet fuel were substantially related to the price of Company B. Company B buys and sells a price. Copper Wire Fabricator A expects to fluctuations of the calendar month average of variety of agricultural products, including sell 150 million pounds of finished copper the first nearby physical-delivery NYMEX wheat. Company B currently owns five wire in February of the following year. To New York Harbor ULSD Heating Oil (HO) million bushels of wheat. To reduce some of reduce its price risk, Copper Wire Fabricator futures contract and determined an its price risk, Company B establishes a short A establishes a short position of 6000 appropriate hedge ratio, based on a position of 600 contracts in the CBOT Wheat contracts in the February COMEX Copper regression analysis, of the HO futures futures contract, equivalent to three million futures contract, equivalent to selling 150 contract to the quantity equivalent amount of bushels of wheat. After communicating with million pounds of copper. The fluctuations its anticipated requirements. Airline A Company B, Company A establishes an in value of copper wire are expected to be decided that it would use the HO futures additional short position of 400 CBOT Wheat substantially related to fluctuations in value contract to cross hedge part of its jet fuel futures contracts, equivalent to two million of copper. price risk. In addition, Airline A decided to bushels of wheat. Analysis: The Copper Wire Fabricator A’s protect against jet fuel price increases by Analysis: The aggregate short position in position meets the general requirements for cross hedging another part of its anticipated the wheat referenced contract held by a bona fide hedging position under jet fuel requirements with a long position in Company A and Company B meets the paragraphs (2)(i)(A)–(C) and the provisions cash-settled calls in the NYMEX Heating Oil general requirements for a bona fide hedging for owning a commodity under paragraph Average Price Option (AT) contract. The AT position under paragraphs (2)(i)(A)–(C) and (3)(i) and for a cross-hedge of the finished call option is settled based on the price of the the provisions for owning a cash commodity copper wire under paragraph (5). The short HO futures contract. The sum of the notional position in a referenced contract represents a under paragraph (3)(i). Because Company A amounts of the long position in AT call substitute for transactions to be taken at a owns more than 10 percent of Company B, options and the long position in the HO later time in the physical marketing channel. Company A and B are aggregated together as The short position is economically futures contract will not exceed the quantity one person under § 150.4. Entities required to appropriate to the reduction of price risk in equivalent of 80 percent of Airline A’s aggregate accounts or positions under § 150.4 the conduct and management of the anticipated requirements for jet fuel. are the same person for the purpose of commercial enterprise because the price of Analysis: The positions meet the determining whether a person is eligible for copper could drop. The short position in the requirements of paragraphs (2)(i)(A)–(C) for a bona fide hedging position exemption referenced contract offsets the risk of a hedges of a physical commodity, paragraph under § 150.3. The aggregate short position in possible reduction in the value of the (3)(iii)(A) for unfilled anticipated the futures contract held by Company A and inventory that it owns. Since the finished requirements and paragraph (5) for cross- Company B represents a substitute for copper wire is a product of copper that is not commodity hedges. The positions represent a transactions to be taken at a later time in the deliverable on the commodity derivative substitute for transactions to be made in the physical marketing channel. The aggregate contract, 200 contracts of the short position physical marketing channel, are short position in the futures contract held by are a cross-commodity hedge of the finished economically appropriate to the reduction of Company A and Company B is economically copper wire and 400 contracts of the short risks arising from anticipated requirements appropriate to the reduction of price risk position are a hedge of the copper inventory. for jet fuel, and arise from the potential because the aggregate short position in the change in the value of such jet fuel. The CBOT Wheat futures contract held by 13. Cross-Commodity Hedge Under aggregation notional amount of the airline’s Company A and Company B, equivalent to Paragraph (5) of the Bona Fide Hedging positions in the call option and the futures five million bushels of wheat, does not Position Definition and Anticipated contract does not exceed the quantity exceed the five million bushels of wheat that Requirements Hedge Under Paragraph equivalent of anticipated requirements for jet is owned by Company B. The price risk (3)(iii)(A) of the Definition fuel. The value fluctuations in jet fuel are exposure for Company A and Company B Fact Pattern: Airline A anticipates using a substantially related to the value fluctuations results from a potential change in the value predictable volume of jet fuel every month in the HO futures contract. of that wheat. based on scheduled flights and decides to Airline A may hold its long position in the ■ 32. Add appendix D to part 150 to hedge 80 percent of that volume for each of cash-settled AT call option contract as a cross read as follows: the next 12 months. After a review of various hedge against jet fuel price risk without commodity derivative contract hedging having to exit the contract during the spot Appendix D to Part 150—Initial strategies, Airline A decides to cross hedge month. Position Limit Levels

Single Contract Spot-month month and all months

Legacy Agricultural

Chicago Board of Trade Corn (C) ...... 600 53,500 Chicago Board of Trade Oats (O) ...... 600 1,600 Chicago Board of Trade Soybeans (S) ...... 600 26,900 Chicago Board of Trade Soybean Meal (SM) ...... 720 9,000 Chicago Board of Trade Soybean Oil (SO) ...... 540 11,900 Chicago Board of Trade Wheat (W) ...... 600 16,200 ICE Futures U.S. Cotton No. 2 (CT) ...... 300 8,800 Kansas City Board of Trade Hard Winter Wheat (KW) ...... 600 6,500 Minneapolis Grain Exchange Hard Red Spring Wheat (MWE) ...... 600 3,300

Other Agricultural

Chicago Board of Trade Rough Rice (RR) ...... 600 2,200 Chicago Mercantile Exchange Class III Milk (DA) ...... 1500 3,400 Chicago Mercantile Exchange Feeder Cattle (FC) ...... 300 3,000 Chicago Mercantile Exchange Lean Hog (LH) ...... 950 9,400

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Single Contract Spot-month month and all months

Chicago Mercantile Exchange Live Cattle (LC) ...... 450 12,900 ICE Futures U.S. Cocoa (CC) ...... 1,000 7,100 ICE Futures U.S. Coffee C (KC) ...... 500 7,100 ICE Futures U.S. FCOJ–A (OJ) ...... 300 2,900 ICE Futures U.S. Sugar No. 11 (SB) ...... 5,000 23,500 ICE Futures U.S. Sugar No. 16 (SF) ...... 1,000 1,200

Energy

New York Mercantile Exchange Henry Hub Natural Gas (NG) ...... 1,000 149,600 New York Mercantile Exchange Light Sweet Crude Oil (CL) ...... 3,000 109,200 New York Mercantile Exchange NY Harbor ULSD (HO) ...... 1,000 16,100 New York Mercantile Exchange RBOB Gasoline (RB) ...... 1,000 11,800

Metal

Commodity Exchange, Inc. Copper (HG) ...... 1,200 5,600 Commodity Exchange, Inc. Gold (GC) ...... 3,000 21,500 Commodity Exchange, Inc. Silver (SI) ...... 1,500 6,400 New York Mercantile Exchange Palladium (PA) ...... 650 5,000 New York Mercantile Exchange Platinum (PL) ...... 500 5,000

Issued in Washington, DC, on November 7, any single trader from obtaining too large a Single-month and all-months-combined 2013, by the Commission. share of the market to ensure that derivatives limits, which the Commission currently sets Melissa D. Jurgens, markets remain fair and competitive. Last only for certain agricultural contracts, would fall, a federal court vacated the rule. be reestablished in the energy and metals Secretary of the Commission. It is critically important, however, that markets and be extended to swaps. These Note: The following appendices will not these position limits be established as limits would be set using a formula that is appear in the Code of Federal Regulations. Congress required. consistent with that which the CFTC has The agency has historically interpreted our used to set position limits for decades. The Appendices to Position Limits for obligations to promote market integrity to limits will be set based upon data on the total Derivatives—Commission Voting include ensuring that markets do not become size of the swaps and futures market collected through the position reporting rules Summary and Statements of too concentrated. When the CFTC set position limits in the past, it sought to ensure for futures, options on futures, and swaps. Commissioners that the markets were made up of a broad Consistent with congressional direction, Appendix 1—Commission Voting group of participants with no one speculator the rule also would allow for a bona fide Summary having an outsized position. This promotes hedging exemption for agricultural and the integrity of the price discovery function exempt commodities. Also following On this matter, Chairman Gensler and in the market by limiting the size of any one congressional direction, there is a narrower Commissioners Chilton and Wetjen voted in speculator’s footprint in the market. exemption for swap dealers with regard to the affirmative. Commissioner O’Malia voted Position limits further protect the markets their use of futures and swaps to facilitate the in the negative. and clearinghouses, as such limits diminish bona fide hedging of their customers. Today’s proposed position limits rule Appendix 2—Statement of Chairman the possible burdens when any individual participant may need to sell or liquidate a builds on over four years of significant public Gary Gensler position in times of individual stress. input. In fact, this is the ninth public meeting I support the proposed rule to establish Thus, position limits help to protect the during my tenure as Chairman to consider position limits for physical commodity markets both in times of clear skies and when position limits. derivatives. there is a storm on the horizon. We held three public meetings on this The CFTC does not set or regulate prices. With a strong proposal ready for the issue in the summer of 2009 and got a great The Commission is charged with promoting Commission’s consideration today, we deal of input from market participants and the integrity of the futures and swaps determined that the best path forward to the broader public. markets. The Commission is charged with expedite position limits implementation was We also benefited from the more than protecting the public from fraud, to pursue the new rule and dismiss the 8,200 comments we received in response to manipulation and other abuses. appeal of the court’s ruling, subject to the the January 2010 proposed rulemaking to Since the Commodity Exchange Act passed Commission’s approval of this proposal. reestablish position limits in the energy in 1936, position limits have been a tool to Today’s proposed rule is consistent with markets. curb or prevent excessive speculation that congressional intent. The rule would We further benefited from input received may burden interstate commerce. establish position limits in 28 referenced from the public after a March 2010 meeting For a fuller understanding of this long commodities in agricultural, energy and on the metals markets. In response to the history, refer to the excellent testimony of metals markets as part of a phased approach. January 2011 proposal, we received more our former General Counsel Dan Berkovitz It would establish one position limits than 15,100 comments. from July of 2009 titled: ‘‘Position Limits and regime for the spot month and another for Appendix 3—Statement of the Hedge Exemption, Brief Legislative single-month and all-months-combined Commissioner Bart Chilton History.’’ limits. In the Dodd-Frank Act, Congress directed Spot-month limits would be set for futures For two reasons, this is a significant day for the Commission to impose limits on contracts that can be physically settled, as me. I am reminded of that great Etta James speculative positions in physical commodity well as those swaps and futures that can only song, At Last. futures and options contracts and be cash settled. We are seeking additional The first reason is that, at last, we are economically equivalent swaps. comment on alternatives to a conditional considering what I believe to be the signal The CFTC finalized a rule in October 2011 spot-month limit exemption with regard to rule of my tenure here at the Commission; that addressed Congress’ direction to prevent cash-settled contracts. I’ve been working on speculative position

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limits since 2008. The second reason today true honor of working with Elizabeth since In its second attempt at establishing a is noteworthy is that this will be my last prior to my confirmation. I would be remiss broad position limit regime that is in Dodd-Frank meeting. Early this morning, I if I did not reiterate here what I have often accordance with the statutory language sent a letter to the President expressing my said; nowhere do I believe there is a brighter, amended by Dodd-Frank, the Commission intent to leave the Agency in the near future. smarter, more knowledgeable and hard- relies on a new legal strategy—but not new I’ve waited until now—today—to get this working derivatives counsel. She has served data—in order to circumvent the spirit of the proposed rule out the door, and now—at the public and me phenomenally well. Thank district court’s decision. Surprisingly, the last—with the process coming nearly full you, Elizabeth. Commission now accepts that the statutory circle, I can leave. It’s with incredible And finally to my colleagues, past and language in CEA section 4a(a)(1) 8 is excitement and enthusiasm that I look present, my respect to those whom we have ambiguous and that there is not a clear forward to being able to move on to other been unable to persuade to vote with us on mandate from Congress to set position limits, endeavors. this issue, and my thanks to those who will contrary to the arguments made by the With that, here is a bit of history on the vote in support of this needed and mandated Commission both in court and in the vacated position limits journey that has led us, and rule. At last! rule. Notwithstanding that concession, the me, to this day. The early spring of 2008 was Thank you. proposed rule now hides behind Chevron a peculiar time at the Commission. None of Appendix 4—Dissenting Statement of deference and invokes the Commission’s my current colleagues were here. I and my ‘‘experience and expertise’’ in order to justify colleagues at that time watched Bear Stearns Commissioner Scott D. O’Malia setting position limits without performing an fail. We had watched commodity prices rise I respectfully dissent from the ex ante analysis using current market data.9 as investors sought diversified financial Commission’s decision to approve the Notice I am troubled that the proposal uses only havens. When I asked Commission staff of Proposed Rulemaking for Position Limits two examples from the past—one of them as about the influence of speculation on prices, for Derivatives. I have a number of serious far back as the 1970s—to cobble together a some said speculative positions couldn’t concerns with the position limits proposed weak, after-the-fact justification that position impact prices. It didn’t ring true, and as rule and its interpretation of section 4a(a) of limits would have prevented market numerous independent studies have the Commodity Exchange Act (‘‘CEA’’ or disruption. This is glaringly insufficient. confirmed since, it was not true. ‘‘Act’’).1 Regrettably, this proposal continues Instead, the Commission should have taken I began urging the Commission to to chip away at the commercial and business the time to analyze the new data, especially implement speculative position limits under operations of end-users and the vital hedging from the swaps market, that has been our then-existing authority. And I was, at that function of the futures and swaps markets. collected under the Dodd-Frank Act. It is time, the only Commissioner to support I cannot support the position limits especially troubling that the large trader data position limits. Given the concerns, I urged proposed rule that is before the Commission being reported under Part 20 of Commission Congress to mandate limits in legislation. A today because the proposal: (1) Fails to regulations10 is still unreliable and Senate bill was blocked on a cloture vote that utilize current, forward-looking data and unsuitable for setting position limit levels, summer, but late in the session, the House other empirical evidence as a justification for almost two full years after entities began actually passed legislation. Finally, in 2010, position limits; (2) fails to provide enough reporting data, and that we are forced to as part of the Dodd-Frank law, Congress flexibility for commercial end-users to engage resort to using data from 2011 and 2012 as mandated the Commission to implement in necessary hedging activities; and (3) fails a poor and inexact substitute. position limits by early in 2011. to establish a useful process for end-users to Today, the Commission proposes to set Within the Commission, I supported seek hedging exemptions. position limits for the futures and swaps markets in the future, not the past. I fail to passing a rule that would have complied We are the experts, but where’s the see how we can be ‘‘experts’’ if we do not with the time-frame established by evidence? Congress—by any other name—federal law. have the data to back us up. I fear that this A position limits rule was proposed in Recently, in connection with the reliance on a new legal strategy, instead of 2 January of 2011 and finally approved in Commission’s vote to dismiss its appeal of evidence-based standards, does little to the vacated 2011 position limits rule,3 I affirm the Commission’s self-proclaimed November. 4 In September 2012, literally days before reiterated that the federal district court had ‘‘expertise’’ and could result in another long instructed the Commission to go back to the and costly court challenge that will strain our limits were to be effective, a federal district 5 court ruling tossed the rule out, claiming the drawing board and do its homework. As I limited resources. CFTC had not sufficiently provided rationale have consistently stated, the Commission must perform a rigorous and objective fact- Preserving Flexibility for Commercial End- for imposing the rule. We appealed and I based analysis in order to determine whether Users urged us to address the concerns of the court position limits will effectively prevent or by proposing and quickly passing another I am also concerned that the position limits deter excessive speculation.6 Not only that, new and improved rule. I thought and hoped proposed rule may not preserve enough but the Commission must also, in that we could move rapidly. After months of flexibility for commercial end-users to hedge establishing any limits, ensure that there is delay and deferral, it became clear: We could risks inherent in their business operations. sufficient market liquidity for hedgers and not. Hedging is the foundation of our markets, prevent disruption of the price discovery But today—at last—more than three years and the intent of the Dodd-Frank Act was not function of the underlying market. since Dodd-Frank’s passage, we are here to to place excessive and unnecessary new Unfortunately, the position limits rule that is regulatory burdens on end-users and make it take it to the limits one more time. being proposed today is not based upon a Thankfully, we have it right in the text more complicated and more costly to careful, disciplined review of market undertake risk management. That was before us. The Commission staff has dynamics or the new data collected under ultimately done an admirable job of devising strongly underlined in the letter sent to the our expanded oversight responsibilities Commission by Senators Dodd and Lincoln a proposed regulation that should be provided for by the Dodd-Frank Act.7 unassailable in court, good for markets and in June 2010.11 good for consumers. 1 I thank everyone who has worked upon the 7 U.S.C. 6a(a). 8 7 U.S.C. 6a(a)(1). 2 rule: Steve Sherrod, Riva Adriance, Ajay ISDA & SIFMA v. CFTC, No. 12–5362 (D.C. Cir.). 9 NPRM pp. 12–14, 24, 32, 171. 3 Sutaria, Scott Mixon, Mary Connelly, and 76 Fed. Reg. 71626 (Nov. 18, 2011). 10 17 C.F.R. part 20. 4 many others for their good work. In addition, Int’l Swaps & Derivations Ass’n v. CFTC, 887 F. 11 Letter from Chairman Christopher Dodd, Supp. 2d 259, 280–82 (D.D.C. 2012). I especially thank Elizabeth Ritter, my Chief Committee on Banking, Housing, and Urban Affairs, 5 http://www.cftc.gov/PressRoom/Speeches United States Senate, and Chairman Blanche of Staff, Nancy Doyle, and also Salman Testimony/omaliastatement102913. Banaei who has left the Agency for greener Lincoln, Committee on Agriculture, Nutrition, and 6 http://www.cftc.gov/PressRoom/Speeches Forestry, United States Senate, to Chairman Barney pastures. I thank them for their tireless efforts Testimony/omaliadissentstatement111512. Frank, Financial Services Committee, United States on the single most important, and perhaps to 7 Dodd-Frank Wall Street Reform and Consumer House of Representatives, and Chairman Colin me the most frustrating, policy issue of my Protection Act, Pub. L. 111–203, 124 Stat. 1376 Peterson, Committee on Agriculture, United States tenure with the Commission. I have had the (2010). House of Representatives (June 30, 2010).

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Regrettably, the Commission’s rules A Workable, Practical Process for Non- Cost-Benefit Considerations implementing Dodd-Frank have not adhered Enumerated Hedging Exemptions It is imperative that market participants to that directive. This position limits I am especially troubled by the proposed carefully review the new position limits and proposal is just the latest in this disturbing rule’s elimination of Commission regulations aggregation proposed rules and provide trend of narrowly interpreting the statute to 1.3(z)(3) and 1.47,13 which is the framework foreclose viable risk management functions comments. I especially encourage market for market participants to seek a non- participants to include any comments on the that did not contribute to the financial crisis. enumerated hedging exemption. I question cost impact of the proposed position limits. This trend is nowhere more apparent than in whether eliminating a workable, practical I would also like to receive input from how narrowly the proposal defines the process that has been outlined in concept of bona fide hedging. Commission regulations for decades will market participants about the cost of changes The position limits proposed rule does make it more difficult for end-users to seek to their operations that were undertaken in 12 away with Commission regulation 1.3(z), exemptions for legitimate hedging order to prepare for compliance with the which has been in effect since the 1970s, and transactions and will cause unnecessary previous position limit rules, before those sets forth new regulations that narrow the delay and interference with business rules were vacated by the court. While the bona fide hedging definition, in particular operations. Commission failed to give enough weight to the treatment of anticipatory hedging. This is these consequences, I intend to carefully Aggregation Proposed Rule despite the fact that the vacated position consider the comments and the critical limits rule explicitly recognized certain While I believe that today’s aggregation information they provide in evaluating any anticipatory hedging transactions as falling proposed rule is more responsive than the draft final rule put before the Commission. within the statutory definition of bona fide vacated rule to the realities that market hedging and consistent with the purposes of participants face in their utilization of the Conclusion section 4a of the Act, and provided futures and swaps markets, some important exemptions for such transactions given the It is rare to get a second chance to do concerns still remain. things right. I am disappointed by the condition that the trader was ‘‘reasonably First, the aggregation standards in the Commission’s approach today because the certain’’ of engaging in the anticipated proposal present significant technology activity. In this proposal, based on an challenges for compliance, especially across Commission has not taken advantage of the unsatisfactory ‘‘further review,’’ the affiliates. I would support a phase-in period opportunity for a second chance presented by Commission has changed its mind and has to meet those challenges. the district court decision to vacate the 2011 scaled back exemptions for anticipatory Second, I am concerned that there is position limits rule. The Commission has hedging. In all, the Commission has rejected insufficient consideration and flexibility in failed in its duty as a responsible market half of the common hedging scenarios the ownership tiers that are used as a proxy regulator by not taking the time to gather the described by a working group of end-users in for control. I would be interested in evidence and establish sound justifications their petition for exemption. reviewing comments on pro rata aggregation, for position limits ex ante that are based on I question whether the Commission has banding/tiering of ownership interest instead data. Because of this failure, as well as the fulfilled Congress’ intent to protect end-users of full aggregation, and other issues with narrowing of the bona fide hedging definition by proposing a new position limits rule that beneficial ownership. Further, I question and the elimination of the existing process articulates a far too narrow conception of whether the possible exemption for for end-users to seek non-enumerated bona fide hedging and does not reflect the ownership in excess of 50% is of use to any hedging exemptions, I cannot support this realities of end-users’ commercial and market participants, given the additional proposal. business operations. conditions that are imposed. [FR Doc. 2013–27200 Filed 12–11–13; 8:45 am] 12 17 CFR 1.3(z). 13 17 CFR 1.3(z)(3) and 1.47. BILLING CODE 6351–01–P

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Part III

Department of Commerce

National Oceanic and Atmospheric Administration 15 CFR Part 902 50 CFR Parts 300 and 679 Pacific Halibut Fisheries; Catch Sharing Plan for Guided Sport and Commercial Fisheries in Alaska; Final Rule

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DEPARTMENT OF COMMERCE Room 420A, Juneau, AK; and by email implementing IPHC regulations for the to [email protected], or 2013 fishing season was published National Oceanic and Atmospheric fax to (202) 395–7285. March 15, 2013 (78 FR 16423). IPHC Administration FOR FURTHER INFORMATION CONTACT: Julie regulations affecting sport fishing for Scheurer, 907–586–7228. halibut and vessels in the charter fishery 15 CFR Part 902 SUPPLEMENTARY INFORMATION: This final in Areas 2C and 3A may be found in rule implements the catch sharing plan sections 3, 25, and 28 of that final rule. 50 CFR Parts 300 and 679 The Halibut Act, at sections 773c(a) for the halibut fisheries for International and (b), provides the Secretary of [Docket No. 101027534–3999–02] Pacific Halibut Commission regulatory Commerce with general responsibility to areas 2C and 3A in Alaska. NMFS RIN 0648–BA37 carry out the Convention and the published a proposed rule in the Halibut Act. In adopting regulations that Federal Register on June 28, 2013 (78 Pacific Halibut Fisheries; Catch may be necessary to carry out the FR 39122) with comments invited Sharing Plan for Guided Sport and purposes and objectives of the Commercial Fisheries in Alaska through August 12, 2013. The comment Convention and the Halibut Act, the period was extended to August 26, 2013 Secretary of Commerce is directed to AGENCY: National Marine Fisheries (78 FR 44920, July 25, 2013). Service (NMFS), National Oceanic and consult with the Secretary of the Atmospheric Administration (NOAA), Table of Contents department in which the U.S. Coast Guard is operating (currently the Commerce. I. Regulatory Authority Department of Homeland Security). ACTION: Final rule. II. Catch Sharing Plan for Area 2C and Area 3A The Halibut Act, at section 773c(c), SUMMARY: NMFS issues regulations to A. Need for Action also provides the North Pacific Fishery implement a catch sharing plan for the B. General Management Council (Council) with guided sport (charter) and commercial C. Specification of the Annual Combined authority to develop regulations, fisheries for Pacific halibut in waters of Catch Limits including limited access regulations, International Pacific Halibut D. Calculation of Annual Commercial that are in addition to, and not in Fishery and Charter Fishery Allocations conflict with, approved IPHC Commission Regulatory Areas 2C and Catch Limits (Southeast Alaska) and 3A (Central Gulf regulations. Regulations developed by E. Annual Process for Setting Charter the Council may be implemented by of Alaska). This catch sharing plan Management Measures replaces the Guideline Harvest Level F. Other Restrictions Under the CSP NMFS only after approval by the program, defines an annual process for G. Guided Angler Fish (GAF) Secretary of Commerce. The Council has allocating halibut between the charter III. Other Regulatory Changes exercised this authority in the and commercial fisheries in Area 2C IV. Changes From the Proposed Rule development of subsistence halibut and Area 3A, and establishes allocations V. Comments and Responses fishery management measures and the for each fishery. The commercial fishery VI. OMB Revisions to Paperwork Reduction guideline harvest level (GHL) program, Act References in 15 CFR 902.1(b) codified at 50 CFR 300.65, and the will continue to be managed under the VII. Classification Individual Fishing Quota system. To limited access program for charter allow flexibility for individual I. Regulatory Authority operators in the charter fishery, codified at 50 CFR 300.67. The Council also commercial and charter fishery A comprehensive history of developed the Individual Fishing Quota participants, the catch sharing plan also management of the charter fishery for (IFQ) Program for the commercial authorizes annual transfers of halibut was published in the proposed halibut and sablefish fisheries, codified commercial halibut quota to charter rule for this action (78 FR 39122, June at 50 CFR part 679, under the authority halibut permit holders for harvest in the 28, 2013). of section 773c(c) of the Halibut Act and charter fishery. This action is necessary The International Pacific Halibut section 303(b) of the Magnuson-Stevens to achieve the halibut fishery Commission (IPHC) and NMFS manage Fishery Conservation and Management management goals of the North Pacific fishing for Pacific halibut (Hippoglossus Fishery Management Council. Act (16 U.S.C. 1801 et seq.). stenolepis) through regulations The Council developed the DATES: Effective January 13, 2014. implementing the Northern Pacific regulations to implement this catch ADDRESSES: Electronic copies of the Halibut Act of 1982 (Halibut Act) (16 sharing plan pursuant to section 773c(c) Environmental Assessment/Regulatory U.S.C. 773–773k). The IPHC adopts of the Halibut Act. Impact Review/Initial Regulatory regulations governing the Pacific halibut Flexibility Analysis (Analysis) prepared fishery under the Convention between II. Catch Sharing Plan for Area 2C and for this action are available from http:// the United States and Canada for the Area 3A www.regulations.gov or from the NMFS Preservation of the Halibut Fishery of The following paragraphs summarize Alaska Region Web site at http:// the North Pacific Ocean and Bering Sea the catch sharing plan (CSP) alaskafisheries.noaa.gov. A Final (Convention), signed at Ottawa, Ontario, implemented by this final rule. Regulatory Flexibility Analysis (FRFA) on March 2, 1953, as amended by a Additional information is provided in was prepared and is included in the Protocol Amending the Convention the preamble to the proposed rule. Classification section of this final rule. (signed at Washington, DC, on March Written comments regarding the 29, 1979). For the United States, A. Need for Action burden-hour estimates or other aspects regulations developed by the IPHC are The Council developed the CSP in of the collection-of-information subject to acceptance by the Secretary of IPHC Regulatory Areas 2C and 3A to requirements contained in this final rule State with concurrence from the address the ongoing allocation conflict may be submitted to NMFS, Alaska Secretary of Commerce. After between the commercial and charter Region, P.O. Box 21668, Juneau, AK acceptance, NMFS publishes the IPHC halibut fisheries. The commercial 99082–1668, Attn: Ellen Sebastian, regulations in the Federal Register as halibut fishery is subject to defined Records Officer, in person at NMFS, annual management measures pursuant allocations of individual harvest shares Alaska Region, 709 West 9th Street, to 50 CFR 300.62. The final rule that generally rise and fall with changes

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in halibut abundance, while the January, the IPHC will consider the permit holders for harvest in the charter allocations to the charter halibut fishery, Council’s recommendations designed to halibut fishery. GAF offers charter which experienced many years of constrain the charter halibut fisheries in halibut permit holders in Area 2C or sustained annual growth in Areas 2C 2C and 3A to their allocated annual Area 3A an opportunity to lease a and 3A, were not increased or decreased catch limits, and will consider the limited amount of IFQ from commercial in direct relationship with changes in advice of IPHC staff, advisors, and the quota share (QS) holders to allow fishery abundance. The commercial IFQ public. The IPHC will be expected to charter clients to harvest halibut in and charter halibut fishery are adopt the catch limits and appropriate addition to, or instead of, the halibut harvesting a fully utilized resource. The management measures necessary to harvested under the daily bag limit for primary objectives of the CSP are to maintain the sectors’ harvest within charter anglers. Charter anglers using define an annual process for allocating those catch limits as part of the IPHC’s GAF are subject to the harvest limits in halibut between the charter and halibut fishery conservation and place for unguided sport anglers in that commercial halibut fisheries in Area 2C management regulations. Should the area. Currently, there is a two-fish of and Area 3A, establish by regulation Secretary of State accept the IPHC any size daily bag limit for unguided sector allocations that vary in regulations, with concurrence of the sport anglers in Areas 2C and 3A. GAF proportion with changing levels of Secretary of Commerce, the approved harvested in the charter halibut fishery annual halibut abundance and that IPHC regulations will be published in will be accounted for as commercial balance the differing needs of the the Federal Register as specified by halibut IFQ harvest. charter and commercial halibut fisheries regulations at 50 CFR 300.62. Except for authorizing commercial over a wide range of halibut abundance The IPHC annual management halibut QS holders to transfer IFQ as in each area, and describe a public measures remain in effect until GAF to charter halibut permit holders, process by which the Council may superseded. In most years, the effective the CSP does not change the develop recommendations to the IPHC date of the IPHC annual management management of the commercial halibut for charter angler harvest restrictions measures has been around March 15. fisheries in Area 2C and Area 3A. The that are intended to limit harvest to the Thus, the period between the February directed commercial halibut fisheries in annual charter halibut fishery catch 1 opening of the sport season and the Area 2C and Area 3A are managed limit in each area. mid-March effective date of the under the IFQ Program pursuant to superseding annual management B. General regulations at 50 CFR 679 subparts A measures has been subject to the through E. This rule amends only The CSP allocations will replace the previous year’s IPHC regulations. This sections of the IFQ Program’s GHL with a percentage allocation of the schedule will continue unless the IPHC regulations to authorize transfers annual combined (commercial and changes the February 1 opening for the between IFQ and GAF and establish the charter) catch limit to the charter sport fishing season. However, requirements for using GAF. halibut fishery, with the remainder implementation of the annual allocated to the commercial halibut management measures in March likely C. Specification of the Annual fishery. The Council intends to continue does not impact the charter halibut Combined Catch Limits the process it used in 2011 and 2012 to fishery because there has historically Under the CSP, the IPHC is expected recommend to the IPHC annual been little or no charter halibut harvest to specify an annual combined catch management measures for the charter from February 1 through mid-March. limit for Area 2C and for Area 3A at its Alaska Department of Fish and Game halibut fishery prior to the upcoming annual meeting in January. Each area’s (ADF&G) saltwater charter logbooks will fishing season based on projected annual combined catch limit in net be used as the primary data source to harvests and charter catch limits. pounds will be the total allowable The annual CSP catch limits for the estimate the number of halibut halibut harvest for the directed commercial and charter halibut fisheries harvested in the charter halibut fishery commercial halibut fishery plus the will be determined by a predictable and following each charter halibut fishing total allowable halibut harvest for the standardized process by which the IPHC season and to project the number of charter halibut fishery under the CSP. develops and adopts its annual halibut harvested in the charter fishery management measures for the halibut in the following year. The ADF&G The IPHC process for determining the fisheries. This rule establishes a saltwater charter logbook is the primary annual combined catch limit under the regulatory formula for determining the reporting requirement for operators in CSP will be similar to the process it has commercial and charter halibut the charter fisheries for all species typically used in the past for fisheries’ catch limits for each area. The harvested in saltwater in Areas 2C and determining annual commercial catch IPHC’s annual combined catch limits for 3A. limits. A notable exception is how each 2C and 3A will be apportioned between In order to provide flexibility for fishery’s wastage will be deducted from the annual charter catch limit and individual commercial and charter the combined catch limit (described annual commercial catch limit in each halibut fishery participants, the CSP further below). This process was area in accordance with the CSP’s sector authorizes annual transfers of explained in detail in the proposed rule allocation formula published in this commercial halibut IFQ as guided and in Figure 1 below. final rule. At its annual meeting in angler fish (GAF) to charter halibut BILLING CODE 3510–22–P

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D. Calculation of Annual Commercial limits (CCLs) into separate annual catch calculate the commercial and charter Fishery and Charter Fishery Allocations limits for the commercial and charter halibut allocations in net pounds. and Catch Limits halibut fisheries pursuant to the CSP’s Fishery-specific catch limits will be allocation formulas. The IPHC will calculated by deducting separate The CSP contemplates that the IPHC multiply the CSP allocation percentages estimates of wastage from the will divide the annual combined catch for each area by the annual CCL to commercial and charter halibut

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allocations, as described in the This is similar to the process by which PDFdocuments/halibut/ following section. NMFS will publish the IPHC allocates its combined catch Area4CSP605.pdf). the CCLs and associated allocations for limit for halibut for Areas 4C–4D–4E The CSP establishes three allocation the charter and commercial halibut among each of those three subareas tiers for Area 2C as shown in Table 1 fisheries in the Federal Register as part pursuant to the Council’s Area 4 Catch and Figure 2 below. of the IPHC annual management Sharing Plan (http:// measures pursuant to 50 CFR 300.62. alaskafisheries.noaa.gov/npfmc/

TABLE 1—AREA 2C CATCH SHARING PLAN (CSP) ALLOCATIONS TO THE CHARTER AND COMMERCIAL HALIBUT FISHERIES RELATIVE TO THE ANNUAL COMBINED CATCH LIMIT (CCL)

Charter halibut fishery Commercial halibut fishery Area 2C annual combined catch limit for halibut in net pounds (lb) CSP allocation CSP allocation (% of annual combined catch limit) (% of annual combined catch limit)

0 to 4,999,999 lb ...... 18.3% ...... 81.7%. 5,000,000 to 5,755,000 lb ...... 915,000 lb ...... Area 2C CCL minus 915,000 lb. 5,755,001 lb and up ...... 15.9% ...... 84.1%.

When the IPHC sets an annual CCL of fixed 915,000 lb (405 mt), to smooth the sets the annual CCL at the third tier, less than 5,000,000 lb (2,268 mt) in Area vertical drop in the poundage allocation greater than 5,755,000 lb (2,610.4 mt), in 2C, the commercial halibut fishery that would occur without this Area 2C, the commercial halibut fishery allocation will be 81.7 percent and the adjustment. The rationale for this fixed allocation will be 84.1 percent and the charter halibut fishery allocation will be poundage adjustment is described in the charter halibut fishery allocation will be 18.3 percent of the annual CCL. When preamble to the proposed rule on page 15.9 percent of the Area 2C annual CCL. the IPHC sets the annual CCLs at the 39131. The commercial halibut fishery The CSP establishes five allocation second tier, between 5,000,000 lb and will be allocated the Area 2C CCL minus 5,755,000 lb (2,610.4 mt), the allocation the 915,000 lb fixed allocation to the tiers in Area 3A as shown in Table 2 to the charter halibut fishery will be a charter halibut fishery. When the IPHC and Figure 3 below.

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TABLE 2—AREA 3A CATCH SHARING PLAN (CSP) ALLOCATIONS TO THE CHARTER AND COMMERCIAL HALIBUT FISHERIES RELATIVE TO THE ANNUAL COMBINED CATCH LIMIT (CCL)

Charter halibut fishery Commercial halibut fishery Area 3A annual combined catch limit for halibut in net pounds (lb) CSP allocation CSP allocation (% of annual combined catch limit) (% of annual combined catch limit)

0 to 9,999,999 lb ...... 18.9% ...... 81.1%. 10,000,000 to 10,800,000 lb ...... 1,890,000 lb ...... Area 3A CCL minus 1,890,000 lb. 10,800,001 to 20,000,000 lb ...... 17.5% ...... 82.5%. 20,000,001 to 25,000,000 lb ...... 3,500,000 lb ...... Area 3A CCL minus 3,500,000 lb. 25,000,001 lb and up ...... 14.0% ...... 86.0%.

For Area 3A, when the IPHC sets the is set at greater than 20,000,000 lb and E. Annual Process for Setting Charter annual CCLs at the first tier, less than less than or equal to 25,000,000 lb Management Measures 10,000,000 lb (4,535.9 mt), the (11,339.8 mt), the charter halibut fishery commercial halibut fishery allocation will receive a fixed 3,500,000 lb Charter halibut annual management will be 81.1 percent and the charter allocation. The commercial halibut measures in Area 2C and 3A will be set halibut fishery allocation will be 18.9 fishery allocation will equal the CCL according to the annual process percent of the Area 3A annual CCL. For minus 3,500,000 lb. Finally, at CCLs described in the proposed rule for this Area 3A annual CCLs between greater than 25,000,000 lb, the action. In short, each year the Council will review an analysis of potential 10,000,000 lb and 10,800,000 lb (4,898.8 commercial halibut fishery allocation charter management measures for the mt), the allocation to the charter halibut will be 86 percent and the charter Area 2C and Area 3A charter halibut fishery will be 1,890,000 lb (857.3 mt). halibut fishery allocation will be 14 fisheries for the upcoming fishing year. The commercial halibut fishery will be percent of the Area 3A annual CCL. allocated the Area 3A CCL minus the This will allow the Council and public 1,890,000 lb fixed allocation to the Under the CSP, the commercial and to engage in a transparent process for charter halibut fishery. When the CCL is charter halibut fisheries are separately considering both stakeholder input and greater than 10,800,000 lb and less than accountable for their discard mortality the most current information regarding 20,000,000 lb, the commercial halibut or ‘‘wastage,’’ such that each fishery’s the charter fishery and its management. fishery will be allocated 82.5 percent wastage will be deducted from its After reviewing the analysis and and the charter fishery will be allocated respective allocation to obtain its catch considering public testimony, the 17.5 percent. When the CCL for Area 3A limit (see Figure 1). Council will identify the charter halibut

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management measures to recommend to G. Guided Angler Fish (GAF) anglers to retain halibut as GAF. the IPHC that will most likely constrain The CSP authorizes supplemental Transfers cannot occur after the fish charter halibut harvest for each area individual transfers of commercial have been caught. The GAF permit within its allocation, while considering halibut IFQ as GAF to qualified charter holder also will be required to have the impacts on charter operations. The IPHC halibut permit holders for harvest by GAF permit and the assigned charter will consider the Council charter vessel anglers in Areas 2C and halibut permit on board the vessel on recommendations and input from its 3A. Using GAF, qualified charter halibut which charter vessel anglers retain GAF, stakeholders and staff and then will permit holders may offer charter vessel and to present the permits if requested adopt either the Council’s anglers the opportunity to retain halibut by an authorized enforcement officer. GAF permit holders will be required to recommendation or alternative charter up to the limit for unguided anglers retain all GAF permits and GAF permit halibut management measures designed when the charter management measure logs for two years after the date of to keep charter harvest in Area 2C and in place limits charter vessel anglers to issuance and to make them available for Area 3A to the allocations specified by a more restrictive harvest limit. inspection upon request of an this final rule. These measures will be An IFQ holder is eligible to transfer authorized enforcement officer. necessary to limit the combined halibut IFQ as GAF if he or she holds commercial and charter harvest in Area NMFS will issue a revised GAF at least one unit of halibut QS and has permit to the GAF permit holder each 2C and 3A within each area’s combined received an annual IFQ permit catch limit. NMFS will publish in the time during the year that it approves a authorizing harvest of IFQ in either the transfer between IFQ and GAF for that Federal Register the charter halibut Area 2C and Area 3A commercial management measures for each area as GAF permit. Each GAF permit will be halibut fishery. A charter halibut permit assigned to only one charter halibut part of the IPHC annual management holder is eligible to receive IFQ as GAF measures accepted by the Secretary of permit in Area 2C or Area 3A, specified if he or she holds one or more charter on the application for transfer between State with the concurrence of the halibut permits in the management area Secretary of Commerce. IFQ and GAF. That assignment cannot that corresponds to the IFQ permit area be changed during the year. Once GAF The Council, its Scientific and from which the IFQ would be Statistical Committee, the IPHC, and is transferred to a charter halibut permit transferred. Holders of military charter holder and assigned to a specified NMFS will continue to assess halibut permits and Community Quota effectiveness of this method of charter halibut permit, it may not be Entities holding community charter transferred to another charter halibut recommending and implementing halibut permits will also be eligible to permit holder. charter management measures after the receive IFQ as GAF. No changes to the Unused GAF may be returned to the CSP is implemented. eligibility criteria were made from the IFQ holder by two methods: a voluntary Two restrictions are removed from proposed rule. return that can be requested in August Federal regulations: the one-fish daily For transfers between IFQ and GAF, and that will be completed on or after bag limit for Area 2C at § 300.65(d)(2)(i); the IFQ holder and charter halibut September 1, and an automatic return and the line limit at § 300.65(d)(2)(iii). permit holder receiving GAF will be 15 days before the end of the Instead, daily charter halibut fishery bag required to submit an application to commercial halibut fishing season. On limits will be established in the IPHC NMFS. Application forms and and after the automatic return date, annual management measures. instructions will be available on the unused GAF will no longer be F. Other Restrictions Under the CSP NMFS Alaska Region Web site at http:// authorized for use in the charter fishery alaskafisheries.noaa.gov. in the current year. Applications for NMFS is implementing five NMFS will issue GAF in numbers of transfer of IFQ to GAF will not be additional restrictions under the CSP. halibut. NMFS will post the conversion accepted during the one month prior to First, the prohibition on retention of from IFQ pounds to a GAF for Area 2C the automatic return date, to ensure that halibut by skipper and crew on a charter and Area 3A for each fishing year on the all GAF transactions are completed vessel fishing trip in Area 2C is NMFS Alaska Region Web site at http:// before the automatic return date. No extended to also include Area 3A. alaskafisheries.noaa.gov. NMFS will application is required for the automatic Second, individuals who hold both a post the conversion factor for the return of unused GAF. NMFS will charter halibut permit and commercial current fishing year before the beginning return any remaining unharvested GAF halibut IFQ will be prohibited from of the commercial halibut fishing season to the IFQ holder from whom it was fishing for commercial and charter each year. The methods for calculating derived. On or as soon as possible after halibut on the same vessel during the the conversion factors were described in the voluntary or automatic GAF return same day in Area 2C and Area 3A. the preamble to the proposed rule and dates, NMFS will convert GAF in Third, individuals who hold both a are not repeated here. number of fish to IFQ in net pounds charter halibut permit and a Subsistence Upon completion of the transfer using the conversion factor for that year Halibut Registration Certificate will be between IFQ and GAF, NMFS will issue and return the converted IFQ to the IFQ prohibited from using both permits to a GAF permit to the holder of a charter holder’s account. harvest halibut on the same vessel halibut permit. The GAF permit will be This rule includes three restrictions during the same day in Area 2C and assigned to the charter halibut permit on GAF transfers. First, IFQ holders in Area 3A. Fourth, charter vessel specified by the GAF permit holder at Area 2C will be limited to transferring operators will be required to indicate the time of application. The GAF permit up to 1,500 lb (680.4 kg) or 10 percent, the date of a charter vessel fishing trip holder may offer GAF for harvest by whichever is greater, of their initially in the saltwater charter logbook and to charter vessel anglers on board the issued annual halibut IFQ for use as complete all of the required fields in the vessel on which the operator’s GAF GAF. In Area 3A, IFQ holders may logbook before the halibut are offloaded. permit and the assigned charter halibut transfer up to 1,500 lb or 15 percent, And finally, the logbook signature permit are used. whichever is greater, of their initially requirement for charter anglers in Area Charter operators will be required to issued annual halibut IFQ for use as 2C will be extended to include charter possess GAF in their GAF permit GAF. Second, no more than a total of anglers in Area 3A. accounts prior to allowing charter vessel 400 GAF will be assigned during one

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year to a GAF permit assigned to a their IFQ permit(s) and also for net 3, 8 through 10, 12 through 14, 16, 18, charter halibut permit that is endorsed pounds transferred and harvested as 19, and 21 below were made in response for six or fewer anglers. And third, no GAF that originated from their IFQ to public comments. The remainder of more than a total of 600 GAF will be account(s). NMFS will levy IFQ cost the changes correct incorrect cross- assigned during one year to a GAF recovery fees on all net pounds of references to other paragraphs or make permit assigned to a charter halibut halibut harvested as IFQ in the minor clarifications to the text. permit endorsed for more than six commercial fishery and as GAF in the anglers. This rule does not limit the charter fishery. Cost recovery fees for Definitions § 300.61 amount of GAF transfers for military GAF were discussed in further detail in 1. In developing the final rule, NMFS charter halibut permits. Community the proposed rule for this action and are noted that six definitions pertaining to Quota Entities (CQEs) that hold quota not repeated here. the charter halibut fishery contained an share are allowed to transfer IFQ as III. Other Regulatory Changes incorrect cross-reference. The proposed GAF. The limits on these transfers definitions for ‘‘charter vessel angler,’’ depend on whether the GAF permit This action makes four additional ‘‘charter vessel fishing trip,’’ ‘‘charter holder is a CQE, an eligible community regulatory changes that were explained vessel guide,’’ ‘‘charter vessel operator,’’ resident, or a non-resident. GAF transfer in detail in the preamble to the ‘‘crew member,’’ and ‘‘sport fishing restrictions were described in more proposed rule. These are minor changes guide services’’ all stated, ‘‘for purposes detail on pages 39140–39141 of the that clarify existing regulations, but do of §§ 300.65(d) . . .’’ Regulatory text proposed rule for this action and are not not substantively change how the implementing the CSP replaces the GHL repeated here. halibut fishery is managed. The first regulatory text at § 300.65(c), so the This rule implements new change clarifies the regulations to definitions need to apply to paragraph recordkeeping and reporting describe the current process by which (c) as well. NMFS changed these six the IPHC Area 4 catch sharing plan is requirements for GAF in the ADF&G definitions so they apply to all of promulgated in § 300.65(b). The second saltwater charter logbooks, in addition § 300.65. to saltwater charter logbook reporting change updates instructions in requirements currently specified at regulations at § 679.5(l)(7) for Registered Implementation § 300.65(c)(2) § 300.65(d). The ADF&G saltwater Buyers to complete and submit the IFQ 2. In the proposed rule, paragraph charter logbook will continue to be used Registered Buyer Ex-vessel Value and § 300.65(c)(2) stated that the ‘‘CSP as the primary reporting method for Volume Report form. The third change annual allocations and guided sport operators in the charter halibut fishery. clarifies regulations at § 679.40 to catch limits are adopted by the The person to whom ADF&G issued a describe the separate processes for Commission as annual management saltwater charter logbook is required to allocating halibut IFQ and sablefish IFQ, measures and published by NMFS in retain and make available for inspection and clarifies that commercial halibut the Federal Register as required in by authorized enforcement personnel fishery overage adjustments from the § 300.62.’’ The IPHC will adopt and the completed original logbooks for two previous year will be subtracted from a years following the charter vessel person’s IFQ, and commercial halibut NMFS will publish the annual CCL, the fishing trip. This rule also will require fishery underage adjustments from the annual commercial catch limit, and the GAF permit holders to record previous year will be added to a annual guided sport catch limit, but not information on the GAF permit; person’s IFQ. The fourth change revises necessarily the CSP allocation separately report retained GAF by 11:59 regulations at § 679.45(a)(4) to update percentages that were applied to the p.m. (Alaska local time) on the last day instructions for IFQ permit holders for CCL to obtain the sector catch limits. of the fishing trip in which GAF were submitting cost recovery fee payments The text of this paragraph has been retained using a NMFS-approved to NMFS and update the fee payment revised to reflect this change. electronic reporting system; record the form and instructions to incorporate Transfer Between IFQ and GAF electronic reporting confirmation GAF in the calculation of an IFQ permit § 300.65(c)(5)(ii) number on the GAF permit log; and holder’s cost recovery fee liability. retain the GAF permits and GAF permit NMFS received no comments on these 3. In the proposed rule at paragraph logs for two years. changes. § 300.65(c)(5)(ii)(B)(2), NMFS proposed Charter guides will be required to October 15 as the last day that IV. Changes From the Proposed Rule mark retained GAF by removing the tips applications could be submitted to of the upper and lower lobes of the This action was proposed and public transfer IFQ to GAF. Two commenters caudal (tail) fin. Additionally, the comments were solicited for 45 days noted that the GAF automatic return charter vessel guide will be required to beginning on June 28, 2013 (78 FR date is 15 days before the close of the retain the carcass showing caudal fin 39122), and ending on August 12, 2013. commercial fishing season, which varies clips until the halibut fillets are At public request, a 14-day extension of annually. In some years, the commercial offloaded so that enforcement can verify the comment period was granted prior fishery closes in early November. In the length and that the fish was retained to the end of the public comment period those years, a GAF permit holder as GAF. For each halibut retained as (78 FR 44920, July 25, 2013). The requesting a transfer of IFQ to GAF near GAF, charter vessel guides will extended public comment period ended the proposed deadline of October 15 immediately record on the GAF permit on August 26, 2013. By the end of the may not have enough time to harvest log the date and total halibut length in public comment period, 4,740 that GAF before the automatic return inches. submissions were received. Unique date. NMFS agrees with the comment GAF permit holders landing GAF on issues raised in those comments and has changed the deadline for private property will be required to received by the end of the comment transfer applications to one month prior allow enforcement personnel access to period are summarized and responded to the closing date of the commercial the point of landing. to below under the heading ‘‘V. fishery so the application deadline will Commercial IFQ holders will be Comments and Responses.’’ The adjust with the season dates. This responsible for all cost recovery fees on following 21 changes are made from the change will ensure that GAF permit IFQ equivalent pounds harvested for proposed rule in this final rule. Changes holders will have a minimum of two

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weeks to harvest their GAF before the retained as GAF.’’ The requirement to fishing year for which the logbook was automatic return date. mark GAF by clipping the tail fin was issued . . .’’ A comment from ADF&G 4. NMFS proposed regulations at proposed at § 300.65(c)(5)(iv)(G), but noted that because data pages may be § 300.65(c)(5)(ii)(D(4)(iv) requiring a this paragraph did not specify the removed from a logbook, the language CQE to submit a complete annual report carcass retention requirement. should be clarified to ensure that to NMFS as specified in § 679.5(l)(8) to Paragraph (G) has been revised to reflect halibut logbook data pages are retained receive GAF by transfer. NMFS this requirement. during the specified period. NMFS published a final rule on June 4, 2013 8. The Council did not specify, and agrees and has revised paragraph (i) as (78 FR 33243), to consolidate reporting NMFS did not propose, GAF transfer suggested to read, ‘‘Retain all logbook regulations and specify additional limits for military charter halibut data pages showing halibut harvest for requirements for a CQE to submit a permits. NMFS received a comment 2 years after the end of the fishing year complete annual report at § 679.5(t). that, to avoid confusion, the regulatory for which the logbook was issued . . .’’ NMFS has revised this final rule at text at § 300.65(c)(5)(iv)(H) should § 300.65(c)(5)(ii)(D)(4)(iv) to cross- explicitly state that the GAF transfer Recordkeeping and Reporting reference the revised CQE reporting limits do not apply to military charter Requirements § 300.65(d)(4) requirements at § 679.5(t). halibut permits. NMFS agrees and has 11. NMFS proposed general 5. Paragraph § 300.65(c)(5)(ii)(E)(2) of changed the text accordingly. recordkeeping and reporting the proposed rule stated, ‘‘If no GAF requirements at § 300.65(d)(4)(i). These were harvested in a year, the conversion Retention and Inspection of Logbook Requirements § 300.65(d)(2) instructions contained an incorrect factor would be calculated using the cross-reference to paragraph (d)(4)(ii)(C) same method as for the first calendar 9. The proposed logbook retention for an exception from the recordkeeping year after the effective date of this rule.’’ requirement at § 300.65(d)(2) proposed a and reporting requirements. NMFS has NMFS changed the word ‘‘would’’ to number of requirements that would corrected the cross-reference to ‘‘will’’ in this sentence to read, ‘‘If no have applied to ‘‘the person to whom paragraph (d)(4)(iii)(C) in this final rule. the Alaska Department of Fish and GAF were harvested in a year, the 12. NMFS’ proposed instructions for Game issues the Saltwater Sport Fishing conversion factor will be calculated completing the saltwater charter . . .’’ This change is to clarify that this Charter Trip Logbook and who retains logbook at § 300.65(d)(4)(ii)(B)(5) would process will occur and is not halibut.’’ Comments received from have required that charter vessel guides discretionary. ADF&G noted that anyone can be issued a logbook that is assigned to a business record the six-digit statistical area code Guided Angler Fish Permit for use on a particular vessel and in which halibut were caught and § 300.65(c)(5)(iii) ADF&G does not record the name of the retained. A comment from ADF&G 6. NMFS has changed the wording of person to which the logbook is issued. noted that in the Kodiak management paragraph § 300.65(c)(5)(iii)(A)(7) ADF&G assumed that NMFS was area, ADF&G requires charter guides to describing GAF permit retention proposing to impose the requirements of record five-digit salmon statistical areas requirements. The proposed § 300.65(d) to owners of the business to when targeting salmon, even if halibut requirement states, ‘‘GAF permit which a logbook is assigned, and are caught incidentally and retained. holders must retain GAF permit(s) for suggested the language should be ADF&G suggested removing the words two years after the end of the fishing clarified as such. NMFS agrees with this ‘‘six-digit’’ so the instruction could year . . .’’ The back of the GAF permit comment and has changed apply to either type of statistical area, as contains the ‘‘GAF permit log’’ where § 300.65(d)(1) and (2) to impose the necessary. NMFS agrees and has made guides must record dates, lengths, and requirements to any ‘‘person whose the requested change. ADF&G will also electronic reporting confirmation business was assigned an Alaska update the instructions printed in the numbers for harvested GAF. GAF Department of Fish and Game Saltwater saltwater charter logbook to reflect this transfer limits allow up to 600 GAF to Sport Fishing Charter Trip Logbook.’’ change. be transferred to a charter halibut permit Second, ADF&G noted that charter 13. ADF&G noted a typographical (CHP) on a GAF permit. The GAF vessel anglers are the persons who error in proposed paragraph permit log on the back of the permit retain halibut. Businesses, guides, and § 300.65(d)(4)(ii)(B)(6). The proposed may not have sufficient room to record deckhands are prohibited from retaining first sentence of that paragraph read, all of the GAF harvested under that GAF halibut under the CSP; therefore, the ‘‘Before a charter vessel fishing trip permit. Supplemental GAF permit log phrase ‘‘and who retains halibut’’ in begins, record for the first and last name pages will be available to download § 300.65(d)(2) should actually refer to of each paying or non-paying charter from the NMFS Web site at http:// charter vessel anglers who retain vessel angler . . .’’ NMFS has removed alaskafisheries.noaa.gov/. NMFS halibut. NMFS agrees with this the word ‘‘for’’ from this sentence. changed the wording of this comment and has changed 14. In response to a comment from requirement to specify that all GAF § 300.65(d)(2) clarify that the ADF&G, NMFS changed language under permits and all associated GAF permit requirements apply to any ‘‘person who GAF reporting requirements at logs must be retained for two years after is required to provide information § 300.65(d)(4)(iii)(A)(1) to specify where the end of the fishing year. pursuant to paragraph (d)(4) of this on the GAF permit the date and GAF section, or whose business was assigned length must be recorded. The proposed GAF Use Restrictions § 300.65(c)(5)(iv) an Alaska Department of Fish and Game language stated only that the required 7. On page 39142 of the proposed Saltwater Sport Fishing Charter Trip information must be recorded on the rule, NMFS stated that in addition to Logbook and whose charter vessel GAF permit. The revised language clipping the tails of retained GAF, the anglers retain halibut.’’ clarifies that the required information charter vessel guide would be required 10. Proposed paragraph must be recorded ‘‘on the GAF permit to ‘‘retain the carcass showing caudal § 300.65(d)(2)(i) stated that a person log (on the back of the GAF permit) . . . fin clips until the halibut fillets were whose business was assigned a saltwater NMFS noted the need for this change offloaded so that enforcement could charter logbook must ‘‘retain the after the proposed rule was published as verify the length and that the fish was logbook for 2 years after the end of the NMFS developed the GAF permit and

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GAF permit log for implementation of all GAF harvested on board a vessel are comments were reviewed, organized this final rule. debited from the GAF permit holder’s into nine topical categories, and 15. NMFS has made minor changes to account under which the GAF were responded to as follows: the introductory text for GAF electronic retained. reporting at § 300.65(d)(4)(iii)(D). The 19. The paragraph at Allocation proposed paragraph would have § 300.65(d)(4)(iii)(E)(2) under proposed Comment 1: The CSP allocations to required the GAF permit holder to GAF reporting requirements was the charter sector would result in catch electronically report specific reworded in response to a public limits that are lower than the GHL at information ‘‘for each GAF retained.’’ comment to specify where the GAF current halibut stock levels. This change Since the proposed rule was published, electronic reporting confirmation to the allocation is unjustified. NMFS has further developed the GAF number should be recorded and by Response: NMFS disagrees that the electronic reporting system such that whom. The reworded paragraph change is unjustified. One of the most of the data elements in the specifies that the GAF electronic objectives of the CSP is to establish Area following paragraphs (1) through (9) confirmation number shall be recorded 2C and Area 3A sector allocations that will need to be entered only once for on the GAF permit log by the GAF balance the differing needs of the each fishing trip, rather than for each permit holder. charter and commercial sectors over a GAF retained. This change reduces the 20. Based on the public comment wide range of halibut abundance, and reporting burden for charter vessel resulting in changes 17 and 18 above, that increase or decrease (‘‘float’’) with guides. The introductory text in NMFS further clarified the instructions varying levels of halibut abundance. To paragraph (D) has been changed for a properly reported GAF landing by accomplish this objective, the Council accordingly. adding paragraph and NMFS replaced the GHL with sector 16. In response to a comment, NMFS § 300.65(d)(4)(iii)(E)(3). This paragraph allocations that vary directly with is adding a requirement to record the provides a cross-reference to paragraph halibut abundance. A fixed percentage date GAF were caught and retained to (d)(4)(iii)(A)(4), which describes how to of the annual CCL will be allocated to the electronic reporting data elements correct a submitted GAF landing each sector across a wide range of for GAF at § 300.65(d)(4)(iii)(D). When electronic report. potential CCLs. The allocation to each preparing the proposed rule, NMFS sector will vary with halibut abundance, Prohibitions § 300.66 anticipated that because electronic with higher allocations inuring to the reports are due by 11:59 p.m. on the day 21. On page 39136 of the proposed charter halibut fishery at lower levels of a charter vessel angler retains GAF, the rule, NMFS discussed the Council’s abundance. A detailed description of date could be automatically filled by the intent to prohibit individuals who hold the allocations to the charter sector online reporting system as the same date both a charter halibut permit and under the CSP is included in the that the data were reported. NMFS commercial halibut IFQ from fishing for proposed rule and in the Analysis. The received a comment noting that for commercial and charter halibut on the Council determined that use of a fixed multi-day trips, the GAF permit holder same vessel during the same day in Area percentage allocation of the CCL to each is not required to submit the electronic 2C and 3A. Consistent with the fishery under the CSP will result in both report until 11:59 p.m. on the last day recommendation, NMFS proposed the commercial and charter halibut of the charter vessel fishing trip. In the prohibiting individuals who hold both a fishery allocations adjusting directly up case of multi-day trips, GAF permit charter halibut permit and a Subsistence and down more directly proportionate holders may report GAF harvested on Halibut Registration Certificate from to changes in halibut abundance. more than one day and corresponding to using both permits to harvest halibut on As described in section 1.1.1 of the multiple pages in the ADF&G saltwater the same vessel during the same day in Analysis and in the proposed rule for charter logbook in a single electronic Area 2C and Area 3A. NMFS intended this action, the GHL is not as directly report. Therefore, for proper accounting to include both of these prohibitions at responsive as the CSP to changes in and to facilitate enforcement, NMFS § 300.66(h). NMFS received a comment halibut abundance. Fixed GHLs for must require GAF permit holders to also noting that the prohibition at paragraph Areas 2C and 3A were established enter the date. NMFS agrees with the (h) was incorrect and only prohibited annually, in pounds, and did not comment, so the date requirement was subsistence and commercial fishing for fluctuate directly with halibut stock added as paragraph (d)(4)(iii)(D)(5) and halibut on the same vessel during the abundance, while commercial catch subsequent paragraphs were same day. NMFS agrees with the limits do fluctuate directly with stock renumbered. comment and has corrected paragraph abundance. The GHL has five poundage 17. The proposed rule at (h) to prohibit, with some exceptions, levels in relation to the allowable § 300.65(d)(4)(iii)(D)(6) would have individuals from conducting removals of halibut from all sources required that charter vessel guides subsistence fishing for halibut while (Total CEY). The GHLs were reduced if report the ‘‘length of GAF caught and commercial fishing or sport fishing for the area-specific Total CEY declined by retained’’ in the electronic report. NMFS halibut, as defined in § 300.61, from the at least 15 percent below the average has reworded this requirement to clarify same vessel on the same calendar day. 1999 through 2000 Total CEY, as that guides must report the ‘‘length of determined by the IPHC. For example, each GAF caught and retained.’’ NMFS V. Comments and Responses if the Total CEY in Area 2C fell by has also renumbered this paragraph as The proposed rule for this action was between 15 percent and 24 percent (d)(4)(iii)(D)(7). published on June 28, 2013 (78 FR below its 1999 through 2000 average, 18. NMFS reworded paragraph 39122), and public comments on it were then the GHL would have been reduced § 300.65(d)(4)(iii)(E)(1) under GAF accepted until August 26, 2013. NMFS from 1,432,000 lb to 1,217,000 lb. If the reporting requirements in response to a received approximately 4,740 comment Total CEY declined by between 25 public comment that it was not clear submissions raising 153 unique issues percent and 34 percent, then the GHL who was responsible for compliance within the scope of this action. would have been reduced from with this requirement. The reworded Comments that resulted in changes from 1,432,000 lb to 1,074,000 lb. If the Total paragraph specifies that the GAF permit the proposed rule were addressed in the CEY continued to decline by at least 10 holder is responsible for ensuring that previous section. The remaining percent, the GHL would have been

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reduced from 1,074,000 lb by an Area 2C and 26 million lb in Area 3A, 773c(c) of the Halibut Act, where the additional 10 percent to 931,000 lb. If the CSP poundage allocation to the Council develops regulations that the Total CEY declined by an additional charter sector would be lower than the allocate halibut fishing privileges among 10 percent or more, the GHL would GHL. Conversely, at CCLs of greater United States fishermen, such allocation have been reduced by an additional 10 than 9.5 million lb in Area 2C and 26 ‘‘must be fair and equitable to all percent from 931,000 lb to the baseline million lb in Area 3A, the CSP would fishermen.’’ This language is adopted level of 788,000 lb. The Area 2C GHL provide the charter halibut fishery with directly from National Standard 4 of the would not be reduced below 788,000 lb. a larger poundage allocation than the Magnuson-Stevens Act (16 U.S.C. If the Area halibut biomass increased, guideline limits established under the 1851(a)(4)). The terms ‘‘fairness and the GHL could be increased only to its GHL program. The Council and NMFS equity’’ have been interpreted in NOAA initial level of 1,432,000 lb, but no considered the differences in the Fisheries’ National Standard Guidelines higher. estimated CSP poundage allocations (the Guidelines) (see 50 CFR The proposed rule describes the compared to the GHL for recent years. 600.325(c)(3)(i)(A)). The Guidelines effects of the GHL in the Area 2C and Section 2.8 of the Analysis estimates provide that there should be a rational Area 3A charter halibut fisheries in that if the CSP had been in place in relationship between an allocation of circumstances when Total CEY declines recent years, the charter sector fishing privileges and the furtherance of did not trigger a GHL reduction. During poundage allocation likely would have a legitimate fishery management some years of declining Total CEY been less than the GHL from 2008 objective. The Guidelines further under the GHL, the commercial halibut through 2012 in Area 2C and from 2009 provide that ‘‘inherent in an allocation fishery IFQ allocations were reduced, through 2012 in Area 3A. is the advantaging of one group to the but there was no change in the charter Moreover, the Council and NMFS detriment of another.’’ The Council may halibut fishery GHLs. Conversely, in have taken into account the capability of develop, and the Secretary of Commerce years when the Total CEY increased, the vessels used in the commercial and may implement, regulations allocating GHL did not allow the charter halibut charter fisheries for halibut to engage in fishing privileges that result in hardship fishery to fully benefit from this other fisheries and economic endeavors. to one group if such burdens are increase. The charter halibut industry provides outweighed by the total benefits Section 2.5.10 of the Analysis marine transportation and sport fishing received by another group. ‘‘An describes that under the GHL program, guide services to anglers wishing to allocation need not preserve the status the proportion of total halibut harvested catch halibut. Charter vessel businesses quo in the fishery to qualify as ‘fair and in the Area 2C and Area 3A commercial provide these services also to anglers equitable,’ if a restructuring of fishing halibut fishery has declined and the wishing to catch salmon, rockfish, privileges would maximize overall proportion harvested in the charter lingcod, and other bottomfish. In benefits’’ (see 50 CFR halibut fishery has increased. From addition, charter vessel businesses in 600.325(c)(3)(i)(B)). 2008 through 2012, the Area 2C Areas 2C and 3A may provide marine The CSP allocations are fair and commercial halibut fishery harvest transportation for bird watching, whale equitable. As described in the Analysis declined from 60.2 percent to 43.1 watching, and general sightseeing. and in the proposed rule for this action, percent of the Total CEY, and charter Passengers using these services may be the Council and NMFS decided to halibut fishery harvest increased from independent tourists, guests at lodges, replace the GHL with sector allocations 14.3 percent to 15.9 percent of the Total or travelers on cruise ships. Charter that balance the differing needs of the CEY over the same time period. In Area vessel businesses may focus their charter and commercial sectors, and that 3A, commercial halibut fishery harvest business plan on sport anglers wishing float with varying levels of halibut decreased from 76.8 percent to 60.3 to catch halibut, but other business abundance. See also the response to percent of the Total CEY, and charter plans are possible given the variety of Comment 1. The GHL is not as halibut fishery harvest increased from reasons why an individual may want to responsive or adaptable to changes in 12.6 percent to 15.7 percent of the Total engage the services of a charter vessel. halibut abundance. While both the GHL CEY from 2008 through 2012. Thus, Having conducted a comprehensive and commercial fishery catch limits while both the GHL and commercial analysis of the GHL and the CSP, the have declined in recent years, the halibut fishery catch limits have Council and NMFS have determined commercial halibut fisheries have borne declined in recent years, the commercial that the CSP allocations implemented larger poundage and proportional halibut fisheries have borne larger by this final rule provide a clear, reductions under the current allocation poundage and proportional reductions transparent, and equitable allocation system. The Council noted that the under the current allocation system. between the two sectors. absence of a hard allocation between the This resulted in negative economic Comment 2: In November 2009, a U.S. commercial and the charter halibut impacts on commercial halibut fishery District Court determined that the GHL sectors has resulted in conflicts between participants from reduced catch limits, is a fair and equitable allocation sectors and tensions in coastal which contributed to the instability and (VanValin v. Locke (671 F. Supp 2d 1 communities dependent on the halibut conflict between user groups that the D.D.C. 2009)). Because the CSP reduces resource. Council intended to address with the the allocation to the charter sector from The CSP allocations to the CSP. the status quo GHL, it cannot be fair and commercial and charter sectors will It is true that at moderate to low levels equitable. Therefore, the charter fishery result in both fishery allocations of halibut abundance, the CSP would should continue to be managed to its adjusting directly with changes in provide the charter halibut fishery with GHL allocations. halibut exploitable biomass. This will a smaller poundage allocation than the Response: VanValin v. Locke involved stabilize the proportions of harvestable guideline limits established under the a legal challenge to the GHL. That case halibut available to the commercial and GHL program. The Council and NMFS does not preclude the subsequent charter fisheries at all levels of halibut took this into consideration in its consideration and implementation of abundance, allowing both the evaluation of the CSP and the GHL. alternative allocations between the commercial and charter sectors to share Section 2.5 of the Analysis shows that commercial and charter sectors that in the benefits and costs of managing at CCLs of less than 9.5 million lb in differ from the GHL. Pursuant to section the halibut resource and providing a

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more equitable management response to Response: NMFS disagrees with the the halibut resource. What is a hard changes in halibut biomass compared to commenter’s characterization of the allocation? Is the GHL a hard allocation? the GHL policy. Also see the response proposed rule. Page 39123 of the What makes the CSP allocation any to Comment 6. proposed rule noted that ‘‘[t]he more of a hard allocation than the GHL? Comment 3: The CSP allocations to commercial IFQ halibut fishery Response: NMFS interprets the the charter sector are demonstrably fair therefore views charter harvests in Council’s reference to a hard allocation and equitable. The Area 2C charter excess of established policies or goals as in its problem statement to mean an allocation includes as baseline years for uncompensated reallocations of fishing allocation between the directed calculating the allocation percentage privileges.’’ This statement follows a commercial halibut fishery and the two years when charter harvest description of the IPHC process for charter fishery that is clear, transparent, exceeded the GHL, 2004 and 2005, determining commercial catch limits and varies in proportion to changes in which rewards the charter sector for under the GHL program, and was halibut abundance. The Council exceeding the GHL. The Council chose included in the proposed rule preamble intended for the CSP to be a not to use more recent years in which to express the view of commercial comprehensive management program charter harvests were even higher in halibut fishery participants that for the charter halibut fisheries in Areas consideration of the effects on consider charter harvests in excess of 2C and 3A, with sector allocations that commercial halibut fishery participants. established harvest policies (the GHL balance the differing needs of the The commenter notes that in Van Valin from 2004 through 2013), as charter and commercial sectors over the v. Locke the court ruled that charter uncompensated reallocation of halibut range of halibut abundance, that float operators should not be rewarded for from the commercial to the charter with varying levels of annual halibut exceeding the GHL. The court stated sector. The purpose and need for the abundance, and that include a public that where overfishing by one group in CSP is described in section 1.2 of the process for developing management recent years is the precise concern that Analysis and the proposed rule (see the measures intended to limit the charter the regulation intends to address, it ‘‘III. Proposed Catch Sharing Plan (CSP) sector to its allocation. makes sense to disregard the most for Area 2C and Area 3A’’ section As described in the response to recent participation data (Id. at 11). If beginning on page 39125). The CSP also Comment 1, management of the charter the CSP errs at all relative to allocation would allow the charter sector to fishery under the GHL program resulted equity, it errs in awarding too large a increase its allocation by leasing IFQ in the commercial fishery bearing a percentage of the halibut resource to the from the commercial sector. The disproportionate amount of the declines charter sector. proposed sector allocations are intended in halibut exploitable biomass relative Response: NMFS acknowledges the to fluctuate proportionately with halibut comment and notes that the preamble to to the charter sector. This changing abundance. In recommending the CSP, proportional allocation of a fully the proposed rule and section 1.6.7 of the Council balanced its objective to utilized halibut resource between the the Analysis describe the Council’s establish an allocation to the Area 2C sectors under the GHL program created rationale for recommending the CSP and Area 3A commercial and charter instability between user groups that the allocations to the commercial and sectors that varies proportionately with Council sought to address with the charter sectors. Also see the response to halibut abundance while maintaining commercial and charter sector halibut Comment 26. this historical charter season length allocations implemented by this final Comment 4: A court found the GHL with no inseason changes to harvest rule. This action is intended to maintain to be fair and equitable, but that is not restrictions. Also see the response to stability, economic viability, and the only allocation that could be fair Comment 6. and equitable. The Council has the NMFS agrees that under the CSP, the diversity of halibut user groups by authority to recommend a different proportion of the CCL allocated to the addressing allocation conflicts between allocation that could also be fair and charter sector at relatively higher levels participants in the commercial and equitable. of abundance is less than the proportion charter halibut fisheries. The Secretary Response: As described in the allocated to the charter sector at of Commerce has determined that the response to Comment 2, the Council and relatively lower levels of abundance. CSP allocations are consistent with the NMFS have articulated a legitimate The proposed rule for CSP describes the Council’s objectives as described in its objective for establishing the CSP in rationale for the allocations to the problem statement and the purpose and Area 2C and Area 3A. To accomplish commercial and charter sectors in Area need for the CSP described in section this objective, the Council and NMFS 2C and Area 3A. 1.2 of the Analysis. properly determined to replace the GHL NMFS disagrees that the CSP Comment 7: The Problem Statement with sector allocations that vary directly allocation to the charter sector at higher says that unless a mechanism for with halibut abundance. The Secretary levels of halibut abundance results in a transfer between sectors is established, of Commerce has determined that this reallocation of halibut to the the existing environment of instability final rule is consistent with the Halibut commercial sector. As described in the and conflict will continue. The Council Act requirement that allocation of proposed rule for the CSP, the Council seeks to address this instability while fishing privileges be fair and equitable balanced its objective to establish clear balancing the needs of all who depend to halibut fishermen. allocation to sectors that varies in on the halibut resource for food, sport, Comment 5: The proposed rule states proportion with halibut abundance with or livelihood. Does NMFS believe that a that the problem is uncompensated the needs of the charter and commercial plan that reallocates without reallocation of the halibut from the fisheries at all levels of halibut compensation 30 percent or more of the commercial to the charter sector. The abundance. current allocation to commercial percentage of the CCL allocated to the Comment 6: The Problem Statement fishermen while allowing guided charter sector decreases at high levels of says that the absence of a hard anglers to rent those same fish back is abundance. How are guided anglers allocation between the longline and the going to address the existing compensated for this reallocation of fish charter halibut sectors has resulted in environment of instability and conflict? to the commercial sector at high levels conflicts between sectors and tensions How are guided anglers compensated of abundance? in coastal communities dependent on for this reallocation from the GHL?

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Response: As discussed in the 1990s and early 2000s. The resulting Second, the commenter response to Comment 1, this final rule reallocation of harvest from the mischaracterizes Article III of the establishes an allocation in which both commercial sector has resulted in Convention. ‘‘Developing the stocks of the commercial and charter halibut conflicts between sectors and tensions halibut of the Northern Pacific Ocean fisheries share in the benefits and costs in coastal communities that are and Bering Sea to levels which will of managing the resource for long-term dependent on the halibut resource. The permit the optimum yield from that sustainability. The Council anticipated, Council, not the IPHC, developed the fishery and . . . maintaining the stocks and NMFS agrees, that stabilizing the CSP to address this instability while at those levels’’ does not require the method of allocating halibut between balancing the needs of all who depend IPHC to maintain a current allocation. the sectors will alleviate allocation on the halibut resource for food, sport, Nothing in the Convention obligates the conflicts between halibut user groups in or livelihood. Specification of optimum IPHC to maintain the GHL as the Areas 2C and 3A. As described in the yield for halibut fisheries is not required allocation between charter and proposed rule for this action, the by the Halibut Act and has not been commercial sectors to achieve the Council faced the challenge of balancing determined. See Charter Operators of optimum yield from the sport sector or historical halibut harvests, economic Alaska v. Blank, 11–cv–00664 (RCL) from any specific sector of the halibut impacts to the commercial and charter (D.D.C., February 24, 2012). As fishery. The Council and NMFS have sectors, and the recent decline in described in the response to Comment developed and implemented the CSP halibut abundance in both areas as it 120, the Council and NMFS considered pursuant to the Halibut Act as the developed its recommendation. As a the anticipated effects of the allocation appropriate allocation between the result, it is not possible for any to the charter sector at all levels of commercial sector and charter sector. allocation consistent with the Council’s abundance as analyzed in section 2.5 of Comment 10: The CSP does not reflect objectives to make participants in both the Analysis, and the potential impacts current management practices nor fisheries ‘‘whole’’ economically given on the charter sector in section 2.6 of present participation in the fishery. For current halibut abundance levels. the Analysis. example, present participation in the In recognition that allocations under Comment 9: The commercial IFQ commercial halibut fishery has changed the CSP to the charter sector may be halibut sector perceives that charter significantly through a reduction in the constraining at current low levels of harvests in excess of established number of quota share holders. halibut abundance, the Council policies or goals as uncompensated Additionally, the Council ignored 2011 data on commercial and charter catch to recommended the GAF program to meet reallocations of fishing privileges from the needs of the charter halibut fisheries favor commercial IFQ holders. the commercial sector to the charter in Areas 2C and 3A and provide Response: The Council considered sector. This is the problem the CSP is flexibility for participants in both present and historical management and intended to remedy; however, this is an sectors. The GAF program was not participation in the fishery when erroneous objective. Pursuant to Article intended to provide a mechanism to developing the CSP. The Analysis takes III of the Halibut Convention, the IPHC replace reductions in the charter into account present participation in the must develop and maintain halibut allocation relative to current or commercial and charter halibut fisheries stocks to levels that will permit the historical harvest levels. GAF will and considered alternative sector optimum yield for the halibut fisheries. provide a voluntary, market-based allocations under the CSP. Specifically, The harvest of halibut in Alaska occurs mechanism for transferring halibut the Analysis includes information on allocation from the commercial sector to in three fisheries: the commercial, sport, harvests and participation in the the charter sector in order for the charter and subsistence fisheries. The optimum commercial and charter halibut fisheries sector to access additional halibut under yield for the sport fishery will be through 2011, the most recent year for a potentially constraining allocation. It adversely impacted by the proposed which information was available provides flexibility for operators in both changes. The IPHC fails in its duty to regarding participation in the charter the commercial and charter sectors. protect the current allocation if it halibut fisheries in Areas 2C and 3A Individual charter and commercial implements the proposed changes. when the Council recommended its operators will be able to consider Response: The commenter preferred alternative in October 2012. current halibut catch limits in relation mischaracterizes the problem the The 2011 charter fishery was the first to their operational needs when Council intended to address with the full year in which the charter halibut determining whether to use the GAF CSP. The Council’s problem statement limited access program was in effect in program. The Council and NMFS provides that ‘‘[t]he absence of a hard Areas 2C and 3A. As discussed in the anticipate that GAF may be used by allocation between the commercial proposed rule for this action, the charter charter anglers particularly in years of longline and charter halibut sectors has halibut limited access program capped low halibut abundance, when charter resulted in conflicts between sectors, the number of charter businesses that catch limits under the CSP may be and tensions in coastal communities could operate in Areas 2C and 3A to constraining. that are dependent on the halibut limit further expansion of the industry. Comment 8: Optimum yield for the resource. Unless a mechanism for The Council’s consideration of each halibut fisheries has changed. The transfer between sectors is established, sector’s recent participation and halibut charter fishery harvest increased during the existing environment of instability harvest levels were particularly the 1990s and early 2000s in response and conflict will continue. The Council important in developing its to shifting optimum utilization. The seeks to address this instability, while recommendation of sector allocations increased economic benefits from the balancing the needs of all who depend under the Area 2C and Area 3A CSP charter sector and indirect support on the halibut resource for food, sport, because halibut abundance levels have services are being ignored by the IPHC. or livelihood.’’ The CSP addresses this declined in those areas in recent years. The IPHC continues to consider the problem statement by establishing The Analysis described the effects of commercial fishery to be the optimal allocations for both sectors that changing the method of allocating use of the resource. fluctuate with halibut abundance, and halibut between the commercial and Response: NMFS agrees that charter by establishing a mechanism to transfer charter sectors under the alternatives fishery harvest increased during the halibut between the sectors (GAF). considered by the Council. The Analysis

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estimated the CSP allocations to the Secretary of Commerce’s decision to public comments. The majority of the commercial and charter sectors that approve it. comments addressed the proposed would have been specified from 2008 Finally, the Council also took into allocation percentages and the matrix of through 2012 if the CSP had been in account historical fishing practices in charter halibut fishery harvest place. Section 2.8 of the Analysis, the charter halibut fisheries by restrictions that would have been which shows that the catch sharing continuing to avoid in-season changes automatically triggered by changes in allocations could constrain charter to charter harvest restrictions and the Area 2C and Area 3A annual CCLs harvests compared to the status quo maintain a traditional charter halibut supported by halibut exploitable when halibut abundance is low, as it season length. The charter halibut biomass. In October 2011, in part due to has been in recent years. However, the fisheries have traditionally been questions raised in the public comments Council and the Secretary of Commerce managed with pre-season specifications on the proposed rule, NMFS and the also considered the disproportionate of harvest restrictions without in-season Council decided that further analysis impact of halibut abundance declines adjustments or closures during the and clarification of provisions of the on the commercial sector catch limits charter fishing season. The CSP proposed 2011 CSP were required. In under the GHL program, and recommended by the Council and December 2011, the Council requested a determined that the CSP allocations approved by the Secretary of Commerce supplemental analysis of new implemented by this final rule meet the maintains this approach to managing information since its 2008 preferred management objective of establishing the charter halibut fisheries in Areas 2C alternative. This included an evaluation sector allocations that vary directly with and 3A. of the management implications and halibut abundance while balancing the Comment 11: The CSP likely will economic impacts of the proposed CSP halibut needs of the commercial and promote strong industry desire for the at varying levels of halibut abundance. charter sectors with respect to recent charter sector to stay within its Based on this new evaluation and participation. allocation because overages will roll additional public input, the Council over into the following season and The Analysis also took into account recommended a revised preferred reduce the successive season’s charter historical fishing practices in and alternative for the CSP in October 2012, catch limit. which included the recommendations dependence on the charter halibut Response: Halibut harvest in the Area for allocations to the commercial and fisheries as it considered alternative 2C or Area 3A charter fishery that charter sectors that float with changes in allocations to the commercial and exceeds the charter allocation in any halibut abundance. See section 2.5.7 of charter halibut fisheries for the CSP. one year, also called an overage, will not the Analysis for a review of the CSP The Analysis included information on be deducted from the charter allocation allocations based on the Council’s 2008 harvests and participation in the in the following year. The CSP recommendation. Also see the response commercial and charter halibut fisheries allocations to the Area 2C and Area 3A to Comment 7. from 1995 through 2011. The Council’s commercial and charter halibut fisheries Comment 14: The CSP allocations preferred alternative for allocations to will not change annually. See the demonstrate the Council’s careful the commercial and charter fishery was response to Comment 1. based on each sector’s harvest as Comment 12: The CSP allocations are consideration of the potential impacts to percentage of the combined commercial generous to the charter sector, but it is the charter sector while tasked with and charter halibut harvest for several time to settle the allocation debate and developing a functional management sets of years ranging from 1995 through implement the CSP, even though it plan for a fully allocated resource. 2005. In considering these data, the comes at a cost to the commercial sector Response: NMFS agrees. Also see the Council also considered estimates of and consumers. response to Comment 7. revenues from participation in the Response: NMFS acknowledges the Comment 15: Under the CSP, both the commercial and charter halibut fisheries comment. As described in the response commercial sector and the charter sector to evaluate historical fishing practices in to Comment 1, one of the Council’s are tied to the same IPHC metric of stock and dependence on the charter halibut primary objectives for the CSP is to status with clear, defined allocations. fisheries for both sectors. establish a comprehensive management Response: As described in the As described in the Analysis, fishery program for the charter halibut fisheries proposed rule for the CSP and in section participation is often measured in in Area 2C and Area 3A, with sector 1.6.7 of the Analysis, the Council and pounds of the targeted fish species allocations that balance the differing NMFS recognize that one of the landed. Charter vessel businesses, needs of the charter and commercial advantages of the CSP over the GHL however, primarily market a sport sectors over the range of abundance and program is that it uses the same method fishing experience rather than pounds of that float with varying levels of halibut to establish commercial and charter fish caught. Thus, while it is not abundance. halibut fishery allocations. The Council possible to quantify or directly compare Comment 13: I support the allocations and the Secretary of Commerce have dependence on the halibut resource by proposed in the Council’s 2008 CSP determined that the allocation to the participants in the commercial and recommendation. I am opposed to any commercial and charter halibut fisheries charter halibut fisheries using available increases to the charter sector from that under the CSP provides a more information, the Analysis presented the allocation. transparent and equitable management Council and the Secretary of Commerce Response: NMFS acknowledges the response than the GHL program. with sufficient information to take into comment. As described in the proposed Comment 16: We hope NMFS will account dependence on the halibut rule, the Council adopted a motion in avoid the use of words such as fisheries by participants in both sectors 2008 to recommend a CSP for the ‘‘benchmark’’ to describe the CSP when recommending sector allocations charter and commercial halibut fisheries allocations. Such terms used for the under the CSP. The evaluation of the in Areas 2C and 3A to NMFS. In July GHL invited multiple lawsuits that were potential effects of the alternatives in 2011, NMFS published a proposed rule costly to the industry, the public, and sections 2.5 and 2.6 of the Analysis for that CSP based on the Council’s 2008 the resource. The CSP sets clear informed the Council during its preferred alternative (76 FR 44156, July allocations for the charter sector and a development of this action and the 22, 2011) and received more than 4,000 process to prevent allocation overages

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before they occur. This must be of avoiding in-season changes to harvest Area 3A allocation between CCLs of 20 reflected in the final rule. restrictions and maintaining a and 25 million lb? Response: NMFS acknowledges the traditional season length. Until 2011, Response: The ‘‘flat spots’’ or fixed comment and notes that regulations new charter halibut harvest restrictions poundage allocations will remove the implementing this final rule specify the were not implemented in time to vertical drops that would have occurred determination of Area 2C and Area 3A prevent charter harvests from exceeding between allocation percentage tiers. The annual charter halibut allocations from the GHL. As a result, the charter halibut rationale for these allocation tiers is the annual CCL (see Tables 3 and 4 to fishery in Area 2C exceeded its GHL described in section 2.5.11 of the subpart E of part 300). each year from 2004 through 2010. The Analysis and the section entitled ‘‘C. Comment 17: The CSP’s allocations to CSP is not a punitive response to charter Annual Commercial Fishery and Charter the charter sector are reduced from overharvest in Area 2C. The Council’s Fishery Allocations’’ of the proposed those proposed in 2011. For example, rationale for the allocations for Area 2C rule. Without this adjustment, a 1 lb the 2013 Area 2C CSP allocations are is described in the preamble to the increase in CCL could trigger a less than the 2008 proposed CSP proposed rule and in section 1.6.7 of the significant drop in the poundage allocations after the calculations are Analysis. allocated to the charter halibut fishery. adjusted for changes in accounting Comment 19: Where in the analysis For example, without the fixed methods and sector accountability are can we find graphical comparisons of poundage allocation between 20 and 25 considered. the CSP and GHL allocations across million lb, if the Area 3A CCL were set Response: If the 2011 proposed rule their full range? Add a graphical at 19.9 million lb, the charter allocation for a CSP had been implemented, it comparison of the CSP and GHL, using would be 17.5 percent, or 3.5 million lb. would have allocated the charter sector the common measuring stick of logbook If the CCL increased to 20 million lb, the 17.3 percent of the Area 2C combined pounds, across the range of the CSP and charter allocation percentage would be catch limit (CCL) below 5 million lb, GHL allocations, to show how much 14.0 percent, or 2.8 million lb. By and 15.1 percent of the CCL above 5 less the CSP allocation is than the GHL. adding the fixed poundage allocation to million lb. The CSP implemented by the CSP, the vertical drop in charter Response: NMFS has added a this final rule establishes allocations to sector allocation is removed. The Area graphical comparison of the estimated the charter sector in Area 2C of 18.3 3A charter allocation would be fixed at CSP allocations to the GHL to section percent and 15.9 percent of the CCL at 3.5 million lb until the CCL increases to 2.5 of the Analysis as suggested by the low and high abundance, respectively. the point where the charter allocation commenter. Table 2–71 in section 2.8 of In Area 3A, the 2011 proposed rule for percentage at higher abundance levels the Analysis presents estimates of a CSP would have allocated the charter would not result in a decrease in charter and commercial catch limits if sector 15.4 percent of the CCL at low poundage allocated to the charter sector, the CSP had been in place from 2008 abundance and 14.0 percent at high in this example, at 25 million lb (see through 2012. Based on the information abundance. The CSP implemented by Figure 3 of this preamble). this final rule establishes allocations to in this table, the Area 2C CSP allocation The fixed poundage allocations were the Area 3A charter sector of 18.9 to the charter sector would have added in response to public comment percent at low abundance, 17.5 percent averaged 662,000 lb and the GHL in on the CSP proposed rule published in at moderate abundance, and 14.0 these years averaged 845,000 lb. The 2011 (76 FR 44156, July 22, 2011), percent at high abundance. Analysis estimates that the CSP which noted the effects of the vertical Additionally, for Areas 2C and 3A the allocation to the Area 2C charter sector drop resulting from the change in CSP includes fixed poundage would have averaged approximately 22 percentage allocations to the charter allocations between percentage tiers to percent less than the GHL from 2008 sector under the CSP. The Council also remove the ‘‘vertical drops’’ in through 2012. For Area 3A, the received testimony requesting revised allocation that would have occurred estimated CSP allocation to the charter CSP allocations that addressed the under the 2011 CSP (see Comment 20). sector would have averaged 3.3 million vertical drop in charter allocations. The Overall, the allocations provided to the lb from 2008 through 2012 and the GHL fixed poundage allocations will benefit charter sector in this rule are greater in these years averaged 3.5 million lb. the charter sector by ensuring that the than the allocations contemplated in the The Analysis estimates that the CSP poundage allocation to the sector does 2011 proposed rule. allocation to the Area 3A charter sector not decrease over a specified range of Comment 18: Why was Alternative 3 would have averaged approximately 6 CCLs. chosen as the allocation option for Area percent less than the GHL from 2008 Comment 21: What happens if the 2C? It appears to be a punitive response through 2012. While this information charter halibut harvest exceeds the CSP to the 2C charter sector for exceeding was included in the Analysis that was allocation? Where and how are overages the GHL due to inadequate and available for public review before the in charter harvest accounted for? inappropriate management measures. proposed rule was published and was Response: An overage by any sector in Previous overharvests were a result of available for public comment during the any given year does not affect other poor management, not as a result of comment period on the proposed rule, sectors in that same year. An overage by illegal fishing practices. NMFS agrees with the commenter that any sector affects all users in the Response: NMFS agrees that charter a graphical representation of this subsequent year by increasing fishery harvests did not exceed the GHL due to information is useful to further illustrate removals that result in a lower illegal fishing practices. The GHL was the anticipated impacts of the CSP estimated initial biomass. The IPHC exceeded in some years in part due to allocations. NMFS notes that section 2.5 assessment considers an overage as a the rapid growth in the charter halibut of the Analysis presents a thorough removal higher than that fishery’s catch industry in Area 2C, combined with the comparison of the GHL with all of the limit. That higher removal in a fishing delay in promulgating charter harvest allocation alternatives considered by the year means that biomass is restrictions. These factors made it Council as it developed the CSP. incrementally lower at the end of that difficult for managers to set harvest Comment 20: If the goal was year than it would be otherwise. restrictions to avoid exceeding the GHL, allocations that float with abundance, Underages have a similar effect on while meeting the Council’s objectives how do you explain the flat spot in the biomass but in the opposite direction,

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i.e., biomass estimation for the 1.6.7 of the Analysis for additional Area 3A have fluctuated relative to the subsequent year begins at a higher level detail). catch limits established for 1995, the than it would otherwise, and all sectors Comment 24: The current first year of the IFQ Program. However, will benefit from this. recommendation to give the underages since the implementation of the IFQ Comment 22: The lower tiers of the of the charter fishing industry to the Program, the overall proportion of total new Area 3A CSP allocation are based commercial fishing industry is unfair. halibut harvested in the Area 2C and on adding 3.5 percent of the CCLs to the Response: The CSP does not allocate Area 3A commercial halibut fishery has 2011 CSP alternative. Why was 3.5 underages in the charter halibut fishery declined and the proportion harvested percent of the CCLs not added to the to the commercial halibut fishery. See in the charter halibut fishery has entire 2011 3A CSP alternative? Comment 21 for a description of how increased. NMFS also agrees that the Response: As described in the the IPHC accounts for underages and GHL was not responsive to changes in response to Comment 5, in Area 3A, the overages in the charter halibut fishery. halibut abundance. As described in the percentage allocation to the charter Comment 25: Underages in charter response to Comment 1, one of the sector at higher levels of abundance is sector harvests should be available to be Council’s primary objectives for the CSP based on the same formula used to caught and sold by the charter fleet the is establish a comprehensive calculate the GHL. While the Council same as commercial IFQ fish or added management program for the charter back to the allowable harvest for the considered increasing this allocation halibut fisheries in Area 2C and Area following year. percentage to provide the Area 3A 3A, with sector allocations that balance Response: Commercial halibut the differing needs of the charter and charter sector with a larger poundage fisheries are managed under the IFQ allocation, the Council ultimately commercial sectors over a wide range of Program with individual allocations. halibut abundance and that also float determined that a larger allocation IFQ management allows for underages would give more halibut to the charter with varying levels of halibut of individual IFQ accounts to be carried abundance. This final rule furthers that fishery than it could harvest based on forward to the QS holder’s account in historical catch estimates and objective by establishing CSP the following year, up to specified limits allocations for the Area 2C and 3A information on charter business (see regulations at § 679.41). The charter operations received during the commercial and charter halibut fisheries fishery is not managed with individual that vary with halibut abundance. development of the CSP. The Council allocations, so there is no mechanism to felt it was inappropriate to recommend Comment 28: The real reason that carry forward underages in that fishery commercial catch limits have been a higher charter sector allocation that as there is in the commercial fishery. As would likely not be harvested in the reduced in Areas 2C and 3A is the described in the response to Comment IPHC’s switch to using a coastwide charter fishery. 21, underages will result in the halibut model in the stock assessment, not Comment 23: As more fish are caught biomass estimation for the subsequent harvest overages by the charter sector. the CSP allocations for charter fisheries year beginning at a higher level, and all Response: Overall, commercial catch go down and the allocations for sectors will benefit from this. limits have decreased with decreasing commercial fisheries go up. To shift the Comment 26: The halibut resource exploitable biomass. The Pacific halibut allocation away from the charter sector, should be split 50:50 between the stock has been declining continuously which has only a small percentage of commercial and sport sectors. over much of the last decade as a result bycatch, to the commercial sector, Response: The proposed rule for this of a number of factors, including which has higher rates of bycatch is not action and section 1.6.7 of the Analysis decreasing size-at-age and poor a sustainable solution. The allocation describe the rationale for the allocations recruitment strengths. This decline in for both fisheries should go down as the to the charter and commercial sectors abundance has been apparent coastwide amount of fish caught goes up. under the CSP. The Council reviewed in varying severity. Although the IPHC Response: The allocations to the historical harvests as a proportion of has shifted from area-specific stock commercial and charter halibut sectors estimated commercial and charter CCLs assessments to a coastwide assessment, are not based on the amount of halibut as well as recent harvests by each sector the mere shift in stock modeling does caught. They result from apportionment to establish the allocations under the not account for the decreasing size-at- of the CCL determined by the IPHC, CSP. NMFS notes that allocations age and poor recruitment strengths. after estimating the exploitable biomass, among fishery user groups are Catch overages by the charter fishery multiplying by a target harvest rate, and commonly based on historical and sector can result in a lower estimated deducting other removals (e.g., recent harvests by each sector. NMFS initial biomass for all users and are unguided sport harvest, subsistence has determined that the Council’s incorporated into stock assessments, but harvest). Figure 1 depicts how the CCLs decision to use historical and recent are not the sole reason for reduced and allocations will be calculated under harvests in the Area 2C and 3A exploitable biomass and reduced the CSP. commercial and charter halibut fisheries commercial catch limits in Areas 2C and As the CCL increases, the percentage provides a reasonable and logical basis 3A. allocated to the charter sector may for the CSP allocations implemented by Comment 29: The Council’s Scientific decrease, but the pounds allocated to this final rule. The commenter could and Statistical Committee in the the charter sector will continue to propose different allocations to the analysis of the CSP said it believes that increase. The Council determined that commercial and charter sectors to the the magnitude and range of allocating a larger percentage to the Council for future consideration. uncertainties concerning projections of charter halibut fishery at high Comment 27: The commercial halibut charter harvests will prevent the charter abundances would allocate more longliners were given more fish nearly harvest forecast accuracy from being pounds of halibut to the charter halibut every year than their initial allocation in within a range of 3.5 percent of the fishery than they could harvest, based 1995, while the GHL and daily bag target allocation. on available historic harvest data and limits were not increased for charter Response: This comment refers to the information on charter business anglers. 3.5 percent target range proposed operations received during the Response: NMFS agrees that around the allocations in the 2011 development of the CSP (see section commercial catch limits in Area 2C and proposed CSP. This target range was not

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included in the CSP implemented in is reached. The extent to which accountability into the allocation this final rule and the comment is no highgrading may occur in the decision? How did the Council factor longer applicable. The processes for commercial fishery is unknown separate accountability into the projecting charter harvests and currently. Data from the recently allocation decision without data on recommending any necessary implemented restructured observer guided wastage and only partial data for management measures are described in program (77 FR 70062, November 21, commercial wastage? the ‘‘Catch Sharing Plan for Area 2C and 2012) may provide additional Response: Proxy data were used in a Area 3A’’ section of this preamble. information in future years. Certain modeling exercise to examine the effects Comment 30: The proposed rule does circumstances may encourage on the commercial and charter catch not show a summary of the catch highgrading; however, the benefits of limits of incorporating separate records for Charter Halibut Permits. receiving a higher price by highgrading accountability into the allocations. Such data by area and how it compares may not offset the added expense of Proxy data were used for the charter to the commercial catch for each area fishing longer or taking additional trips estimates of wastage because an would aid in setting the allocation for to fully harvest one’s halibut IFQ. The estimate of wastage for that sector was sport fishing. IPHC will use the best available not yet available. The use of proxy data Response: The Council considered information to estimate wastage by the allowed the Analysis to show the historical and recent halibut catch data commercial fishery and may incorporate direction and approximate magnitude of for the commercial and charter sectors data from the restructured observer changes in charter and commercial in Areas 2C and 3A in its program as they become available. catch limits under separate recommendation for the CSP (see Under the CSP, the commercial accountability (Tables 2–33 and 2–34 of sections 1.7.1.2 and 2.3.2.2 of the allocation will be reduced by an the Analysis). NMFS determined that Analysis; see also the response to estimate of its wastage to obtain the the Council’s decision to include Comment 10). annual commercial catch limit. Separate separate accountability in the CSP is Separate Accountability accountability for wastage promotes consistent with its program objectives conservation by providing an incentive and promotes conservation because it Comment 31: Separate accountability for commercial and charter sectors to is not needed for the charter halibut would encourage better handling of reduce wastage, as wastage is deducted discarded fish to reduce the discard fishery because there is no halibut from each sector’s allocations. wastage in charter fishing. mortality rates and thus increase fishery Comment 33: NMFS should address catch limits. Response: NMFS disagrees with the bycatch and wastage of the commercial Comment 36: Under separate commenter’s assertion that there is no fleet instead of limiting the charter fleet. accountability there will be a direct halibut wastage (discard mortality) Response: As described in the associated with the charter halibut proposed rule for the CSP and in section incentive to increase sector catches by fishery. As discussed on page 39135 of 2.5.5 of the Analysis, the commercial decreasing sector discard mortality the proposed rule, wastage occurs in the and charter halibut fisheries will be (wastage). Both sectors will want their charter halibut fishery as a result of separately accountable for their discard reduced wastage to be assessed and stress or injuries sustained from mortality or ‘‘wastage’’ under the CSP. incorporated into the calculations of hooking, hook removal, and handling of See also the response to Comment 32. catch limits. Are ongoing wastage released fish. Wastage is the product of Comment 34: The CSP proposed rule surveys planned? We suggest managers the number of fish released, the discard provides for sector accountability of consider options for achieving this goal. mortality rate, and the average weight of discard mortality (wastage) by Response: NMFS agrees that separate the released fish. Management deducting the projected wastage after accountability will provide an incentive measures, such as size limits, can affect each sector’s allocation has been to reduce sector wastage to increase the number and average weight of determined from the CCL. The IPHC catch limits. Wastage estimates for each released fish and the resulting number endorses this approach and believes it is sector will be based upon the best of pounds of discard mortality. Separate more equitable and appropriate than available information. The IPHC accountability, the process of deducting previous procedures. However, Figure 1 estimates wastage in the commercial wastage from each fishery sector’s omits any mention of wastage by the fishery from data gathered during its allocation, is described in the ‘‘D. unguided sport fishery. While outside fishery surveys. The IPHC may Calculation of Annual Fishery Catch the CSP, the IPHC will be looking to incorporate observer data to improve Limits’’ section of the preamble to the include an estimate of discard mortality this estimate in future years. Estimates proposed rule. for this sector, in addition to its of charter sector wastage will, in part, Comment 32: The IFQ Program allows estimated harvest, as part of ‘‘Other depend on the management measures in the commercial sector to highgrade Removals’’ deducted from the Total place. As noted in section 2.5.5 of the (discard fish below a desired size) to CEY. The IPHC also concurs with the Analysis, implementation of size limits deliver only most valuable fish to expectation that ADF&G will provide may have an effect on discard mortality market. Legal size halibut caught early estimates of charter fishery wastage for estimates for the charter sector because in the season are discarded to highgrade each area. wastage in the charter fishery is a for larger fish that fetch a higher price. Response: NMFS acknowledges the function of the number of fish released. When the commercial fishery operated comment and the IPHC’s plan to, in the Additional fishery surveys or research under the old derby system prior to the future, include an estimate of unguided on wastage in the commercial and IFQ Program, all halibut caught went to sport wastage in ‘‘Other Removals.’’ charter sector may be developed after market, resulting in less waste. The Comment 35: The Analysis on page reviewing current data, and forthcoming commercial sector should pay for all 160, Table 2–32, uses proxy data for data from the restructured observer halibut it wastes. charter waste. Subsequent tables use the program. Response: Federal regulations at proxy data to estimate charter and Comment 37: The final rule should § 679.7(f)(11) require that all legal-size commercial allocations under separate broaden the responsibility for wastage halibut caught in the commercial fishery accountability. How can proxy data be estimates so that ADF&G, the IPHC, or be retained until an individual’s quota used to incorporate separate NMFS could provide them.

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Response: The Council recommended Comment 39: How is separate charter sectors in Areas 2C and 3A, that the IPHC deduct an estimate of accountability for GAF calculated and potentially insufficient halibut IFQ wastage for each sector’s allocation to from which sector’s allocation will this available for lease, potentially calculate their annual catch limits. The wastage be deducted? insufficient capital among smaller CSP does not specify who will estimate Response: ADF&G requires that charter operations to lease IFQ, and wastage or how it will be estimated. The charter vessel guides record the number uncertainty regarding the willingness of IPHC currently estimates wastage for the of halibut kept and the number released clients to pay for the opportunity to commercial fishery. NMFS anticipates in the saltwater charter logbook. Under retain GAF. The Council also heard that ADF&G will provide wastage the CSP, guides will also be required to testimony from several commercial estimates for the charter fishery because record in the logbook the number of halibut QS holders indicating that they ADF&G has been collecting data on the GAF harvested. The number of halibut would be willing to lease halibut IFQ to numbers of halibut kept and released released in pursuit of GAF will not be the charter sector (see section 2.5.12 of through their saltwater charter logbooks, differentiated from the number of the Analysis and the response to statewide harvest survey, and creel halibut released in pursuit of non-GAF Comment 54). Finally, NMFS notes that surveys. halibut kept by charter vessel anglers. charter businesses in Area 2C have Comment 38: The only study of Therefore, there will not be a wastage expressed an interest in leasing GAF to released fish mortality of Pacific halibut estimate specifically for GAF; only a augment the one-fish bag limit currently was conducted in 1958–1960 and used single wastage estimate for all halibut in place for guided anglers. Based on only J-hooks. This study estimated the kept and released in the charter halibut this information, the Council release mortality of halibut at 3.8 fishery. Charter halibut wastage will be determined, and NMFS agrees, it is percent; however, guided and deducted from the charter sector’s likely that some IFQ will be made commercial wastage depend on a variety allocation to obtain the charter catch available for lease to charter operators of factors such as hook type, abundance, limit. under the GAF program. NMFS anticipates the Council will harvest rules, and weather. Guided Angler Fish (GAF) review the GAF program in the future to Response: NMFS believes that the Comment 40: GAF will not work with assess its effectiveness at providing comment refers to a 1969 report to the most charter fishing business models. anglers with additional opportunities IPHC by G. J. Peltonen on the viability Charter anglers will not want to for retaining halibut in the charter of tagged Pacific halibut (www.iphc.int/ purchase GAF and commercial QS fisheries. This review likely will be publications/scirep/Report0052.pdf). holders will not lease IFQ as GAF at a based on data NMFS collects on This study demonstrates the difficulties reasonable price. There are too many transfers of IFQ to GAF and on returns in determining mortality in large species problems with the proposed GAF of unused GAF to halibut IFQ holders. like Pacific halibut because the captured program for implementation at this NMFS also anticipates that the Council fish are usually held for long periods to time. will receive feedback from commercial determine survival, and the conditions Response: The Council recommended and charter halibut fishery participants in the unnatural environment in which GAF as part of the CSP to provide an who use GAF. The Council may the fish are held confound the results. opportunity for the charter halibut consider revisions to the GAF program The report concluded that there is a fisheries in Area 2C and Area 3A to based on its review of GAF use and on mortality rate of 2 to 5 percent for fish increase fishing opportunities when the input from stakeholders. released in excellent condition. The charter allocation may be constraining. Comment 41: I support GAF. It is a midpoint of this range (3.5 percent) is The Council recommended GAF after first step towards a fair compensated the basis of the discard mortality rate considering a number of alternative market-based reallocation between that the IPHC currently applies to mechanisms for transferring halibut sectors. commercially caught halibut released in allocation from the commercial sector to Response: NMFS acknowledges the excellent condition. the charter sector. The Council also comment. See also response to NMFS agrees that discard mortality recognized that some charter operators Comment 7. rates are influenced by a variety of may choose not to use the GAF Comment 42: The CSP is punitive as factors and notes that the IPHC uses the provision as part of their business plans it forces recreational anglers to purchase best available information from studies (see sections 1.6.7 and 1.6.8 of the additional halibut from quota already on halibut and other species to develop Analysis). assigned to the commercial sector. It is discard mortality rates. The IPHC The Council’s Charter Halibut not fair to require recreational anglers to considers the findings of several studies, Stakeholder Committee recommended buy the right to catch additional fish including mark-recapture studies, that GAF as its preferred method for from the commercial sector. examine mortality rates associated with providing the charter sector with access Response: Charter vessel anglers are a variety of factors such as hook type to additional halibut under a potentially not required to purchase GAF, nor is the and size, handling, water temperature, constraining CSP allocation. During GAF program punitive. Use of GAF is and longline soak times, to develop development of the CSP, the Council optional for charter vessel anglers who discard mortality rates for halibut received public testimony in support of wish to retain more fish than allowed released with minor, moderate, or the GAF Program from stakeholders under the bag limit in effect for charter severe injuries. Similarly, estimates of who participate in the commercial and vessel anglers, up to the limit in place discard mortality in the charter fishery charter halibut fisheries. The Council for unguided anglers. The GAF program will be based on the best available also received testimony from charter is an authorized additional use of information. See Meyer (2007) for a sector representatives expressing halibut IFQ that will provide IFQ discussion of some of the factors that concern regarding the commercial holders, charter guides, and charter may be incorporated into wastage sector’s willingness to lease halibut IFQ anglers more flexibility, while estimates for the charter fishery to charter operators. They noted a maintaining total harvests within the (http://alaskafisheries.noaa.gov/npfmc/ variety of reasons for their concern, targets set by the IPHC. See also PDFdocuments/halibut/ including tensions that exist between response to Comment 2, Comment 7, HalibutDiscards907.pdf). the participants in the commercial and and Comment 40.

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Comment 43: Instead of GAF, why not with that operator may increase for all affecting the supply of GAF and a just allocate more halibut to the charter anglers, including those who do not qualitative assessment of which types of sector? retain GAF. See also response to IFQ holders may be more likely to lease Response: The GAF provision was Comment 63. IFQ as GAF. An IFQ holder’s intended to provide charter vessel Comment 45: How much GAF will willingness to lease IFQ as GAF could anglers additional harvest opportunities cost and will the cost vary among be affected by factors such as quantity during years of low abundance when charter operators? What is the basis for and distribution of IFQ holdings across guided anglers are limited to fewer or GAF prices and will the price for GAF regulatory areas, costs associated with smaller fish than unguided anglers vary annually? harvesting their IFQ holdings in the under the CSP allocation of halibut to Response: Section 2.5.12 of the commercial fishery, relationships with the charter sector (see response to Analysis notes that the number of GAF participants in the charter sector, Comment 7). The rationale for the transactions and the prices for those agreements with processors, or specific allocation provided to the transactions will be determined by the enjoyment derived from fishing. NMFS charter and commercial sectors is supply of and demand for GAF. Because anticipates that each IFQ holder will described in detail in the preamble to the market price for GAF will be employ his or her own criteria when the proposed rule and summarized in determined by the value of halibut in determining whether to lease some or the preamble for this final rule. the directed commercial fishery and all of available IFQ to the charter sector. Comment 44: Is GAF a fish or a charter vessel anglers’ willingness to NMFS expects that halibut IFQ will fishing opportunity? A GAF will be sold pay higher prices for trips that allow be available for lease as GAF to charter if and only if a fish is landed; at that greater harvest flexibility by using GAF, operators in a variety of ways. Some point it is a fish. Why would a charter it is not possible to estimate the cost of CHP holders hold or may be eligible to operator sell a GAF if no fish was GAF to charter vessel anglers in Area 2C purchase their own halibut QS, which harvested? Why would a guided angler or Area 3A. NMFS anticipates that yields annual IFQ that they may transfer buy a GAF if no fish is landed? because there are a number of different and use in the charter fishery. Transfers Response: A GAF is a fish. types of charter operations in Areas 2C of IFQ to GAF may be agreed upon Regulations at § 300.61 of this final rule and 3A, the demand for, and cost of, directly between halibut QS holders and define GAF as halibut transferred within leasing IFQ as GAF will vary among CHP holders, or brokers who currently a year from an Area 2C or Area 3A IFQ charter operators. NMFS also anticipates facilitate transfers of halibut IFQ and permit holder to a GAF permit that is that the cost of GAF to charter vessel charter halibut permits may act as issued to a person holding a charter anglers will vary annually because it intermediaries in transactions. Brokers halibut permit for the corresponding will depend on a number of factors, may also help willing QS holders find IPHC regulatory area. A GAF permit including the supply of halibut IFQ for CHP holders, and vice-versa. authorizes a charter vessel angler to lease as GAF, the demand for GAF, the Given the market-based nature of the retain GAF in the IPHC regulatory area average weight of GAF used to convert GAF program, the Council and NMFS specified on a GAF permit during a pounds of IFQ to number of GAF, and cannot guarantee that a charter operator charter vessel fishing trip authorized by the charter harvest management seeking to lease IFQ as GAF will be able the charter halibut permit. GAF are not measures in place that year. to enter into an agreement with one or debited from a GAF permit holder’s In determining whether to lease IFQ more IFQ holders to obtain the amount account unless a halibut is caught, as GAF, most individual charter of GAF he or she would like to use. retained, marked, measured, recorded, operations will need to consider However, section 2.5.12 of the Analysis and electronically reported as required whether anglers using its services are notes that a mutually beneficial by regulations at § 300.65(c)(5) and willing to pay increased prices for using agreement must be reached before a § 300.65(d). GAF. Charter operations attracting lease from IFQ to GAF will occur; NMFS agrees that the market-based anglers willing to pay an increased cost therefore, the Council and NMFS nature of IFQ to GAF transfers makes it for the experience of harvesting more or believe that neither the charter operator likely that some or all of the cost of larger fish will be more likely to utilize nor the IFQ holder possesses sufficient obtaining GAF will be borne by the GAF. Those charter operations that do market power to force the other into a charter vessel anglers using GAF. The not attract such anglers will be less lease agreement. As described in the GAF permit holder decides how he or likely to participate in the GAF response to Comment 7, the GAF she would like to offer charter vessel program. In the same way, charter vessel program was not intended to provide a anglers the opportunity to retain GAF. A anglers will need to determine if the mechanism to replace reductions in the charter fishing trip is an opportunity to opportunity to harvest more or larger charter allocation relative to current or catch fish, but not a guarantee that a halibut is worth the increased cost. historical harvest levels. See also certain number or size of fish will be Comment 46: How much will it cost response to Comment 50. caught, and anglers do not always catch to lease GAF? How will CHP holders Comment 47: The uncertainty in how their bag limit on every trip. The GAF find IFQ to lease as GAF? Is it possible many GAF will be available each year permit holder and charter vessel anglers that some charter businesses will be will make it difficult for charter will be able to decide how to distribute discriminated against and denied the businesses to develop business and the cost and opportunity for using GAF. opportunity to lease GAF? marketing plans. Although some charter operators may Response: Section 2.5.12 of the Response: NMFS agrees that there offer GAF to an individual charter Analysis describes that the lack of cost will be some uncertainty in how many vessel angler at the time a halibut is data associated with the commercial GAF will be available for lease each year caught, NMFS anticipates that some and charter operations and the difficulty and how much demand there will be for charter operators may choose to spread of projecting GAF supply and demand GAF. Whether IFQ is leased to members the cost of leasing GAF from IFQ limits the Council and NMFS’ ability to of the charter sector depends on several holders across all charter vessel anglers provide detailed estimates of the factors. As discussed in the response to who use their services. If this is the GAF quantity and lease price for transfers Comment 45 and Comment 46, these permit holder’s business model, then between IFQ and GAF. The Analysis factors occur on both the demand side the cost of charter vessel fishing trip provides a discussion of the factors (CHP holders’ ability to forecast angler

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demand, the charter management including the one described by this Response: Section 1.6.8 of the measures in place for that year, and commenter, when negotiating contracts Analysis describes that in developing angler willingness to purchase GAF) for the lease of IFQ as GAF. NMFS notes the CSP, the Council also considered and on the supply side (IFQ holders’ that there are commercial quota share and rejected an alternative that would willingness to lease their halibut IFQ holders who will likely be willing to have allowed CHP holders to transfer holdings as GAF). Both the supply and lease IFQ as GAF. See also response to (i.e., purchase) commercial halibut QS, demand sides are equally important, Comment 46. rather than leasing IFQ, because the because a mutually beneficial agreement Comment 50: Current ‘‘hired skipper’’ proposal was not supported by the must be reached before a lease will and leasing arrangements in the IFQ charter halibut sector. As described in occur. Additional factors affecting the fishery suggest that the likely GAF lease the response to Comment 40, the supply of and demand for GAF are rate will be approximately 50 percent of Council’s Charter Halibut Stakeholder discussed in the Analysis in sections the ex-vessel per pound value of the QS Committee recommended GAF as its 2.5.12.2 and 2.5.12.3, respectively. from which the IFQ is derived. Since preferred method for providing the While NMFS acknowledges that there the average size halibut in the charter charter sector with access to additional will be some uncertainty from year to fishery is 20 lb and the current average halibut under a potentially constraining year regarding the supply of and ex-vessel price is $4.50/lb, a charter CSP allocation. The final proposal from demand for GAF, annual charter operator could expect to pay the committee to the Council only management measures under the CSP approximately $45 per GAF. contained an annual transfer of IFQ will be established the beginning of the Response: NMFS acknowledges the (lease) option, not an option for charter year and are not changed for the comment. NMFS received numerous operators to purchase QS for permanent remainder of that fishing year. comments on the CSP proposed rule use in the charter fishery. However, as Therefore, CHP holders and halibut IFQ estimating that GAF will cost between noted in the response to Comment 48, holders will know early in the fishing $100 and $200, and expressing concerns charter operators who are eligible to season if there is a need for charter that GAF will be cost prohibitive for receive QS by transfer may purchase QS operators to lease GAF to provide many charter businesses and anglers. for Areas 2C and 3A and use the anglers with additional opportunities to Predicting the specific cost for GAF in resulting IFQ for GAF. harvest halibut in the charter fishery. Area 2C or 3A is not possible as Comment 53: Any transfer of IFQ Comment 48: Just as commercial described in response to Comment 46. from the commercial sector to the halibut fishermen have invested in NMFS notes that a price closer to $45 charter sector should be accommodated quota shares, charter halibut permit per GAF could make GAF use more through an arrangement that allows the holders may invest in commercial affordable and desirable for charter charter fleet to purchase QS, not lease, halibut QS to offer their clients as GAF. operators and charter vessel anglers. IFQ for use in a common pool to Response: NMFS agrees that one way Comment 51: The GAF program permanently supplement the baseline in which some charter halibut permit conflicts with the prohibition on leasing charter allocation. holders may control the cost of using in IFQ regulations and works against the Response: The option for the charter GAF for charter vessel anglers is to IFQ Program’s goal of having an owner- sector to purchase quota share to purchase commercial QS and transfer onboard fishery. The option to lease IFQ augment the charter allocation was not the IFQ resulting from that QS for use as GAF will encourage absentee IFQ among the alternatives considered by as GAF. Some charter halibut permit holders in the commercial fleet. the Council. See response to Comment holders already hold commercial Response: The response to Comment 52 and Comment 152. halibut QS and could use this method 7 describes the Council’s rationale for Comment 54: Some commercial for obtaining GAF. However, NMFS recommending the GAF program to operators in support of the GAF notes that some charter operators in provide a mechanism for transfer program would prefer that sector Area 2C and Area 3A would still need between the commercial and charter allocations be allowed to be transferred to meet all requirements to be eligible to halibut sectors in Areas 2C and 3A. As both ways. They note that no charter hold halibut QS. For example, discussed in the ‘‘D. GAF Transfer operator or angler will be forced to use regulations at § 679.41(d) generally Restrictions’’ section of the preamble to GAF, and that their association has specify that only persons with 150 days the proposed rule, the Council intended members who are willing to work with or more of experience working as an IFQ for the GAF program to provide IFQ local charter operators to use the GAF crewmember are eligible to hold halibut holders some flexibility in how they use program. QS. their IFQ, with limitations. In Response: NMFS notes the support for Comment 49: Commercial fishermen recommending the restrictions on the the GAF program and willingness to are allowed to carry over to the amount of IFQ that an IFQ holder may participate by some commercial IFQ following season up to 10 percent of transfer as GAF, the Council considered holders. As discussed in the response to their annual allocation. One way that IFQ Program objectives to promote an Comment 40, NMFS anticipates the commercial and charter operators could owner-onboard fishery for certain types Council will review the GAF program in structure GAF contractual agreements is of halibut QS holdings. NMFS believes the future and may consider revising the to allow this 10 percent to be that the GAF transfer restrictions program based on its use and on input contractually held in reserve for a implemented by this final rule from stakeholders. charter operator to use as needed over appropriately balance the Council’s Comment 55: What measures will the course of the season. Any unused objective to provide the charter sector determine the success or failure of the portion will be automatically returned with access to additional halibut under GAF provision? to the IFQ holder by NMFS at the end a potentially constraining CSP Response: The Council and NMFS of the season, and any used portion will allocation with its objectives for the IFQ will review a range of factors such as be paid for at an agreed upon rate. Program. amount of use, cost, and input from Response: NMFS acknowledges the Comment 52: The charter fishery commercial and charter operators when comment and expects that commercial representatives who initially proposed reviewing the use of GAF and any and charter operators will develop a the GAF program insisted that GAF be potential revisions. The responses to variety of arrangements, possibly for lease only. Comment 45 and Comment 46 describe

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that the quantity and cost of GAF used issuing GAF in pounds rather than in Response: NMFS agrees and will will depend on a number of factors that numbers of fish. In 2010 ADF&G provide these data to the IPHC to affect the supply of and demand for estimated the average weight of sport incorporate into its annual stock GAF. While the Council and NMFS caught halibut landed at the Prince of assessments. cannot estimate how much GAF will be Wales Island port to be 14.8 lb, while Comment 58: In any given year, if the used in the charter halibut fisheries sport caught halibut landed at the actual GAF poundage harvested exceeds with available information, input from Glacier Bay port averaged 47.4 lb. If the IFQ poundage converted to GAF, fishery participants to the Council GAF were issued in pounds, a CHP who pays for the excess harvest? In during development of the CSP and in operator in the Prince of Wales Island other words, how is GAF overharvest comments received on the CSP area would be eligible under GAF accounted for? proposed rule indicate that some IFQ transfer restrictions to lease GAF to Response: The factor for converting will be leased as GAF and used in the harvest 3.2 times as many fish as the IFQ pounds to number of GAF is the charter halibut fisheries. person operating in Glacier Bay. average weight of GAF from the Comment 56: Does NMFS expect Additionally, charter operators offer previous year reported by charter anglers who harvest smaller than charter vessel anglers the opportunity to operators in the GAF electronic average GAF to pay for those who harvest a certain number of fish, not a reporting system. NMFS anticipates that harvest larger than average GAF? certain poundage of fish. Issuing GAF in the estimated weight in pounds of all Response: The proposed rule for the pounds would require charter operators GAF retained and reported in the CSP describes that NMFS issues halibut wishing to lease IFQ as GAF to estimate electronic reporting system will not vary IFQ in pounds and will issue GAF in the number of pounds of halibut to lease significantly from the number of pounds numbers of fish. The conversion factor rather than the number of halibut, converted from IFQ to GAF for that year from IFQ pounds to number of fish for which could potentially be challenging and deducted from IFQ account holders GAF will be based on the average to determine in advance. For these because some GAF will be larger and weight of GAF from the previous year as reasons, NMFS and the Council some will be smaller than the average estimated from GAF length data determined that numbers of fish was the GAF weight used as the conversion reported to NMFS through the more appropriate unit in which to issue factor. Nevertheless, as described in the electronic GAF reporting system (see ‘‘F. GAF. response to Comment 57, NMFS intends GAF Reporting Requirements’’ section NMFS will not participate in price to annually provide the IPHC with of the proposed rule and regulations at negotiations for GAF, as NMFS estimates of GAF weights for Area 2C § 300.65(c)(5)(ii)(E)) implemented by considers those negotiations to be and Area 3A based on reported GAF this final rule. For example, if a charter private, voluntary, market-based length. NMFS anticipates the IPHC will permit holder requested, and NMFS transactions between charter operators use these data in its stock assessment for approved, a transfer of 5 GAF and the who hold GAF and charter vessel the following year to account for any conversion factor for that area was 20.7 anglers using their services. NFMS differences between converted GAF lb (9.4 kg), then 104 lb (47.2 kg) of IFQ anticipates that charter operators could weight deducted from IFQ accounts and would be debited from the IFQ holder’s use different pricing methods to estimated GAF weight reported to account for that area as follows: 5 GAF accommodate different sizes of retained NMFS in the previous year. Such × 20.7 lb = 103.5 lb (46.9 kg) and GAF. Some operators may choose to differences will affect the halibut rounded up to 104 lb (47.2 kg). charge anglers per GAF, and could biomass estimate for the next year, but NMFS acknowledges that the sizes of adjust the price depending on the size will not be explicitly added or retained GAF will vary around the of the GAF. Some charter operators may subtracted from the next year’s catch average weight estimate for GAF in each choose to spread the cost of leasing GAF limits for either sector. This is the same area. Section 2.5.12.1 of the analysis from IFQ holders across all charter approach the IPHC will use to account describes that charter vessel anglers vessel anglers, particularly those for charter harvests that exceed or are who harvest GAF that are larger than the operators affiliated with lodges that less than the charter sector’s catch limits average GAF weight used to convert IFQ offer charter vessel fishing trips as part under the CSP (see response to to GAF may benefit relative to anglers of an overall package of services. Comment 21). who harvest smaller than the average Comment 57: The CSP uses the Comment 59: ‘‘IFQ pounds’’ for GAF weight. The Council and NMFS previous year’s estimate of GAF average halibut is defined as net weight, i.e., considered this information and weight to convert IFQ pounds to without gills and entrails, head-off, determined that using the average numbers of GAF. GAF harvest (in washed, and without ice and slime. It weight of GAF from the previous year as pounds) is counted toward the would make the CSP more consistent reported to NMFS to convert IFQ individual quota of the IFQ holder that with other halibut regulations if the pounds to number of GAF is consistent leased the fish. The weight of each GAF definition of ‘‘net weight’’ was included. with the Council’s objective to provide harvested by charter clients can be In the description for the transfer an effective mechanism for transferring estimated from length data reported in between IFQ and GAF (page 39138 of halibut from the commercial to the the electronic reporting system as the proposed rule) the text is somewhat charter sector. This approach minimizes described on page 39150 of the confusing, as it states ‘‘the equivalent changes to operating practices in each proposed rule. If the estimated average number of net pounds of halibut fishery and to the existing weight of GAF harvest exceeds or is less rounded up to the nearest whole net recordkeeping and reporting system for than the previous year’s average weight pound.’’ the IFQ Program. used to convert IFQ to GAF, the actual Response: No change was made from The Council considered issuing GAF harvest will represent an overage or the proposed rule. ‘‘Net weight’’ is in pounds rather than fish, but CHP underage of IFQ. Since the actual weight defined at § 679.2 to mean the weight of holders would then be limited by GAF can be estimated, we suggest NMFS a halibut that is gutted, head-off, and transfer restrictions to different numbers provide estimates of the actual weights washed or ice and slime deducted. The of GAF based on their area, fishing of GAF to the IPHC for stock assessment method of rounding net weights to the practices, and results. Section 2.5.12.1 purposes (e.g., accounting for annual nearest whole pound results in the of the Analysis describes the effects of removals). fewest conversion errors when GAF are

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converted back to IFQ, as explained in Alaska to Glacier Bay or Yakutat to retain GAF in the IPHC regulatory area the proposed rule and section 2.5.12.4 maximize the size of fish harvested for specified on a GAF permit during a of the Analysis. each GAF given the costs of fuel, time charter vessel fishing trip authorized by Comment 60: What prevents someone required for transit, and difficulty in the charter halibut permit. When a GAF who holds both commercial QS and a obtaining clientele in those locations. is retained by a charter vessel angler, it charter halibut permit (CHP) from Charter operators using GAF in Glacier will be recorded in the saltwater charter transferring IFQ to GAF on his CHP and Bay and Yakutat could benefit from the logbook and on the GAF permit log as then selling GAF, which when use of average weight in Area 3A when GAF harvested, but will not accrue harvested greatly exceed the average determining the amount of IFQ required toward charter harvest because GAF is poundage used to create the GAF? The for each GAF. The use of average weight a use of IFQ and has been deducted above example would amount to NMFS- by IPHC regulatory area for GAF could from the IFQ permit holder’s account. sanctioned overharvest of the holder’s be reviewed by the Council and NMFS, However, because GAF is harvested in IFQ. Where is the individual and revisions could be incorporated in the charter halibut fishery, the charter accountability in the above example? a future action, if warranted. vessel angler harvesting GAF must Response: NMFS expects that the Comment 62: A charter vessel angler comply with all applicable sport fishing average size of harvested GAF will be should be able to buy as many GAF as regulations. When a charter vessel close to the average used for the he or she would like to catch if the angler retains GAF, the angler is not conversion factor to convert from angler is willing and able to pay for buying a sport-caught fish from the pounds of IFQ to number of GAF. The GAF. charter operator because it was never GAF conversion factor will be Response: See the response to the charter operator’s fish to sell. The recalculated annually based on the Comment 64 for a description of the charter vessel angler is allowed to retain average size of GAF retained and limits on GAF use for guided anglers. GAF under authority of the charter reported to NMFS during the previous GAF is intended to allow CHP holders halibut permit holder’s GAF permit, as season. Quota share holders who also to provide charter vessel anglers with long as all applicable reporting and hold CHPs will be subject to the same halibut harvest opportunities that are marking requirements are met (see reporting requirements and transfer equivalent to, but not more than, those regulations at § 300.65(c)(5) and limits as other halibut QS and CHP provided to unguided anglers (see § 300.65(d)). NMFS acknowledges that holders. NMFS will report the lengths section 2.5.12.7 of Analysis). In charter operators are likely to charge and estimated weights of GAF harvested recommending GAF use limits, the charter vessel anglers retaining GAF a to the IPHC so any differences between Council balanced its objective to fee in order to recover the costs of converted GAF weight deducted from provide an opportunity for the charter leasing GAF from halibut QS holders IFQ accounts and estimated GAF weight halibut fisheries in Area 2C and Area 3A (see response to Comment 44). Any fee reported to NMFS may be incorporated to increase fishing opportunities when paid to the charter operator by the into the following year’s stock the charter allocation may be charter vessel angler represents assessment (see also response to constrained with its objective to purchase of a federally authorized Comment 57). stabilize the proportions of harvestable privilege of retaining a sport-caught Comment 61: The average weight of a halibut available to the commercial and halibut in addition to that allowed charter-caught halibut in Area 3A was charter fisheries at all levels of halibut under charter size or bag limit 15.2 lb in 2011. The average size in the abundance. restrictions in place at the time. Current Glacier Bay subarea of Area 3A was 35.9 NMFS notes that the Council’s prohibitions on selling sport-caught fish lb. If GAF are created using the average recommendation of GAF use limits for are not modified by this final rule. Sale, fish size, it is much more likely that charter vessel anglers is also consistent trade, or barter of all sport-caught they will be used in subareas with larger with the Halibut Act requirement that halibut by a charter vessel angler is than average fish sizes like Glacier Bay allocations of fishing privileges must be prohibited under State of Alaska and Yakutat to maximize GAF ‘‘bang for carried out in such a manner that no regulations and section 25(6) of the the buck.’’ particular individual, corporation, or IPHC annual management measures. Response: According to the report other entity acquires an excessive share Comment 64: If I am fishing in an area cited by the commenter (http:// of halibut fishing privileges (Halibut that has a one-fish bag limit with a alaskafisheries.noaa.gov/npfmc/ Act, at 16 U.S.C. 773c(c)). A charter reverse slot limit (e.g., Area 2C), does pdfdocuments/halibut/2c3a_ vessel angler may purchase GAF for use the second fish have to meet the adfg2011estimates0912.pdf), of the over several days if he or she wishes to regulations of the one-fish bag limit, or 184,293 fish harvested by charter vessel retain multiple daily bag limits. can the second fish be of any size? If I anglers in Area 3A in 2011, only 601 of Comment 63: When does a GAF am fishing in an area that has a limit for those fish (0.3 percent) were harvested become a sport caught fish, before or charter vessel anglers of two fish per in the Glacier Bay subarea. The Yakutat after it has been landed? Selling or day with a size limit on one of those subarea is the subarea closest to Glacier purchasing sport caught fish is illegal. fish, would GAF be required if the first Bay in Area 3A. Combining the Glacier Response: Halibut IFQ becomes GAF fish caught was over the limit and the Bay and Yakutat subareas only accounts when NMFS approves a transfer second fish was under the size limit? In for 2 percent of the total number of fish between an IFQ permit holder and a this same scenario, what would prevent harvested in Area 3A. GAF may be used charter halibut permit holder. As trading of fish on the deck of the charter in these areas, but its use is likely described in the response to Comment vessel to circumvent restrictions on the limited given the relatively small 44, regulations at § 300.61 of this final second fish? And what is to stop anglers amount of harvests in these areas. The rule define GAF as halibut transferred from swapping fish to make sure GAF Glacier Bay and Yakutat subareas are far within a year from an Area 2C or Area provisions are not needed for any of the removed from the main charter fishing 3A IFQ permit holder to a GAF permit anglers on the boat? communities of the Kenai Peninsula and that is issued to a person holding a Response: As stated on page 39136 of Prince William Sound. It is unlikely that charter halibut permit for the the proposed rule, charter vessel anglers charter operators would travel hundreds corresponding area. A GAF permit may use GAF to retain halibut up to the of miles from the northern Gulf of authorizes a charter vessel angler to limit for unguided anglers when the

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charter management measure in place implementing this requirement to CHP? How can someone who rents a would limit charter vessel anglers to a facilitate enforcement and CHP use GAF on the rented CHP? more restrictive harvest limit. In other recordkeeping and reporting for GAF. Response: GAF are assigned to an words, a charter vessel angler may As described in the proposed rule for individual CHP and not the CHP holder retain a halibut as GAF that exceeds the the CSP, GAF permit holders will be because the CHP holder is not daily bag limit and length restrictions in required to hold a sufficient number of necessarily the guide on board the place for charter anglers only to the GAF for charter vessel anglers to retain charter vessel using the CHP. A person extent that the angler’s halibut retained halibut in excess of the charter angler may hold multiple CHPs that are used under the charter halibut management limit and up to limits in place for the on more than one vessel. Just as a CHP measure plus halibut retained as GAF unguided sport halibut fishery for that holder may allow someone else to use do not exceed daily bag limit and length area. In other words, charter operators their CHP on a charter vessel fishing restrictions imposed on unguided will be required to already possess the trip, he or she may receive a transfer of anglers. How GAF may be used depends GAF prior to the fish being caught. GAF IFQ as GAF and also let the person on the charter management measures could not be obtained after the angler using the CHP use the GAF permit and the measures in place for unguided retained a fish. GAF permit holders who assigned to that CHP. See also response anglers. do not hold sufficient GAF to cover to Comment 65. In the first scenario above and retained halibut by charter vessel Comment 67: GAF benefits larger assuming an unguided daily bag limit of anglers in excess of the CSP restriction charter operations who can amortize the two fish of any size, a charter vessel may not allow anglers to retain those expense of leased halibut over a large angler could keep one halibut under the GAF. The charter operator will be customer base to gain a competitive reverse slot limit and use one GAF to required to have the GAF permit and the advantage over smaller operators whose keep a second halibut of any size, or CHP to which it is assigned on board the small client base does not support such could use two GAF to keep two halibut vessel on which a charter vessel angler expenditure. Response: The Council recommended, of any size in a day. In the second retains GAF, and to present the permits and this final rule implements, GAF scenario, the angler would not need to if requested by an authorized transfer limits (also called ‘‘use caps’’) use GAF. If the charter vessel angler enforcement officer (see regulations at wanted to keep two fish over the size on the number of GAF that a CHP § 300.65(c)(5)(iv)(A) and (B) and holder may receive as well as the limit, one GAF could be used. Table 5 § 300.65(c)(5)(iii)(A)(5)). NMFS believes of the proposed rule gives additional amount of IFQ that a halibut QS holder that these requirements are necessary to may transfer as GAF. The Council examples of potential GAF uses. enable enforcement personnel to verify Trading fish among anglers on the recommended different GAF limits for that all charter anglers on board deck of a charter vessel to circumvent CHPs with different numbers of angler catching and retaining halibut are bag limits and GAF use requirements endorsements to balance the GAF needs authorized to do so by the CHP and GAF would be a violation of IPHC annual of different types of charter operations permits on board the vessel. management measures. Paragraph 25(3) with its objective to maximize the states that ‘‘any halibut brought aboard Allowing CHP holders to use a GAF opportunity for all charter operators to a vessel and not immediately returned permit in conjunction with any CHP on acquire GAF. Because holders of CHPs to the sea with a minimum of injury will board the vessel, as suggested by the endorsed for more than six anglers are be included in the daily bag limit of the commenter, could make it difficult for likely to be larger charter operations, the person catching the halibut’’ (78 FR enforcement officers to verify that the Council was concerned that these larger 16423, March 15, 2013). Plainly stated, CHP and GAF permits are valid and all charter operations would have more a fish belongs to the person who caught anglers are authorized to retain the financial resources to acquire GAF than it and applies toward that person’s daily halibut included in their daily bag limit. smaller operations unless limits were bag limit. This is particularly likely if multiple established. These transfer limits are Comment 65: Suppose a charter CHPs are used on the same vessel or if intended to prevent an entity from operator buys a large vessel, stacks the vessel operator is not the CHP obtaining an excessive share of the GAF multiple CHPs on it, and buys GAF for holder. NMFS also believes that fishing privileges. resale to customers. With GAF assigned requiring a GAF permit to be assigned IFQ holders in Area 2C will be limited to individual CHPs, he could easily find to only one CHP held by the GAF permit to transferring up to 1,500 lb (680.4 kg) himself holding plenty of GAF but holder will facilitate GAF recordkeeping or 10 percent, whichever is greater, of unable to sell it because the angler and reporting for CHP and GAF permit their initially issued annual halibut IFQ wanting to buy the GAF is fishing on a holders. Because GAF permit holders for use as GAF. In Area 3A, IFQ holders stacked CHP with no associated GAF. must have sufficient GAF on their can transfer up to 1,500 lb or 15 percent, How is this situation handled under the permit prior to the charter vessel fishing whichever is greater, of their initially CSP? It would make sense to assign GAF trip to cover GAF retained, assigning issued annual halibut IFQ for use as to a CHP holder that can be used on any one GAF permit per CHP will assist the GAF. Because IFQ holdings are CHP the holder may control. holder with GAF account tracking and generally larger in Area 3A than in Area Response: The comment refers to reporting in the ADF&G saltwater 2C, IFQ holders in Area 3A will be able § 300.65(c)(5)(iii)(A)(4) of this final rule, charter logbook and in the GAF to transfer up to 15 percent of the IFQ which specifies that a GAF permit is electronic reporting system (see as GAF. Restricting Area 3A IFQ holders assigned to only one CHP held by the regulations at § 300.65(d)(4)(ii)(B) and to leasing up to 10 percent of their IFQ GAF permit holder. Charter halibut § 300.65(d)(4)(iii)). It will be up to the holdings could limit the amount of IFQ permit holders requesting GAF will be CHP holder to decide how best to available for lease as GAF (section required to specify the CHP to which distribute GAF and charter vessel 2.5.12.2 of the Analysis). Allowing Area the GAF permit would be assigned on anglers among permits to ensure that 3A IFQ holders to lease 15 percent of the application for transfer between IFQ GAF is available when necessary. their IFQ holdings as GAF would and GAF. The assignment between a Comment 66: Why are GAF assigned provide Area 3A IFQ holders more GAF permit and a CHP could not be to an individual charter halibut permit flexibility in determining whether to changed during the year. NMFS is and not to the person who holds the lease IFQ as GAF and could provide

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more GAF to the Area 3A charter and a charter angler retains a fish as was given in the preamble to the halibut fishery. GAF, who would be held responsible? proposed rule under the section entitled Under the CSP no more than a total Response: The charter vessel guide ‘‘IV. Guided Angler Fish (GAF)’’ and is of 400 GAF will be assigned during one and the charter vessel angler are both not repeated here. year to a GAF permit assigned to a responsible for ensuring that sufficient As stated in section 2.5.12.2 of the charter halibut permit that is endorsed GAF are available on the GAF permit for Analysis, it is not possible to predict the for six or fewer anglers. No more than harvest. Current regulations at number of GAF that will be made a total of 600 GAF will be assigned § 300.66(b) provide that it is unlawful available for lease each year; therefore, during one year to a GAF permit for any person to fish for halibut except it is difficult to predict how much GAF assigned to a charter halibut permit in accordance with the catch sharing administration and enforcement will endorsed for more than six anglers. A plans and domestic management cost. NMFS does not anticipate needing person who holds both halibut IFQ and measures implemented under §§ 300.63, to hire additional staff to administer and a charter halibut permit and would like 300.65, and 300.67. This applies to enforce the GAF program. NMFS to transfer that IFQ to GAF will be ‘‘any’’ person, including a charter vessel Restricted Access Management Program subject to the same transfer restrictions. angler. The GAF use restrictions at will administer the GAF program; The Council recommended different § 300.65(c)(5)(iv)(F) in the final rule handling transfers of IFQ, issuing GAF limits for charter halibut permits to state, ‘‘the charter vessel guide must permits, and managing the electronic balance the GAF needs of different types ensure that each charter vessel angler data submitted by GAF permit holders. of charter operations with its objective complies with (c)(5)(iv)(A) through (E) The NOAA Office of Law Enforcement to maximize the opportunity for all of this section.’’ Paragraph will be primarily responsible for charter operators to acquire GAF. § 300.65(c)(5)(iv)(B) specifies that the enforcing the GAF program. Funds are Because holders of charter halibut number of GAF retained on board a not explicitly budgeted for GAF permits endorsed for more than six vessel cannot exceed the number of administration and enforcement, but anglers are likely to be larger charter unharvested GAF in the GAF permit costs incurred by NMFS related to the operations, the Council was concerned holder’s GAF account at the time of GAF program will be subject to cost these larger charter operations would harvest. The charter vessel guide is also recovery for the halibut and sablefish have more financial resources to acquire responsible for ensuring that clients do IFQ Program, as described on page GAF than smaller operations unless a not exceed the sport fishing daily bag 39143 of the proposed rule and in limit was placed on the number of GAF limit in effect for unguided anglers or regulations at § 679.45. Because GAF is a use of IFQ, the that could be assigned to a charter the daily possession limits, among other existing reporting system for the Halibut halibut permit. NMFS agrees that the requirements. GAF use restrictions and IFQ Program administered by NMFS limit for assigning GAF to charter GAF reporting requirements are Restricted Access Management Program halibut permits accommodates the GAF described in detail in the preamble to will be modified to allow tracking of needs of different charter operation the proposed rule under the section entitled ‘‘IV. Guided Angler Fish IFQ transfers and reporting of GAF. types and promotes the Council’s (GAF).’’ There are some costs associated with objective to offer all charter businesses Comment 70: How will NMFS track developing the regulations to implement the opportunity to lease IFQ as GAF. transfers of IFQ and GAF and what will and enforce GAF and the software Finally, as noted in Comment 68, happen to unused GAF? needed to issue GAF permits and smaller charter operations with fewer Response: NMFS described in detail electronically report GAF. These costs angler endorsements are actually in the preamble to the proposed rule will be recovered through IFQ cost entitled to more GAF per angler under the section entitled ‘‘IV. Guided recovery fees, i.e., fees assessed and endorsement than larger operations with Angler Fish (GAF)’’ how transfers of IFQ collected on IFQ equivalent pounds more angler endorsements per CHP. and GAF will be tracked. In summary, harvested and paid by the IFQ holder. Comment 68: The limits on GAF the system currently in place for The fee percentage has rarely exceeded transfers discriminate against larger tracking halibut IFQ transfers will be 2 percent and may not exceed 3 percent charter operations with more angler modified to include GAF. Voluntary and of the ex-vessel value of halibut endorsements. Whereas a CHP endorsed automatic returns of GAF to IFQ were landings. Additional information about for six anglers may lease up to 400 GAF also explained in the proposed rule. cost recovery for GAF was given in the in a season (67 GAF per angler Unused GAF may be voluntarily preamble to the proposed rule in the endorsement), a CHP endorsed for 12 returned to the IFQ holder in August section entitled, ‘‘G. Cost Recovery for anglers is limited to only 600 GAF (50 each year, or it will be automatically GAF.’’ GAF per angler endorsement). It would returned 15 days before the end of the Comment 72: Areas 2C and 3A are be fairer to limit CHP holders to a fixed commercial halibut fishing season (see adjacent to one another at the south end number of GAF per angler endorsement. regulations at § 300.65(c)(5)(i)(C) and of Alaskan IPHC regulatory areas. Why Response: See response to Comment § 300.65(c)(5)(ii)(B)(5)(i)). should halibut and sablefish QS holders 67. The Council chose GAF transfer Comment 71: How will GAF be in areas west of 2C and 3A pay for GAF limits to prevent any business from monitored? What checks and balances enforcement if they are never going to obtaining an excessive share of GAF will be in place to insure the rules are receive any benefit from it? Can NMFS fishing privileges and to maximize the followed? Will auditors be hired to separately track GAF enforcement costs? opportunity for all charter operations to oversee the GAF program? Who is going Response: Section 2.6.1.2 of the acquire GAF. Revisions to these GAF to do the GAF enforcement? Where in Analysis describes how NMFS will transfer limits would need to be the analysis can we find estimates of the incorporate GAF into the existing cost approved by the Council after the GAF cost of GAF enforcement? Are funds recovery program for the halibut and program has been implemented. budgeted for GAF enforcement? sablefish IFQ fisheries. Under the Comment 69: How does a charter Response: A detailed description of current program, IFQ permit holders angler know that the charter guide is how GAF will be monitored and the incur a cost recovery fee liability for authorized to allow anglers to retain checks and balances that will be put in every pound of IFQ halibut and GAF? If the guide does not have GAF, place to allow adequate enforcement sablefish that is landed under his or her

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IFQ permit(s). This final rule CCL. Halibut IFQ permit holders in sampling GAF at all locations, because implements regulations at § 679.45 Areas 2C and 3A will also have the of the strong likelihood that GAF will specifying that an IFQ permit holder is opportunity to lease halibut IFQ as GAF have a different size distribution than responsible for cost recovery fees for to CHP holders. While the Council and the non-GAF harvest, and scientific landings of his or her IFQ halibut and NMFS cannot project how much IFQ sampling is the best method to collect sablefish, including any halibut landed will be leased by the charter sector, the those data. The proposed rule preamble as GAF that are derived from his or her ability to lease IFQ as GAF to CHP notes that the impacts of requiring such IFQ accounts. The costs of holders is expected to benefit IFQ access are unknown and that it is not administering and enforcing GAF that holders in those areas, by allowing them currently being proposed. The IPHC will be recoverable by NMFS were additional flexibility when developing staff encourages an expedient resolution discussed in the response to Comment their annual harvest strategies. of the issue and the inclusion of the 71 and in the proposed rule for the CSP. NMFS acknowledges that QS halibut necessary access provisions, so as to For each IFQ permit, NMFS will holders in areas west of Areas 2C and have an acceptable vehicle for collecting determine the dollar amount of the fee 3A (Areas 3B and 4) and sablefish QS size distribution data on the exchange of due by multiplying the annual IFQ fee holders will realize an incremental halibut between the sectors. percentage (3 percent or less) by the increase in cost recovery fees following Response: NMFS acknowledges the value of all landed IFQ and GAF implementation of the GAF program, comment. NMFS is still considering derived from the permit holder’s IFQ but will not benefit from leasing IFQ to how to best implement the scientific permit(s). If the permit holder has more the charter sector. NMFS anticipates sampling aspect of the CSP while than one IFQ permit, the total amounts that the cost recovery fee for these QS providing the public with predictability of each permit are summed to determine holders will increase by a relatively regarding the scope of inspections by his or her total cost recovery fee. small amount because the additional sampling personnel. NMFS anticipates The cost recovery fee is paid by both costs of administering and enforcing proposing this requirement in a separate halibut and sablefish IFQ permit GAF are expected to be a relatively rulemaking after completing its holders. The structure of the IFQ cost small portion of the total costs to NMFS evaluation. recovery program does not facilitate of administering and enforcing the IFQ Comment 75: We suggest that unused applying different fee percentages to and GAF programs. NMFS received no GAF be returned to IFQ permit holders IFQ holders in different areas, nor does comments from halibut QS holders in one month prior to the end of the season it allow halibut and sablefish IFQ Areas 3B and 4 or sablefish QS holders rather than 15 days prior, as proposed. permit holders to be charged different opposing NMFS’ proposed method for The Analysis shows that 96–98 percent fee percentages. Any increase in the cost recovering fees associated with of charter harvest takes place by August recovery fees from implementation of administering and enforcing GAF. 31; therefore, there is little reason to the GAF program will be borne by all Comment 73: Why should any quota retain GAF in the charter sector into halibut and sablefish IFQ permit share holder who does not rent out GAF October. Weather conditions in holders. pay for GAF enforcement? At year’s end November can often prevent commercial Halibut and sablefish IFQ permit NMFS will know exactly which QS harvest, and an IFQ holder may have holders pay the same IFQ fee percentage holders leased GAF and how much it difficulty harvesting unused GAF that is because typically halibut and sablefish cost to enforce GAF. Why not require not returned until 15 days prior to the are harvested by the same vessels and the QS holders who rent GAF pay for its end of the commercial fishing season. IFQ permit holders. NMFS does not enforcement? Response: No changes were made divide costs of administering and Response: As described in the from the proposed rule. NMFS agrees enforcing the IFQ Program at a species response to Comment 72, NMFS does that most GAF will likely be used by or area level. For example, NMFS does not expect a substantial increase in fees September each year and expects that not track the time spent answering to QS holders as a result of the GAF some unused GAF will be voluntarily questions about the IFQ Program from program. The method of assessing cost returned to the IFQ holder as provided people holding Area 2C QS, versus recovery fees proposed by the for in regulations at people holding Area 3B QS. commenter would require a substantial § 300.65(c)(5)(ii)(A)(3) and Establishing separate costs for halibut change to the NMFS’ current method of § 300.65(c)(5)(ii)(B)(5)(i). If an IFQ and sablefish IFQ holders for each area tracking management and enforcement holder receives a return of GAF after the and species would result in higher costs for the IFQ Program and would automatic return date and cannot overall costs for all IFQ holders because result in higher cost recovery fees for QS harvest the IFQ before the close of the it would require more costly, inefficient, holders than the method implemented commercial fishery, that unused IFQ and administratively burdensome by this final rule. Additionally, NMFS will be considered an underage in the tracking and monitoring provisions. did not receive comments from QS next year, consistent with underage Following implementation of the GAF holders in opposition to NMFS’ provisions at § 679.40(e). This underage program, NMFS will calculate the proposed method for incorporating GAF would result in a greater allocation of overall enforcement and management into the existing cost recovery program IFQ in the following year. costs of the IFQ and GAF programs for the IFQ fisheries. See Comment 71 The Council recommended that combined, but will not differentiate for a description of how fees are tracked NMFS automatically return GAF 15 costs by species or area. and assessed for the IFQ Program. days prior to the end of the commercial As discussed throughout the Analysis Comment 74: On page 39142 of the halibut fishing season in order to and in the response to Comment 1, proposed rule, in the section describing maximize the opportunity for charter NMFS expects that the CSP will benefit GAF reporting requirements, NMFS operators to use GAF throughout the halibut IFQ permit holders in Areas 2C notes that the Council recommended charter fishing season while providing and 3A by stabilizing the proportions of that GAF permit holders be required to halibut QS holders with an opportunity harvestable halibut available to the allow ADF&G and IPHC sampling to harvest unused and returned GAF commercial and charter fisheries at all personnel access to landed halibut on before the end of the commercial fishing levels of halibut abundance and base private property for scientific sampling. season. NMFS agrees that it is possible both fishery allocations on the annual The IPHC supports the intent of that the change in automatic return date

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from 15 days to one month prior to the Uniquely numbered GAF tags would could be overruled and replaced with end of the commercial fishing season more positively identify a GAF than different measures. suggested in the comment would not be clipping a fin. Response: NMFS provided an likely to impact the ability of charter Response: NMFS agrees that the opportunity for the public to comment operators to use GAF based on historic regulations do not contain a prohibition on the CSP proposed rule. This rule harvest patterns. However, NMFS does against clipping the tail fins of retained does not implement any annual not consider it is appropriate to make halibut; however, it is not clear why a management measures designed to limit this change from the proposed to final charter vessel guide would do this. charter harvest to an annual sector rule because the Analysis and the record NMFS anticipates enforcement allocation. The CSP contemplates that for Council development of the CSP personnel inspecting halibut retained by the Council will continue the process by supports an automatic return date of 15 charter vessel anglers with the tips of which it develops charter fishery days prior to the end of the commercial the upper and lower lobes of the caudal management recommendations for IPHC fishing season. The commenter could (tail) fin removed could be considered consideration. The CSP also suggest the proposed change to the GAF. Enforcement personnel would contemplates that the IPHC will Council for its consideration of GAF have to consider the specific amount of continue its practice of adopting annual program changes in the future. clipped halibut on board and other management measures necessary to Comment 76: GAF provides the information (e.g., GAF permit logs and maintain charter halibut harvest to its opportunity for anglers to take a trophy saltwater charter logbooks) on a case-by- annual harvest allocation, and submit fish in areas with size restrictions in case basis. those measures to the United States for place. Trophy fish are expensive to acceptance. IPHC annual management NMFS does not expect that mount; many anglers choose instead to measures that are accepted by the enforcement personnel would have any mount just the tail. Whether they mount Secretary of State with concurrence of difficulty distinguishing a marked GAF the whole fish or just the tail, snipping the Secretary of Commerce are from a halibut with a deformed or pre- the tail fin ruins the mount. Why was published in the Federal Register as clipped tail because a freshly clipped this not considered when GAF specified by 50 CFR 300.62. NMFS tail fin lobe would be visibly different identification was raised as an issue? notes that the Administrative Procedure than a healed-over wound or deformity. Response: No changes were made Act’s notice-and-comment requirements In addition to removing the tips of the from the proposed rule on the basis of have been inapplicable to past this comment. This final rule upper and lower lobes of the tail fin, publications of annual management implements a requirement for charter this final rule implements regulations measures under the foreign affairs vessel guides to immediately remove the requiring charter vessel guides to functions exemption (5 U.S.C. tips of the upper and lower lobes of the immediately record the date and the 553(a)(1)). Determinations regarding caudal (tail) fin to mark all halibut length of the GAF retained on the GAF applicability of the exemption are made caught and retained as GAF (see permit log, providing a second means on a case-by-case basis. § 300.65(c)(5)(iv)(G)). Many saltwater for enforcement agents to verify which Comment 79: The guided harvest is fish, including halibut, that are fish are GAF (see § 300.65(d)(4)(iii)(A). currently managed within its GHL professionally mounted are made from The Council and NMFS considered allocations in Area 2C and Area 3A reproductions, rather than molded casts issuing tags to identify GAF, but using the same tools proposed under the of the original or traditional skin determined that they would be CSP; therefore, the CSP is not necessary. mounts. NMFS suggests that if the guide burdensome to charter operators, could Response: NMFS acknowledges that or angler were to photograph the dorsal easily be lost, would delay transfers of charter harvests have been managed and ventral sides of the fish or tail IFQ to GAF, and would likely end up as within the GHL since 2011 in both before clipping it, the taxidermist would marine debris if the carcass is discarded areas. However, as noted in response to be able to recreate the detail in the at the dock. Removing the tips of the tail Comment 2, the GHL is not reproduction. fin lobes was determined to be the least appropriately responsive or adaptable to NMFS did not explicitly consider the burdensome option for marking and changes in halibut abundance. The issue of the effects on taxidermy when identifying GAF. Council has determined that the determining how to mark GAF to Fishery Management Measures allocations under the CSP will better distinguish them from other halibut meet the Council’s objectives of retained by a charter vessel angler, nor Comment 78: The IPHC’s adoption of establishing a comprehensive did anyone raise it as a significant management measures to implement management program for the charter concern during public testimony to the domestic catch allocations such as the halibut fisheries in Area 2C and Area Council. Likewise, NMFS received more sector allocations specified in the CSP 3A, with sector allocations that float than 4,700 comments on the proposed rule violates the Halibut Act and the with varying levels of halibut rule (most of these were from anglers Administrative Procedure Act. The abundance and that balance the and charter businesses) and only one public lacks the opportunity to differing needs of the charter and commenter raised this concern. The comment with the current approach to commercial sectors across a range of Council may consider changes to the setting annual charter harvest halibut abundance. GAF marking requirement in the future restrictions for Areas 2C and 3A because Comment 80: The annual process for if it determines the impact is negatively the annual management measures are setting annual charter harvest impacting the ability of anglers to not first published in a proposed rule restrictions is similar to the process mount GAF halibut. with a well-defined comment period. undertaken for the sport halibut Comment 77: What prevents a charter The exclusion of a public comment fisheries in Area 2A off of the operator from clipping the fins of all the period violates the Administrative Washington, Oregon, and California fish in his box? There is no rule against Procedure Act. The Area 2A CSP coasts. this, only a requirement to clip GAF. includes a public comment period. Response: NMFS believes that the What happens if a fish is retained that Additionally, at three points in the commenter is referring to the has a deformed (pre-clipped) tail fin? Is process for setting annual management cooperative management approach it a GAF or a sport caught fish? measures, the recommended measures taken by NMFS and the IPHC in Area

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2A and acknowledges the comment. See (see response to Comment 1). In restrictions. NMFS notes that while the also response to Comment 78. developing any future recommendations Council has not specified a halibut Comment 81: The process outlined in for charter management measures to the allocation for the unguided recreational the CSP to annually recommend charter IPHC, the Council will consider the fisheries in Areas 2C and 3A, total management measures to the IPHC for anticipated impacts of alternative harvest by unguided anglers is limited implementation through IPHC management measures on angler by the current bag limit under IPHC regulations is preferable to the matrix demand. Additionally, the Council regulations, which is two fish of any proposed in 2011, which was inflexible intends to develop and recommend size per day (78 FR 16423, March 15, and prescriptive. This is the most management measures that limit charter 2013). effective process and will minimize harvest to its fishery allocation while The charter halibut fishery is the charter overages of its sector allocation, ensuring that the charter industry can second largest, in terms of volume of while maintaining the charter sector’s provide anglers with the ‘‘best’’ fishing halibut harvested, after the commercial and Council’s objective to specify the experience (see section 1.6.7 of the fishery in Areas 2C and 3A. The management measures pre-season with Analysis). unguided sport fishery has the third no inseason changes or closures. The CSP Analysis recognizes that largest harvest in both areas (see section Response: NMFS agrees. The Council allocations to the charter sector may be 1.7.1.7 of the Analysis). Of these three determined that the process for setting constraining at current low levels of harvesting sectors, the charter halibut annual harvest restrictions for the halibut abundance. To address this fishery has demonstrated growth in charter sector endorsed by the CSP will possibility, the Council recommended participation over time while the more effectively meet its management the GAF program to meet the needs of commercial and unguided recreational objectives than the method for the charter halibut fisheries in Areas 2C sectors have declined or remained determining charter halibut fishery and 3A and provide flexibility for relatively steady. This information was harvest restrictions proposed by NMFS participants in the commercial and in the Analysis considered by the in 2011 (76 FR 44156, July 22, 2011). charter halibut fisheries. Under the GAF Council and the Secretary of Commerce The Council’s rationale for endorsing a program, charter vessel anglers will when taking this action. The Council’s process to annually recommend charter have the opportunity to harvest objective for the CSP is to address the management measures to the IPHC for additional halibut when the bag limit ongoing allocation conflicts between the implementation through IPHC for charter anglers is more restrictive commercial and charter halibut regulations is discussed in section 2.5.3 than for unguided anglers. Moreover, a fisheries, not to restrict unguided of the Analysis and in the response to one-halibut per day bag limit has been anglers. Comment 78. in place for charter vessel anglers in The commenters’ concerns about Comment 82: Area 2C and Area 3A Area 2C since 2009. This reduced bag safety are addressed in the response to should have the same charter harvest limit may have resulted in negative Comment 86. restrictions so the charter operators and economic impacts for some Area 2C Comment 85: Charter anglers should charter anglers in one area do not have charter operations from reduced angler be managed differently than unguided an advantage over those in the other. demand. However, the role of that bag anglers because the success rates for Response: The Council considered limit in reduction in angler demand in retained halibut are higher for a charter that Area 2C and Area 3A are distinct comparison to other factors, such as angler than an unguided angler. This from each other in terms of halibut large scale economic conditions, is not difference in effort and impacts should abundance trends and charter fishing known (see section 2.6.1.1 of the be accounted for in management. effort when it recommended the CSP Analysis). NFMS does not have Response: The Council and NMFS (see the proposed rule for the CSP and information to confirm whether the one- agree that different management section 1.6.7 of the Analysis). The halibut per day bag limit in Area 2C has programs for charter vessel anglers and Council and NMFS are committed to caused some charter anglers to choose to unguided anglers in Area 2C and Area using area-specific harvest restrictions fish in Area 3A or in other areas in 3A meet the Council’s management that are tailored to the circumstances of Alaska or Canada. objectives for recreational halibut the particular area. Comment 84: Unguided and guided fisheries in those areas. NMFS does not Comment 83: The majority of the anglers should have the same bag and have information to confirm the 4,740 comments received expressed size limits. It is unfair that unguided commenter’s assertion that success rates opposition to a one-fish daily bag limit anglers are not restricted by an for retained halibut are higher for a in Area 3A. If a one-fish bag limit were allocation. The CSP discriminates charter angler than an unguided angler. implemented, many people expressed against charter anglers. Charter anglers See also response to Comment 84. that they would not come to Alaska to should not be managed differently than Comment 86: The differential bag fish. Some commenters said they would unguided anglers simply because they limit for guided and unguided anglers go to Canada to fish for halibut instead. choose to hire someone else to drive the compromises anglers’ safety by Some people were concerned that a one- boat. Having stricter bag limits for encouraging more anglers to fish fish bag limit would lead to high- guided anglers is unfair to those anglers without the expertise of a guide. Anglers grading and higher wastage mortality who do not have their own boat, are that would normally prefer to hire a because more fish would be caught and coming from out-of-state and cannot guide for increased safety might choose released as anglers try to catch and bring their own boat, or are hiring a to fish unguided instead, so that they retain the biggest fish possible. guide for other financial, health, safety, may take advantage of the more liberal Response: The CSP implemented by or other practical reason. bag limit for unguided anglers. this final rule does not implement a Response: The Council and NMFS Differential bag limits will likely one-halibut per day bag limit for Area have determined that this rule is fair increase the number of illegal or 3A charter vessel anglers. The CSP and equitable to halibut fishermen (see unlicensed charter operations. changes the allocation between the the response to Comment 2). The Response: NMFS is aware of no charter and commercial sectors, but Halibut Act does not require that information demonstrating that this rule does not implement specific harvest different sectors of the halibut fisheries will create new safety risks. While it is restrictions for charter vessel anglers be managed using the same tools and possible that differential bag limits may

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create incentives for anglers to vessel anglers may substitute activities harvest in the ADF&G saltwater charter substitute unguided fishing for guided with less overall risk considering all the logbook and it counts as charter halibut fishing, unguided fishing harvest elements involved in a guided charter harvested; therefore, prohibiting skipper estimates decreased from 2009 to 2011 fishing trip. The net effect of this action and crew harvest will reduce total after a one-fish bag limit was on risk when all elements are charter harvest or allow more of the implemented in Area 2C in 2009 (see considered cannot be determined with charter harvest to be caught by charter section 1.7.1.7 of the Analysis). If the the available information. Some of these vessel anglers. As discussed on page one-fish bag limit was causing anglers to businesses will be firms that formerly 39136 of the proposed rule, the Council shift to more unguided angling, NMFS provided guide services, or that begin to recommended that NMFS implement would expect to see an increase in offer guided and unguided services. this provision in the CSP to clarify that unguided harvest estimates. NMFS These firms are likely to provide only halibut harvested by charter vessel notes that changes in the national monitoring of, and support to, anglers anglers will be counted toward the CSP economy also affect demand for charter despite the absence of a guide on board charter halibut fishery allocation. vessel fishing trips, and may have also a vessel. Large proportions of resident Charter operators, guides, and crew are affected unguided halibut harvest since and non-resident sport anglers already not considered charter anglers under 2009 (see section 2.6 of the Analysis). are involved in unguided sport fishing current Federal regulations, and NMFS In its analysis of the potential effects in Alaska, and unguided business does not consider it appropriate for of this rule the Council and NMFS models already are used to provide halibut harvested by these persons to be found no safety concern. NMFS does resident and non-resident access to counted toward the charter halibut not have the information to determine halibut fishing opportunities. fishery harvest. Additionally, halibut whether more restrictive halibut Comment 87: Treat Alaska residents harvested by charter operators, guides, management measures for charter vessel and non-residents differently in and crew are difficult for enforcement anglers in Area 2C may have resulted in commercial and charter fishing agents to distinguish from halibut an increase in the number of anglers regulations. Implement less restrictive caught by charter vessel anglers. fishing for halibut without a guide. limits for Alaska residents or prohibit Comment 89: In its December 2011 NMFS notes that the U.S. Coast Guard out-of-state residents from owning motion, the Council instructed staff to has not experienced an increase in charter businesses or fishing initiate a discussion paper to analyze search and rescue cases for recreational commercially for halibut in Alaska. the prohibition on skipper and crew vessels in recent years, during which Response: The Halibut Act at 16 harvest during charter vessel fishing time the IPHC and NMFS implemented U.S.C. 773c(c) states that regulations trips. In Appendix 3 of the resulting more restrictive bag limits for guided developed by the North Pacific Fishery discussion paper, staff noted that anglers than unguided anglers in Area Management Council to govern the restricting skipper and crew harvest was 2C. halibut fishery shall not discriminate already part of the CSP and no further If differential bag limits are between residents of different states. action was needed. Please provide an implemented in Area 3A under the CSP, The regulations implemented by this explanation why alternatives to the some charter vessel anglers may choose action do not discriminate between skipper and crew prohibition were not to substitute unguided fishing for residents of different states. Charter considered. Was the December 2011 guided fishing to maintain a more vessel anglers who receive sport fishing motion amended? And if so, why was liberal bag limit. These anglers may guide services from charter halibut this not documented? The analysis did make arrangements to go fishing with permit holders affected by this rule also not look at the economic impact on friends or relatives, to patronize lodges are not discriminated against on the skipper and crew and did not consider and rentals with associated skiffs, or to basis of state of residence. Such anglers anything less draconian than an outright patronize businesses providing access to will have the same opportunity to ban, even though other options exist. supported (lodging, meals, instructions, participate in the Area 2C and Area 3A Response: In its December 2011 and gear) fishing from unguided small charter halibut fishery regardless of state motion, the Council recognized that boats. This latter business model is residence. Regulations at § 300.65 there were management options already present in Southeast Alaska and implementing the CSP allocations to the available that were not included as part could expand to Area 3A in the future. commercial and charter halibut sectors of the Halibut CSP preferred alternative Firms with this business model are and authorizing the transfer and use of (http://alaskafisheries.noaa.gov/npfmc/ likely to see an increase in demand for halibut IFQ as GAF apply to all persons PDFdocuments/halibut/ their product, and some guided firms participating in the commercial and HalCSPmotion1211.pdf), and included may shift to this business model. This charter halibut fisheries in Areas 2C and restricting captain and crew retention of possibility is discussed in section 8.6 of 3A regardless of state of residence. fish as one potential management the Analysis. Comment 88: Skipper and crew measure to be considered in a A potential shift from guided to should not be restricted from harvesting discussion paper. The Council had unguided fishing within Area 2C and halibut on charter vessels. Halibut overlooked that a prohibition on skipper Area 3A focuses on one option available harvested by skipper and crew have and crew harvest was already part of the for guided anglers. While some may historically been calculated as unguided original motion for a CSP adopted in make this substitution, others may sport fishing poundage and have not April 2008 (http:// substitute activities in other regions, counted toward the GHL; therefore, alaskafisheries.noaa.gov/npfmc/ and those activities may be associated prohibiting skipper and crew harvest PDFdocuments/halibut/ with their own risks which may be will not reduce total charter harvest. HalibutCharterMotion408.pdf). As greater or less than those of guided Additionally, this prohibition will chronicled in the resulting March 2012 charters. While the guided charter create an economic hardship for discussion paper (http:// vessel fleet may have a good safety skippers and crew who would be alaskafisheries.noaa.gov/npfmc/ record on the water, travel to and from required to take a separate trip to PDFdocuments/halibut/ the fishing site is often done in small harvest fish for their own personal use. CSPDiscussionPaper312.pdf), when it airplanes which, in Alaska, has inherent Response: NMFS disagrees. Skipper was brought to the Council’s attention dangers. It is possible that some charter and crew are required to record their by Council staff that the prohibition on

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skipper and crew harvest was already commercial halibut on the same vessel the CSP allocation alternatives using a part of the CSP, the Council did not on the same day (see § 300.66(i)). This common metric. request further action or analysis of any final rule will not prevent a person who NMFS compared logbook and SWHS other alternatives to an outright ban. holds both a charter halibut permit and harvest estimates from 2006 to 2010 to These documents were all available on commercial halibut IFQ from obtain this conversion factor. Explain the Council Web site, so NMFS conducting charter operations and why 2011 data were not used in disagrees that this action was not commercial operations on separate calculating the conversion factor, even documented. vessels on the same day. IPHC though the analysis contains graphical Charter guides, operators, and crew regulations prohibit possession of sport- comparisons that included 2011 data. have been prohibited from retaining caught halibut when ‘‘other fish or Additionally, for Area 3A, NMFS halibut in Area 2C since 2009 (74 FR shellfish aboard said vessel are destined inappropriately subtracted skipper and 21194, May 6, 2009). This final rule for commercial use . . .’’ These two crew harvest from the CSP allocation extends the provision to skipper and regulations will keep sport-caught and alternatives. The status quo includes crew in Area 3A at § 300.65(d)(3). The commercial halibut separate to facilitate harvest by skipper and crew. The CSP economic impacts of prohibiting skipper enforcement. charter allocations should not be and crew harvest during charter vessel Comment 93: The final rule should reduced by skipper and crew harvest fishing trips were discussed in section clarify that charter clients cannot retain because those fish were available for 2.5.12.12 of the Analysis and in the halibut in the same trip from Area 2C harvest by charter vessel anglers under analysis for the rule that implemented and 3A and clarify whether it is the GHL in years when skipper and the prohibition in Area 2C (http:// prohibited to fish in both areas or just crew were prohibited from retaining alaskafisheries.noaa.gov/analyses/ _ _ to retain halibut. halibut. halibut/area2c charterhalibut Response: Regulations at § 300.66(v) Response: In April 2012, the Council earirfrfa0309.pdf). Additional reasons (as redesignated by this rule) prohibit amended its previous action on the CSP for prohibiting skipper and crew harvest being an operator of a vessel in Area 2C (http://alaskafisheries.noaa.gov/npfmc/ were given in the response to Comment and in 3A during one charter vessel PDFdocuments/halibut/ 88. fishing trip. Additionally, to fish in both CSPmotion412.pdf). In that motion, the Comment 90: I support prohibiting areas on separate trips, an operator Council adopted the unanimous skipper and crew harvest during charter would need to possess a separate charter recommendation of the Halibut Charter vessel fishing trips. Response: NMFS acknowledges the halibut limited access permit for each Management Implementation comment. area. Only a few charter businesses hold Committee and the Advisory Panel to Comment 91: I support the CHPs in both areas. The Council did not use ADF&G saltwater charter logbooks requirement that charter operators be recommend changes to this regulation as the primary data collection method. required to retain halibut carcasses under the CSP and the Analysis did not The Council recommended using an when a size limit is in place and the discuss the impacts of changing the adjustment factor based on the five-year prohibition on using both a charter regulations as suggested. NMFS is not average (2006–2010) of the difference halibut permit and a Subsistence making the requested change in this between the harvest estimates provided Halibut Registration Certificate (SHARC) final rule. by the logbooks and the SWHS, with the on the same day. Comment 94: The Charter Halibut adjustment factor reduced by the Response: NMFS acknowledges the Management Implementation amount of harvest attributed to skipper comment. This final rule does not Committee was formed too late to give and crew, to create new alternatives change the carcass retention adequate input on the CSP. with adjusted allocation percentages. requirement at section 28(2)(b) of the Response: The commenter The adjustment factors were used to IPHC annual management measures and misunderstands the purpose of the increase the allocations to the charter implements the prohibition on using Charter Halibut Management sector in Alternatives 3 and 5. both a charter halibut permit and a Implementation Committee, which was As discussed in Section 2.3.2.1 of the SHARC on the same day at § 300.66(h). formed to provide recommendations to Analysis, one of the drawbacks of the Comment 92: The proposed rule the Council for annual management SWHS is that harvest estimates are not includes a prohibition for individuals measures intended to limit charter available until September of the year who hold both a charter halibut permit harvest to the sector allocation while following harvest; i.e., a SWHS estimate and commercial halibut IFQ from minimizing negative economic impacts of 2011 charter halibut harvest was not fishing for commercial and guided sport to the charter fishery participants in available until September 2012. In April halibut on the same vessel and on the times of low halibut abundance. The 2012, when the Council took action, the same day for enforcement purposes. We Charter Halibut Stakeholder Committee SWHS estimate for 2011 was not yet support this and previously had stated provided input on the CSP (see response available, and so they made their this practice should be prohibited by to Comment 107). decision based on the best available fishing trip, as different regulations information at that time. Table 2–1 (p. Recordkeeping and Reporting apply. IPHC regulations currently 125) of the initial draft of the Analysis prohibit possession of sport-caught Comment 95: NMFS proposes to use (http://alaskafisheries.noaa.gov/ halibut and commercial halibut on the ADF&G saltwater charter logbooks to analyses/halibut/drafthalibut_ same vessel at the same time, as they account for charter harvest under the csp0912.pdf) does not include 2011 data prohibit halibut caught in the sport CSP. Previously, the statewide harvest in comparisons of logbook and SWHS fishery to be possessed on board a vessel survey (SWHS) was used to estimate harvest estimates. This was the version with fish destined for commercial use or charter halibut harvest. A conversion of the Analysis that was available at the sale (IPHC annual management factor must be applied to accurately time of Council action. The draft of the measures section 25(6)). compare logbook and SWHS estimates. Analysis published with the proposed Response: NMFS acknowledges the The purpose of a logbook conversion rule was updated to include the 2011 comment. Under this final rule, a person factor is to make meaningful data after passage of the final motion is prohibited to fish for charter and comparisons of the GHL (status quo) to (Table 2–2, http://

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alaskafisheries.noaa.gov/analyses/ 21194, May 6, 2009), and this final rule regulations at § 300.65(d)(4)(iii)(D) halibut/drafea_halibutcsp0613.pdf). extends the signature requirement to requiring a GAF permit holder to submit NMFS notes that the allocation include charter anglers in Area 3A as a GAF electronic report to NMFS by alternative selected by the Council for part of the CSP in the event that 11:59 p.m. (Alaska local time) on the Area 3A did not include a logbook additional harvest restrictions are last day of a charter vessel fishing trip adjustment. implemented in that area. in which a charter vessel angler retained Comment 96: Charter vessel guides Comment 98: Charter guides are GAF. are required by State of Alaska currently required to provide a single Comment 100: The requirement for regulations to document the number of statistical area location in logbooks charter vessel guides to immediately halibut caught and released by charter where the majority of their catch occurs record total halibut length in inches on vessel anglers in the ADF&G saltwater each day. Since charter guides often fish the GAF permit for retained GAF is charter logbook. This information will more than a single statistical area each unrealistic. Given existing constraints facilitate wastage estimation for separate day, the current requirement obscures on charter vessel guides’ time and accountability. The CSP should the true spatial and temporal pattern of attention, guides may not be able to mandate in Federal regulations that associated fishery mortality. This accurately and reliably measure every charter vessel guides record the number potentially limits fishery managers’ GAF. There could be high variability in of halibut released. ability to detect these underlying accuracy of lengths due to non- Response: No changes were made patterns. This inability to accurately standardization in scales used by from the proposed rule. ADF&G has attribute fishery mortality spatially is charter guides or measurement error. required that charter vessel guides problematic for attributing halibut Consider evaluating the accuracy of record the number of halibut kept and harvest within the waters of Glacier Bay charter guide halibut length released by charter vessel anglers since National Park. We recommend that measurement. Perhaps ADF&G creel the saltwater charter logbook program NOAA fishery managers consider the clerks could assist with length began in 1998. NMFS anticipates that relative costs and benefits of more measurement accuracy assessments, ADF&G will continue to require charter detailed, spatially explicit halibut although assessment of length vessel guides to record the number of harvest reporting that would require estimation accuracy in non-survey areas halibut released by charter vessel reporting fishing activity within the may be problematic. anglers. See also response to Comment appropriate ADF&G six digit charter Response: No changes were made 36 and Comment 37. logbook areas, rather than a single from the proposed rule. NMFS believes Comment 97: The final rule should statistical area for the entire day. that charter vessel guides will comply clarify that regulations require the guide Response: No changes were made with the requirement at to enter the name and license number of from the proposed rule on the basis of § 300.65(d)(4)(iii)(A)(1) to record on the each angler on board in the charter this comment. NMFS has determined GAF permit the date that the fish was logbook before the charter trip begins. that the data collected in the ADF&G caught and retained and the total length Those charter vessel anglers on board saltwater charter logbook, aggregated at of that fish. Charter vessel anglers Area that have no plans to fish for halibut the level of IPHC regulatory area, 2C have been limited to retaining should be required to sign the logbook provide the Council and the IPHC with halibut of a specified size during most before the beginning of the trip. This information necessary to promote their years from 2007 through 2013, and these would help enforcement agents clearly stated conservation and management limits have required charter vessel identify the number of anglers fishing objectives for the Area 2C and Area 3A guides to measure halibut at the time it for halibut compared to the angler halibut fisheries. is retained by anglers. This final rule endorsement on the charter halibut It is NMFS’ understanding that the also promotes accurate GAF reporting permit. National Park Service requires a special and facilitates enforcement of GAF Response: No changes were made permit for charter vessels to operate regulations by implementing a GAF from the proposed rule. NMFS has within Glacier Bay National Park. If the electronic reporting requirement at determined that the recordkeeping and National Park Service would like to § 300.65(d)(4)(iii)(A)(2) in addition to a reporting regulations implemented by obtain spatial and temporal halibut requirement at § 300.65(c)(5)(iv)(G) for this final rule provide for effective harvest data for charter vessels within charter vessel guides to retain the monitoring and enforcement of halibut Glacier Bay National Park, it could carcasses of GAF that are filleted on harvested by charter vessel anglers in consider developing a logbook for board the vessel for the duration of the Area 2C and Area 3A. Regulations at charter operators in that area. charter vessel fishing trip. § 300.65(d)(4)(ii)(B)(6) require charter Comment 99: We support the GAF Comment 101: The GAF reporting vessel guides to record in the ADF&G electronic reporting requirements and requirements at § 300.65(d)(4)(iii)(D) saltwater charter logbook the name and request that a ‘‘charter trip’’ be clearly should include a requirement to license number (if applicable) for each defined to ensure reports are timely. electronically report the date on which paying or non-paying charter vessel Response: No changes were made the GAF was caught. The date is angler on board that will fish for from the proposed rule. NMFS has required to be reported on the GAF halibut. Regulations at determined that the GAF electronic permit, and would be important to § 300.65(d)(4)(ii)(A) require only charter reporting requirements implemented by collect for validation, especially from vessel anglers retaining halibut caught this final rule promote timely reporting vessels doing multi-day trips that are to sign the logbook data sheet on the of GAF harvests in Area 2C and Area not required to file an electronic report line that corresponds to the angler’s 3A. Regulations at § 300.61 define until the end of the last day of the trip. information. This signature requirement ‘‘charter vessel fishing trip’’ as the time Additionally, assuming accurate promotes accurate reporting of halibut period between the first deployment of reporting, requiring reporting of the retained by charter vessel anglers and fishing gear into the water from a vessel vessel identification number, guide facilitates enforcement of charter halibut after any charter vessel angler is on license number, or community or port harvest restrictions such as daily bag board and the offloading of one or more where the charter trip ended is not and size limits. This regulation has been charter vessel anglers or any halibut necessary. The vessel identification is in effect in Area 2C since 2009 (74 FR from that vessel. This rule implements currently linked to the logbook when

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the logbook is assigned, and the other considered economic impacts on small Response: The consideration of items are reported in the logbook data communities. However, NMFS notes balance and fairness between and would be available by linking to the that the Halibut Act does not impose a commercial and recreational fishing logbook number and date. requirement that adverse economic sectors is an important element in the Response: NMFS agrees that the date impacts on affected communities be Secretary’s appointments to the regional on which a GAF was caught should be minimized. fishery management councils. Because electronically reported for validation Comment 104: The CSP is fair and of the limited number of Council seats and has made the suggested change (see equitable. and the diversity of fisheries managed ‘‘Changes from the Proposed Rule’’ Response: See the response to by the Council, not all sectors can be section). NMFS disagrees that the vessel Comment 2 for a description of how the represented through membership on the identification number, guide license CSP complies with the fairness and Council. For example, Pacific halibut is number, and community or port where equity requirements of the Halibut Act. just one of 112 finfish species under the charter vessel fishing trip ended (for Comment 105: The CSP is contrary to active management by the Council, and community CHPs) are not needed, and the plain meaning of the statutory term is the only federally managed sport fish no changes are made from the proposed ‘‘fair’’ in the Halibut Act. in its jurisdiction. Nevertheless, the rule in response to this comment. By Response: The Secretary of Commerce commenter notes that Council requesting that GAF permit holders has determined that the CSP meets the membership includes one charter sector submit these data elements in the GAF requirements of the Halibut Act representative. NMFS also notes that the electronic report, enforcement agents including the requirements for fair and Council has formed a Charter Halibut will have all of the information needed equitable distribution of access Stakeholder Committee to advise the to initiate an investigation without privileges as summarized in the Council on industry proposals for CSP having to request the data from ADF&G. response to Comment 2. allocation options and the GAF This collection-of-information was Comment 106: The CSP sets program, and the Charter Halibut reviewed under the Paperwork allocations that can never be removed, Limited Access Program. In 2011, the Reduction Act and approved by the changed, or modified without the Council formed the Charter Halibut Office of Management and Budget. concurrence of the IPHC, and it Management Implementation Comment 102: While NMFS sets forecloses any public comment by U.S. Committee to propose and recommend fishing limits it appears there is no real alternative management measures means to count fish caught by guided citizens under the Administrative Procedure Act about future catch levels. governing the charter halibut sector in anglers and charter operators. In the times of low abundance to reduce Response: The Halibut Act at section interest of good scientific data, a means uncertainty and mitigate negative 773c authorizes the Council to develop, of having realistic catch numbers economic impacts for fishery and the Secretary of Commerce to recorded would support proposed rules participants. To the extent that the approve, regulations that are in addition and justify limits set forth. comment implies that the CSP is unfair to, and not in conflict with, regulations Response: NMFS disagrees. The IPHC, to the charter sector, NMFS has adopted by the IPHC. The sector not NMFS, determines the annual catch determined that the CSP is fair and allocations established in this CSP were limits using estimates of all sources of equitable to halibut fishermen, halibut removals, including halibut developed and approved consistent including those participating in the caught by unguided anglers and charter with section 773c. The public was charter sector. See the response to operators (see ‘‘Catch Sharing Plan for afforded the opportunity to participate Comment 2. Area 2C and Area 3A’’ section of this during the Council’s development of the Comment 108: The CSP will final rule and the response to Comment formula for the sector allocations and incorporate recreational anglers on 1). Catch limits and management NMFS published the proposed sector charter boats into a commercial fishery measures are implemented by the IPHC allocation formula for public comment management scheme. Will the next using the best data available, including consistent with section 553(c) of the logical step be to allow recreational estimates of halibut harvested by charter Administrative Procedure Act. The anglers on charter boats to use as many vessel anglers and recorded in ADF&G sector allocation formula will apply in hooks as they want, similar to saltwater charter logbooks (see section a predictable and standardized process longliners? Or will longliners be 2.3.2 of the Analysis). to the IPHC’s combined catch limit restricted to one hook as recreational (CCL) each year, resulting in the catch anglers are? Other Specific Issues limits for the charter sector and to the Response: NMFS disagrees with the Comment 103: The CSP violates the commercial sector in Areas 2C and 3A. commenter’s assertion that the CSP is Magnuson-Stevens Act and the Halibut The Council may develop modifications incorporating management of charter Act because the allocations are to the CSP in the future through the anglers into a commercial fishery disproportionate between the charter same public Council process and submit management scheme, and assumes that and commercial industry and adverse those modifications to NMFS for the comment is referring to the GAF economic impacts on affected approval and implementation. provision of the CSP. As described communities have not been minimized. Comment 107: There is a commercial above in the ‘‘Catch Sharing Plan for Response: The CSP was developed bias on the Council. Fisheries Area 2C and Area 3A’’ section, the CSP and approved pursuant to the Halibut management has unfairly supported authorizes commercial halibut QS Act, not the Magnuson-Stevens Act. As commercial interests at the expense of holders to transfer IFQ as GAF to charter explained in the response to Comment the charter fleet. The Council has halibut permit holders, but the fisheries 2, the Halibut Act at 16 U.S.C. 773c(c) violated the Magnuson-Stevens Act will continue to be managed separately. requires that allocations must be fair requirement for fair representation The CSP does not change the gear types and equitable to affected halibut because it has only one representative and limits currently established in fishermen. The response to Comment 2 from the charter fishing sector. The regulation for the Area 2C and Area 3A summarizes NMFS’ consideration of charter halibut fishery and recreational for the commercial or charter halibut fairness and equity. As discussed in the interests are not adequately represented fisheries (see sections 19 and 25 of the response to Comment 121, NMFS has on this decision-making body. IPHC annual management measures (78

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FR 16423, March 15, 2013) and Table 15 catch limit is an important component June Council meeting. According to the to 50 CFR part 679). of the CSP, it is not the only purpose for Magnuson-Stevens Act, 16 U.S.C. Comment 109: Charter operators who implementing the program. Also see the 1852(i)(C), the published agenda of the hold IFQ have an unfair advantage. GAF response to Comment 1. meeting may not be modified to include will discourage healthy competition Comment 111: The GAF program is additional matters for Council action between charter operations. unfair to the charter sector. To be fair, without public notice or within 14 days Response: NMFS disagrees that a leasing option needs to be two-way, prior to the meeting date, unless such allowing persons who hold halibut QS not just from the commercial to the modification is to address an emergency and one or more CHPs to lease IFQ as charter sector. action. GAF will provide them with an unfair Response: As described in the Response: In April 2012, the Council advantage and discourage competition. response to Comment 107, the Council amended its 2008 CSP preferred CHP holders who also hold halibut QS considered recommendations from its alternative and identified new comprise approximately 6 percent of all Charter Halibut Stakeholder Committee alternatives for analysis and CHP holders and 2 percent of all halibut during development of the CSP. The consideration. Final action to select a QS holders in Area 2C and Area 3A (see Charter Halibut Stakeholder Committee new CSP preferred alternative was section 2.5.12 of the Analysis). The individually proposed or reviewed scheduled for October 2012. The April amount of IFQ that is held by this small industry proposals for CSP allocation 2012 motion included the unanimous portion of CHP and IFQ permit holders options, the GAF program, and the recommendation of the Charter Halibut and could be leased as GAF is unlikely Charter Halibut Limited Access Management Implementation to impact the overall supply of and Program. In recommending the CSP to Committee to use ADF&G saltwater demand for GAF in Area 2C and Area NMFS for approval and charter logbooks as the primary data 3A. As described in the Analysis and in implementation, the Council adopted collection method and to adjust the response to Comment 45, the supply the Charter Halibut Stakeholder (increase) the charter sector allocations of and demand for GAF will be Committee’s recommendation to by the five-year average percentage determined by the value of halibut in include GAF in the CSP as a voluntary, difference between the charter harvest the directed commercial fishery and market-based mechanism for estimates provided by the logbooks and charter vessel anglers’ willingness to transferring halibut allocation from the the statewide harvest survey. The April pay higher prices for trips that allow commercial sector to the charter sector 2012 motion stated that the adjustment greater harvest flexibility by using GAF, in order for the charter sector to access factor for Area 3A should be reduced by in addition to other factors. NMFS also additional halibut under a potentially the amount of harvest attributed to notes that the regulations at constraining allocation. NMFS notes skipper and crew (see also the response § 300.65(c)(5)(iv)(H) implemented by that modifications to the GAF program, to Comment 89). The adjustment factors this final rule restrict a person holding such as the two-way leasing option as in the April 2012 motion were 15.4 halibut QS and one or more CHPs to the suggested in the comment, could be percent for Area 3A and 5.6 percent for same GAF transfer limits that apply to recommended to the Council for its Area 2C, but erroneously did not all other CHP and IFQ holders. consideration in the future. include the reduction for skipper and Comment 110: The CSP was Comment 112: Why are military crew harvest in Area 3A. developed with Area 2C in mind charter vessels (vessels operated by U.S. In June 2012, Council and ADF&G because charter harvests in that area had Military Morale, Welfare and Recreation staff provided notice that an error was been exceeding the Area 2C GHL. Area (MWR) programs for recreational use by found in the adjustment factor in Area 3A charter harvests have consistently service members) included in this rule? 3A in that it did not contain the been below the Area 3A GHL. The Response: Military charter vessels are additional adjustment for skipper and economic analysis was biased toward managed in the same manner as all crew harvest, and provided the the type of business operations that other charter vessels. The final rule for corrected adjustment factor. The exist in Area 2C. The CSP is not the charter halibut limited access Council affirmed that this correction is necessary for Area 3A. program describes that military Charter consistent with Council intent and that Response: NMFS agrees that harvest Halibut Permits (CHP) are special the revised CSP analysis scheduled for of halibut in the Area 3A charter fishery permits issued to charter vessels review in October should use the has not exceeded the GHL since 2007 operated by MWR programs (75 FR 554, corrected adjustment factor. The revised (see Table 2 in the proposed rule for the January 5, 2010). NMFS issues these adjustment factor for Area 3A was 11.6 CSP). However, NMFS disagrees that the military CHPs to authorize MWR percent and resulted in a decrease in CSP should not be implemented for programs to continue to afford U.S. allocations under Alternatives 3 and 5 Area 3A. The proposed rule for the CSP military personnel charter halibut of 0.6 percent at abundances less than describes that the objectives of the recreational opportunities (see 25 million lb. No other changes to the program are to define an annual process regulations at § 300.67(l)). Although motion or analysis were adopted. for allocating halibut between the MWR programs have been issued The Council did not adopt a new charter and commercial halibut fisheries special CHPs, the MWR programs are motion in June. The Council received in Area 2C and Area 3A, establish subject to the same regulatory notice of an error in the calculation of allocations that vary with changing requirements as any other guided the adjustment factor it recommended levels of annual halibut abundance and charter operation, with one exception— in its April motion; therefore, the item that balance the differing needs of the the GAF transfer limits that apply to all was not included on the published charter and commercial halibut fisheries other CHPs do not apply to military agenda. Based on the June 2012 over a wide range of abundance, and CHPs (see this final rule text at clarification on the Area 3A adjustment specify a process for determining § 300.65(c)(5)(iv)(H)). factor, Council staff incorporated the harvest restrictions for charter anglers Comment 113: The Council corrected logbook adjustment factor into that are intended to limit harvest to the unlawfully changed the April 2012 CSP the CSP Analysis presented to the annual charter halibut fishery catch motion at the June 2012 Council Council in October 2012. The Council limit. Thus, while limiting harvest in meeting in Kodiak, AK, because the CSP recommended a CSP preferred the charter fishery to the annual charter was not on the published agenda for the alternative in October 2012, and the

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agenda item was posted for the public CSP has been on the agenda at consumers of charter halibut services by according to the requirements in the numerous Council meetings since 2008, encouraging anglers to fish without a Magnuson-Stevens Act. NMFS notes and has been the subject of two guide. that the Council did not select a proposed rules seeking public comment. Response: NMFS has no information preferred alternative for Area 3A that The first of these proposed rules, indicating that the CSP might violate included the logbook adjustment factor. published on July 22, 2011 (76 FR any provision of antitrust laws. The CSP Comment 114: Postpone 44156), elicited over 4,000 public implements sector allocations and a implementing the CSP until a Final comments. The second proposed rule GAF program. The Council and NMFS Supplemental Environmental Impact was published on June 28, 2013 (78 FR have determined that the CSP is fair and Statement is complete and all 39122), with comments invited through equitable to halibut fishermen (see requirements under the Regulatory August 12, 2013. The comment period response to Comment 2) and have Flexibility Act and E.O. 12866 are met. on this proposed rule was extended to evaluated its economic impacts (see Response: NMFS has complied with August 26, 2013 (78 FR 44920, July 25, response to Comment 120). Moreover, as the requirements of the Regulatory 2013). NMFS received approximately noted in the response to Comment 86, Flexibility Act, Executive Order 12866, 4,470 comments on this proposed rule. NMFS does not have the information to and the National Environmental Policy Public comment received throughout determine whether more restrictive Act (NEPA) with respect to this action. the Council’s development of the CSP halibut management measures for NMFS prepared Initial and Final and during the rulemaking process did charter vessel anglers in Area 2C may Regulatory Flexibility Analyses to not indicate that the CSP would have a have resulted in an increase in the comply with the requirements of the substantial direct effect on any tribe, number of anglers fishing for halibut Regulatory Flexibility Act. NMFS and NMFS did not receive any requests without a guide. Similarly, NMFS lacks prepared a Regulatory Impact Review for consultation by any tribe. Therefore, information to determine whether future (RIR) and the Office of Management and NMFS did not specifically notify the restrictions for charter vessel anglers in Budget has determined that this rule is tribes of the proposed action. Area 3A would lead some charter vessel not significant for purposes of E.O. While the impacts of the CSP on the anglers to substitute unguided fishing 12866. NMFS prepared an communities of Ninilchik and Seldovia for guided fishing to maintain a more Environmental Assessment (EA) to were not specifically analyzed, the liberal bag limit. NMFS notes that limits comply with the NEPA requirements for impacts of the CSP on communities on the amount of IFQ that can be this action. The EA evaluated the were analyzed in section 2.7 of the transferred and received as GAF were environmental impacts of the action and Analysis, which NMFS made available included in the CSP to prevent large its alternatives and found that it would on its Web site at http://alaskafisheries. charter operations from receiving an not have a significant environmental noaa.gov/analyses/halibut/drafea_ excessive share (see regulations at impact on the human environment; halibutcsp0613.pdf. § 300.65(c)(5)(iv)(H) and the responses therefore, an Environmental Impact Comment 116: The CSP violates the to Comments 62 and 67). Limits are Statement is not required. The EA, RIR, rights of U.S. citizens by limiting their already in place under the IFQ Program and IRFA were part of the Analysis access to halibut, a public resource. and Charter Halibut Limited Access prepared for this action and are Recreational anglers are entitled to more Program to prevent excessive available on the Internet (see ADDRESSES than one halibut. consolidation (see regulations at section). The FRFA and E.O. 12866 Response: NMFS disagrees with the § 679.42 and § 300.67(j)). statement are presented in the commenter’s assertion that U.S. citizens Comment 119: Under the Alaska Classification section of this final rule. and charter anglers are entitled to Constitution, no one user group should Comment 115: Did NMFS notify harvest more than one halibut per have an unequal share of Alaska’s federally recognized Indian tribes in person per day. Although this action resources and Alaskan residents should small communities, such as Ninilchik may constrain the amount of halibut have priority access to the halibut and Seldovia, about the proposed rule? available for harvest in the charter resource. If so, what was the position of these sector compared to historical harvests, Response: Pacific halibut are subject tribes on the proposed rule? If not, why no sport angler will be prevented from to federal management under were they not notified? Did NMFS having access to the halibut resource for regulations published under authority of determine whether the proposed rule sport fishing. the Halibut Act. The Halibut Act does would have a significant impact on the Comment 117: The CSP may violate not allow management measures to tribes? the Americans with Disabilities Act discriminate between residents of Response: Executive Order 13175 (ADA) by creating an additional barrier different states. The CSP fairly and requires NMFS to have an accountable to disabled Americans to access the equitably allocates halibut fishing process to ensure meaningful and timely halibut resource. privileges between the commercial and input by tribal officials in the Response: While it is not clear why charter sectors (see response to development of regulatory policies that the commenter believes the ADA Comment 2). may have tribal implications. Tribal applies in this situation, NMFS implications are defined as those disagrees that the CSP creates additional Economic Impacts actions that may have a ‘‘substantial barriers for disabled people to access the Comment 120: Delay implementation direct effect on one or more Indian halibut resource. Disabled Americans of the CSP until an adequate economic tribes.’’ The Alaska Regional Office’s may still access the resource as guided study is conducted. The economic tribal consultation process is described or unguided anglers, subsistence analysis is inadequate. NMFS did not on our Web site (http://alaskafisheries. anglers, or by purchasing commercially try hard enough to find the best noaa.gov/tc/). caught halibut in the marketplace. available information about the As described in the response to Comment 118: The CSP may violate economic impacts of the CSP on the Comment 1, this rule implements United States antitrust laws by charter halibut fishery. allocations between two sectors and discouraging fair competition between Response: The Council and Secretary links the charter sector’s allocations the charter and commercial halibut of Commerce have determined that the more directly to halibut abundance. The sectors. The CSP also limits benefits of Analysis adequately displays the

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economic impacts of this action, demand for charter fishing trips, there information is not available for the including the impacts on the are also other factors that affect supply halibut fisheries off Alaska. commercial and charter halibut sectors and demand of charter trips, such as the Comment 121: The CSP will do in Areas 2C and 3A. state of the economy in general. irreparable harm to tourism-dependent The Analysis used the best available The Council considered the businesses and communities. A variety economic information for the charter anticipated effects of the CSP on the of charter fishing businesses and sector to examine the costs and benefits allocation to the charter sector at all tourism support businesses (e.g., of the alternatives considered for the levels of abundance (section 2.5 of the airlines, hotels, fish processors, taxis, CSP. Because cost and revenue Analysis), and the potential impacts on restaurants) are patronized by charter information is not available for the charter sector (section 2.6 of the vessel anglers that will suffer severe individual charter operations in Area 2C Analysis). The Analysis shows that economic harm if anglers choose not to and Area 3A, the Council developed estimated gross revenues exceeded the return to Alaska to fish for halibut under estimates of costs and gross revenues for average charter halibut permit price in the CSP. Many charter businesses will representative charter operations using both areas from 2005 through 2010. This be forced to close, which would also reports from sector participants and was also the case for Area 2C following result in the closure of supporting assumptions based on available data. implementation of the one-fish daily bag businesses in Alaskan communities. The Analysis describes that the primary limit in 2009. The charter halibut fishery benefits costs associated with charter operations The Council recommended that the Alaskan communities more than the are the vessel and charter halibut CSP include other measures to mitigate commercial halibut fishery. The CSP limited entry permits. The Council and the potential negative economic impacts will hurt small charter businesses in NMFS have information on the cost of to the charter sector of a constraining favor of large commercial halibut fishing acquiring charter halibut limited access allocation under the CSP. First, the businesses. Response: As described in the permits from a limited number of Council identified a responsive process response to Comment 136 and in transactions, but the information does for annually determining management sections 2.6 and 2.7 of the Analysis, not indicate how these vessel costs measures for the charter sector. This apply to individual operators in Areas both the commercial halibut fishery and process will use the most recent halibut 2C and 3A. Charter operators also bear the charter halibut fishery contribute to stock assessment information, data from advertising, promotional, and support the economic base of coastal the recently completed charter fishing costs, which cannot be quantified with communities in Alaska. While it is not season, and input from charter fishery available information. The estimates of possible to quantify or directly compare stakeholders to facilitate a gross revenues for representative charter the economic contributions provided by recommendation for a management operations in Area 2C and Area 3A were each sector to regional or local measure to restrict charter harvest that based on the number of charter trips and economies with available information, is intended to limit the sector to its charter anglers reported in ADF&G the Council and NMFS have considered allocation while minimizing negative saltwater charter logbooks from 2005 the contribution of each fishery to through 2010 and on average rates impacts on charter angler demand by Alaskan communities and the likely charged for charter trips determined maintaining desirable fishing impacts of the CSP on affected fishery from a sample of individual charter opportunities. Second, the Council participants and communities. While operations in both areas. recommended that NMFS authorize the CSP allocations to the charter sector As described in the response to use of halibut IFQ as GAF in the Area may constrain charter harvest at lower Comment 5, the Council and Secretary 2C and 3A charter halibut fishery to levels of abundance, lower catch limits of Commerce recognize that changing mitigate the negative impacts of halibut for the commercial halibut fishery at the formula for of allocating halibut to harvest constraints in the charter sector lower halibut abundance levels will also the charter sectors in Areas 2C and 3A by providing a mechanism for charter have negative economic impacts on under the CSP could result in a smaller anglers to increase halibut harvest when commercial participants (see section allocation to the charter sector at their daily bag limit is reduced. 2.6.1.2 of the Analysis). As described in relatively low levels of halibut Section 2.6 of the Analysis describes the response to Comment 1, the CSP abundance relative to the status quo why it is not possible to provide allocations implemented by this final GHL program. The Analysis quantitative estimates of the national or rule will allow the charter halibut demonstrates that such harvest regional economic impacts of the fishery to fully benefit from increases in constraints could result in reduced gross alternatives considered with available halibut abundance by receiving larger revenues for charter operators. For information. A quantitative economic poundage allocations. NMFS notes that example, section 2.6 of the Analysis impact analysis would require like most charter halibut operations in shows that in Area 2C, declines in information on the contributions to Areas 2C and 3A, many commercial estimates of gross revenue coincided national or regional benefits associated halibut fishing operations are small with a reduction in the daily bag limit with all sources of commercial removals businesses as described below in the for charter anglers in 2009 that was (commercial, charter, and bycatch in FRFA in the Classification section in implemented to reduce charter harvest non-directed fisheries), as well as the this final rule. from levels that exceeded the GHL. effects these removals may have on all Comment 122: The economic benefit However, the Analysis also notes that users of the halibut resource, including of the commercial sector in Alaska far the connection between halibut unguided sport and subsistence users. outweighs the total economic benefit of available to the charter sector and This information is not available for the the charter industry. resulting vessel revenues is less direct halibut fisheries off Alaska. Response: Section 2.6 of the Analysis in the charter sector than in the Additionally, the analysis would require describes why it is not possible to commercial sector. While management detailed information on costs and provide quantitative estimates of the measures governing charter harvest are expenditures for operators in the national or regional economic impacts intended to constrain total catch commercial and charter fisheries as well of the alternatives considered with through their effects on individual as demand for charter trips and angler available information, including a anglers’ harvests as well as on the willingness-to-pay for trips. This comparison of the economic impacts of

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the charter and commercial sectors. As to provide a mechanism to replace to the charter sector may constrain described in the response to Comment reductions in the charter allocation harvest relative to historic levels. 120, the Analysis uses the best available relative to historical or current harvest However, as described in the response information to describe the costs and levels. to Comment 1, the CSP allocations benefits of the CSP accruing to the Comment 124: The Council’s purpose implemented by this final rule will commercial and charter halibut sectors and need statement for the CSP states allow the charter halibut fishery to fully in Areas 2C and 3A. Also see the that in some areas, community stability benefit from increases in halibut response to Comment 121. may be affected as traditional sport, abundance by receiving larger poundage Comment 123: Charter fishing will be subsistence, and commercial IFQ allocations. cost-prohibitive under the CSP, fishermen are displaced by CHP Comment 126: The CSP fails to allow especially if charter vessel anglers are holders. It goes on to state that the anglers the opportunity to access a forced to buy GAF to augment the bag uncertainty associated with the present public resource at an affordable price. limit for guided anglers. situation and the conflicts that are The CSP would implement a plan that Response: NMFS acknowledges that occurring between the various user lessens the freedom of the public to charter vessel anglers may be negatively groups may also be impacting harvest fish for their own dinner tables. impacted by charter management community welfare. How will Many people choose to hire charter measures implemented under the CSP at community stability be affected if the vessel guides to take them fishing for low levels of halibut abundance. charter halibut fishery, particularly in the primary purpose of stocking their However, as described in the response specific ports, is dramatically reduced freezers to feed themselves and their to Comment 1, the CSP allocations or completely eliminated? Does families. Some choose to hire charters implemented by this final rule are empirical evidence suggest that because owning their own boat is too intended to provide charter harvest traditional sport, subsistence, and expensive or transporting a boat to opportunities that considers historic commercial IFQ fisherman have been Alaska is impractical. Under the CSP, and present harvest rates. The CSP will displaced by CHP holders since 2011, anglers will no longer be able to catch allow the charter halibut fishery to fully when the most conservative enough fish to justify the expense of a benefit from increases in halibut management measures were adopted? charter trip. They will be forced to abundance by receiving larger poundage Response: The anticipated impacts of either purchase an additional charter allocations. Charter anglers would be the alternatives on communities are trip, or buy commercially caught fish negatively impacted at lower levels of analyzed in sections 1.7.5, 2.7, 7, and and both of these options are cost halibut abundance if they derive less 8.5 of the Analysis. The Council and prohibitive. satisfaction from charter vessel fishing NMFS recognize that at low levels of Response: NMFS acknowledges that trips on which they can retain fewer halibut abundance, the CSP allocation at low levels of abundance, the CSP halibut or halibut of a smaller size, but to the charter sector may constrain allocation to the charter sector may the opportunity to harvest halibut is not harvest relative to historical levels. constrain charter harvest relative to the only factor affecting the demand for However, as described in the response historic levels. However, as described in guided saltwater sport charters. Other to Comment 1, the CSP allocations the response to Comment 1, factors such as overall economic implemented by this final rule will management of the charter fishery under conditions or fuel prices also affect allow the charter halibut fishery to fully the GHL program resulted in the demand for charter vessel fishing trips benefit from increases in halibut commercial fishery bearing a (see section 1.7.5 of the Analysis). Thus, abundance by receiving larger poundage disproportionate amount of the declines the demand for charter trips could allocations. The Council considered in halibut exploitable biomass relative decline even without additional charter recent charter harvest levels in both to the charter sector. This changing harvest restrictions under the CSP. areas when recommending the CSP proportional allocation of a fully Section 8.1 of the Analysis describes allocations, including 2011 and 2012, utilized halibut resource between the that charter businesses provide the years in which charter anglers in Area sectors under the GHL program created necessary guiding services, fishing 2C were restricted by a daily bag limit instability between user groups that the equipment, and knowledge to give of one halibut that was subject to a size Council sought to address with the charter anglers the opportunity to limit. Based on the available commercial and charter sector halibut harvest halibut and other species. information for halibut stock levels, allocations implemented by this final Anglers have a number of different recent charter harvests, and the rule. This action is intended to maintain reasons for purchasing charter vessel estimated impacts of the CSP on the stability, economic viability, and fishing trips and would be impacted charter sector in section 2.6 of the diversity of halibut user groups by differently by reduced or increased Analysis, the Council and NMFS do not addressing allocation conflicts between catch limits for the charter sector, anticipate that the charter fishery will participants in the commercial and depending on the allocation and be dramatically reduced or eliminated charter halibut fisheries. The Secretary management measures that are in place. under the CSP. Also see the response to of Commerce has determined that the Some charter anglers are less interested Comment 7. CSP allocations are consistent with the in taking home a large amount of Comment 125: The king salmon Council’s objectives as described in its halibut, because of storage and shipping fishery has declined in recent years, problem statement and the purpose and expenses, for example, and are more hurting charter businesses. The CSP will need for the CSP described in section interested in the Alaska fishing further hurt charter businesses by 1.2 of the Analysis. experience. restricting halibut harvest. NMFS notes that charter vessels are NMFS notes that GAF is a voluntary Response: The Council and NMFS not the only way that the public can program for anglers who wish to retain recognize that anglers in Area 2C and access the halibut resource. The additional halibut when the daily bag Area 3A harvest a number of other commercial fishery provides access to limit in effect for charter anglers is less species in addition to halibut on charter halibut to those who prefer to purchase than two halibut of any size. As vessel fishing trips, as described in it in grocery stores or restaurants. The described in the response to Comment section 1.7 of the Analysis. At low subsistence fishery provides access to 7, the Council did not intend for GAF levels of abundance, the CSP allocation harvest halibut by those who qualify to

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conduct subsistence halibut fishing. U.S. ownership are eligible to receive a fisheries compete with halibut Unguided recreational fishing also is a charter halibut permit by transfer. harvested from California to the Bering means of public access to the halibut NMFS does not have information Sea in a regional and international resource. This rule does not constrain or available to determine the location market. Prices in this market are limit any of these other means of public where taxes are paid. However, most of determined by overall supply, the prices access to the halibut resource. the commercial and charter operations of substitute goods, income, exchange As described in the response to regulated by the CSP are active in rates, inventories, and other factors. Comment 129, the opportunity to Alaska and Washington (see section 7.1 Area 2C and Area 3A commercial harvest halibut is not the only factor of the Analysis). Most, if not all, of these fishermen only contribute a part of the affecting the demand for guided businesses are defined as small overall market supply, and thus a saltwater sport charters and therefore, businesses under the Regulatory change in their production is unlikely to the cost to anglers of taking a charter Flexibility Act (see FRFA in the have an impact on the prices that vessel fishing trip. Other than Classification section of this rule). This consumers pay for commercially caught acknowledging the potential for reduced definition has the same meaning as halibut. demand for charter vessel fishing trips ‘‘small business concern’’ which is Comment 130: Commercially caught under constraining charter sector catch defined under section 3 of the Small halibut is cost prohibitive and of lesser limits, as was done in the Analysis, Business Act. The Small Business Act quality than sport-caught fish. The CSP NMFS cannot predict the number of has further defined a ‘‘small business will make commercial halibut less charter vessel anglers that will choose to concern’’ as one ‘‘organized for profit, affordable in the marketplace because not take a charter vessel fishing trip as with a place of business located in the there will be less competition from a direct result of this final rule. United States, and which operates charter anglers. Comment 127: There is no annual primarily within the United States or Response: NMFS has no information consideration or reciprocity from the which makes a significant contribution suggesting that the CSP will make commercial sector to the charter sector to the U.S. economy through payment of commercial halibut less affordable in for loss of business. Should the CSP be taxes or use of American products, the marketplace because there will be implemented, it should be conditional materials, or labor.’’ less competition from charter anglers, or upon annual reimbursement of the Comment 129: Continue to manage that the quality of commercial halibut is losses shown by the charter and the Area 2C and Area 3A charter halibut inferior to that of sport-caught halibut. affiliated interests. fishery with the GHL program, even As described in the response to Response: As described in the though it has resulted in a reduction in Comment 129, commercial halibut response to Comment 7, the Council the long-term historic proportion of the prices are determined by overall supply, faced the challenge of balancing halibut fishery available to the the prices of substitute goods, income, historical halibut harvests, economic commercial sector in those areas. exchange rates, inventories, and other impacts to the commercial and charter Participants in the commercial halibut factors. Area 2C and Area 3A sectors, and the declining halibut fishery and consumers are less commercial fishermen only contribute a biomass in Area 2C and in Area 3A as negatively impacted by reductions in part of the overall market supply of it developed the CSP. As a result, it is catch limits than participants in the halibut, and thus a change in their not possible for any allocation charter halibut fishery. The market price production is unlikely to have an consistent with the Council’s CSP for halibut usually goes up when the impact on the prices that consumers pay objectives to make participants in both supply goes down, providing for a for commercially caught halibut. fisheries whole economically given somewhat stable bottom line for Comment 131: The CSP provides current halibut abundance levels. Given commercial halibut harvesters. Declines stability for the public’s access to the lack of information on gross in commercial halibut catch limits do sustainable seafood (via markets). The revenues and operating costs for not impact consumers because halibut commercial fishery annually provides individual charter businesses in Areas make up only a very small proportion of 44 times more Americans access to the 2C and 3A (see section 2.6 of the the fish that Americans eat, and halibut resource than the charter fishery Analysis), it is not clear how the annual consumers may substitute other white and the global demand for commercial reimbursement mechanism suggested by fish from farmed or wild sources. In halibut continues to grow. the commenter would function. contrast, the charter sector cannot Response: As described in the However, suggestions for revisions to charge more when charter sector catch response to Comment 129, halibut the CSP could be made to the Council limits are reduced. caught in the Area 2C and Area 3A for future consideration. Response: As described in the directed commercial fisheries contribute Comment 128: The CSP benefits non- response to Comment 1, the Council and only a part of the overall market supply US companies that pay no taxes at NMFS replaced the GHL in Areas 2C in the United States and an even smaller expense of local residents and and 3A with commercial and charter part globally. The Council and the businesses. sector allocations that vary directly with Secretary of Commerce considered the Response: The IFQ Program halibut abundance and that balance the expected impacts of the CSP on regulations at § 679.4 governing the differing needs of the charter and consumers of halibut (see section 8.4 of commercial halibut fisheries in Area 2C commercial halibut fisheries over a the Analysis). and Area 3A require all halibut and wide range of abundance. Comment 132: When commercial sablefish quota share holders to be U.S. Section 8.1 of the Analysis notes that fishermen invested in quota shares, they citizens. Although a limited number of research conducted on the price did not buy a guaranteed number of charter halibut permits were initially flexibility of Alaska halibut suggests pounds, but rather a share of the issued to non-US charter businesses that changes in ex-vessel price that allowable catch limit. Charter operators based on their history of participation in result from increasing or decreasing the have also made a substantial investment the Area 2C and Area 3A charter halibut amount of commercial harvest in Areas in their businesses and that investment fisheries, regulations at § 300.67(i)(2)(i) 2C and 3A under the CSP are expected should also be protected. specify that only U.S. citizens or a U.S. to be very small. Halibut caught in Area Response: NMFS acknowledges the business with a minimum of 75 percent 2C and Area 3A directed commercial comment and agrees that participants in

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the charter halibut fisheries in Area 2C QS to maintain their charter halibut Comment 137: Since 2004, the Area and Area 3A have made substantial operations, NMFS acknowledges that 2C commercial quotas were cut by 75 investments in their business charter halibut operators have made percent while the Area 3A commercial operations. NMFS also notes that substantial investments in their quotas have been reduced by 56 percent. participants in the commercial halibut business operations. Section 2.6.1.1 of These cuts have resulted in substantial fisheries in Areas 2C and 3A have also the Analysis describes the primary costs economic losses to commercial made substantial investments in their associated with charter operations, harvesters, processors, and marketers, as business operations. Section 1.7.1.6 of including the costs of obtaining charter well as reduced access to the halibut the Analysis describes the commercial halibut limited access permits. Section resource for consumers. The comparable halibut fisheries and explains that the 2.6.1.2 of the analysis discusses the GHL cuts were 44 percent in Area 2C IFQ Program assigns the privilege of economic impacts that catch limit and 25 percent in Area 3A. harvesting a percentage of the halibut reductions have had on commercial Response: Sections 1.7.1.2 and 2.6.1.2 total allowable catches to QS holders, halibut fishery participants in Area 2C of the Analysis discuss the impacts of and that these percentages vary and Area 3A. As described in the declining halibut exploitable biomass annually with changes in allowable response to Comment 120, the Council on commercial catch limits and the harvest levels. As described in the and Secretary of Commerce considered economic impacts these catch limit response to Comment 120, the Council the analysis of the costs and benefits of reductions have had on commercial and Secretary of Commerce considered this action accruing to the commercial halibut fishery participants in Area 2C the analysis of the costs and benefits of and charter halibut sectors in Areas 2C and Area 3A. As described in the this action accruing to the commercial and 3A, and have determined that the proposed rule and in the response to and charter halibut sectors in Areas 2C CSP is necessary to achieve the halibut Comment 1, the Council and NMFS and 3A (section 2.6 of the Analysis), and fishery management goals of the recognize that management of the have determined that the CSP is Council. Also see the response to charter fishery under the GHL program necessary to achieve the halibut fishery Comment 138. resulted in the commercial fishery management goals of the Council. Comment 135: The number of bearing a disproportionate amount of Comment 133: The number of sport bottomfish charter trips has declined the declines in halibut exploitable fishing licenses sold by ADF&G has significantly between 2006 and 2012 in biomass relative to the charter sector. been declining. The CSP will result in both Area 2C (19 percent) and Area 3A The Council sought to address this further declines in the number of sport (20 percent). While Area 2C charter changing proportional allocation of a fishing licenses purchased and have operators blame this decline on more fully utilized halibut resource between negative impacts on the ADF&G budget. restrictive management measures, the the sectors under the GHL by Response: Because factors other than Area 3A management measures have not recommending the CSP allocations harvest restrictions affect demand for changed in those years, but the decline implemented by this final rule. charter vessel fishing trips, NMFS Comment 138: The GHL has resulted in number of trips is similar. This cannot quantify the extent to which in a reallocation of halibut to the charter suggests that changing national constraining charter halibut harvests at sector. This reallocation has had a economic conditions are the driving low levels of halibut abundance will negative economic impact on my reduce demand for sport fishing licenses force behind reduced demand for family’s income as well as on the local issued for use on charter vessel fishing charter services, not regulatory change. economy. When I purchased quota trips. Declines in demand could occur Response: NMFS agrees that a number share, I did not anticipate this even without additional charter harvest of factors, including the harvest reallocation to another sector. restrictions when halibut abundance is restrictions in place for charter vessel Response: The Council and NMFS low. Conversely, NMFS cannot quantify anglers, affect demand for charter recognize that management of the the extent to which increasing charter halibut fishing trips. Also see the charter fishery under the GHL program halibut harvests at high levels of halibut response to Comment 120 and section resulted in the commercial fishery abundance will increase demand for 1.7.5 of the Analysis. bearing a disproportionate amount of sport fishing licenses and charter trips. Comment 136: Commercial halibut the recent declines in halibut NMFS agrees that reductions in the sale fishing does not benefit the State of exploitable biomass relative to the of sport fishing licenses may result in Alaska because the majority of IFQ charter sector (see response to Comment reduced revenue to the ADF&G and may holders are from out of state. 1). Section 2.6.1.2 of the analysis have a negative impact on the agency’s Response: Based on owners’ self- discusses the economic impacts these revenue and budget. reported business mailing addresses, as catch limit reductions have had on Comment 134: Many IFQ holders of August 1, 2013, more than 77 percent commercial halibut fishery participants have purchased their quota share, which of IFQ holders were designated as in Area 2C and Area 3A. Section 2.6.1.2 has lost value, while charter operators Alaskan; however, NMFS makes no of the analysis presents six gross have no investment in QS. The Area 2C effort to independently verify residency. revenue and QS cost scenarios (three for commercial sector has lost 6–7 percent Regardless of the state of residency, Area 2C and three for Area 3A), each of its allocation to the charter sector charter and commercial fishery from 2003 to 2011. The scenarios under the GHL program. The operations in Alaska economically provide information concerning the commenter also provided estimates of benefit their local communities. Like the changes in revenue streams and QS the income loss to a commercial QS charter industry, the commercial halibut value that arise from recent changes in holder and to the Area 2C commercial fishery provides jobs, tax revenue, halibut prices and declines in fishery as a whole. Participants in both revenue to local businesses (e.g., commercial catch limits resulting from sectors derive income from a public marinas, restaurants, stores), and other reduced halibut exploitable biomass. resource, and NMFS must consider the economic benefits to local Alaskan The analysis shows that in recent costs to participate in each fishery. communities (see section 2.7 of the years QS holders in Area 2C were Response: Although NMFS agrees that Analysis). The commercial fishery also estimated to have experienced losses in Area 2C and Area 3A charter halibut benefits the nation with a consistent and gross revenues from their holdings. A operators are not required to invest in reliable supply of halibut. portion of this decline likely has been

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offset by increased halibut prices. Response: NMFS agrees that under 2C and Area 3A with sector allocations Despite these price increases, revenues the CSP both the charter and that balance the differing needs of the from halibut QS holdings were commercial sectors will share in charter and commercial sectors over the estimated to have declined in 2011 to conservation of the halibut resource. wide range of abundance, and that substantially less than 2003 levels. Comment 142: The IPHC’s treatment increase or decrease (‘‘float’’) with Persons who purchased halibut QS, of charter harvest overages of the GHL varying levels of halibut abundance. particularly at peak values in the mid- confirms that halibut conservation is not Comment 145: Both sectors’ 2000s, have seen the value of their the issue. Since 2007, the IPHC has allocations should be cut in half until holdings decline substantially. The Area deducted the GHL, not actual charter the halibut stock recovers. 3A scenarios follow a slightly different halibut harvest, from the Total CEY to Response: The Council’s rationale for pattern than the Area 2C scenarios obtain the Fishery CEY. its CSP allocation formula is because the magnitude of the decline in Response: The IPHC deducted the summarized in the response to the Area 3A exploitable biomass and GHL from the Total CEY in accordance Comment 1. The Council recommended commercial catch limits is substantially with the Council’s domestic allocation CSP allocations to balance historical less than the changes in Area 2C. policy implemented in the GHL harvest levels and economic impacts to Although increased halibut prices likely regulations (see the response to the charter and commercial fisheries at have also offset losses in gross revenues Comment 1). The IPHC incorporated all halibut stock abundance levels. for commercial halibut QS holders in charter harvest overages and underages Comment 146: The charter halibut Area 3A, the scenarios estimate that QS of the GHL into the stock assessment for fleets in Area 2C and 3A have conserved holders have experienced losses in QS sustainable management and more than one million pounds of value since 2008. The Council and conservation of the resource as halibut in the last three years through NMFS considered this information in described in the response to Comment GHL underages. Response: NMFS acknowledges that developing the CSP implemented by 21). charter harvests have been below the this final rule. Comment 143: Commercial catch limits have been decreasing not because GHLs in Area 2C and 3A in recent years Conservation of increased guided recreational catch, and that those underages benefited the Comment 139: The CSP does not but because the exploitable biomass has stock and all sectors because the promote conservation. The proposed been decreasing: This is largely because biomass estimation for the subsequent the IPHC has been setting commercial rule and Analysis both concede that the year began at a higher level (see catch limits that IPHC’s scientific staff CSP will not affect conservation of the response to Comment 21). admits have been too high to be Comment 147: The CSP will do long- halibut stock; rather, the purpose of the sustainable. term harm to society by limiting the rule is allocation of the halibut resource Response: Commercial catch limits public’s opportunity to experience the among competing user groups. The have declined in recent years as a result wonders of Alaska, learn about the Halibut Act requires that any allocation of declining halibut exploitable marine environment, and become must be reasonably calculated to biomass. The Pacific halibut stock has advocates for sound fisheries policies. promote conservation. been declining continuously over much Response: NMFS disagrees. One of the Response: Although resolving of the last decade as a result of factors objectives for the CSP is establishment allocation disputes is an objective of the including decreasing size-at-age and of sector allocations that balance the CSP, NMFS disagrees that the CSP will poor recruitment strengths (see response differing needs of the charter and not promote conservation. The CSP to Comment 28). The factors resulting in commercial sectors over a wide range of promotes conservation by establishing a the decreasing size-at-age and poor halibut abundance, and that float with more stable allocation between the recruitment strengths are not varying levels of halibut abundance. To sectors and fostering a more easily understood. The IPHC takes a accomplish this objective, the Council managed charter halibut fishery. conservative model-based approach in and NMFS replaced the GHL with sector Separate accountability for wastage also setting the commercial fishery catch allocations that vary directly with promotes conservation by encouraging limits for the areas in and off Alaska. As fluctuations in halibut abundance. The better handling of discarded fish by both described in the ‘‘Catch Sharing Plan for charter sector’s allocation will be the commercial and charter sectors (see Area 2C and Area 3A’’ section above, reduced in years of low abundance, responses to Comment 32 and Comment the IPHC accounts for all removals, while it will be increased in years of 35). including removals in other fisheries, high abundance. Even in years of low Comment 140: It seems there is more when setting catch limits for the abundance, charter anglers will interest in making sure the charter and directed commercial IFQ longline continue to have opportunities to enjoy commercial sectors are made whole fishery. Section 1.7.1 of the Analysis the outdoor experience from charter from an economic perspective than describes the IPHC’s stock assessment vessels in Areas 2C and 3A. preserving the halibut stock. and harvest policy processes. Comment 148: Further restrictions on Response: The CSP establishes Area Comment 144: The halibut biomass is halibut bag limits for charter vessel 2C and Area 3A sector allocations from healthy; therefore, further reductions to anglers will shift fishing pressure to a combined catch limit (CCL). The CCL the charter fishery are unnecessary. other species like king salmon, lingcod, is derived by applying a conservative Response: The Pacific halibut stock and rockfish. target harvest rate to the best estimate of has been declining continuously over Response: NMFS notes that this final exploitable biomass (see Figure 1, much of the last decade as a result of rule does not implement any changes to above), resulting in an appropriately factors including decreasing size-at-age the bag limits that currently apply to conservative annual catch from the and poor recruitment strengths (see charter vessel anglers. The Council and fisheries. See the responses to Comment response to Comment 28). As described NMFS have taken into account the 139 and Comment 7. in the response to Comment 1, one of capability of halibut charter vessels to Comment 141: The CSP results in all the objectives for the CSP is to establish be used in other fisheries and recognize sectors sharing in the conservation of a comprehensive management program that anglers aboard charter vessels in the halibut at all levels of abundance. for the charter halibut fisheries in Area Area 2C and Area 3A harvest a number

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of other species in addition to halibut agenda for discussion and Council provided in October 2012, the pool plan on charter vessel fishing trips, as action at no fewer than 12 Council would authorize an entity acting on described in section 1.7 of the Analysis. meetings, where the public was given behalf of the charter sector to purchase ADF&G manages and monitors the sport the opportunity to attend, testify, or halibut quota share from commercial fisheries for salmon, lingcod, and submit written comments. Council halibut fishery participants and hold the rockfish, and restrict harvest to meet meeting agenda items are available on QS in a ‘‘common pool’’ for harvest in biological management goals. NMFS the Council’s Web site up to nine the charter halibut fishery by all anglers. does not anticipate the CSP will months in advance. As described in the The Council heard testimony that the significantly increase the harvest of response to Comment 107, the Council developers intended for this plan to be these other species (see section 1.7.2.2 has also formed a number of committees an alternative to the GAF program in the of the Analysis). since 1998 to provide management future. See the ‘‘Guided Angler Fish recommendations for the Area 2C and (GAF)’’ section above for a description General Area 3A charter halibut fisheries. of the GAF program and the response to Comment 149: NMFS received several A proposed rule for a CSP was first Comment 7 for the Council’s rationale requests to extend the public comment published in July 2011, garnering for recommending the GAF program. period on the proposed rule. A 45-day several thousand public comments. The Council recommended the CSP in comment period was considered NMFS modified this version of the CSP October 2012 prior to presentation or inadequate because of the length and in response to some of those comments. analysis of the pool plan proposal; complexity of the rule and supporting The proposed rule for this revised CSP therefore, the pool program was not analysis, and because the comment was published on June 28, 2013 (78 FR included among the alternatives period coincides with the busy summer 39122). Prior to publication in the considered for the CSP. fishing season. Commenters requested Federal Register, NMFS issued a press As described in the response to extensions of various lengths, up to an release and posted a notice on its Web Comment 1, the GHL does not meet the additional 60 days. page. This press release was distributed Council’s allocation objectives for Response: NMFS considered the by several state and regional news managing the charter halibut fisheries in requests to extend the proposed rule outlets. Both rulemakings garnered wide Areas 2C and 3A. At any point in the comment period, recognizing the media coverage. NMFS received a large future, charter sector representatives can concern of those fishermen who might number of public comments sent from request the Council to consider a pool be out on the water during the comment of anglers, commercial harvesters, plan or any proposal to modify the CSP. period. To allow for greater opportunity charter operators, and community Comment 153: The Charter Halibut for public input, NMFS granted an interests across a broad geographic Limited Access Program has been extension for 14 days until August 26, range. effective at limiting the charter industry 2013 (78 FR 44920, July 25, 2013). A Comment 151: Federal regulations do and further constraints are unwarranted longer extension would have not give the price or value of fish which at this time. There has not yet been jeopardized NMFS’ ability to prepare NMFS requires in the IFQ cost recovery enough time to evaluate the and publish the final rule in time to assessment. Publishing such data would effectiveness of the CHLAP in limiting implement the CSP for the 2014 fishing help the consumer understand the cost harvest. season. In recommending the CSP, the of halibut in the market place. Response: The Council had different Council urged NMFS to implement the Response: The proposed rule for the halibut management objectives for the CSP for the 2014 fishing season to CSP describes how NMFS collects fees CHLAP and the CSP as described in provide stability for affected halibut directly related to the management, data section 1.2 of the Analysis. The Council fishery participants. collection, and enforcement of the IFQ determined, and NMFS agrees, that both Comment 150: Anglers and small Program, consistent with regulations at programs are necessary to meet its communities were not given adequate § 679.45. Page 39143 of the proposed management objectives for the charter notice or opportunity to comment on rule describes that NMFS uses data halibut fishery. the CSP. What steps has NOAA taken to reported by Registered Buyers to NMFS received a number of public inform the guided angler of the compute annual standard ex-vessel IFQ comments raising issues outside the comment period on this regulation? prices by month and port (or, if scope of this action. These comments Response: NMFS believes that the confidential, by port group). These included proposals relating to the public has been given sufficient notice standard prices are published in the following issues: Additional regulations and ample opportunity to comment on Federal Register each year. The governing commercial harvest, the CSP. The Council first began standard prices for the 2012 IFQ subsistence harvest, and unguided considering options to manage the fisheries were published on December 4, recreational harvest; specific charter fishery in the late 1990s, in 2012 (77 FR 71783). management measures to maintain response to the rapid and steady growth Comment 152: Continue to manage charter harvest within the CSP charter of the charter halibut industry in Areas the charter sector to the GHL until the halibut allocations in Areas 2C and 3A; 2C and 3A. A complete history of ‘‘pool plan’’ can be implemented. development of a charter halibut IFQ charter halibut management was Response: The comment refers to management program; additional detailed in the preamble of the proposed public testimony that the Council regulations limiting the number of rule for the Charter Halibut Limited received at its October 2012 meeting. guides eligible to provide charter Access Program (74 FR 18178, April 21, The testimony from charter sector halibut guiding services; additional 2009) and is not repeated here. representatives indicated that they were regulations addressing possible The Council began deliberating developing a proposal intended to localized depletion of halibut in specific allocation options for a CSP for the supplement the annual CSP allocation areas; additional regulatory restrictions commercial and charter halibut fisheries of halibut to the Area 2C and 3A charter on halibut bycatch in other directed in 2006 (http://alaskafisheries.noaa.gov/ sectors (pool plan). The representatives fisheries; prohibition of sport halibut npfmc/halibut/charter- indicated that the pool plan proposal derbies (fishing contests); regulations management.html). Since 2006, would be provided to the Council at a limiting ownership and operation of elements of the CSP have been on the future meeting. Based on the description commercial fish processors in Alaska to

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Alaskan residents; and delegation of and described in the Classification counted twice, and because permits are halibut management authority to the section of the proposed rule. The public continually being transferred, sold, or State of Alaska. NMFS invites the comment period ended on August 26, retired, or additional community charter commenters to raise these issues to the 2013. NMFS received 4,740 halibut permits are being issued. As of Council for its consideration. communications raising 198 unique October 2012, 107 community CHPs had NMFS also received numerous issues, 153 of which were within the been issued to 20 CQEs, and 7 U.S. comments recommending approval and scope of this action. Comments 126 Military Morale, Welfare, and implementation of the CSP. through 144 address the economic Recreation Program permits had been impact of the rule on small entities. issued to 3 permit holders. VI. OMB Revisions to Paperwork These comments and NMFS’ responses Regulations that directly regulate Reduction Act References in 15 CFR are in the sections entitled, ‘‘IV. entities representing small, remote 902.1(b) Changes From the Proposed Rule’’ and communities in Areas 2C and 3A are Section 3507(c)(B)(i) of the PRA ‘‘V. Comments and Responses’’ of this included in this action. These requires that agencies inventory and preamble. regulations will authorize communities display a current control number No comments on the proposed rule holding community charter halibut assigned by the Director, OMB, for each were filed with NMFS by the Chief permits or regular charter halibut agency information collection. 15 CFR Counsel for Advocacy of the Small permits to use GAF as proposed under 902.1(b) identifies the location of NOAA Business Administration. the CSP. GAF will offer charter vessel regulations for which OMB approval anglers in Area 2C or Area 3A an Description and Estimate of the Number opportunity to harvest halibut in numbers have been issued. Because this of Small Entities Regulated by the addition to the halibut harvested under final rule revises and adds data Action elements within collections-of- the charter halibut management information for recordkeeping and The universe of directly regulated measure, up to the harvest limits in reporting requirements, 15 CFR 902.1(b) entities for this action includes (a) place for unguided sport anglers in that is revised to reference correctly the holders of one or more charter halibut area. Eligibility for community charter sections resulting from this final rule. permits in Area 2C and Area 3A; (b) halibut permits required that the community quota entities that hold community be represented by a non- VII. Classification charter halibut permits and are profit community quota entity approved Section 5(c) of the Northern Pacific authorized to use GAF; and (c) all by NMFS. Of the 22 CQEs that formed, Halibut Act of 1982 (Halibut Act, 16 commercial halibut quota share holders. 11 Area 2C communities were eligible U.S.C. 773c(c)) authorizes the regional The Small Business Administration and each received 4 halibut community fishery management council having (SBA) specifies that for marinas and CHPs and 9 Area 3A communities were authority for a particular geographical charter or party vessels, a small business eligible and each received 7 halibut area to develop regulations governing is one with annual receipts less than community CHPs. A maximum of 18 fishing for halibut in U.S. Convention $7.0 million. The largest of these charter communities in Area 2C and 14 waters as long as those regulations are vessel operations, which are lodges, communities in Area 3A are eligible to in addition to, and do not conflict with, may be considered large entities under form CQEs and apply for charter halibut IPHC regulations. This action is SBA standards, but that cannot be permits at any time. Therefore, there is consistent with the Council’s authority confirmed because NMFS does not have a maximum of 32 eligible community to develop, and the Secretary of or collect economic data on lodges entities that could be authorized by the Commerce to approve, such regulations. necessary to definitively determine total action to use GAF. All of these eligible The Secretary has consulted with the annual receipts. Thus, all charter vessel communities would be considered small U.S. Coast Guard on this action. operations regulated by the proposed entities under the SBA definitions. This final rule has been determined to CSP would likely be considered small All halibut QS holders are directly be not significant for purposes of entities, based on SBA criteria, because regulated entities because cost recovery Executive Order 12866. they would be expected to have gross fees for the GAF program are levied to An RIR/IRFA was prepared to assess revenues of less than $7.0 million on an all QS holders, not just those with quota costs and benefits of available regulatory annual basis. for Areas 2C and 3A. Commercial alternatives. A copy of the Analysis is In October 2012, NMFS published an halibut QS holders are considered part available from NMFS (see ADDRESSES). implementation report for the charter of the Finfish Fishing industry for SBA halibut limited access program after all purposes. On June 20, 2013, the SBA Regulatory Flexibility Act (RFA) interim permits had been adjudicated issued a final rule revising the small A final regulatory flexibility analysis and resolved. This report is available at business size standards for several (FRFA) is required by the Regulatory http://alaskafisheries.noaa.gov/ram/ industries effective July 22, 2013 (78 FR Flexibility Act. This FRFA incorporates charter/chp_review1012.pdf. At the time 37398, June 20, 2013). The rule the initial regulatory flexibility analysis of publication, a total of 972 charter increased the size standard for Finfish (IRFA) prepared for the proposed rule halibut permits had been issued to 356 Fishing from $4.0 to 19.0 million. and addresses the applicable businesses in Area 2C and 439 The IRFA for this action was prepared requirements of section 604(a) of the businesses in Area 3A. Of these, 372 before these new size standards went RFA. A statement of the need for, and charter halibut permits in Area 2C and into effect. NMFS has reviewed the objectives of, this final rule has already 339 permits in Area 3A are transferable. IRFA prepared for this action in light of been provided earlier in the preamble to A charter halibut permit holder may the new size standards. Under the old this final rule and is not repeated here. transfer a transferable permit, subject to size standard, an estimated 2,737 QS NMFS approval, to a qualified person at holders were considered small entities, Comments on the IRFA any time. The exact number of charter and 65 were classified as large entities. The proposed rule was published in businesses that would be regulated by Because there are no data to directly the Federal Register on June 28, 2013 the CSP therefore cannot be determined link QS holders with all other fishery (78 FR 39122). An initial regulatory because some businesses hold CHPs in revenue they may generate, it is not flexibility analysis (IRFA) was prepared each regulatory area and may be possible to determine the number of

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small entities with certainty. However, proposed CSP. Alternatives 2 through 5 Alternatives 3, 4, and 5 did not it is likely that many of the 65 all recommend the implementation of a prescribe annual charter harvest businesses formerly considered large CSP for Areas 2C and 3A with separate restrictions as part of the CSP. Instead, entities may now be considered small accountability by fishery for mortality of under these alternatives, charter harvest entities under the new $19 million discarded fish, and a program to allow restrictions would continue to be set standard. If all 65 entities were charter operators to lease IFQ from through a separate annual process of reclassified as small entities, the participants in the commercial halibut Council recommendations to the IPHC. maximum number of commercial fishery, called the GAF program. This approach is detailed in the halibut harvesters classified as small Alternatives 2 through 5 all include ‘‘Annual Process for Setting Charter entities and directly regulated by this fixed allocation percentages of a Management Measures’’ section of the rule would be 2,802. Therefore, for combined commercial and charter catch preamble to the proposed rule (78 FR purposes of this FRFA, all directly limit to the charter and commercial 39122, June 28, 2013). This approach regulated entities are considered small halibut fisheries. The Council was considered more flexible, entities. With this assumption, the new determined that a fixed percentage responsive to the most recent size standards could increase the allocation best met its objectives with information available on halibut number of small entities affected by this the least impact to affected entities. removals, and allowed greater final rule. NMFS has identified no Additionally, a fixed percentage stakeholder input in the selection of additional significant alternatives that allocation would be equitable because annual harvest restrictions than the pre- accomplish statutory objectives and both the commercial and charter halibut determined and fixed set of harvest minimize any significant economic fisheries would have allocations that restrictions included in Alternative 2. impacts of the proposed rule on small vary with the abundance of the halibut Alternative 3 recommended a CSP entities. resource. Thus, both the charter and with allocations to the charter halibut commercial halibut fisheries would fishery that were increased from the Description of the Alternatives share in the benefits and costs of Alternative 2 allocations to account for Considered managing the resource for long-term catch reporting using the saltwater A FRFA must describe the steps the sustainability under a CCL. charter logbook instead of the statewide agency has taken to minimize the The main differences among harvest survey (SWHS). The Council significant economic impact on small Alternatives 2 through 5 are in how the selected Alternative 3 as its preferred entities consistent with the stated allocation percentages are set. alternative for Area 2C. The rationale for objectives of the Halibut Act and other Allocation percentages to the charter selecting Alternative 3 as the preferred applicable statues, including a halibut fishery are the lowest under alternative for Area 2C is provided in statement of the factual, policy, and Alternative 2 and highest under sections 1.6.6 and 1.6.7 of the Analysis legal reasons for selecting the alternative Alternative 5. Alternatives 2 through 5 and page 39130 of the proposed rule, adopted in the final rule and why each also differ in how annual charter halibut and is not repeated here. one of the other significant alternatives harvest restrictions would be Alternative 4 would establish to the rule considered by the agency that implemented. allocations for the charter halibut affect the impact on small entities was Alternative 2 included allocation fishery based on Alternative 2, plus an rejected. percentages that did not include upward additional 3.5 percent of the CCL at The status quo alternative (Alternative adjustments for the switch from the lower CCL levels. Allocations under 1) specifies the GHL as a target amount Statewide Harvest Survey to ADF&G Alternative 4 were higher than of halibut that anglers in the charter saltwater charter logbooks as the Alternatives 2 and 3, but lower than fishery can harvest in Area 2C and Area primary data source. Alternative 2 Alternative 5. The Council selected 3A. However, charter halibut harvests contained a pre-determined and fixed Alternative 4 as its preferred alternative that exceed the GHL may have a de facto set of harvest restrictions that would for Area 3A. The rationale for selecting allocation effect of reducing the amount have been triggered automatically under Alternative 4 as the preferred alternative of halibut that may be harvested by the the CSP depending on the CCL for Area 3A is provided in sections 1.6.6 commercial fishery in the following determined each year by the IPHC. and 1.6.7 of the Analysis and page year. Additionally, charter halibut Alternative 2 was not selected because 39130 of the proposed rule, and is not fishery harvests beyond the GHL also the allocations to the charter halibut repeated here. can undermine overall harvest strategy fishery were not deemed adequate to Alternative 5 contained the largest goals established by the IPHC for the support charter fishing operations and allocations to the charter halibut fishery halibut resource, which affects all users. the fixed harvest restrictions were based on the allocations in Alternative The primary objectives of the CSP are to determined to be too rigid and did not 3, plus an additional 3.5 percent of the define an annual process for allocating give managers enough discretion to CCL. Alternative 5 was not chosen as halibut between the charter and modify those measures as needed to best the Council’s preferred alternative commercial fisheries in Area 2C and achieve harvest objectives and minimize because it did not meet the Council’s Area 3A, establish allocations that potential adverse economic impact. objective to select an allocation that balance the differing needs of the The CSP is concerned with the balanced historical and recent harvests charter and commercial fisheries that allocation of halibut among user groups by the charter sector. vary with changing levels of annual composed almost entirely of small halibut abundance, and specify a entities. Alternatives 3, 4, and 5 vary the Reporting and Recordkeeping process for determining harvest allocation between charter operators Requirements restrictions for charter anglers that are and commercial fishermen in the This action imposes new intended to limit harvest to the annual halibut fisheries. These alternatives recordkeeping requirements. charter fishery catch limit. The status reflect different policy choices that Applications to transfer between IFQ quo does not meet the objectives of the would affect different groups of small and GAF will be required to be CSP. entities, but would not differentially submitted to, and approved by, NMFS The Council considered four impact small entities compared to large for each transfer from IFQ to GAF. The alternatives to the status quo for the entities. application will require information

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about the IFQ permit holder and the of Management and Budget (OMB). The sustainable activity and is consistent charter halibut permit holder, including collections are described and their with existing law. each permit holder’s contact public reporting burdens are estimated List of Subjects information, the IFQ permit holder’s by OMB control number below. account from which halibut pounds are 15 CFR Part 902 OMB Control No. 0648–0398 to be transferred, and the GAF account Reporting and recordkeeping to which GAF are to be transferred. Public reporting burden per response requirements. NMFS will rely on data already is estimated to average 2 hours for the collected through the ADF&G saltwater IFQ Permit Holder Fee Submission 50 CFR Part 300 charter logbooks for additional Form, and 2 hours for the IFQ Administrative practice and management and enforcement needs. In Registered Buyer Ex-Vessel Value and procedure, Antarctica, Canada, Exports, addition, CQEs eligible to receive Volume Report. Fish, Fisheries, Fishing, Imports, community charter halibut permits will OMB Control No. 0648–0575 Indians, Labeling, Marine resources, be required to submit information to Reporting and recordkeeping NMFS (1) on the application for a Public reporting burden per response requirements, Russian Federation, transfer between IFQ and GAF, and (2) is estimated to average 4 minutes for Transportation, Treaties, Wildlife. regarding the CQE’s activity in an ADF&G Saltwater Sport Fishing Charter annual report by January 31 of the Trip Logbook entry for vessel guide and 50 CFR Part 679 following year. NMFS will require submittal; 1 minute per angler for angler signatures of ADF&G Saltwater Sport Alaska, Fisheries, Reporting and charter vessel guides to record on the recordkeeping requirements. GAF permit log the date and length of Fishing Charter Trip Logbook; 1 minute any GAF halibut caught and kept, to measure each GAF; 1 minute to Dated: December 6, 2013. immediately upon harvest. NMFS will record GAF lengths on the GAF permit Alan D. Risenhoover, also require GAF permit holders to log; 4 minutes to enter data into the Director, Office of Sustainable Fisheries, report via an online system information GAF electronic reporting system; and 1 performing the functions and duties of the about each GAF halibut caught and minute to record the GAF electronic Deputy Assistant Administrator for retained at the end of each fishing trip, reporting confirmation number on the Regulatory Programs, National Marine Fisheries Service. and to record the GAF electronic GAF permit log. reporting confirmation number on the OMB Control No. 0648–0592 For the reasons set out in the GAF permit log. The professional skills preamble, NMFS amends 15 CFR part necessary to comply with the reporting Public reporting burden per response 902 and 50 CFR parts 300 and 679 as and recordkeeping requirements for is estimated to average 1 hour for an follows: Application for Transfer Between IFQ small entities impacted by this rule 15 CFR Chapter IX include the ability to read, write, and and GAF; and 1 hour for an Application understand English, and the ability to for Transfer Between IFQ and GAF by PART 902—NOAA INFORMATION use a computer and the internet. The a Community Quota Entity. COLLECTION REQUIREMENTS UNDER recordkeeping and reporting OMB Control No. 0648–0272 THE PAPERWORK REDUCTION ACT: requirements will not likely represent a OMB CONTROL NUMBERS ‘‘significant’’ economic burden on the The IFQ permit is mentioned in this small entities operating in this fishery. rule; however, the public reporting ■ 1. The authority citation for part 902 burden for the IFQ permit in this continues to read as follows: Small Entity Compliance Guide collection-of-information is not directly Authority: 44 U.S.C. 3501 et seq. Section 212 of the Small Business affected by this rule. Regulatory Enforcement Fairness Act of Public reporting burden estimates ■ 2. In § 902.1, the table in paragraph 1996 states that, for each rule or group include the time for reviewing (b), under the entry 50 CFR is amended of related rules for which an agency is instructions, searching existing data by: required to prepare a FRFA, the agency sources, gathering and maintaining the ■ a. Removing entries for §§ 679.41(a), shall publish one or more guides to data needed, and completing and (b), (c)(1) through (9), (d) through (f), assist small entities in complying with reviewing the collection of information. (g)(1) through (4), (h) through (k), and the rule, and shall designate such Send comments regarding these burden (m); and 679.42(a)(1)(i) through (ii), (b) publications as ‘‘small entity estimates or any other aspect of this data through (g), (h)(1), (h)(1)(i), (h)(2), and compliance guides.’’ The agency shall collection, including suggestions for (h)(2)(i); explain the actions a small entity is reducing the burden, to NMFS (see ■ b. Revising the entries for §§ 300.65(d) required to take to comply with a rule ADDRESSES) and by email to OIRA_ and 679.45; and or group of rules. As part of this [email protected], or fax to ■ c. Adding in alphanumeric order new rulemaking process, NMFS will post a 202–395–7285. entries for §§ 300.65(c)(5); 679.41(a); small entity compliance guide on the Notwithstanding any other provision 679.41(b), (c)(1) through (9), (d) through NMFS Alaska Region Web site: http:// of the law, no person is required to (f), (g)(1) through (4), (h) through (k), alaskafisheries.noaa.gov/ respond to, nor shall any person be and (m); 679.42(a)(1)(i) through (ii), (b) sustainablefisheries/halibut/sport.htm. subject to a penalty for failure to comply through (e), (g), (h)(1), (h)(1)(i), (h)(2), Contact NMFS to request a hard copy of with, a collection of information subject and (h)(2)(i); 679.42(f)(1); and the guide. to the requirements of the PRA, unless 679.42(f)(6). that collection of information displays a Paperwork Reduction Act Collection of The additions and revisions read as currently valid OMB control number. follows: Information Requirements This final rule is consistent with This final rule contains collection-of- Executive Order 12962 as amended § 902.1 OMB control numbers assigned information requirements subject to the September 26, 2008, which required pursuant to the Paperwork Reduction Act. Paperwork Reduction Act (PRA) and Federal agencies to ensure that * * * * * which have been approved by the Office recreational fishing is managed as a (b) * * *

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CFR part or section Current OMB control number where the information collection requirement is located (all numbers begin with 0648–)

*******

50 CFR

*******

300.65(c)(5) ...... –0272, –0592, –0665

*******

300.65(d) ...... –0575, –0592

*******

679.41(a) ...... –0272, –0592

679.41(b), (c)(1) through (9), (d) through (f), (g)(1) through (4), (h) through (k), and (m) ...... –0272

*******

679.42(a)(1)(i) through (ii), (b) through (e), (g), (h)(1), (h)(1)(i), (h)(2), and (h)(2)(i) ...... –0272

679.42(f)(1) ...... –0272, –0592

679.42(f)(6) ...... –0272, –0592, –0665

*******

679.45 ...... –0272, –0398, –0592

*******

50 CFR Chapter III Annual combined catch limit, for offloading of one or more charter vessel purposes of commercial and sport anglers or any halibut from that vessel. PART 300—INTERNATIONAL fishing in Commission regulatory areas Charter vessel guide, for purposes of FISHERIES REGULATIONS 2C and 3A, means the annual total §§ 300.65, 300.66 and 300.67, means a allowable halibut removals (halibut Subpart E—Pacific Halibut Fisheries person who holds an annual sport guide harvest plus wastage) by persons fishing license issued by the Alaska Department ■ 3. The authority citation for part 300, IFQ and by charter vessel anglers. of Fish and Game, or a person who subpart E, continues to read as follows: Annual commercial catch limit, for provides sport fishing guide services. purposes of commercial fishing in Authority: 16 U.S.C. 773–773k. Charter vessel operator, for purposes Commission regulatory areas 2C and 3A, of § 300.65, means the person in control ■ 4. In § 300.61: means the annual commercial allocation of the vessel during a charter vessel ■ a. Remove the definition for minus an area-specific estimate of fishing trip. commercial halibut wastage. ‘‘Guideline harvest level (GHL)’’; * * * * * ■ b. Revise the definitions for ‘‘Charter Annual guided sport catch limit, for Crew member, for purposes of vessel angler’’, ‘‘Charter vessel fishing purposes of sport fishing in Commission §§ 300.65 and 300.67, means an trip’’, ‘‘Charter vessel guide’’, ‘‘Charter regulatory areas 2C and 3A, means the assistant, deckhand, or similar person vessel operator’’, ‘‘Crew member’’, annual guided sport allocation minus an who works directly under the ‘‘Individual Fishing Quota (IFQ)’’, and area-specific estimate of guided sport supervision of, and on the same vessel ‘‘Sport fishing guide services’’; and halibut wastage. as, a charter vessel guide or operator of ■ c. Add definitions for ‘‘Annual * * * * * a vessel with one or more charter vessel combined catch limit’’, ‘‘Annual Charter vessel angler, for purposes of anglers on board. commercial catch limit’’, ‘‘Annual §§ 300.65, 300.66, and 300.67, means a guided sport catch limit’’, ‘‘Guided person, paying or non-paying, using the * * * * * Angler Fish (GAF)’’, ‘‘Guided Angler services of a charter vessel guide. Guided Angler Fish (GAF) means Fish (GAF) permit’’, and ‘‘Guided Charter vessel fishing trip, for halibut transferred within a year from a Angler Fish (GAF) permit holder’’ in purposes of §§ 300.65, 300.66, and Commission regulatory area 2C or 3A alphabetical order to read as follows: 300.67, means the time period between IFQ permit holder to a GAF permit that the first deployment of fishing gear into is issued to a person holding a charter § 300.61 Definitions. the water from a vessel after any charter halibut permit, community charter * * * * * vessel angler is on board and the halibut permit, or military charter

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halibut permit for the corresponding the Commission as annual management underage provisions at § 679.40(e) of area. measures and published by NMFS in this title. Guided Angler Fish (GAF) permit the Federal Register as required in (ii) Transfer Between IFQ and GAF— means an annual permit issued by the § 300.62. (A) General. A transfer between IFQ and National Marine Fisheries Service (3) Annual commercial catch limits. GAF means any transaction in which pursuant to § 300.65(c)(5)(iii). (i) The Commission regulatory areas 2C halibut IFQ passes between an IFQ Guided Angler Fish (GAF) permit and 3A annual commercial catch limits permit holder and a GAF permit holder holder means the person identified on a are determined by subtracting wastage as: GAF permit. from the allocations in Tables 1 and 2 (1) A transfer of IFQ to GAF, in which * * * * * of this subpart E, adopted by the halibut IFQ equivalent pounds, as Individual Fishing Quota (IFQ), for Commission as annual management defined in § 679.2 of this title, are purposes of this subpart, means the measures, and published in the Federal transferred from a Commission annual catch limit of halibut that may Register as required in § 300.62. regulatory area 2C or 3A IFQ permit be harvested by a person who is (ii) Commercial fishing in account, converted to number(s) of GAF lawfully allocated a harvest privilege for Commission regulatory areas 2C and 3A as specified in paragraph (c)(5)(ii)(E) of a specific portion of the annual is governed by the Commission’s annual this section, and assigned to a GAF permit holder’s account in the same commercial catch limit of halibut. management measures and by management area; * * * * * regulations at 50 CFR part 679, subparts A, B, D, and E. (2) A transfer of GAF to IFQ, in which Sport fishing guide services, for GAF in number(s) of fish are transferred (4) Annual guided sport catch limits. purposes of §§ 300.65 and 300.67, from a GAF permit holder’s account in (i) The Commission regulatory areas 2C means assistance, for compensation, to Commission regulatory area 2C or 3A, and 3A annual guided sport catch limits a person who is sport fishing, to take or converted to IFQ equivalent pounds as are determined by subtracting wastage attempt to take fish by being on board specified in paragraph (c)(5)(ii)(E) of from the allocations in Tables 3 and 4 a vessel with such person during any this section, and assigned to the same of this subpart E, adopted by the part of a charter vessel fishing trip. IFQ permit holder’s account from which Commission as annual management Sport fishing guide services do not the GAF were derived; or include services provided by a crew measures, and published in the Federal (3) The return of unharvested GAF by member. Register as required in § 300.62. NMFS to the IFQ permit holder’s * * * * * (ii) Sport fishing by charter vessel account from which it was derived, on anglers in Commission regulatory areas ■ or after 15 calendar days prior to the 5. In § 300.65, revise paragraphs (b), 2C and 3A is governed by the (c), and (d) to read as follows: closing of the commercial halibut Commission’s annual management fishing season. § 300.65 Catch sharing plan and domestic measures and by regulations at 50 CFR (B) Transfer procedure—(1) management measures in waters in and off part 300, subparts A and E. Application for Transfer Between IFQ Alaska. (5) Guided Angler Fish (GAF). This and GAF. A transfer between IFQ and * * * * * paragraph (§ 300.65(c)(5)) governs the GAF requires Regional Administrator (b) The catch sharing plan for transfer of Commission regulatory areas review and approval of a complete Commission regulatory area 4 allocates 2C and 3A halibut between individual Application for Transfer Between IFQ the annual commercial catch limit fishing quota (IFQ) and guided angler and GAF. Both the transferor and the among Areas 4C, 4D, and 4E and will be fish (GAF), the issuance of GAF permits, transferee are required to complete and adopted by the Commission as annual and GAF use. sign the application. Transfers will be management measures and published in (i) General. (A) GAF is derived from conducted via methods approved by the Federal Register as required in halibut IFQ that is transferred from a NMFS. The Regional Administrator § 300.62. Commission regulatory area 2C or 3A shall provide an Application for (c) Catch sharing plan (CSP) for IFQ permit holder’s account held by a Transfer Between IFQ and GAF on the Commission Regulatory Areas 2C and person who also holds quota share (QS), NMFS Alaska Region Web site at 3A—(1) General. The catch sharing plan as defined in § 679.2 of this title, to a http://alaskafisheries.noaa.gov/ram/ for Commission regulatory areas 2C and GAF permit holder’s account for the default.htm. An Application for 3A: same regulatory area. Transfer Between IFQ and GAF is not (i) Allocates the annual combined (B) A GAF permit authorizes a charter required for the return of unharvested catch limit for Commission regulatory vessel angler to retain GAF that are GAF by NMFS to the IFQ permit areas 2C and 3A in order to establish the caught in the Commission regulatory holder’s account from which it was annual commercial catch limit and the area specified on a GAF permit: derived, 15 calendar days prior to the annual guided sport catch limit for the (1) During the sport halibut fishing closing of the commercial halibut halibut commercial fishing and sport season adopted by the Commission as fishing season for that year. fishing seasons, pursuant to paragraphs annual management measures and (2) Application timing. The Regional (c)(3) and (4) of this section; and published in the Federal Register as Administrator will not approve any (ii) Authorizes the use of Commission required in § 300.62, and Application for Transfer Between IFQ regulatory areas 2C and 3A halibut IFQ (2) Subject to the GAF use restrictions and GAF before annual IFQ is issued for as guided angler fish (GAF) for harvest at paragraphs (c)(5)(iv)(A) through (K) of each year or after one month prior to the by charter vessel anglers in the this section. closing of the commercial fishing season corresponding area, pursuant to (C) NMFS will return unharvested for that year. Applications to transfer paragraph (c)(5) of this section. GAF to the IFQ permit holder’s account GAF to IFQ will be accepted from (2) Implementation. The Commission from which the GAF were derived on or August 1 through August 31 only. regulatory areas 2C and 3A CSP annual after fifteen calendar days prior to the (3) Transfer due to court order, combined catch limits, annual closing of the commercial halibut operation of law, or as part of a security commercial catch limits, and annual fishing season each year, subject to agreement. NMFS may approve an guided sport catch limits are adopted by paragraph (c)(5)(ii) of this section and Application for Transfer Between IFQ

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and GAF to return GAF to the IFQ and return the resulting IFQ equivalent Application for Transfer Between permit holder’s account from which it pounds to the IFQ permit holder’s Individual Fishing Quota (IFQ) and derived pursuant to a court order, account from which the GAF were Guided Angler Fish (GAF),’’ the operation of law, or a security derived, unless prevented by regulations application will not be approved until agreement. at 15 CFR part 904. the Regional Administrator has (4) Notification of decision on (C) Complete application. Applicants determined that: application. (i) Persons who submit an must submit a completed Application (i) The CQE applying to transfer IFQ Application for Transfer Between IFQ for Transfer Between IFQ and GAF to to GAF is eligible to hold IFQ on behalf and GAF to the Regional Administrator the Regional Administrator as instructed of the eligible community in will receive notification of the Regional on the application. NMFS will notify Commission regulatory area 2C or 3A Administrator’s decision to approve or applicants with incomplete applications designated in Table 21 to 50 CFR part disapprove the application for transfer. of the specific information necessary to 679; (ii) If an Application for Transfer complete the application. (ii) The CQE applying to transfer IFQ Between IFQ and GAF is disapproved, (D) Application for Transfer Between to GAF has received notification of NMFS will provide the reason(s) in IFQ and GAF approval criteria. An approval of eligibility to receive IFQ for writing by mail, posted on the date of Application for Transfer Between IFQ that community as described in that decision. and GAF will not be approved until the § 679.41(d)(1) of this title; (iii) Disapproval of an Application for Regional Administrator has determined (iii) The CQE applying to receive GAF Transfer Between IFQ and GAF may be that: from a Commission regulatory area 2C appealed pursuant to § 679.43 of this (1) The person applying to transfer or 3A IFQ permit holder holds one or title. IFQ to GAF or receive IFQ from a more charter halibut permits or (iv) The Regional Administrator will transfer of GAF to IFQ: not approve a transfer between IFQ and community charter halibut permits for (i) Possesses at least one unit of the corresponding area; and GAF on an interim basis if an applicant halibut quota share (QS), as defined in appeals a disapproval of an Application (iv) The CQE applying to transfer § 679.2 of this title, in the applicable between IFQ and GAF has submitted a for Transfer Between IFQ and GAF Commission regulatory area, either Area pursuant to § 679.43 of this title. complete annual report(s) as required by 2C or Area 3A, for which the transfer of § 679.5(t) of this title. (5) IFQ and GAF accounts. (i) IFQ to GAF is requested; (E) Conversion between IFQ and Accounts affected by either a Regional (ii) Has been issued an annual IFQ GAF—(1) General. An annual Administrator-approved Application for Permit, as defined in § 679.4(d)(1) of conversion factor will be calculated to Transfer Between IFQ and GAF or the this title, for the Commission regulatory convert between net pounds (whole return of unharvested GAF to IFQ on or area corresponding to the person’s QS number, no decimal points) of halibut after 15 calendar days prior to the holding, either Area 2C or Area 3A, IFQ and number(s) of GAF (whole closing of the commercial halibut resulting from that halibut QS; and fishing season for that year will be (iii) Has an IFQ permit holder’s number, no decimal points) for Area 2C adjusted on the date of approval or account with an IFQ amount equal to or and Area 3A. This conversion factor return. Applications for Transfer greater than amount of IFQ to be will be posted on the NMFS Alaska Between IFQ and GAF that are transfers transferred in the Commission Region Web site before the beginning of of GAF to IFQ that have been approved regulatory area, either Area 2C or Area each commercial halibut fishing season. by the Regional Administrator will be 3A, for which the transfer of IFQ to GAF (2) Conversion calculation. The net completed not earlier than September 1. is requested. pounds of IFQ transferred to or from an Any necessary permits will be sent with (2) The person applying to receive or IFQ permit holder in Commission the notification of the Regional transfer GAF possesses a valid charter regulatory area 2C or 3A will be equal Administrator’s decision on the halibut permit, community charter to the number(s) of GAF transferred to Application for Transfer Between IFQ halibut permit, or military charter or from the GAF account of a GAF and GAF. halibut permit in the Commission permit holder in the corresponding area, (ii) Upon approval of an Application regulatory area (Area 2C or Area 3A) multiplied by the estimated average net for Transfer Between IFQ and GAF for that corresponds to the IFQ permit area weight determined as follows. For the an initial transfer from IFQ to GAF, from or to which the IFQ will be first calendar year after the effective NMFS will establish a new GAF account transferred. date of this rule, the average net weight for the GAF applicant’s account and (3) For a transfer of IFQ to GAF: will be estimated for all halibut issue the resulting new GAF and IFQ (i) The transfer between IFQ and GAF harvested by charter vessel anglers permits. If a GAF account already exists must not cause the GAF permit issued during the most recent year without a from a previous transfer from the same to exceed the GAF use limits in size limit in effect. After the first IFQ account in the corresponding paragraphs (c)(5)(iv)(H)(1) and (2) of this calendar year after the effective date of management area in that year, NMFS section; this rule, the average net weight will be will modify the GAF recipient’s GAF (ii) The transfer must not cause the estimated from the average length of account and the IFQ transferor’s permit person applying to transfer IFQ to GAF retained in that area during the account and issue modified GAF and exceed the GAF use limit in paragraph previous year as reported to RAM via IFQ permits upon approval of an (c)(5)(iv)(H)(3) of this section; and the GAF electronic reporting system. If Application for Transfer Between IFQ (iii) There must be no fines, civil no GAF were harvested in a year, the and GAF. penalties, sanctions, or other payments conversion factor will be calculated (iii) On or after 15 calendar days prior due and owing, or outstanding permit using the same method as for the first to the closing of the commercial halibut sanctions, resulting from Federal fishery calendar year after the effective date of fishing season, NMFS will convert violations involving either person or this rule. NMFS will round up to the unharvested GAF from a GAF permit permit. nearest whole number (no decimals) holder’s account back into IFQ (4) If a Community Quota Entity when transferring IFQ to GAF and when equivalent pounds as specified in (CQE), as defined in § 679.2 of this title, transferring GAF to IFQ. Expressed paragraph (c)(5)(ii)(E)(2) of this section, submits a ‘‘Community Quota Entity algebraically, the conversion formula is:

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IFQ net pounds = (number of GAF × (6) No person may alter, erase, retained as GAF, and if the halibut is average net weight). mutilate, or forge a GAF permit or filleted, the entire carcass, with head (3) The total number of net pounds document issued under this section and tail connected as a single piece, converted from unharvested GAF and (§ 300.65(c)(5)(iii)). Any such permit or must be retained on board the vessel transferred to the IFQ permit holder’s document that has been intentionally until all fillets are offloaded. account from which it derived cannot altered, erased, mutilated, or forged is (H) Except as provided in paragraph exceed the total number of net pounds invalid. (c)(5)(iv)(I) of this section, during the NMFS transferred from the IFQ permit (7) GAF permit holders must retain halibut sport fishing season adopted by holder’s account to the GAF permit GAF permit(s) and associated GAF the Commission as annual management holder’s account for that area in the permit logs for two years after the end measures and published in the Federal current year. of the fishing year for which the GAF Register as required in § 300.62, the (iii) Guided Angler Fish (GAF) permit(s) was issued and make the GAF following GAF use and IFQ transfer permit—(A) General. (1) A GAF permit permit available for inspection upon the limits shall apply. GAF use limits do authorizes a charter vessel angler to request of an authorized officer (as not apply to military charter halibut catch and retain GAF in the specified defined in Commission regulations). permits. Commission regulatory area, subject to (B) Issuance. The Regional (1) No more than 400 GAF may be the limits in paragraphs (c)(5)(iv)(A) Administrator will issue a GAF permit assigned to a GAF permit that is through (K) of this section, during a upon approval of an Application to assigned to a charter halibut permit or charter vessel fishing trip authorized by Transfer Between IFQ and GAF. community charter halibut permit the charter halibut permit, community (C) Transfer. GAF authorized by a endorsed for six (6) or fewer charter charter halibut permit, or military GAF permit under this paragraph vessel anglers in a year, charter halibut permit that is designated (§ 300.65(c)(5)(iii)) are not transferable (2) No more than 600 GAF may be on the GAF permit. to another GAF permit, except as assigned to a GAF permit that is (2) A GAF permit authorizes a charter provided under paragraph (c)(5)(ii) of assigned to a charter halibut permit vessel angler to catch and retain GAF in this section. endorsed for more than six (6) charter the specified Commission regulatory (iv) GAF use restrictions. (A) A charter vessel anglers in a year; and (3) In Commission regulatory area 2C, area from the time of permit issuance vessel angler may harvest GAF only on a maximum of 1,500 pounds or ten (10) until any of the following occurs: board a vessel on which the operator percent, whichever is greater, of the (i) The amount of GAF in the GAF has on board a valid GAF permit and start year fishable IFQ pounds for an permit holder’s account is zero; the valid charter halibut permit, IFQ permit, may be transferred from IFQ (ii) The permit expires at 11:59 p.m. community charter halibut permit, or to GAF. In Commission regulatory area (Alaska local time) on the day prior to military charter halibut permit assigned 3A, a maximum of 1,500 pounds or 15 days prior to the end of the to the GAF permit for the area of fifteen (15) percent, whichever is commercial halibut fishing season for harvest. (B) The total number of GAF on board greater, of the start year fishable IFQ that year; a vessel cannot exceed the number of pounds for an IFQ permit, may be (iii) NMFS replaces the GAF permit unharvested GAF in the GAF permit transferred from IFQ to GAF. Start year with a modified GAF permit following holder’s GAF account at the time of fishable pounds is the sum of IFQ NMFS approval of an Application for harvest. equivalent pounds, as defined in § 679.2 Transfer Between IFQ and GAF; or (C) The total number of halibut of this title, for an area, derived from QS (iv) The GAF permit is revoked or retained by a charter vessel angler held, plus or minus adjustments made suspended under 15 CFR part 904. harvesting GAF cannot exceed the sport to that amount pursuant to § 679.40(d) (3) A GAF permit is issued for use in fishing daily bag limit in effect for and (e) of this title. a Commission regulatory area (2C or 3A) unguided sport anglers at the time of (I) The halibut QS equivalent of net to the person who holds a valid charter harvest adopted by the Commission as pounds of halibut IFQ that is transferred halibut permit, community charter annual management measures and to GAF is included in the computation halibut permit, or military charter published in the Federal Register as of halibut QS use caps in halibut permit in the corresponding required in § 300.62. § 679.42(f)(1)(i) and (ii) of this title. Commission regulatory area. (D) Retained GAF are not subject to (J) A CHP holder receiving GAF from Regulations governing issuance, any length limit implemented by the a CQE is subject to § 679.42(f)(6) of this transfer, and use of charter halibut Commission’s annual management title. For a CHP holder who receives permits are located in § 300.67. measures and published in the Federal GAF from a CQE, the net poundage (4) A GAF permit is assigned to only Register as required in § 300.62, if equivalent of all halibut IFQ received as one charter halibut permit, community applicable. GAF is included in the computation of charter halibut permit, or military (E) Each charter vessel angler that person’s IFQ halibut holdings in charter halibut permit held by the GAF retaining GAF must comply with the § 679.42(f)(6) of this title. permit holder in the corresponding halibut possession requirements (K) Applicability of GAF use Commission regulatory area (2C or 3A). adopted by the Commission as annual restrictions to CQEs. The GAF use (5) A legible copy of a GAF permit management measures and published in restrictions in paragraph (c)(5)(iv)(H) of and the assigned charter halibut permit, the Federal Register as required in this section do not apply if: community charter halibut permit, or § 300.62. (1) A CQE transfers IFQ as GAF to a military charter halibut permit (F) The charter vessel guide must GAF permit that is assigned to one or appropriate for the Commission ensure that each charter vessel angler more charter halibut permits held by regulatory area (2C or 3A) must be complies with paragraphs (c)(5)(iv)(A) that CQE or community charter halibut carried on board the vessel used to through (E) of this section. permits held by that CQE; harvest GAF at all times that such fish (G) The charter vessel guide must (2) A CQE transfers IFQ as GAF to are retained on board and must be immediately remove the tips of the another CQE holding one or more presented for inspection on request of upper and lower lobes of the caudal charter halibut permits or community any authorized officer. (tail) fin to mark all halibut caught and charter halibut permits; or

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(3) A CQE transfers IFQ as GAF to a (4) Recordkeeping and reporting the first and last name of each paying or GAF permit that is assigned to a charter requirements in Commission regulatory non-paying charter vessel angler on halibut permit held by an eligible area 2C and 3A—(i) General board that will fish for halibut. For each community resident (as defined at requirements. Each charter vessel angler angler required to be licensed, record § 679.2) of that CQE community, as and charter vessel guide on board a the Alaska Sport Fishing License defined for purposes of the Catch vessel in Commission regulatory area 2C number for the current year, resident Sharing Plan for Commission regulatory or 3A must comply with the following permanent license number, or disabled areas 2C and 3A in § 679.2 of this title, recordkeeping and reporting veteran license number. For youth holding one or more charter halibut requirements, except as specified in anglers not required to be licensed, permits. paragraph (d)(4)(iii)(C) of this section, record the word ‘‘youth’’ in place of the (d) Charter vessels in Commission by the end of the calendar day or by the license number. regulatory area 2C and 3A—(1) General end of the charter vessel fishing trip, (7) Number of halibut retained. For requirements—(i) Logbook submission. whichever comes first, unless otherwise each charter vessel angler, record the For a charter vessel fishing trip during specified: total number of non-GAF halibut caught which halibut were caught and retained (ii) Logbook reporting requirements— and kept. on or after the first Monday in April and (A) Charter vessel angler signature (8) Number of GAF retained. For each on or before December 31, Alaska requirement. Each charter vessel angler charter vessel angler, record the total Department of Fish and Game (ADF&G) who retains halibut caught in number of GAF kept. Saltwater Sport Fishing Charter Trip Commission regulatory area 2C or 3A (9) Guide signature. The charter vessel Logbook data sheets must be submitted must acknowledge that his or her name, guide acknowledges that the recorded to the ADF&G and postmarked or license number (if required), and information is correct by signing the received no later than 14 calendar days number of halibut retained (kept) are logbook data sheet. (10) Angler signature. The charter after the Monday of the fishing week (as recorded correctly by signing the Alaska vessel guide is responsible for ensuring defined in 50 CFR 300.61) in which the Department of Fish and Game Saltwater that charter vessel anglers that retain halibut were caught and retained. Charter Logbook data sheet on the line halibut comply with the signature Logbook sheets for a charter vessel that corresponds to the angler’s requirements at paragraph (d)(4)(ii)(A) fishing trip during which halibut were information. of this section. caught and retained on January 1 (B) Charter vessel guide requirements. (iii) GAF reporting requirements—(A) through the first Sunday in April, must If halibut were caught and retained in General. (1) Upon retention of a GAF be submitted to the ADF&G and Commission regulatory area 2C or 3A, halibut, the charter vessel guide must postmarked or received no later than the the charter vessel guide must record the immediately record on the GAF permit second Monday in April. following information (see paragraphs (d)(4)(ii)(B)(1) through (10) of this log (on the back of the GAF permit) the (ii) The charter vessel guide is date that the fish was caught and responsible for complying with the section) in the Alaska Department of Fish and Game Saltwater Charter retained and the total length of that fish reporting requirements of this paragraph as described in paragraphs (d). The person whose business was Logbook: (1) Guide license number. The Alaska (d)(4)(iii)(D)(5) and (d)(4)(iii)(D)(7) of assigned an Alaska Department of Fish Department of Fish and Game sport this section. and Game Saltwater Sport Fishing fishing guide license number held by (2) In addition to the recordkeeping Charter Trip Logbook is responsible for the charter vessel guide who certified and reporting requirements in ensuring that the charter vessel guide the logbook data sheet. paragraphs (d)(4)(i) and (ii) of this complies with the reporting (2) Date. Month and day for each section, a GAF permit holder must use requirements of this paragraph (d). charter vessel fishing trip taken. A the NMFS-approved electronic reporting (2) Retention and inspection of separate logbook data sheet is required system on the Alaska Region Web site logbook. A person who is required to for each charter vessel fishing trip if two at http://alaskafisheries.noaa.gov/ to provide information pursuant to or more trips were taken on the same submit a GAF landings report. paragraph (d)(4) of this section, or day. A separate logbook data sheet is (3) A GAF permit holder must submit whose business was assigned an Alaska required for each calendar day that a GAF landings report by 11:59 p.m. Department of Fish and Game Saltwater halibut are caught and retained during (Alaska local time) on the last calendar Sport Fishing Charter Trip Logbook and a multi-day trip. A separate logbook day of a fishing trip for each day on whose charter vessel anglers retain sheet is also required if more than one which a charter vessel angler retained halibut is required to: charter halibut permit is used on a trip. GAF authorized by the GAF permit held (i) Retain all logbook data pages (3) Charter halibut permit (CHP) by that permit holder. showing halibut harvest for 2 years after number. The NMFS CHP number(s) (4) If a GAF permit holder is unable the end of the fishing year for which the authorizing charter vessel anglers on to submit a GAF landings report due to logbook was issued, and board the vessel to catch and retain hardware, software, or Internet failure (ii) Make the logbook available for halibut. for a period longer than the required inspection upon the request of an (4) Guided Angler Fish (GAF) permit reporting time, or a correction must be authorized officer (as defined in number. The NMFS GAF permit made to information already submitted, Commission regulations). number(s) authorizing charter vessel the GAF permit holder must contact (3) Charter vessel guide and crew anglers on board the vessel to harvest NOAA Office of Law Enforcement, restriction in Commission regulatory GAF. Juneau, AK, at 800–304–4846 (Select areas 2C and 3A. A charter vessel guide, (5) Statistical area. The primary Option 1). charter vessel operator, or crew member Alaska Department of Fish and Game (B) Electronic Reporting of GAF. A may not catch and retain halibut during statistical area code in which halibut GAF permit holder must obtain, at his a charter vessel fishing trip in were caught and retained. or her own expense, the technology to Commission regulatory area 2C or 3A (6) Angler sport fishing license submit GAF landing reports to the while on a vessel with charter vessel number and printed name. Before a NMFS-approved reporting system for anglers on board. charter vessel fishing trip begins, record GAF landings.

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(C) NMFS-Approved Electronic (E) Properly reported landing. (1) The the vessel is operating when one or Reporting System. The GAF permit GAF permit holder is responsible for more charter vessel anglers are on board holder agrees to the following terms (see ensuring that all GAF harvested on that are catching and retaining halibut. paragraphs (d)(4)(iii)(C)(1) through (3) of board a vessel are debited from the GAF (t) Be an operator of a vessel in this section): permit holder’s account under which Commission regulatory area 2C or 3A (1) To use any NMFS online service the GAF were retained. with more charter vessel anglers on or reporting system only for authorized (2) A GAF landing confirmation board catching and retaining halibut purposes; number issued by the NMFS-approved than the total angler endorsement (2) To safeguard the NMFS Person electronic reporting system and number specified on the charter halibut Identification Number and password to recorded by the GAF permit holder on permit or permits on board the vessel. prevent their use by unauthorized the GAF permit log used to record the (u) Be an operator of a vessel in persons; and dates and lengths of retained GAF, as Commission regulatory area 2C or 3A (3) To accept the responsibility of and required in paragraph (d)(4)(iii)(A)(1) of with more charter vessel anglers on acknowledge compliance with § 300.4(a) this section, constitutes confirmation board catching and retaining halibut and (b), § 300.65(d), and § 300.66(p) and that the GAF permit holder’s GAF than the angler endorsement number (q). landing is properly reported and the specified on the community charter (D) Information entered for each GAF GAF permit holder’s account is properly caught and retained. The GAF permit halibut permit or permits on board the debited. vessel. holder must enter the following (3) Instructions for correcting a information for each charter vessel (v) Be an operator of a vessel on submitted GAF landing electronic report which one or more charter vessel fishing trip in which GAF were retained are at (d)(4)(iii)(A)(4) of this section. under the authorization of the permit anglers on board are catching and holder’s GAF permit into the NMFS- * * * * * retaining halibut in Commission approved electronic reporting system ■ 6. In § 300.66: regulatory areas 2C and 3A during one (see paragraphs (d)(4)(iii)(D)(1) through ■ a. Redesignate paragraphs (i) through charter vessel fishing trip. (9) of this section) by 11:59 p.m. (Alaska (v) as paragraphs (j) through (w), (w) Be an operator of a vessel in local time) on the last day of a charter respectively; Commission regulatory area 2C or 3A fishing trip in which a charter vessel ■ b. Revise paragraph (h) introductory with one or more charter vessel anglers angler retained GAF: text and newly redesignated paragraphs on board that are catching and retaining (1) Logbook number from the Alaska (n), and (s) through (w); and halibut without having on board the Department of Fish and Game Saltwater ■ c. Add paragraph (i) to read as vessel a State of Alaska Department of Sport Fishing Charter Trip Logbook. follows: Fish and Game Saltwater Charter (2) Vessel identification number for Logbook that specifies the following: § 300.66 Prohibitions. vessel on which GAF were caught and (1) The person named on the charter retained: * * * * * halibut permit or permits being used on (i) State of Alaska issued boat (h) Conduct subsistence fishing for board the vessel; halibut while commercial fishing or registration (AK number), or (2) The charter halibut permit or sport fishing, as defined in § 300.61, (ii) U.S. Coast Guard documentation permits number(s) being used on board from the same vessel on the same number. the vessel; and (3) GAF permit number under which calendar day, or possess on board a (3) The name and State issued boat GAF were caught and retained. vessel, halibut harvested while (4) Alaska Department of Fish and subsistence fishing with halibut registration (AK number) or U.S. Coast Game sport fishing guide license harvested while commercial fishing or Guard documentation number of the number held by the charter vessel guide sport fishing, except that persons vessel. who certified the logbook data sheet. authorized to conduct subsistence ■ 7. In § 300.67: (5) Date that GAF was caught and fishing under § 300.65(g), and who land ■ a. Redesignate paragraphs (i)(2)(v) and retained. their total annual harvest of halibut: (i)(2)(vi) as (i)(2)(vi) and (i)(2)(vii), (6) Number of GAF caught and * * * * * respectively; and retained. (i) Conduct commercial and sport ■ b. Add paragraph (i)(2)(v) to read as (7) Length of each GAF caught and fishing for halibut, as defined in follows: retained. Halibut lengths are measured § 300.61, from the same vessel on the in inches in a straight line from the § 300.67 Charter halibut limited access same calendar day. anterior-most tip of the lower jaw with program. the mouth closed to the extreme end of * * * * * * * * * * (n) Exceed any of the harvest or gear the middle of the tail. (i) * * * limitations specified at § 300.65(c)(5) or (8) Community charter halibut permit (2) * * * only: Community or Port where the adopted by the Commission as annual management measures and published in (v) The GAF permit is not assigned to charter vessel fishing trip began (i.e., a charter halibut permit for which the where charter vessel anglers boarded the the Federal Register as required in § 300.62. GAF account contains unharvested vessel). GAF, pursuant to § 300.65 (9) Community charter halibut permit * * * * * (c)(5)(iii)(A)(3) and (4); only: Community or Port where the (s) Be an operator of a vessel in charter vessel fishing trip ended (i.e., Commission regulatory area 2C or 3A * * * * * where charter vessel anglers or fish were without an original valid charter halibut ■ 8. Add Tables 1 through 4 to subpart offloaded from the vessel). permit for the regulatory area in which E of part 300 to read as follows:

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TABLE 1 TO SUBPART E OF PART 300—DETERMINATION OF COMMISSION REGULATORY AREA 2C ANNUAL COMMERCIAL ALLOCATION FROM THE ANNUAL COMBINED CATCH LIMIT FOR HALIBUT

If the area 2C annual combined catch limit (CCL) in net pounds is: then the area 2C annual commercial allocation is:

<5,000,000 lb ...... 81.7% of the Area 2C CCL. ≥5,000,000 and ≤5,755,000 lb ...... the Area 2C CCL minus a fixed 915,000-lb allocation to the charter hal- ibut fishery. >5,755,000 lb ...... 84.1% of the Area 2C CCL.

TABLE 2 TO SUBPART E OF PART 300—DETERMINATION OF COMMISSION REGULATORY AREA 3A ANNUAL COMMERCIAL ALLOCATION FROM THE ANNUAL COMBINED CATCH LIMIT FOR HALIBUT

If the area 3A annual combined catch limit (CCL) in net pounds is: then the area 3A annual commercial allocation is:

<10,000,000 lb ...... 81.1% of the Area 3A CCL. ≥10,000,000 and ≤10,800,000 lb ...... the Area 3A CCL minus a fixed 1,890,000-lb allocation to the charter halibut fishery. >10,800,000 and ≤20,000,000 lb ...... 82.5% of the Area 3A CCL. >20,000,000 and ≤25,000,000 lb ...... the Area 3A CCL minus a fixed 3,500,000-lb allocation to the charter halibut fishery. >25,000,000 lb ...... 86.0% of the Area 3A CCL.

TABLE 3 TO SUBPART E OF PART 300—DETERMINATION OF COMMISSION REGULATORY AREA 2C ANNUAL CHARTER HALIBUT ALLOCATION FROM THE ANNUAL COMBINED CATCH LIMIT

If the area 2C annual combined catch limit for halibut in net pounds is: then the area 2C annual charter allocation is:

<5,000,000 lb ...... 18.3% of the Area 2C CCL. ≥5,000,000 and ≤5,755,000 lb ...... 915,000 lb. >5,755,000 lb ...... 15.9% of the Area 2C CCL.

TABLE 4 TO SUBPART E OF PART 300—DETERMINATION OF COMMISSION REGULATORY AREA 3A ANNUAL CHARTER HALIBUT ALLOCATION FROM THE ANNUAL COMBINED CATCH LIMIT

If the area 3A annual combined catch limit (CCL) for halibut in net pounds is: then the area 3A annual charter allocation is:

<10,000,000 lb ...... 18.9% of the Area 3A annual combined catch limit. ≥10,000,000 and ≤10,800,000 lb ...... 1,890,000 lb. >10,800,000 and ≤20,000,000 lb ...... 17.5% of the Area 3A annual combined catch limit. >20,000,000 and ≤25,000,000 lb ...... 3,500,000 lb. >25,000,000 lb ...... 14.0% of the Area 3A annual combined catch limit.

50 CFR Chapter VI this part for the 12 consecutive months (iii) Begins or ends every charter immediately preceding the time when vessel fishing trip, as defined in PART 679—FISHERIES OF THE the assertion of residence is made, and § 300.61 of this title, authorized by the EXCLUSIVE ECONOMIC ZONE OFF who is not claiming residency in charter halibut permit issued to that ALASKA another community, state, territory, or person, and on which halibut are country, except that residents of the ■ 9. The authority citation for part 679 retained, at a location(s) within the Village of Seldovia shall be considered continues to read as follows: boundaries of the community to be eligible community residents of represented by the CQE from which the Authority: 16 U.S.C. 773 et seq.; 1801 et the City of Seldovia for the purposes of seq.; 3631 et seq.; Pub. L. 108–447. GAF were received. The geographic eligibility to lease IFQ from a CQE; and boundaries of the eligible community ■ (iii) Is an IFQ crew member. 10. In § 679.2, revise the definitions of will be those defined by the United (2) For purposes of the Area 2C and ‘‘Eligible community resident’’, ‘‘IFQ States Census Bureau. equivalent pound(s)’’, ‘‘IFQ fee Area 3A catch sharing plan (CSP) in liability’’, and ‘‘IFQ standard ex-vessel § 300.65(c) of this title, means any * * * * * value’’ to read as follows: individual or non-individual entity IFQ equivalent pound(s) means the who: weight amount, recorded in pounds and § 679.2 Definitions. (i) Holds a charter halibut permit as calculated as round weight for sablefish * * * * * defined in § 300.61 of this title; and headed and gutted weight for Eligible community resident means: (ii) Has been approved by the halibut for an IFQ landing or for (1) For purposes of the IFQ Program, Regional Administrator to receive GAF, estimation of the fee liability of halibut as defined in § 300.61 of this title, from any individual who: landed as guided angler fish (GAF), as (i) Is a citizen of the United States; a CQE in a transfer between IFQ and defined in § 300.61 of this title. Landed (ii) Has maintained a domicile in a GAF pursuant to § 300.65(c)(5)(ii) of this GAF are converted to IFQ equivalent rural community listed in Table 21 to title; and

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pounds as specified in § 300.65(c) of ex-vessel value of landed GAF derived determined by the Regional this title. from his or her IFQ by the appropriate Administrator. IFQ fee liability means that amount of IFQ fee percentage. * * * * * money for IFQ cost recovery, in U.S. * * * * * ■ dollars, owed to NMFS by an IFQ 11. In § 679.4: permit holder as determined by IFQ standard ex-vessel value means ■ a. Add paragraph (a)(1)(xv); and multiplying the appropriate standard the total U.S. dollar amount of IFQ ■ b. Revise paragraph (a)(2) to read as ex-vessel value or, for non-GAF halibut or IFQ sablefish landings as follows: landings, the actual ex-vessel value of calculated by multiplying the number of § 679.4 Permits. his or her IFQ halibut or IFQ sablefish landed IFQ equivalent pounds plus landing(s), by the appropriate IFQ fee landed GAF in IFQ equivalent pounds (a) * * * percentage and the appropriate standard by the appropriate IFQ standard price (1) * * *

Permit is in effect from issue date If program permit type is: through the end of: For more information, see . . .

******* (xv) Guided sport halibut fishery permits:

(A) Charter halibut permit ...... Indefinite ...... § 300.67 of this title. (B) Community charter halibut permit ...... Indefinite ...... § 300.67 of this title. (C) Military charter halibut permit ...... Indefinite ...... § 300.67 of this title. (D) Guided Angler Fish (GAF) permit ...... Until expiration date shown on per- § 300.65 of this title. mit.

(2) Permit and logbook required by Buyer, with all applicable fields Administrator not later than January 31 participant and fishery. For the various accurately filled in, and all required following the calendar year in which types of permits issued, refer to § 679.5 additional documentation is attached. any IFQ landing was made. for recordkeeping and reporting (1) Certification, Electronic submittal. (C) Completed application. NMFS requirements. For subsistence and GAF NMFS ID and password of the IFQ will process an IFQ Permit Holder Fee permits, refer to § 300.65 of this title for Registered Buyer; or Submission Form provided that a paper recordkeeping and reporting (2) Certification, Non-electronic or electronic form is completed by the requirements. submittal. Printed name and signature permit holder, with all applicable fields * * * * * of the individual submitting the IFQ accurately filled in, and all required ■ 12. In § 679.5, revise paragraphs Registered Buyer Ex-vessel Value and additional documentation is attached. (D) IFQ landing summary and (l)(7)(i) and (ii) to read as follows: Volume Report on behalf of the IFQ Registered Buyer, and date of signature. estimated fee liability. NMFS will § 679.5 Recordkeeping and reporting (D) Submission address. The IFQ provide to an IFQ permit holder an IFQ (R&R). Registered Buyer must complete an IFQ Landing and Estimated Fee Liability * * * * * Registered Buyer Ex-vessel Value and page as required by § 679.45(a)(2). The (l) * * * Volume Report and submit by mail to: IFQ permit holder must either accept (7) * * * Administrator, Alaska Region, NMFS, the accuracy of the NMFS estimated fee (i) IFQ Registered Buyer Ex-vessel Attn: RAM Program, P.O. Box 21668, liability associated with his or her IFQ Value and Volume Report—(A) Juneau, AK 99802–1668; by fax to: (907) landings for each IFQ permit, or Requirement. An IFQ Registered Buyer 586–7354; or electronically at http:// calculate a revised IFQ fee liability in that also operates as a shoreside alaskafisheries.noaa.gov. Report forms accordance with paragraph (l)(7)(ii)(E) processor and receives and purchases are available on the NMFS Alaska of this section. The IFQ permit holder IFQ landings of sablefish or halibut Region Web site at http:// may calculate a revised fee liability for must submit annually to NMFS a alaskafisheries.noaa.gov, or by all or part of his or her IFQ landings. complete IFQ Registered Buyer Ex- contacting NMFS at (800) 304–4846, (E) Revised fee liability calculation. vessel Value and Volume Report as Option 2. To calculate a revised fee liability, an described in this paragraph (l) and as (E) Reporting period. The reporting IFQ permit holder must multiply the provided by NMFS for each reporting period of the IFQ Registered Buyer Ex- IFQ percentage in effect by either the period, as described at paragraph vessel Value and Volume Report shall IFQ actual ex-vessel value or the IFQ (1)(7)(i)(E), in which the Registered extend from October 1 through standard ex-vessel of the IFQ landing. If Buyer receives IFQ fish. September 30 of the following year, parts of the landing have different (B) Due date. A complete IFQ inclusive. values, the permit holder must apply Registered Buyer Ex-vessel Value and (ii) IFQ Permit Holder Fee Submission the appropriate values to the different Volume Report must be postmarked or Form—(A) Applicability. An IFQ permit parts of the landings. received by the Regional Administrator holder who holds an IFQ permit against (F) Documentation. If NMFS requests by October 15 following the reporting which a landing was made must submit in writing that a permit holder submit period in which the IFQ Registered to NMFS a complete IFQ Permit Holder documentation establishing the factual Buyer receives the IFQ fish. Fee Submission Form provided by basis for a revised IFQ fee liability, the (C) Completed application. NMFS NMFS. permit holder must submit adequate will process an IFQ Registered Buyer (B) Due date and submittal. A documentation by the 30th day after the Ex-vessel Value and Volume Report complete IFQ Permit Holder Fee date of such request. Examples of such provided that a paper or electronic Submission Form must be postmarked documentation regarding initial sales report is completed by the Registered or received by the Regional transactions of IFQ landings include

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¥ × valid fish tickets, sales receipts, or IFQpa = [(fixed gear TACa CDQ reservea) (A) Each year, the Regional ¥ check stubs that clearly identify the IFQ (QSpa/QS poola)] overage adjustment Administrator will issue each IFQ landing amount, species, date, time, and of IFQpa + underage adjustment of IFQpa. permit holder a summary of his or her ex-vessel value or price. * * * * * IFQ equivalent pounds landed as IFQ ■ (G) Reporting period. The reporting 14. In § 679.41, add paragraph (a)(3) to and GAF as part of the IFQ Landing and period of the IFQ Permit Holder Fee read as follows: Estimated Fee Liability page described Submission Form shall extend from at § 679.5(l)(7)(ii)(D). § 679.41 Transfer of quota shares and IFQ. (B) The summary will include January 1 to December 31 of the year (a) * * * information on IFQ and GAF landings prior to the January 31 due date. (3) Any transaction involving a and an estimated IFQ fee liability using * * * * * transfer between IFQ and guided angler the IFQ standard ex-vessel value for IFQ ■ fish (GAF), as defined in § 300.61 of this and GAF landings. For fee purposes: 13. In § 679.40, revise the introductory title, is governed by regulations in text and paragraph (c)(1) to read as (1) Landings of GAF in IFQ regulatory § 300.65(c) of this title. area 2C or 3A are converted to IFQ follows: * * * * * equivalent pounds and assessed at the § 679.40 Sablefish and halibut QS. ■ 15. In § 679.42 revise paragraphs IFQ regulatory area 2C or 3A IFQ (f)(1)(i), (f)(1)(ii), and (f)(6) to read as standard ex-vessel value. The Regional Administrator shall follows: (2) GAF that is returned to the IFQ annually divide the annual commercial permit holder’s account pursuant to fishing catch limit of halibut as defined § 679.42 Limitations on use of QS and IFQ. § 300.65(c) of this title, and in § 300.61 of this title and published in * * * * * subsequently landed as IFQ during the the Federal Register pursuant to (f) * * * IFQ fishing year, is included in the IFQ § 300.62 of this title, among qualified (1) * * * fee liability and subject to fee halibut quota share holders. The (i) IFQ regulatory Area 2C. 599,799 assessment as IFQ equivalent pounds. Regional Administrator shall annually units of halibut QS, including halibut (C) The IFQ permit holder must either divide the TAC of sablefish that is QS issued as IFQ and transferred to accept NMFS’ estimate of the IFQ fee apportioned to the fixed gear fishery GAF, as defined in § 300.61 of this title. liability or revise NMFS’ estimate of the pursuant to § 679.20, minus the CDQ (ii) IFQ regulatory area 2C, 3A, and IFQ fee liability using the IFQ Permit reserve, among qualified sablefish quota 3B. 1,502,823 units of halibut QS, Holder Fee Submission Form described share holders. including halibut QS issued as IFQ and at § 679.5(l)(7)(ii), except that the * * * * * transferred to GAF, as defined in standard ex-vessel value used to § 300.61 of this title. determine the fee liability for GAF is not (c) Calculation of annual IFQ * * * * * subject to challenge. If the IFQ permit allocation—(1) General. (i) The annual (6) No individual that receives IFQ holder revises NMFS’ estimate of his or allocation of halibut IFQ to any person derived from halibut QS held by a CQE, her IFQ fee liability, NMFS may request (person p) in any IFQ regulatory area including GAF as defined in § 300.61 of in writing that the permit holder submit (area a) will be equal to the product of this title, may hold, individually or documentation establishing the factual the annual commercial catch limit as collectively, more than 50,000 pounds basis for the revised calculation. If the defined in § 300.61 of this title, after (22.7 mt) of IFQ halibut, including IFQ IFQ permit holder fails to provide adjustment for purposes of the Western halibut received as GAF, derived from adequate documentation on or by the Alaska CDQ Program, and that person’s any halibut QS source. 30th day after the date of such request, QS divided by the QS pool for that area. NMFS will determine the IFQ permit Overage adjustments will be subtracted * * * * * ■ holder’s IFQ fee liability based on from a person’s IFQ pursuant to 16. In § 679.45: ■ a. Remove and reserve paragraph (c); standard ex-vessel values. paragraph (d) of this section; underage (ii) Value assigned to GAF. The IFQ adjustments will be added to a person’s and ■ b. Revise paragraphs (a)(1), (a)(2), fee liability is computed from all net IFQ pursuant to paragraph (e) of this (a)(3), (a)(4)(i) through (iii), (b), (d)(2) pounds allocated to the IFQ permit section. Expressed algebraically, the heading, (d)(2)(i)(A) through (C), holder that are landed, including IFQ annual halibut IFQ allocation formula is (d)(2)(ii), (d)(3)(i), (d)(4), (e), and (f) to landed as GAF. as follows: read as follows: (A) NMFS will determine the IFQ IFQpa = [(fixed gear TACa¥ CDQ reservea) × equivalent pounds of GAF landed in § 679.45 IFQ cost recovery program. (QSpa/QS poola)] ¥ overage adjustment IFQ regulatory area 2C or 3A that are of IFQpa + underage adjustment of IFQpa. (a) * * * derived from the IFQ permit holder’s (1) Responsibility. An IFQ permit account. (ii) The annual allocation of sablefish holder is responsible for cost recovery (B) The IFQ equivalent pounds of IFQ to any person (person p) in any IFQ fees for landings of his or her IFQ GAF landed in IFQ regulatory area 2C regulatory area (area a) will be equal to halibut and sablefish, including any or 3A are multiplied by the standard ex- the product of the TAC of sablefish by halibut landed as guided angler fish vessel value computed for that area to fixed gear for that area (after adjustment (GAF), as defined in § 300.61 of this determine the value of IFQ landed as for purposes of the Western Alaska CDQ title, derived from his or her IFQ GAF. Program) and that person’s QS divided accounts. An IFQ permit holder must (iii) The value of IFQ landed as GAF by the QS pool for that area. Overage comply with the requirements of this is added to the value of the IFQ permit adjustments will be subtracted from a section. holder’s landed IFQ, and the sum is person’s IFQ pursuant to paragraph (d) (2) IFQ Fee Liability Determination— multiplied by the annual IFQ fee of this section; underage adjustments (i) General. IFQ fee liability means a percentage to estimate the IFQ permit will be added to a person’s IFQ cost recovery liability based on the holder’s IFQ fee liability. pursuant to paragraph (e) of this section. value of all landed IFQ and GAF (3) Fee collection. An IFQ permit Expressed algebraically, the annual IFQ derived from the permit holder’s IFQ holder with IFQ and/or GAF landings is allocation formula is as follows: permit(s). responsible for collecting his or her own

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fee during the calendar year in which until revised by the Regional which the IFQ and GAF landings are the IFQ fish and/or GAF are landed. Administrator by notification in the made to calculate his or her fee liability (4) * * * Federal Register based upon new for such landed IFQ and GAF. The IFQ (i) Payment due date. An IFQ permit information of the type set forth in this permit holder must use the IFQ fee holder must submit his or her IFQ fee section. IFQ standard prices published percentage in effect at the time an IFQ liability payment(s) to NMFS at the in the Federal Register by NMFS shall retro-payment is received by the IFQ address provided at paragraph (a)(4)(iii) apply to all landings made in the same permit holder to calculate his or her IFQ of this section not later than January 31 calendar year as the IFQ standard price fee liability for the IFQ retro-payment. of the year following the calendar year publication and shall replace any IFQ (e) Non-payment of fee. (1) If an IFQ in which the IFQ and/or GAF landings standard prices previously provided by permit holder does not submit a were made. NMFS that may have been in effect for complete IFQ Permit Holder Fee (ii) Payment recipient. Make payment that same calendar year. Submission Form and corresponding payable to IFQ Fee Coordinator, OMI. (v) Determination. NMFS will apply payment by the due date described in (iii) Payment address. Mail payment the standard price, aggregated IFQ § 679.45(a)(4), the Regional and related documents to: regulatory area 2C or 3A, to GAF Administrator will: Administrator, Alaska Region, NMFS, landings. NMFS will calculate the IFQ (i) Send Initial Administrative Attn: IFQ Fee Coordinator, Office of standard prices to reflect, as closely as Determination (IAD). Send an IAD to the Operations, Management, and possible by month and port or port- IFQ permit holder stating that the IFQ Information, P.O. Box 21668, Juneau, group, the variations in the actual ex- permit holder’s estimated fee liability, AK 99802–1668; submit by fax to (907) vessel values of IFQ halibut and IFQ as calculated by the Regional 586–7354; or submit electronically sablefish landings based on information Administrator and sent to the IFQ through the NMFS Alaska Region Home provided in the IFQ Registered Buyer permit holder pursuant to § 679.45(a)(2), Page at http://alaskafisheries.noaa.gov. Ex-Vessel Value and Volume Report as is the amount of IFQ fee liability due If paying by credit card, ensure that all described in § 679.5(l)(7)(i). The from the IFQ permit holder. An IFQ requested card information is provided. Regional Administrator will base IFQ permit holder who receives an IAD may * * * * * standard prices on the following types appeal the IAD, as described in (b) IFQ ex-vessel value determination of information: paragraph (h) of this section. and use—(1) General. An IFQ permit (A) Landed net pounds by IFQ (ii) Disapprove transfer. Disapprove holder must use either the IFQ actual species, port-group, and month; any transfer of GAF, IFQ, or QS to or ex-vessel value or the IFQ standard ex- (B) Total ex-vessel value by IFQ from the IFQ permit holder in vessel value when determining the IFQ species, port-group, and month; and accordance with § 300.65(c) of this title fee liability based on ex-vessel value, (C) Price adjustments, including IFQ and § 679.41(c), until the IFQ fee except that landed GAF are assessed at retro-payments. liability is reconciled, except that NMFS may return unused GAF to the IFQ the standard values derived by NMFS. * * * * * An IFQ permit holder must base all IFQ (d) * * * permit holder’s account from which it fee liability calculations on the ex-vessel (2) Calculating the fee percentage. was derived on or after the automatic value that correlates to the landed IFQ *** GAF return date. in IFQ equivalent pounds. (i) * * * (2) Upon final agency action (2) IFQ actual ex-vessel value. An IFQ (A) The IFQ and GAF landings to determining that an IFQ permit holder permit holder that uses actual ex-vessel which the IFQ fee will apply; has not paid his or her IFQ fee liability, value, as defined in § 679.2, to (B) The ex-vessel value of that landed as described in paragraph (f) of this determine IFQ fee liability for landed IFQ and GAF; and section, any IFQ fishing permit held by IFQ must document actual ex-vessel (C) The costs directly related to the the IFQ permit holder is not valid until value for each IFQ permit. The actual management and enforcement of the all IFQ fee liabilities are paid. ex-vessel value cannot be used to assign IFQ Program, which include GAF costs. (3) If payment is not received on or value to halibut landed as GAF. (ii) Methodology. NMFS must use the before the 30th day after the final (3) IFQ standard ex-vessel value—(i) following equation to determine the fee agency action, the matter will be Use of standard price. An IFQ permit percentage: referred to the appropriate authorities for purposes of collection. holder that uses standard ex-vessel 100 × (DPC/V) value to determine the IFQ fee liability, (f) Underpayment of IFQ fee. (1) as part of a revised IFQ fee liability Where: When an IFQ permit holder has submission, must use the corresponding ‘‘DPC’’ is the direct program costs for the IFQ incurred a fee liability and made a standard price(s) as published in the fishery for the previous fiscal year, and timely payment to NMFS of an amount Federal Register. ‘‘V’’ is the ex-vessel value determined for IFQ less than the NMFS estimated IFQ fee (ii) All landed GAF must be valued landed as commercial catch or as GAF liability, the Regional Administrator subject to the IFQ fee liability for the will review the IFQ Permit Holder Fee using the standard ex-vessel value for current year. the year and for the IFQ regulatory area Submission Form and related of harvest—Area 2C or Area 3A. (3) * * * documentation submitted by the IFQ (iii) Duty to publish list. Each year the (i) General. During or before the last permit holder. If the Regional Regional Administrator will publish a quarter of each calendar year, NMFS Administrator determines that the IFQ list of IFQ standard prices in the shall publish the IFQ fee percentage in permit holder has not paid a sufficient Federal Register during the last quarter the Federal Register. NMFS shall base amount, the Regional Administrator of the calendar year. The IFQ standard any IFQ fee liability calculations on the will: prices will be described in U.S. dollars factors and methodology in paragraph (i) Disapprove transfer. Disapprove per IFQ equivalent pound, for IFQ (d)(2) of this section. any transfer of GAF, IFQ, or QS to or halibut and sablefish landings made * * * * * from the IFQ permit holder in during the current calendar year. (4) Applicable percentage. The IFQ accordance with § 300.65(c) of this title (iv) Effective duration. The IFQ permit holder must use the IFQ fee and § 679.41(c), until the IFQ fee standard prices will remain in effect percentage in effect for the year in liability is reconciled, except that NMFS

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may return unused GAF to the IFQ meet the IFQ permit holder’s burden of additional sums are due from the IFQ permit holder’s account from which it proving his or her payment is correct, permit holder, the IFQ permit holder was derived 15 days prior to the closing the Regional Administrator will send must pay any IFQ fee amount of the commercial halibut fishing season the permit holder an IAD indicating that determined to be due not later than 30 each year. the permit holder did not meet the days from the issuance of the final (ii) Notify permit holder. Notify the burden of proof to change the IFQ fee agency action. IFQ permit holder by letter that an liability as calculated by the Regional (5) Upon final agency action insufficient amount has been paid and Administrator based upon the IFQ determining that an IFQ permit holder that the IFQ permit holder has 30 days standard ex-vessel value. The IAD will has not paid his or her IFQ fee liability, from the date of the letter to either pay set out the facts and indicate the any IFQ fishing permit held by the IFQ the amount determined to be due or deficiencies in the documentation permit holder is not valid until all IFQ provide additional documentation to submitted by the permit holder. An IFQ fee liabilities are paid. prove that the amount paid was the permit holder who receives an IAD may correct amount. appeal the IAD, as described in (6) If payment is not received on or (2) After the expiration of the 30-day paragraph (h) of this section. before the 30th day after the final period, the Regional Administrator will (3) If the permit holder fails to file an agency action, the matter will be evaluate any additional documentation appeal of the IAD pursuant to § 679.43, referred to the appropriate authorities submitted by an IFQ permit holder in the IAD will become the final agency for purposes of collection. support of his or her payment. If the action. * * * * * Regional Administrator determines that (4) If the IAD is appealed and the final [FR Doc. 2013–29598 Filed 12–9–13; 4:15 pm] the additional documentation does not agency action is a determination that BILLING CODE 3510–22–P

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Reader Aids Federal Register Vol. 78, No. 239 Thursday, December 12, 2013

CUSTOMER SERVICE AND INFORMATION CFR PARTS AFFECTED DURING DECEMBER

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. Presidential Documents 3 CFR 741...... 72537 1090...... 73383 Executive orders and proclamations 741–6000 Proclamations: 1260...... 73407, 73415 The United States Government Manual 741–6000 9062...... 72529 Proposed Rules: 9063...... 72531 Other Services 210...... 74041 9064...... 73077 Electronic and on-line services (voice) 741–6020 9065...... 73375 14 CFR Privacy Act Compilation 741–6064 9066...... 73685 25 ...... 73993, 73995, 75451, Public Laws Update Service (numbers, dates, etc.) 741–6043 9067...... 75205 75453 TTY for the deaf-and-hard-of-hearing 741–6086 9068...... 75207 39 ...... 71989, 71992, 71996, Administrative Orders: 71998, 72550, 72552, 72554, ELECTRONIC RESEARCH Memorandums: 72558, 72561, 72564, 72567, Memorandum of World Wide Web 72568, 72791, 73687, 73689, August 2, 2013...... 72789 73997 Full text of the daily Federal Register, CFR and other publications Memorandum of 71 ...... 72001, 72002, 72003, is located at: www.fdsys.gov. December 5, 2013 ...... 75209 72004, 72005, 72006, 72007, Presidential Federal Register information and research tools, including Public 72008, 72009, 72010, 72011, Determinations: 74004, 74005, 74006, 74007, Inspection List, indexes, and Code of Federal Regulations are No. 2013-12 of August located at: www.ofr.gov. 74008 9, 2013 97...... 75455, 75456 (Correction) ...... 73377 E-mail 460...... 72011 No. 2014–04 of Proposed Rules: FEDREGTOC-L (Federal Register Table of Contents LISTSERV) is December 3, 2013 ...... 75203 an open e-mail service that provides subscribers with a digital 25 ...... 75284, 75285, 75287, form of the Federal Register Table of Contents. The digital form 5 CFR 75511 of the Federal Register Table of Contents includes HTML and 930...... 71987 39 ...... 72598, 72834, 72831, PDF links to the full text of each document. 73457, 73460, 73462, 73739, 7 CFR 73744, 73749, 75289, 75291, To join or leave, go to http://listserv.access.gpo.gov and select 1710...... 73356 75512 Online mailing list archives, FEDREGTOC-L, Join or leave the list 71 ...... 72056, 73465, 73750, (or change settings); then follow the instructions. 1717...... 73356 1721...... 73356 73751, 73752 PENS (Public Law Electronic Notification Service) is an e-mail 1724...... 73356 15 CFR service that notifies subscribers of recently enacted laws. 1730...... 73356 To subscribe, go to http://listserv.gsa.gov/archives/publaws-l.html 1980...... 73928 301...... 72570 and select Join or leave the list (or change settings); then follow 3555...... 73928 303...... 72570 744...... 75458 the instructions. Proposed Rules: 970...... 73111 902...... 75844 FEDREGTOC-L and PENS are mailing lists only. We cannot Proposed Rules: respond to specific inquiries. 9 CFR 922...... 73112, 74046 Reference questions. Send questions and comments about the 92...... 72980, 73993 16 CFR Federal Register system to: [email protected] 93...... 72980, 73993 The Federal Register staff cannot interpret specific documents or 94...... 72980, 73993 1112...... 73415 regulations. 95...... 72980, 73993 1215...... 73692 96...... 72980, 73993 1217...... 73692 Reminders. Effective January 1, 2009, the Reminders, including 98...... 72980, 73993 1219...... 73692 Rules Going Into Effect and Comments Due Next Week, no longer 1225...... 73415 appear in the Reader Aids section of the Federal Register. This Proposed Rules: Proposed Rules: information can be found online at http://www.regulations.gov. 317...... 72597 300...... 72057 CFR Checklist. Effective January 1, 2009, the CFR Checklist no 10 CFR longer appears in the Federal Register. This information can be 40...... 75449 17 CFR found online at http://bookstore.gpo.gov/. 50...... 75449 39...... 72476 52...... 75449 140...... 72476 FEDERAL REGISTER PAGES AND DATE, DECEMBER 70...... 75449 190...... 72476 72...... 73379 Proposed Rules: 71987–72532...... 2 430...... 72533 1...... 75680 72533–72788...... 3 Proposed Rules: 15...... 75680 72789–73078...... 4 72...... 73456 17...... 75680 73079–73376...... 5 430...... 73737 19...... 75680 73377–73686...... 6 431...... 73590 32...... 75680 73687–73992...... 9 37...... 75680 73993–75214...... 10 12 CFR 38...... 75680 75215–75448...... 11 325...... 72534 140...... 75680 75449–75896...... 12 712...... 72537 150...... 75680

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18 CFR 30 CFR 180 ...... 75254, 75257, 75262 Proposed Rules: 2...... 72794 Proposed Rules: 228...... 73097 1...... 73144 35...... 73240 7...... 73471 300...... 73449, 75475 17...... 73144 40...... 72756, 73424 75...... 73471 712...... 72818 73...... 73793, 75306 157...... 72794 716...... 72818 95...... 72851, 73794 380...... 72794 31 CFR 720...... 72818 721...... 72818 1010...... 72813 Proposed Rules: 723...... 72818 48 CFR 40...... 73112 Proposed Rules: 725...... 72818 201...... 73450 210...... 75528 20 CFR 766...... 72818 204...... 73450 790...... 72818 404...... 72571, 73696 32 CFR 212...... 73450 799...... 72818 216...... 73450 158...... 72572 21 CFR Proposed Rules: 225...... 73450 199...... 75245 52 ...... 72608, 73472, 73769, 172...... 73434 211...... 73085 227...... 73450 510...... 73697 74057, 75293 231...... 73451 522...... 73697 33 CFR 62...... 72609, 72611 252...... 73450 81...... 73769 524...... 73697 Proposed Rules: 3...... 73438 194...... 72612 529...... 73697 100...... 72019, 73438 44...... 72620 1308...... 72013 300...... 75534 117 ...... 72020, 72022, 72023, 372...... 73787 46...... 72620 Proposed Rules: 72817 52...... 72620 Ch. I...... 72838, 72840, 72841 165 ...... 72025, 73438, 74009, 41 CFR 211...... 73472 514...... 75515 74010, 75248, 75249 102–117...... 75484 212...... 73472 558...... 75515 Proposed Rules: 300–90...... 73702 225...... 73474 22 CFR 165...... 74048 302–7...... 75483 232...... 73472 303–70...... 73104 235...... 73475 Proposed Rules: 34 CFR 252...... 73475 706...... 72843 42 CFR 707...... 73466 Proposed Rules: Ch. I ...... 72851 405...... 74230 713...... 72850 49 CFR Ch. II ...... 72851 410...... 74230 24 CFR Ch. III ...... 72851 411...... 74684, 75304 Proposed Rules: Ch. IV...... 72851 412...... 74826 592...... 73169 50...... 74009 413...... 72156 55...... 74009 Ch. V...... 72851 Ch. VI ...... 72851, 73143 414...... 72156, 74230 58...... 74009 419...... 74826 50 CFR Ch. II ...... 75238 36 CFR 423...... 74230 13...... 73704 201...... 75215 7...... 72028, 73092 425...... 74230 21...... 72830 203...... 75215 431...... 72256 22...... 73704 Proposed Rules: 1005...... 75215 475...... 74826 7...... 72605 216...... 73010 1007...... 75215 476...... 74826 242...... 73144 217...... 75488 3280...... 73966 486...... 74826 1192...... 74056 218...... 73010 26 CFR 495...... 74826 224...... 73726 1...... 72394, 73079 37 CFR 44 CFR 300...... 75844 622...... 72583 31...... 75471 1...... 75251 64...... 75485 300...... 72016 635...... 72584 38 CFR Proposed Rules: 648...... 72585, 75267 602...... 72394 67...... 75542 Proposed Rules: 3...... 72573 660...... 72586, 75268 1 ...... 72451, 73128, 73471, 17...... 72576 45 CFR 679 ...... 73110, 73454, 75844 73753 59...... 73441 Proposed Rules: Proposed Rules: 144...... 72322 17 ...... 72058, 72622, 73173, 28 CFR 40 CFR 147...... 72322 75306, 75313 571...... 73083 51...... 73698 153...... 72322 92...... 75321 52 ...... 72032, 72033, 72036, 155...... 72322 100...... 73144 29 CFR 72040, 72579, 73442, 73445, 156...... 72322 217...... 73794 4044...... 72018 73698, 74012, 75253 229...... 73477 Proposed Rules: 62...... 72581 47 CFR 635...... 75327 1910...... 73756 81...... 72036, 72040 73...... 73109 679...... 74063, 74079

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in today’s List of Public enacted public laws. To Laws. subscribe, go to http:// LIST OF PUBLIC LAWS Public Laws Electronic listserv.gsa.gov/archives/ Last List December 4, 2013 Notification Service publaws-l.html (PENS) Note: No public bills which Note: This service is strictly have become law were for E-mail notification of new received by the Office of the PENS is a free electronic mail laws. The text of laws is not Federal Register for inclusion notification service of newly available through this service. PENS cannot respond to specific inquiries sent to this address.

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